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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 11-3476656
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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1983 MARCUS AVENUE
LAKE SUCCESS, NEW YORK 11042
(Address of Principal Executive Offices) (Zip Code)
(516) 358-1000
(Telephone Number)
Securities to be registered pursuant to Section 12(b) of the Act: NONE
Securities to be registered pursuant to Section 12(g) of the Act: COMMON STOCK,
$.01 PAR VALUE PER SHARE
Copies of all communications, including all communications sent to the agent for
service, should be sent to:
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Floyd I. Wittlin, Esq. Renee J. Silver, Esq.
Richards & O'Neil, LLP Vice President and General Counsel
885 Third Avenue Tender Loving Care Health Care Services, Inc.
New York, New York 10022 1983 Marcus Avenue
(212) 207-1200 Lake Success, New York 11042
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
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ITEM ITEM CAPTION LOCATION IN INFORMATION STATEMENT
NO. ------------ ---------------------------------
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1. Business................................... "Summary;" "The Distribution;"
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations;" and "Business."
2. Financial Information...................... "Selected Financial Data;" "Risk Factors;"
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations;" and "Financial Statements."
3. Properties................................. "Business."
4. Security Ownership of Certain Beneficial
Owners and Management...................... "Management" and "Securities Ownership of
Certain Beneficial Owners and Management."
5. Directors and Executive Officers........... "Risk Factors;" "Management;" and
"Executive Compensation."
6. Executive Compensation..................... "Management;" and "Executive Compensation."
7. Certain Relationships and Related
Transactions............................... "Certain Transactions;" and "The
Distribution."
8. Legal Proceedings.......................... "Business."
9. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters........................ "Summary;" "Risk Factors;" and "The
Distribution."
10. Recent Sales of Unregistered Securities.... None.
11. Description of Registrant's Securities to
be Registered.............................. "Description of Capital Stock."
12. Indemnification of Directors and
Officers................................... "Limited Liability and Indemnification."
13. Financial Statements and Supplementary
Data....................................... "Summary;" "Selected Financial Data;"
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations;" and "Financial Statements."
14. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure................................. None.
15. Financial Statements and Exhibits.......... "Financial Statements" and Index to
Exhibits.
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[STAFF BUILDERS, INC. LETTERHEAD]
[ ], 1999
Dear Stockholder:
The Board of Directors of Staff Builders, Inc. has approved a plan by which
our home health care business will become a separate independent
company -- Tender Loving Care Health Care Services, Inc. -- while the remainder
of Staff Builders will engage exclusively in supplemental staffing in the health
care industry and providing information technology staffing in the financial,
communications, manufacturing, consulting and other industries. We will
implement our plan through a special dividend of all of the common stock of
Tender Loving Care Health Care Services, Inc. ("TLC") owned by Staff Builders to
holders of Staff Builders Class A and Class B common stock.
The Board of Directors of Staff Builders believes that this spin-off is in
the best interests of Staff Builders and its stockholders. The spin-off will
permit each company to more sharply focus on its own business, customers and
opportunities. Staff Builders will be able to focus on its supplemental staffing
business free from the web of regulation applicable to the home health care
business. TLC will be able to establish a clean identity as a home health care
provider. Financial analysts and institutional investors should be able to
better understand and recognize the merits of the two businesses and this
recognition should enhance the abilities of both companies to raise capital. The
common stock of Staff Builders will continue to be listed on the OTC Bulletin
Board. TLC expects that a market maker will apply to have the shares of TLC
common stock approved for quotation on the OTC Bulletin Board under the symbol
[ ].
If you are a holder of record of Staff Builders Class A or Class B common
stock at the close of business on [ ], 1999 you will receive as a
dividend one share of TLC common stock for every two shares of Staff Builders
Class A or Class B common stock you hold. The spin-off is scheduled to occur on
or about [ ], 1999. We expect to mail the TLC common stock certificates
shortly thereafter. Stockholders of Staff Builders on the record date must
retain their Staff Builders stock certificates which will continue to represent
shares of Staff Builders common stock.
The enclosed Information Statement contains information about the spin-off
and about TLC. We urge you to read it carefully. Holders of Staff Builders Class
A and Class B common stock are not required to take any action to participate in
the spin-off. A stockholder vote is not required in connection with this matter
and, accordingly, your proxy is not being sought.
We are optimistic about the prospects for Staff Builders and TLC and
appreciate your continued support.
Sincerely,
Stephen Savitsky
Chairman of the Board and Chief
Executive Officer
Staff Builders, Inc.
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INFORMATION STATEMENT
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
DISTRIBUTION OF COMMON STOCK
We are furnishing you with this Information Statement ("Information
Statement") in connection with the distribution (the "Distribution") to holders
of record of Class A common stock, par value $.01 per share, and Class B common
stock, $.01 par value per share (collectively "Staff Builders Common Stock"), of
Staff Builders, Inc., a Delaware corporation ("Staff Builders"), on
[ ], 1999 (the "Record Date"), of one share of common stock, par value
$.01 per share ("TLC Common Stock"), of its wholly-owned subsidiary, Tender
Loving Care Health Care Services, Inc., a Delaware corporation ("TLC" or the
"Company"), for every two shares of Staff Builders Common Stock owned on the
Record Date (the "Distribution Ratio"). TLC was recently organized for the
purpose of effecting the Distribution and assuming the operations of the home
health care business of Staff Builders. TLC has no prior operating history as an
independent business. See "Business."
As of the Record Date, there were issued and outstanding [ ]
shares of TLC Common Stock, all of which were held by Staff Builders.
The date of the Distribution (the "Distribution Date") is scheduled to be
on or about [ ], 1999. No consideration will be paid by holders of
Staff Builders Common Stock for shares of TLC Common Stock. See "The
Distribution -- Manner of Effecting the Distribution."
There is no current trading market for the TLC Common Stock. The Company
expects that a market maker will apply to have the shares of TLC Common Stock
approved for quotation on the OTC Bulletin Board under the symbol [ ].
See "The Distribution -- Trading of TLC Common Stock."
In reviewing this Information Statement, you should carefully consider the
matters described under the caption "RISK FACTORS" beginning at page 5.
---------------------
NO STOCKHOLDER APPROVAL OF THE DISTRIBUTION IS REQUIRED OR SOUGHT. WE ARE NOT
ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
---------------------
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 COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT.
---------------------
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. CHANGES MAY OCCUR AFTER THE DATE
OF THIS INFORMATION STATEMENT AND NEITHER THE COMPANY NOR STAFF BUILDERS WILL
UPDATE THE INFORMATION CONTAINED HEREIN EXCEPT IN THE NORMAL COURSE OF THEIR
RESPECTIVE PUBLIC DISCLOSURES.
---------------------
Stockholders of Staff Builders with inquiries related to the Distribution
should contact Dale R. Clift, Executive Vice President, Chief Operating Officer
and Chief Financial Officer of Staff Builders, or Staff Builders' stock transfer
agent, American Stock Transfer & Trust Company, 40 Wall Street, New York, New
York 10005. American Stock Transfer & Trust Company is also acting as
distribution agent for the Distribution.
---------------------
THE DATE OF THIS INFORMATION STATEMENT IS [ ], 1999.
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INFORMATION STATEMENT
TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION....................................... (iii)
SUMMARY..................................................... 1
THE COMPANY................................................. 1
THE DISTRIBUTION............................................ 1
SUMMARY FINANCIAL DATA...................................... 4
FORWARD LOOKING STATEMENTS.................................. 5
RISK FACTORS................................................ 5
THE DISTRIBUTION............................................ 9
SELECTED FINANCIAL DATA..................................... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 18
BUSINESS.................................................... 26
STAFF BUILDERS.............................................. 32
MANAGEMENT.................................................. 33
EXECUTIVE COMPENSATION...................................... 36
CERTAIN TRANSACTIONS........................................ 43
OWNERSHIP OF SECURITIES BY CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND EXECUTIVE OFFICERS.......................... 45
DESCRIPTION OF CAPITAL STOCK................................ 46
LIMITED LIABILITY AND INDEMNIFICATION....................... 49
CONSOLIDATED FINANCIAL STATEMENTS........................... F-1
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS....... F-27
</TABLE>
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AVAILABLE INFORMATION
TLC has filed a Registration Statement on Form 10 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with
respect to the TLC Common Stock. This Information Statement does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information, reference is made hereby to the
Registration Statement and such exhibits and schedules. Statements contained
herein concerning any documents are not necessarily complete and, in each
instance, reference is made to the copies of such documents filed as exhibits to
the Registration Statement. Each such statement is qualified in its entirety by
such reference. Copies of these documents may be inspected without charge at the
principal office of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Regional Offices of the Commission at Seven World Trade
Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and copies of all or any part thereof may
be obtained from the Commission upon payment of the charges prescribed by the
Commission by writing to the Commission, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of this material also should be
available through the Internet by using the SEC EDGAR Archive, the address of
which is http:www.sec.gov.
Following the Distribution, the Company will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. The Company also will be subject to the proxy
solicitation requirements of the Exchange Act and, accordingly, will furnish
annual reports containing audited financial statements to its stockholders in
connection with its annual meetings of stockholders. After the Distribution,
such reports, proxy statement and other information will be available to be
inspected and copied at the public reference facilities of the Commission or
obtained by mail or over the Internet from the Commission, as described above.
NO PERSON IS AUTHORIZED BY STAFF BUILDERS OR THE COMPANY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
INFORMATION STATEMENT. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
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SUMMARY
This Summary highlights selected information from this Information
Statement, but does not contain all details concerning the Distribution,
including information that may be important to you. To better understand the
Distribution and the Company, you should carefully review this entire document.
Unless otherwise indicated, references in this document to "we", "us", "our",
the "Company" or "TLC" means TLC and its subsidiaries. References in this
document to "Staff Builders" mean Staff Builders and its subsidiaries.
THE COMPANY
The Board of Directors and management of Staff Builders have concluded that
it is in the best interest of Staff Builders and its stockholders to focus
exclusively on its supplemental staffing business and to create a separate,
independent company, TLC, to focus solely on the home health care business. TLC
is a leading national provider of home health care services. As of February 28,
1999, the Company had 135 offices located in 27 states and the District of
Columbia, as well as master franchise licenses in Japan, Spain and Brazil. TLC
owns and operates 70 of these offices and 65 of these offices are operated by 36
franchisees.
TLC, a Delaware corporation and a wholly-owned subsidiary of Staff
Builders, was formed in February 1999 to acquire 100% of the outstanding capital
stock of those subsidiaries of Staff Builders which are engaged in the home
health care business. After the Distribution, the Company will operate as an
independent, publicly traded company and will own the home health care business
previously owned by Staff Builders. See "The Distribution" and "Business"
The Company provides a wide range of home health care services. Its
licensed personnel provide skilled nursing services, including cardiac care,
pulmonary management, wound management, maternal health, behavioral health care,
infusion therapy administration, hospice support, and extensive patient and
family education. Additional professional services include physical therapy,
occupational therapy, speech therapy and medical social services. The Company
also provides paraprofessional home health aide services and other unlicensed
personnel services to assist patients with activities of daily living.
For the nine months ended November 30, 1998 and for the fiscal year ended
February 28, 1998, the home health care service revenues of the Company were
approximately $239 million and $452 million, respectively.
The Company's principal office is located at 1983 Marcus Avenue, Lake
Success, New York 11042 and its telephone number is (516) 358-1000.
THE DISTRIBUTION
The following sets forth general questions and answers about the
Distribution. We encourage you to read the entire document.
What is the
Distribution?.............. On the Distribution Date, Staff Builders will
distribute to the stockholders of Staff Builders
approximately [ ] million shares of TLC
Common Stock, based on the approximately
[ ] million shares of Staff Builders
Common Stock outstanding on the Record Date. The
shares of TLC Common Stock to be distributed
constitute all of the TLC Common Stock outstanding
on the Record Date. Immediately after the
Distribution, Staff Builders will own no shares of
TLC Common Stock. See "The Distribution -- Manner
of Effecting the Distribution."
What are the Reasons for
the Distribution?.......... The Board of Directors of Staff Builders believes
that the Distribution is in the best interests of
Staff Builders and Staff Builders' stockholders. In
its view, the Distribution, among other things,
will permit Staff Builders
1
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and TLC to focus their respective managerial and
financial resources on the growth and development
of their core businesses without regard to the
corporate objectives and policies of the other. It
will also create separate and distinct identities
for Staff Builders and TLC. This will allow
financial analysts and institutional investors to
better understand the merits of the two businesses.
It also will enhance the ability of TLC to raise
capital and Staff Builders to raise capital outside
the environment of tighter government regulation of
the home health care industry and reduced
government reimbursement for home health care
services. Further, the Distribution will enable the
Company to establish equity-based incentive
compensation arrangements which will more
effectively attract, retain and motivate employees
by offering benefits that are more directly
associated with the employees' efforts to improve
the long-term performance of the Company. See "The
Distribution -- Background of the Distribution."
What do I have to do to
Participate in the
Distribution?............ You will not be required to make any payment or to
take any other action to receive TLC Common Stock.
On or shortly after the Distribution Date, the
Distribution Agent will begin distributing stock
certificates representing TLC Common Stock to the
stockholders of Staff Builders. See "The
Distribution -- Manner of Effecting the
Distribution."
What is the Distribution
Ratio?................... We will distribute one share of TLC Common Stock to
you in the Distribution for every two shares of
Staff Builders Common Stock you own. See "The
Distribution -- Manner of Effecting the
Distribution."
Will Fractional Shares be
Issued?.................. No certificates representing fractional shares of
TLC Common Stock will be issued. If you are
entitled to receive less than a full share of TLC
Common Stock, you will receive cash in lieu of such
fractional share. See "The Distribution -- Manner
of Effecting the Distribution."
Will there be any other
Shares of TLC Common Stock
issued in connection with
the Distribution?........ No. However, the Company has reserved a total of
2,750,000 shares of TLC Common Stock for issuance
under its stock option plan. On the Distribution
Date, the Company will grant options under this
plan to purchase 2,029,000 shares of TLC Common
Stock to certain employees of Staff Builders who
will become employees of the Company after the
Distribution. The exercise price for these options
will be the average of the closing bid and asked
price of the TLC Common Stock on the Distribution
Date.
How do I know if I am
Eligible to Participate in
the Distribution?........ If you were a Staff Builders' stockholder of record
on [ ], 1999, the Record Date, you will be
eligible to participate in the Distribution.
When will the TLC Common
Stock Certificates be
Issued?.................. The stock certificates representing your shares of
TLC Common Stock will be sent to you on or about
[ ], 1999, the Distribution Date.
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Who will Distribute the
Stock Certificates
Representing the TLC
Common Stock?............ The Company's Distribution Agent is American Stock
Transfer & Trust Company. It will distribute the
certificates representing the TLC Common Stock.
Where will the TLC Common
Stock be Quoted?......... We expect that a market marker will apply to have
the TLC Common Stock approved for quotation on the
OTC Bulletin Board under the symbol [ ].
There is no current public trading market for TLC
Common Stock. See "The Distribution -- Trading of
TLC Common Stock."
What are my Tax
Consequences in Obtaining
Shares of TLC Common
Stock in the
Distribution?............ Staff Builders has not requested nor does it intend
to request a ruling from the Internal Revenue
Service as to the federal income tax consequences
of the Distribution. However, Staff Builders has
received an opinion of counsel to the effect that
there appears to be substantial authority for
viewing the transaction as a "tax free" spin-off
under Sections 355 and 368(a)(l)(D)of the Internal
Revenue Code of 1986, as amended, and that your
receipt of shares of TLC Common Stock will not
result in the recognition of income, gain or loss
to you for federal income tax purposes. Any cash
payment received by you (in lieu of fractional
shares) will not be tax-free to you. See "The
Distribution -- Federal Income Tax Consequences of
the Distribution."
What will be the
Relationship Between Staff
Builders and TLC after
the Distribution?........ As a result of the Distribution, the Company will
cease to be a subsidiary of or otherwise affiliated
with Staff Builders and will thereafter operate as
an independent, publicly held company. Four
directors of the Company will also remain directors
of Staff Builders after the Distribution and one
executive officer of the Company will remain an
executive officer of Staff Builders after the
Distribution. In connection with the Distribution,
Staff Builders and the Company have entered into or
will enter into certain agreements to ensure a
smooth transition. See "The Distribution --
Arrangements Between Staff Builders and TLC
Relating to the Distribution."
Will TLC pay Dividends on
its TLC Common Stock?...... The Company currently does not intend to pay cash
dividends on the TLC Common Stock and is restricted
from doing so by its line of credit with its bank.
Are there any Risks to
Owning TLC Common Stock?... The shares of TLC Common Stock to be issued in the
Distribution involve a high degree of risk. You
should carefully consider the matters discussed
under the section entitled "Risk Factors."
3
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables set forth a summary of historical financial data of
Staff Builders and pro forma financial data of the Company that reflect the
Distribution. Since after the Distribution TLC will own a majority of the
operations, employees and assets of the historical business of Staff Builders,
the Distribution will be treated as a "reverse spin-off" for financial reporting
purposes under U.S. Generally Accepted Accounting Principles ("GAAP"). The pro
forma information, which follows the historical data, may not necessarily be
indicative of the results of operations or financial position that would have
been obtained if TLC had been a separate, independent company during the periods
shown or of TLC's future performance as an independent company. The historical
summary financial data for the three years ended February 28, 1998 have been
derived from the consolidated financial statements included in this Information
Statement. The historical financial statements for the two years ended February
28, 1995 have been derived from audited consolidated financial statements not
included separately herein. The interim financial statements for the nine months
ended November 30, 1998 and 1997 have been derived from the unaudited
consolidated financial statements included in this Information Statement and
include, in the opinion of management, all necessary adjustments for the fair
presentation of such information. Interim results may not necessarily be
indicative of results of operations or financial position for a full year. See
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Consolidated Financial Statements
beginning at page F-1 and the Unaudited Pro Forma Consolidated Financial
Statements beginning at page F-27.
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NINE MONTHS ENDED YEARS ENDED FEBRUARY 28/29,
--------------------------- ----------------------------------------------------
NOVEMBER 30, NOVEMBER 30,
1998 1997 1998 1997 1996 1995 1994
------------ ------------ -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
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STAFF BUILDERS CONSOLIDATED
HISTORICAL OPERATIONS DATA
Revenues............................. $307,408 $393,380 $519,704 $480,355 $410,160 $325,311 $246,082
Net income (loss).................... (45,334) 2,813 (21,632) 3,761 2,014 4,735 3,364
Income (loss) per common share
Basic.............................. $ (1.97) $ 0.12 $ (0.90) $ 0.16 $ 0.09 $ 0.21 $ 0.24
Diluted............................ $ (1.97) $ 0.12 $ (0.90) $ 0.15 $ 0.08 $ 0.20 $ 0.23
STAFF BUILDERS CONSOLIDATED
HISTORICAL BALANCE SHEET DATA
Total assets......................... $124,253 $150,401 $156,172 $120,527 $103,486 $ 87,310
Working capital (deficiency)......... (53,046) 14,312 27,245 12,007 22,038 26,855
Current portion of long-term debt.... 38,146 8,596 5,071 1,655 1,208 827
Long-term debt and other
liabilities........................ 23,060 40,293 37,998 9,611 9,186 14,021
Total liabilities.................... 135,713 112,032 96,706 65,217 51,135 48,035
Stockholders equity (deficiency in
assets)............................ (11,460) 38,369 59,466 55,310 52,351 40,976
</TABLE>
Certain prior period amounts have been reclassified to conform with the nine
months ended November 30, 1998 presentation.
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NINE MONTHS ENDED YEAR ENDED
NOVEMBER 30, 1998 FEBRUARY 28, 1998
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TLC CONSOLIDATED PRO FORMA OPERATIONS DATA (UNAUDITED)
Revenues.................................................... $239,001 $452,217
Net (Loss).................................................. (46,087) (20,170)
(Loss) per common share
Basic..................................................... $ (4.00) $ (1.69)
Diluted................................................... $ (4.00) $ (1.69)
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NINE MONTHS ENDED
NOVEMBER 30, 1998
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TLC CONSOLIDATED PRO FORMA BALANCE SHEET DATA (UNAUDITED)
Total assets................................................ $ 69,458
Working capital (deficiency)................................ (50,031)
Current portion of long-term debt........................... 14,815
Long-term debt and other liabilities........................ 23,036
Total liabilities........................................... 105,182
Stockholders equity (deficiency in assets).................. (35,724)
</TABLE>
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FORWARD LOOKING STATEMENTS
Certain statements in this Information Statement constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are typically identified by the
inclusion of phrases such as "the Company anticipates," "the Company believes"
and other phrases of similar meaning. These forward looking statements are based
on our current expectations. Such forward-looking statements involve known and
unknown risks, uncertainties, and other factors that may cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. The potential risks and uncertainties which could
cause actual results to differ materially from our expectations include: the
impact of further changes in the Medicare reimbursement system, including any
changes to the current interim payment system and/or the ultimate implementation
of a prospective payment system; government regulation; health care reform;
pricing pressures from third-party payors, including managed care organizations;
retroactive Medicare audit adjustments; and changes in laws and interpretations
of laws or regulations relating to the health care industry.
RISK FACTORS
1. Recent Losses; Accumulated Deficit. Staff Builders had net losses of
$21,632,000 and $45,334,000 for the fiscal year ended February 28, 1998 and for
the nine months ended November 30, 1998, respectively. Staff Builders had a
deficiency in assets of $11,460,000 at November 30, 1998. On a pro forma basis
to reflect the Distribution, the net losses of the Company were $20,170,000 and
$46,087,000 for the fiscal year ended February 28, 1998 and for the nine months
ended November 30, 1998, respectively. The deficiency in assets of the Company
was $35,724,000 at November 30, 1998 on this pro forma basis. Our recent losses
resulted primarily from Medicare and Medicaid audit adjustments and reserves for
ongoing audits for prior years which may result in future repayment obligations
and for liabilities to government agencies due to changes in the Medicare
reimbursement system. Our return to profitability depends on our ability to
deliver services efficiently in a much more restrictive regulatory and
reimbursement environment. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
2. Liquidity; Working Capital Deficiency. Staff Builders had a working
capital deficiency of $53,046,000 as of November 30, 1998. On a pro forma basis
to reflect the Distribution, the working capital deficiency of the Company was
$50,031,000 as of November 30, 1998. Also, in January 1999, our bank notified us
that, in its opinion, our non-compliance with certain financial covenants
constituted an event of default under our credit facility. Since then, we have
negotiated deferred payment terms for certain of our Medicare and Medicaid audit
liabilities and have made or are in the process of making arrangements with many
of our other creditors to either reduce our liability to them, defer or extend
payment of the liability or a combination of all. We cannot assure you that any
or enough such arrangements can be worked out. In such event, or if our revenues
do not meet expectations or our costs escalate, we may be unable to pay our
debts as they become due. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
3. New Credit Facility. The Distribution is prohibited under the terms of
Staff Builders' existing credit facility with its bank. Staff Builders, the
Company and the bank are currently negotiating a new credit facility. The bank
has advised us that it is willing to consider, among other things, separate
advances to the home health care business and the supplemental staffing business
on a day to day basis, with the supplemental staffing and home health care
subsidiaries being subject to maximum revolving credit limits of approximately
$15,500,000 and $16,100,000, respectively. The aggregate limitation on
borrowings remains at $40,000,000. The bank's consent is required to proceed
with the Distribution and we cannot assure you that the terms of any new
facility will permit the Distribution or that a new facility on the above terms
or any terms will be available. Further, if the borrowing limits under the terms
of the new facility are too restrictive and our revenues do not meet our
expectations or our costs escalate, we may be unable to pay our debts as they
become due. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
5
<PAGE> 12
4. Government Regulation of Home Health Care. As a home health care
provider, we are subject to extensive and changing state and Federal regulations
relating to the licensing and certification of our offices and the sale and
delivery of our products and services. The Federal government and Medicare
fiscal intermediaries have become more vigilant in their review of Medicare
reimbursements to home health care providers generally, and are becoming more
restrictive in their interpretation of those costs for which reimbursement will
be allowed to such providers. The Balanced Budget Act of 1997 ("BBA"), resulted
in significant changes to cost based reimbursement for Medicare home health care
providers. Although a cost based reimbursement system remains, the BBA reduced
the cost limits and created new per-beneficiary limits for home health care
providers. We cannot quantify the full effect of the BBA on our future
performance because certain components of health care reform legislation, such
as the per-beneficiary limit, require annual data which will not be known until
a final assessment by Medicare and/or its fiscal intermediary is completed for
each annual period. See "Business -- Reimbursement."
As Congress and state reimbursement entities assess alternative health care
delivery systems and payment methodologies, we cannot predict which additional
reforms may be adopted or what impact they may have on the Company.
Additionally, uncertainties relating to the nature and outcomes of health care
reforms have also generated numerous realignments, combinations and
consolidations in the health care industry which may also have an adverse impact
on our business strategy and results of operations. See "Business -- Government
Regulation" and "Business -- Reimbursement."
5. Third-Party Reimbursement and Managed Care. Because the Company is
reimbursed for its services primarily by the Medicare/Medicaid programs,
insurance companies, managed care companies and other third-party payors, the
implementation of alternative payment methodologies by any of these payors could
have an adverse impact on revenues and profit margins. Generally, managed care
companies have sought to contain costs by reducing payments to providers.
Continued cost reduction efforts by managed care companies could adversely
affect our results of operations. See "Business -- Reimbursement."
6. Tax Treatment of the Distribution. Staff Builders has not obtained and
does not intend to obtain a tax ruling from the Internal Revenue Service (the
"IRS") concerning the United States Federal income tax consequences of the
Distribution. However, Staff Builders has received an opinion of counsel to the
effect that there appears to be substantial authority for viewing the
Distribution as a tax-free transaction to Staff Builders' stockholders and to
Staff Builders. Accordingly, there can be no assurance that the IRS will treat
the Distribution as tax-free. The IRS might assert that the Distribution was
taxable, in which case both Staff Builders and its stockholders could be subject
to tax on the Distribution, which tax could be material. Staff Builders and TLC
will enter into a tax allocation agreement which will provide that if Staff
Builders is subject to any tax attributable to the Distribution, Staff Builders
will be responsible for such tax. Any such obligation of Staff Builders would
have a material adverse effect on Staff Builders. See "The Distribution --
Arrangements Between Staff Builders and TLC Relating to the Distribution" and
"The Distribution -- Certain Federal Income Tax Consequences."
7. Market Uncertainties with Respect to TLC Common Stock. There is no
existing market for TLC Common Stock. Although a market maker is likely to cause
the TLC Common Stock to be authorized for quotation on the OTC Bulletin Board,
we cannot assure you that the application for quotation will be approved. We
cannot predict, estimate or give assurances about the trading prices for TLC
Common Stock after the Distribution Date. Until the TLC Common Stock is fully
distributed and an orderly market develops, the trading prices for TLC Common
Stock may fluctuate significantly. Prices for the TLC Common Stock will be
determined in the trading markets and may be influenced by many factors,
including the depth and liquidity of the market for TLC Common Stock, investor
perceptions of TLC and its business, changes in interest rates, TLC's results,
TLC's dividend policy, and general economic and market conditions. TLC Common
Stock distributed to Staff Builders stockholders in the Distribution generally
will be freely transferable under the Securities Act of 1933, as amended (the
"Securities Act"), and the sale of a substantial number of shares of TLC Common
Stock after the Distribution could adversely affect the market price of the TLC
Common Stock. See "The Distribution -- Trading of TLC Common Stock."
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8. Litigation. The Company is a defendant in an action by the United States
government alleging submission of false claims and false statements to Medicare,
an action commenced by a principal of a home health agency purchased by the
Company alleging false claims to Medicare (in which the Federal government
elected not to intervene), and two lawsuits by former franchisees whose
franchise agreements were terminated by the Company. In the opinion of
management, the outcome of these actions will not have a material adverse effect
on the Company's consolidated financial position or results of operations.
However, unfavorable resolutions of these actions could have an adverse impact
on liquidity.
The Company is also a defendant in several civil actions which are
incidental to its business. Some of these proceedings seek the recovery of
damages in substantial or unspecified amounts. The Company is contesting the
allegations of the complaints in these matters. Although it is impossible to
predict the outcome of these suits, the Company believes they will not have a
material adverse effect on its consolidated financial condition. However, a
partially or completely uninsured claim, if successfully asserted, and of
sufficient magnitude, could have a material adverse effect on the Company and
its financial condition. Moreover, regardless of the ultimate outcome of
litigation, the costs and disruption to business operations (including those
resulting from impositions on management time) caused by litigation could have a
negative impact on the Company's business. See "Business -- Legal Proceedings."
9. Competition. Although there are national home health care companies, the
health care personnel market is highly fragmented and competitors are often
localized in particular geographical markets. The Company expects that it will
continue to compete with the national providers as well as regional and local
health care service providers. Some of the entities with which we compete have
substantially greater financial and other resources. In addition, our operations
depend, to a significant degree, on our ability to recruit qualified health care
personnel and we face competition from other companies in recruiting qualified
health care personnel. There can be no assurance that qualified personnel will
be available to us in the future. Our failure to recruit qualified personnel
could have a material adverse effect on our operations. See "Business --
Recruiting and Training" and "Business -- Competition."
10. Attraction and Retention of Franchisees and Employees. Maintaining
quality franchisees, managers and branch administrators will play a significant
part in the future success of the Company. Our professional nurses and other
health care personnel are also key to the continued provision of quality care to
our patients. The possible inability to attract and retain qualified
franchisees, skilled management and sufficient numbers of credentialed health
care professionals and para-professionals could adversely affect our operations
and quality of service. See "Business -- Recruiting and Training."
11. Liability for Services; Insurance. The Company's employees make
decisions which can have significant medical consequences to the patients in
their care. As a result, we are exposed to substantial liability in the event of
negligence or wrongful acts of our personnel. The Company expects to be able to
maintain medical professional and general liability insurance providing for
coverage in a maximum amount of $26 million per claim, subject to a limitation
of $26 million for all claims in any single year. There can be no assurance,
however, that we will be able to maintain our existing insurance at an
acceptable cost or obtain additional insurance in the future as required.
Although, to date, we have not incurred any significant liability relating to
our services, there can be no assurance that our insurance will be sufficient to
cover liabilities that we may incur in the future. See "Business -- Insurance."
12. Franchise Regulation. We are subject to Federal and state laws, rules
and regulations governing the offer and sale of franchises. We are subject to a
number of state laws that regulate certain substantive aspects of the
franchisor-franchisee relationship. Although we are currently not offering any
franchises, if we offer franchises again in the future, and if we fail to comply
with the franchise laws, rules and regulations of a particular state relating to
offers and sales of franchises, we will be unable to engage in offering or
selling franchises in or from such state. The Company will be required to update
its offering disclosure document to reflect the occurrence of recent, as well as
subsequent, material events. The occurrence of any such events may from time to
time require us to stop offering and selling franchises until the document is so
updated. There can be no assurance that we will be registered in certain states,
that we will be permitted to offer and sell franchises
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or that we will be able to comply with existing or future franchise regulations
in any particular state. See "Business -- Franchise Program" and
"Business -- Government Regulation."
13. Holding Company Structure; No Dividends on Common Stock. TLC is a
recently formed holding company that conducts no operations of its own. After
the Distribution, the assets of TLC will consist exclusively of its equity
interest in its home health care subsidiaries. TLC will rely on cash dividends
and other permitted payments from the home health care subsidiaries to pay cash
dividends, if any, to the holders of TLC Common Stock. However, we do not expect
to declare or pay any dividends on TLC Common Stock in the foreseeable future.
The Company is restricted from paying dividends under the terms of its credit
facility. We intend to retain all earnings, if any, for use in our business
operations.
14. Service Marks. The Company believes that its service marks have
significant value and are important to the marketing of its services. We cannot
be sure, however, that the Company's marks do not or will not violate the
proprietary rights of others, that our marks would be upheld if challenged or
that we would not be prevented from using our marks. In addition, we cannot be
sure that we will have the financial resources necessary to enforce or defend
our service marks. See "Business -- Service Marks" and "The Distribution --
Arrangements Between Staff Builders and TLC Relating to the
Distribution -- Trademark License Agreement."
15. Dilutive Effect of Options. The Company has reserved a total of
2,750,000 shares of TLC Common Stock for issuance under its stock option plan.
In connection with the Distribution, certain employees of the Company who were
previously employed by Staff Builders will receive options under this plan to
purchase 2,029,000 shares of TLC Common Stock. To the extent any such options
are exercised, the ownership interests of the Company's stockholders will be
diluted. Moreover, the terms upon which the Company may be able to obtain
additional equity capital may be adversely affected because the holders of
options can be expected to exercise them at a time when the Company would, in
all likelihood, be able to obtain any needed capital on terms more favorable to
the Company than those provided by the terms of such options. See "Executive
Compensation -- 1999 TLC Stock Option Plan" and "The Distribution -- Treatment
of Employee Options in the Distribution."
16. Anti-Takeover Provisions. The certificate of incorporation and by-laws
of the Company contain various provisions which may discourage future takeover
attempts which the Company's stockholders would support and may perpetuate the
Company's existing management. Among other things, such provisions: (i) provide
the Board of Directors with broad discretion to issue preferred stock; (ii)
provide for three year terms for the directors of the Company and the election
of such directors on a staggered basis; (iii) prohibit certain business
combinations without the affirmative vote of the holders of at least 80% of the
then outstanding shares of TLC Common Stock and at least 66% of each series of
preferred stock then outstanding; and (iv) require the approval of 80% of all
shares eligible to vote for any proposed amendment to the Company's certificate
of incorporation or by-laws that seeks to modify or remove the foregoing
provisions. In addition, in certain circumstances, Delaware law requires the
approval of two-thirds of all shares eligible to vote for certain business
combinations involving a stockholder owning 15% or more of the Company's voting
securities, excluding the voting power held by such stockholder. In addition to
the potential impact on future takeover attempts and the possible perpetuation
of management, the existence of all of the above provisions could have an
adverse effect on the market price of TLC Common Stock. See "Management" and
"Description of Capital Stock."
17. Control by Management. Upon the consummation of the Distribution,
Stephen Savitsky and David Savitsky will own, or have the right to vote,
approximately 22% of the outstanding shares of TLC Common Stock. Due to their
stockholdings, Stephen Savitsky being an executive officer and director of the
Company and David Savitsky being a director of the Company, may have the ability
to elect the entire Board of Directors, dissolve, merge or sell the assets of
the Company and, generally, direct the affairs of the Company. See "Ownership of
Securities by Certain Beneficial Owners, Directors and Executive Officers" and
"Description of Capital Stock."
18. Dependence Upon Key Management Personnel. The success of the Company is
largely dependent on the personal efforts of Stephen Savitsky and Dale Clift and
other key personnel of the Company. Although the
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<PAGE> 15
Company has entered into five-year employment agreements with Stephen Savitsky
and Dale Clift, the loss of the services of either of them or of certain other
key employees would have a material adverse effect on the Company's business and
prospects. The loss of the services of Stephen Savitsky or David Savitsky would
constitute an event of default under the current credit facility. See
"Management."
19. Year 2000 Compliance. Many existing computer systems and applications,
and other control devices, use only two digits to identify a year in the date
field, without considering the impact of the upcoming change in the century. As
a result, such systems and applications could fail or create erroneous results
unless corrected so that they can process data related to the Year 2000. The
Company relies on its systems, applications and devices in operating and
monitoring all major aspects of its business, including financial systems (such
as general ledger, accounts payable and payroll modules), customer services,
networks and telecommunications equipment and products. We also rely, directly
and indirectly, on external systems of business enterprises such as customers,
suppliers, creditors, financial organizations, and of governmental entities,
both domestic and international, for accurate exchange of data. Even if the
internal systems of the Company are not materially affected by the Year 2000
issue, we could be affected by disruptions in the operation of the enterprises
with which we interact or Year 2000 disruptions that affect our customers.
Despite our efforts to address the Year 2000 impact on our internal systems and
business operations, we cannot assure you that such impact will not result in a
material disruption of our business or have a material adverse effect on our
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000."
THE DISTRIBUTION
BACKGROUND OF THE DISTRIBUTION
The home health care business of Staff Builders is subject to extensive
Federal and state regulation and is heavily dependent upon reimbursement from
government agencies under the Medicare and Medicaid programs. Reductions in the
limits for the amount of costs that Medicare will reimburse providers, coupled
with more vigilant review of Medicare reimbursement of home health care
providers by the Federal government and Medicare fiscal intermediaries, has
placed great pressures on the operations of all home health care agencies,
including the Company's. In addition, a spate of high profile government
investigations focusing on fraud and abuse in the home health care industry, and
the increase in bankruptcy filings by home health care providers, have reduced
financial analysts' expectations for the home health care industry and
discouraged lenders from lending and other market participants from investing in
home health care companies.
In deciding how to address the negative effect of these factors on the
value of Staff Builders Common Stock, in February 1999, the management of Staff
Builders concluded that Staff Builders should separate its home health care
business from its supplemental staffing business. On February 22, 1999,
management recommended to the Board of Directors that the home health care
business and the supplemental staffing business be separated by means of a
spin-off. On such date, the Board of Directors authorized management to proceed
with its investigation of the separation of its business units and continue
discussions with Staff Builders' bank with respect to its willingness to provide
credit facilities to both businesses and the terms of such financing. On March
22, 1999, the Board of Directors of Staff Builders concluded that it is in the
best interest of Staff Builders and its stockholders to focus exclusively on its
supplemental staffing business and to create a separate, independent company to
focus solely on providing home health care services. To accomplish this
separation of its businesses, the Board of Directors decided to establish TLC
and cause TLC to acquire 100% of the outstanding capital stock of the Staff
Builders subsidiaries engaged in the home health care business.
The decision of the Board of Directors to separate the home health care
business from the supplemental staffing business was made for several reasons.
Staff Builders and the Company believe that the Distribution will enable the
management of each company to focus its managerial and financial resources on
the growth and development of its core business operations without regard to the
corporate objectives, policies and
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investment standards of the other, and to develop appropriate operational,
marketing and financial strategies. Furthermore, each company's management will
have greater flexibility to respond more quickly to the competitive environment
of its own industry.
The Boards of Directors of both companies also believe that if their two
businesses are operated as separate public companies, financial market
participants will recognize the separate performance of the unregulated
supplemental staffing business and those sources of capital that are reluctant
to provide financing to home health care companies in the current environment
will be more likely to provide the financing necessary to expand the
supplemental staffing business. The supplemental staffing business and the home
health care business are currently operated as distinct, separate businesses.
They have separate offices, separate computer systems, separate marketing
programs and separate back office personnel. However, because of the domination
of the home health care sector of Staff Builders' business (during the nine
months ended November 30, 1998, over approximately 78% of the revenues of Staff
Builders was attributable to its home health care operations), it has been
difficult for the supplemental staffing business of Staff Builders to establish
a separate identity.
In addition, by separating the home health care business into an
independent publicly traded company, the Company will be able to establish
incentive compensation arrangements which will enable the Company to more
effectively attract, retain and motivate employees by offering benefits which
are more directly associated with the employees' efforts to improve the
performance of the Company. See "Executive Compensation -- 1999 TLC Stock Option
Plan."
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution will be set
forth in the Distribution Agreement, the Tax Allocation Agreement, the Sublease,
the Trademark License Agreement, the Transitional Services Agreement, and the
Employee Benefits Agreement. See "The Distribution -- Arrangements between Staff
Builders and TLC Relating to the Distribution."
Staff Builders will effect the Distribution on the Distribution Date by
providing for the delivery of the TLC Common Stock held by Staff Builders to the
Distribution Agent for distribution to the owners of record of Staff Builders
Common Stock on the Record Date. The Distribution will be made on the basis of
one share of TLC Common Stock for every two shares of Staff Builders Common
Stock outstanding on the Record Date. The actual number of shares of TLC Common
Stock will depend on the number of shares of Staff Builders Common Stock
outstanding on the Record Date. Based upon the approximately 23,619,388 shares
of Staff Builders Common Stock outstanding on April 5, 1999, the Company
estimates that 11,809,694 shares of TLC Common Stock will be distributed to
holders of Staff Builders Common Stock. The shares of TLC Common Stock will be
fully paid and nonassessable, and the owners thereof will not be entitled to
preemptive rights. See "Description of Capital Stock." Stock certificates
representing TLC Common Stock will be mailed to Staff Builders' stockholders by
the Distribution Agent on the Distribution Date or as soon thereafter as
practicable.
No certificates or scrip representing fractional shares of TLC Common Stock
will be issued to Staff Builders' stockholders as part of the Distribution. The
Distribution Agent will aggregate fractional shares into whole shares and sell
them in the open market at then prevailing prices on behalf of stockholders who
otherwise would be entitled to receive fractional shares, and such stockholders
will receive instead a cash payment in the amount of their pro rata share of the
total proceeds, net of selling expenses. See "The Distribution -- Federal Income
Tax Consequences of the Distribution." Such sales are expected to be made as
soon as practicable after the Record Date.
After the Distribution, holders of Staff Builders Common Stock will
continue to hold their shares of Staff Builders Common Stock and, if such
stockholders were stockholders of record on the Record Date, they will have also
received shares of TLC Common Stock. No holder of Staff Builders Common Stock
will be required to pay any cash or other consideration for the shares of TLC
Common Stock received in the Distribution or to surrender or exchange shares of
Staff Builders Common Stock in order to receive shares of
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TLC Common Stock. The Distribution will not affect the number of, or the rights
attached to, outstanding shares of Staff Builders Common Stock.
After the Distribution, Staff Builders will own no shares of TLC Common
Stock and TLC will operate as an independent, publicly-owned corporation.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
Staff Builders has not requested nor will it seek a ruling from the IRS as
to the Federal income tax consequences of the Distribution. However, Staff
Builders has received an opinion from Richards & O'Neil, LLP to the effect that
it appears that there is substantial authority for viewing the Distribution as a
"tax free" spin-off under Sections 355 and 368(a)(1)(D) of the Internal Revenue
Code of 1986, as amended (the "Code"). This opinion represents only the best
judgment of Richards & O'Neil, LLP, and is not binding on the IRS. Additionally,
the opinion of Richards & O'Neil, LLP is limited insofar as it speaks only to
the existence of "substantial authority" for viewing the Distribution as
nontaxable under Sections 355 and 368(a)(1)(D) of the Code. An opinion as to
"substantial authority" is determined by an objective analysis of current tax
law and an application of such law to the facts. In its opinion, Richards &
O'Neil, LLP indicates that, according to regulations promulgated under the Code,
this standard is less stringent than a "more likely than not" standard, which
requires that there be a greater than fifty percent likelihood of a position
being upheld, but more stringent than a "reasonable basis" standard, which, if
satisfied, will generally prevent imposition of penalties if a position is
determined to be incorrect. The opinion of Richards & O'Neil, LLP is qualified
by the "substantial authority" standard, and there can be no reliance upon the
opinion expressed by Richards & O'Neil, LLP other than as limited by such
standard. Accordingly, if the Distribution qualifies as a tax-free spin-off
under Section 355 and 368(a)(1)(D) of the Code, then:
1. No gain or loss will be recognized by or be includable in the income of
a holder of Staff Builders Common Stock solely as a result of the receipt of TLC
Common Stock in the Distribution.
2. No gain or loss will be recognized by Staff Builders or its subsidiaries
upon the Distribution.
3. The aggregate tax basis of the Staff Builders Common Stock and the TLC
Common Stock held by a stockholder immediately after the Distribution will be
the same as the tax basis of Staff Builders Common Stock held by such
stockholder immediately prior to the Distribution and will be allocated (based
upon relative market values on the Distribution Date) between such Staff
Builders Common Stock and the TLC Common Stock received by such stockholder in
the Distribution.
4. Assuming that Staff Builders Common Stock is held as a capital asset,
the holding period for the TLC Common Stock received in the Distribution by a
holder of Staff Builders Common Stock will include the period during which such
Staff Builders Common Stock was held.
5. A holder of Staff Builders Common Stock who receives cash in lieu of a
fractional share of TLC Common Stock will be treated as if such fractional share
had been received by the stockholder as part of the Distribution and then
redeemed from the stockholder by the Company. Such stockholder will recognize
gain or loss equal to the difference between the cash so received and the
portion of the tax basis in the Staff Builders Common Stock that is allocable to
such fractional share. Such gain or loss will be capital gain or loss, provided
that such fractional share was held by the stockholder as a capital asset at the
time of the Distribution.
If the Distribution were not to qualify as a tax-free spin-off under
Sections 355 and 368(a)(1)(D) of the Code, then:
(i) Staff Builders would recognize capital gain equal to the excess of
(x) the fair market value of the TLC Common Stock on the Distribution Date,
over (y) Staff Builders' adjusted tax basis in the TLC Common Stock on such
date.
(ii) Each holder of Staff Builders Common Stock who receives TLC
Common Stock in the Distribution would be treated as receiving a taxable
distribution in an amount equal to the fair market value of such TLC Common
Stock on the Distribution Date, taxed first as a dividend to the extent of
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such holder's pro rata share of Staff Builders' current and accumulated
earnings and profits, and then as a nontaxable return of capital to the
extent of such holder's basis in the Staff Builders Common Stock, with any
remaining amount being taxed as capital gain.
Even if the Distribution qualifies as a tax-free spin-off under Sections
355 and 368(a)(1)(D) of the Code, Staff Builders (but not Staff Builders'
stockholders) also would recognize taxable gain on the Distribution (determined
as if Staff Builders had sold all the TLC Common Stock for fair market value on
the Distribution Date) if (a) 50% or more of the outstanding stock of TLC or
Staff Builders were acquired (or deemed to be acquired pursuant to certain
transactions involving the stock or assets of Staff Builders, TLC, or their
subsidiaries), and (b) the Distribution and such acquisition were treated as
part of a plan or series of related transactions. For that purpose, any
acquisition of stock of Staff Builders or TLC within the period beginning two
years prior to the Distribution Date and ending two years after the Distribution
Date would be presumed to be part of such a plan or series of related
transactions, although Staff Builders or TLC, as the case may be, may be able to
rebut such presumption.
This opinion of counsel is subject to certain assumptions and the accuracy
of certain factual representations made by Staff Builders and TLC to Richards &
O'Neil, LLP. Neither Staff Builders nor TLC is aware of any present facts or
circumstances that would cause such assumptions or representations to be untrue.
If it were subsequently determined that those assumptions or representations
were inaccurate or incomplete, the conclusion of the tax opinion could not be
relied upon. As reflected in the tax opinion, the applicability of Sections 355
and 368(a)(1)(D) of the Code to the Distribution is complex and may be subject
to differing interpretations. Accordingly, there can be no assurance that the
IRS will not successfully challenge the applicability of Sections 355 and
368(a)(1)(D) of the Code to the Distribution, or assert that the Distribution
fails the requirements of Sections 355 and 368(a)(1)(D) of the Code on the basis
of facts either existing on the Distribution Date or that may arise after the
Distribution Date.
THE SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR GENERAL
INFORMATION ONLY AND DOES NOT PURPORT TO COVER ALL FEDERAL INCOME TAX
CONSEQUENCES THAT MAY APPLY TO ALL CATEGORIES OF STOCKHOLDERS. ALL STOCKHOLDERS
SHOULD CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE
DISTRIBUTION TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND
FOREIGN LAWS.
TRADING OF TLC COMMON STOCK
The Company will use its reasonable efforts to cause a market maker to
cause the TLC Common Stock to be approved for quotation on the OTC Bulletin
Board under the symbol [ ]. There is currently no public trading for
TLC Common Stock. The Company cannot predict prices at which TLC Common Stock
may trade after the Distribution. In particular, until the TLC Common Stock is
fully distributed and an orderly market develops, the prices at which trading in
such stock occurs may fluctuate significantly and may be higher or lower than
the price that would be expected for a fully distributed issue. The prices at
which TLC Common Stock trades will be determined by the market and may be
influenced by many factors, including, among others, the depth and liquidity of
the market for TLC Common Stock, investor perception of the Company and the home
health care industry, changes in the regulation of the home health care
industry, and general economic and market conditions. Such prices may also be
affected by the anti-takeover provisions in the certificate of incorporation of
TLC and the TLC bylaws. See "Description of Capital Stock."
As a result of the Distribution, the trading price of Staff Builders Common
Stock may be lower immediately following the Distribution as compared to the
trading price of Staff Builders Common Stock immediately prior to the Record
Date, although the receipt of shares of TLC Common Stock is likely to offset
some or all of such effect. The aggregate market values of Staff Builders Common
Stock and TLC Common Stock after the Distribution may be less than, equal to or
greater than the market value of Staff Builders Common Stock prior to the
Distribution. Based on the number of holders of record of Staff Builders Common
Stock as of April 5, 1999, TLC is expected to have approximately 750
stockholders of record on the
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Distribution Date. The Distribution Agent, transfer agent and registrar for the
TLC Common Stock will be American Stock Transfer & Trust Company.
Shares of TLC Common Stock distributed to Staff Builders stockholders will
be freely transferable except for shares received by persons who may be deemed
to be "affiliates" of TLC under the Securities Act. Persons who may be deemed to
be affiliates of TLC after the Distribution generally include individuals or
entities that control, are controlled by, or are under common control with TLC,
and include the directors and executive officers of TLC. All shares of TLC
Common Stock held by affiliates of TLC may generally only be resold (i) in
compliance with the applicable provisions of Rule 144 under the Securities Act,
(ii) under an effective registration statement under the Securities Act, or
(iii) pursuant to an exemption from the registration requirements of the
Securities Act. Under Rule 144, an affiliate is entitled to sell, within any
three-month period, a number of shares of TLC Common Stock that does not exceed
the greater of 1% of the then outstanding shares of TLC Common Stock or the
average weekly trading volume of the TLC Common Stock during the four calendar
weeks preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied.
After the Distribution, of the estimated 11,809,694 shares of TLC Common
Stock issued and outstanding, approximately 2,599,688 shares will be held by
affiliates and subject to the resale requirements of Rule 144 of the Securities
Act.
EXPENSES OF THE DISTRIBUTION
50% of all costs and expenses of the Distribution incurred on or prior to
the Distribution Date will be paid by Staff Builders and 50% will be paid by
TLC. Except as otherwise provided in the Distribution Agreement or in any other
agreement entered into in connection with the Distribution, Staff Builders and
the Company will each bear its own costs and expenses after the Distribution
Date. See "Arrangements between Staff Builders and TLC Relating to the
Distribution."
TREATMENT OF EMPLOYEE OPTIONS IN THE DISTRIBUTION
Options granted under the Staff Builders 1993 and 1998 Stock Option Plans
and the Staff Builders 1994 Performance -- Based Stock Option Plan to employees
who, after the Distribution Date, will not continue as employees of or
consultants to Staff Builders after the Distribution Date will terminate three
months after the Distribution Date. All holders of such options who remain
employees of or consultants to Staff Builders after the Distribution Date will
retain their options, without any change to the exercise price or other terms.
Stephen Savitsky, Chairman of the Board and Chief Executive Officer of the
Company, Dale R. Clift, President, Chief Operating Officer and Chief Financial
Officer of the Company, and David Savitsky, a director of the Company, are
expected to remain as employees of Staff Builders after the Distribution Date.
Willard T. Derr, Senior Vice President and Corporate Controller of the Company,
and Renee J. Silver, Vice President and General Counsel of the Company, are
expected to remain as consultants to Staff Builders for one year after the
Distribution Date. Each of these executive officers and directors of the Company
will retain his or her Staff Builders options after the Distribution Date. See
"Executive Compensation -- Employment Agreements" and "Certain Transactions."
Under the Employee Benefits Agreement, certain employees holding Staff
Builders options on the Distribution Date who will be employees of or
consultants to the Company after the Distribution Date will be granted options
to purchase a total of 2,029,000 shares of TLC Common Stock under the TLC 1999
Stock Option Plan. The per share exercise price of these options will be equal
to the average of the closing bid and asked prices of TLC Common Stock on the
Distribution Date, as quoted on the OTC Bulletin Board. Of these options,
400,000 will be granted to Stephen Savitsky, Chairman of the Board and Chief
Executive Officer of the Company, 500,000 will be granted to Dale R. Clift,
President, Chief Operating Officer and Chief Financial Officer of the Company,
75,000 will be issued to Willard T. Derr, Senior Vice President and Corporate
Controller of the Company, 50,000 will be issued to Renee J. Silver, Vice
President and General Counsel of the Company, and 100,000 will be granted to
Sandra Parshall, Senior Vice President of Operations of a
13
<PAGE> 20
principal subsidiary of the Company. See "Arrangements between Staff Builders
and TLC Relating to the Distribution -- Employee Benefits Agreement", "Executive
Compensation -- TLC 1999 Stock Option Plan and Employment Agreements" and
"Certain Transactions."
ARRANGEMENTS BETWEEN STAFF BUILDERS AND TLC RELATING TO THE DISTRIBUTION
Immediately prior to the Distribution, Staff Builders and TLC will enter
into certain agreements to define their ongoing relationship after the
Distribution. These agreements are summarized below and have been filed as
exhibits to the Registration Statement filed by TLC with the Commission under
the Exchange Act. The following descriptions include a summary of all material
terms of these agreements but do not purport to be complete and are qualified in
their entirety by reference to the filed agreements.
Distribution Agreement
Staff Builders and TLC will enter into a distribution agreement (the
"Distribution Agreement") which will provide for, among other things, mechanics
of the Distribution, cooperation regarding past matters and the allocation of
responsibility for past obligations and certain obligations that may arise in
the future. The Distribution Agreement provides that each of Staff Builders and
TLC will indemnify the other party and its affiliates from and against any and
all damage, loss, liability and expense arising out of or due to the failure of
the indemnitor or any of its subsidiaries to pay, perform or otherwise discharge
any of the liabilities or obligations for which it is responsible under the
terms of the Distribution Agreement, which include, subject to certain
exceptions, all liabilities and obligations arising out of the conduct or
operation of their respective business before, on or after the Distribution
Date. 50% of all costs and expenses of the Distribution incurred on or prior to
the Distribution Date will be paid by Staff Builders and 50% will be paid by
TLC. Except as otherwise provided in the Distribution Agreement or in any other
agreement entered into in connection with the Distribution, Staff Builders and
the Company will each bear its own costs and expenses after the Distribution
Date. The Distribution Agreement includes procedures for notice and payment of
indemnification claims and provides that the indemnifying party may assume the
defense of the claim or suit brought by a third party.
Tax Allocation Agreement
Staff Builders and TLC will enter into a tax allocation agreement (the "Tax
Allocation Agreement") to allocate certain tax liabilities between Staff
Builders and TLC and their respective subsidiaries and to allocate
responsibilities with respect to tax returns. Under the Tax Allocation
Agreement, Staff Builders and TLC will each be responsible for the taxes
allocated between the respective parties based on the legal entity on which the
tax is imposed.
The Tax Allocation Agreement provides that if Staff Builders is subject to
any tax attributable to the Distribution, including by reason of the
Distribution's failure to qualify under Section 355 of the Code as a tax-free
distribution, then Staff Builders shall be responsible for any such tax. Any
such obligation of Staff Builders could have a material adverse effect on Staff
Builders. In the Tax Allocation Agreement, TLC also will agree not to take
certain specified actions which might adversely affect the tax-free status of
the Distribution.
Transitional Services Agreement
Staff Builders and TLC will enter into an agreement pursuant to which TLC
will furnish various administrative services to Staff Builders. The initial term
of the agreement will be one year. The agreement will automatically renew at the
end of the initial term or any renewal term for successive three-month terms
until terminated by either party upon written notice to the other party at least
90 days prior to the expiration of the applicable term. Fees payable by Staff
Builders to TLC for such services are expected to be at the rate of 110% of the
costs actually incurred, determined and payable no less frequently than
quarterly.
14
<PAGE> 21
Employee Benefits Agreement
Staff Builders and TLC will enter into an employee benefits agreement (the
"Employee Benefits Agreement") which will set forth the employee benefit plan
arrangements that will apply to certain employees of the Staff Builders
controlled group who are expected to become employees of TLC as of the
Distribution Date, and any other employees who are hired by TLC prior to the
Distribution Date ("TLC Employees"). The Employee Benefits Agreement provides
that TLC will establish a 401(k) savings plan, welfare plans and stock purchase
and option plans which are substantially the same in all respects to the
corresponding plans maintained by Staff Builders prior to the Distribution Date.
TLC Employees will receive credit for time employed with Staff Builders with
respect to vacation time, sick pay and other benefits.
TLC Employees will participate in the TLC 401(k) plan to the extent that
they were eligible to participate in the Staff Builders 401(k) plan immediately
prior to the Distribution Date, and will receive credit for eligibility,
vesting, and benefit accrual for all service credited for such purposes under
the Staff Builders 401(k) plan. In addition, TLC will assume, with certain
exceptions, all liability and responsibility for providing continuation of
health care coverage under the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") to any TLC Employee, and any former employee of the Staff
Builders controlled group. The Employee Benefits Agreement will also provide for
certain cross-indemnities with respect to the TLC 401(k) plan and the Staff
Builders 401(k) plan.
Sublease
Staff Builders and TLC will enter into a sublease (the "Sublease") pursuant
to which the Company will sublet to Staff Builders approximately 2,030 square
feet of office space in Lake Success, New York. The initial term of the Sublease
will end on May 31, 2000. The Sublease will automatically renew at the end of
the initial term or any renewal term for an additional one-year term until
terminated by either party upon written notice to the other at least 90 days
prior to the expiration of the applicable term. Staff Builders will pay the
Company annual rent of $48,200, payable monthly, which rent will increase
annually by 3%. See "Business -- Properties."
Trademark License Agreement
Staff Builders International, Inc., a subsidiary of the Company ("SBI"),
and Staff Builders will enter into a license agreement pursuant to which SBI
will license to Staff Builders the right to use the service marks Staff
Builders(R), and the Stick Figure Logo in connection with supplemental staffing
services. Such license will be royalty-free and will continue for so long as
Staff Builders uses such marks in connection with supplemental staffing
services. Both parties will have a right of termination upon 30 days' prior
written notice to the other party if such other party materially breaches the
agreement. See "Business -- Service Marks."
15
<PAGE> 22
SELECTED FINANCIAL DATA
The following tables set forth selected financial data of Staff Builders
and related pro forma financial data of the Company that reflect the
Distribution. Since after the Distribution TLC will own a majority of the
operations, employees and assets of the historical businesses of Staff Builders,
the Distribution will be accounted for as a "reverse spin-off" under GAAP.
Accordingly, the selected historical financial information reflects the selected
consolidated results of Staff Builders. The pro forma information may not
necessarily be indicative of the results of operations or financial position
that would have resulted if TLC had been a separate, independent company. The
historical summary financial data for the three years ended February 28, 1998
have been derived from the consolidated financial statements included in this
Information Statement. The historical financial statements for the two years
ended February 28, 1995 have been derived from audited consolidated financial
statements not included separately herein. The interim financial statements for
the nine months ended November 30, 1998 and 1997 have been derived from the
unaudited consolidated financial statements included in this Information
Statement and include, in the opinion of management, all necessary adjustments
for the fair presentation of such information. Interim results may not
necessarily be indicative of the Company's results of operations or financial
position for a full year. Also, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations", the Consolidated Financial
Statements beginning at page F-1, and the Unaudited Pro Forma Consolidated
Financial Statements beginning at page F-27.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED FEBRUARY 28/29,
--------------------------- ----------------------------------------------------
NOVEMBER 30, NOVEMBER 30,
1998 1997 1998 1997 1996 1995 1994
------------ ------------ -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STAFF BUILDERS CONSOLIDATED
HISTORICAL OPERATIONS DATA:
Revenues............................ $307,408 $393,380 $519,704 $480,355 $410,160 $325,111 $246,082
-------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Operating costs................... 205,152 252,313 332,739 301,508 256,719 201,365 152,824
General and administrative
expenses........................ 105,887 132,707 176,783 170,290 146,382 113,893 86,082
Medicare and Medicaid audit
adjustments..................... 29,000 --
Amortization of intangible
assets.......................... 961 2,214 2,807 2,623 1,823 1,237 884
Interest expense.................. 2,481 2,579 3,600 1,601 948 1,237 2,189
Interest income................... (739) (1,008) (1,358) (896) (976) (796) (605)
Other (income) expense, net....... (1,741) (543) (818) (1,487) 1,791 (22) 36
Restructuring costs............... 4,500 -- 33,447 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses.... 345,501 388,262 547,200 473,639 406,687 316,914 241,410
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes... (38,093) 5,118 (27,496) 6,716 3,473 8,197 4,672
Provision (benefit) for income
taxes............................. 7,241 2,305 (5,864) 2,955 1,459 3,462 1,308
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................... $(45,334) $ 2,813 $(21,632) $ 3,761 $ 2,014 $ 4,735 $ 3,364
======== ======== ======== ======== ======== ======== ========
Income (loss) applicable to common
stockholders...................... $(45,334) $ 2,813 $(21,632) $ 3,761 $ 2,014 $ 4,735 $ 3,954
======== ======== ======== ======== ======== ======== ========
Income (loss) per common share
Basic............................. $ (1.97) $ .12 $ (.90) $ .16 $ .09 $ .21 $ .24
======== ======== ======== ======== ======== ======== ========
Diluted........................... $ (1.97) $ .12 $ (.90) $ .15 $ .08 $ .20 $ .23
======== ======== ======== ======== ======== ======== ========
Cash dividends per common share..... $ -- $ -- $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ======== ======== ========
Weighted average common shares
outstanding:
Basic............................... 23,026 23,907 23,939 23,668 23,598 22,389 16,412
======== ======== ======== ======== ======== ======== ========
Diluted............................. 23,026 24,180 23,939 24,577 25,504 24,053 17,504
======== ======== ======== ======== ======== ======== ========
STAFF BUILDERS CONSOLIDATED
HISTORICAL BALANCE SHEET DATA:
Total assets........................ $124,253 $150,401 $156,172 $120,527 $103,486 $ 87,310
Working capital (deficiency)........ (53,046) 14,312 27,245 12,007 22,038 26,855
Current portion of long-term debt... 38,146 8,596 5,071 1,655 1,208 827
Long-term debt and other
liabilities....................... 23,060 40,293 37,998 9,611 9,186 14,021
Total liabilities................... 135,713 112,032 96,706 65,217 51,135 48,035
Stockholders' equity (deficit)...... (11,460) 38,369 59,466 55,310 52,351 40,976
</TABLE>
Certain prior period amounts have been reclassified to conform with the nine
months ended November 30, 1998 presentation.
16
<PAGE> 23
The following unaudited pro forma information has been prepared to reflect
the financial position of the home health care operations of Staff Builders as
if the Distribution had occurred on November 30, 1998 and their results of
operations as if the Distribution had occurred on the first day of the
respective periods.
TLC CONSOLIDATED PRO FORMA OPERATIONS DATA
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
NOVEMBER 30, 1998 FEBRUARY 28, 1998
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenues.............................................. $239,001 $452,217
-------- --------
Operating costs............................................. 151,626 280,089
General and administrative expenses......................... 93,682 164,580
Medicaid and Medicare audit adjustments..................... 29,000 --
Amortization of intangible assets........................... 450 2,176
Interest expense............................................ 759 2,410
Interest income............................................. (695) (1,347)
Other income (expense)...................................... 427 (492)
Restructuring charge........................................ 4,500 30,269
-------- --------
Total costs and expenses.................................... 279,749 477,685
-------- --------
(Loss) Before income taxes.................................. (40,748) (25,468)
Total (Provision) benefit for taxes......................... 5,339 (5,298)
-------- --------
Net (loss).................................................. $(46,087) $(20,170)
======== ========
(Loss) per common share
Basic..................................................... $ (4.00) $ (1.69)
======== ========
Diluted................................................... $ (4.00) $ (1.69)
======== ========
Cash dividends per common share............................. $ -- $ --
Weighted average common shares outstanding
Basic..................................................... $ 11,513 $ 11,970
======== ========
Diluted................................................... $ 11,513 $ 11,970
======== ========
</TABLE>
TLC CONSOLIDATED PRO FORMA BALANCE SHEET DATA
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
NOVEMBER 30, 1998
-----------------
(IN THOUSANDS)
<S> <C> <C>
Total assets................................................ $69,458
Working capital (deficiency)................................ (50,031)
Current portion of long-term debt........................... 14,815
Long-term debt and other liabilities........................ 23,036
Total liabilities........................................... 105,182
Stockholders equity (deficiency in assets).................. (35,724)
</TABLE>
17
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Distribution will be treated as a "reverse spin-off" for financial
reporting purposes under GAAP. Therefore, although the Company will be engaged
exclusively in the home health care business, and not in the supplemental
staffing business, the historical consolidated financial statements and the
historical selected financial data contained in this Information Statement
include the financial position and results of operations of both the home health
care business and the supplemental staffing business previously conducted by
Staff Builders. Consistent with this presentation, the following discussion and
analysis provides information which management believes is relevant to an
assessment and understanding of Staff Builders' results of operations and
financial condition. This discussion should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in this
Information Statement. Management believes that the unaudited pro forma
consolidated financial statements of the Company for the year ended February 28,
1998 and the nine months ended November 30, 1998, are a better reflection of the
performance of the Company's home health care business for those periods than
the consolidated financial statements of Staff Builders for the same periods.
Nonetheless, such pro forma statements do not represent what the Company's
financial position and results of operations would have been if the Distribution
had occurred prior to the periods discussed below, nor should they be considered
projections of the future financial performance of the Company.
RESULTS OF OPERATIONS -- NINE MONTHS ENDED NOVEMBER 30, 1998 AND 1997
For the nine months ended November 30, 1998 ("the 1998 period"), total
revenues decreased by $86.0 million or 21.9% to $307.4 million from $393.4
million for the nine months ended November 30, 1997 ("the 1997 period"). The
decrease for the 1998 period was primarily due to a decrease in home health care
service revenues of $107.0 million, including a decrease in Medicare revenues of
approximately $96.0 million. The decrease in Medicare revenues resulted from the
negative impact of the Medicare Interim Payment System, enacted under the
Balanced Budget Act of 1997 ("BBA"), which reduced the limits for the amount of
costs which are reimbursable under the Medicare program.
Additionally, there was an increase in sales of franchises and fees
primarily as a result of the sale of several locations to former franchisees in
the 1998 period aggregating $1.1 million. There was an increase of approximately
$19.9 million in revenues generated by Staff Builders' ATC supplemental staffing
division ("ATC"). ATC opened new offices during the 1998 period in response to
increased market demand for these services, to a total of 57 supplemental
staffing service locations as of November 30, 1998.
Staff Builders' home health care service revenues were $237.1 million and
$344.1 million for the nine months ended November 30, 1998 and 1997,
respectively. The following are Staff Builders' home health care service
revenues by payment source:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
NOVEMBER 30,
--------------
1998 1997
----- -----
<S> <C> <C>
Medicare.................................................... 47.6% 60.7%
Medicaid and other local government programs................ 31.7 22.5
Insurance and individuals................................... 19.4 14.9
Other....................................................... 1.3 1.9
----- -----
Total....................................................... 100.0% 100.0%
===== =====
</TABLE>
Operating costs were $205.2 million and $252.3 million for the nine months
ended November 30, 1998 and 1997, respectively. The decrease of $47.1 million
reflects a decrease in home health care costs of $63.1 million attributable to a
reduction in the volume of such services. There was an increase in ATC
supplemental staffing costs of $16.0 million related to an increased volume of
supplemental staffing revenues through an expanded network of ATC locations.
18
<PAGE> 25
For the nine months ended November 30, 1998, general and administrative
expenses decreased by $26.8 million, or 20.2%, to $105.9 million from $132.7
million for the nine months ended November 30, 1997. The decrease for the 1998
period was due to a reduction in those expenses related to the decline in home
health care services of approximately $33.0 million, consisting primarily of a
decrease in general and administrative expenses related to Medicare services.
There were also increases of approximately $2.8 million in Staff Builders'
provision for bad debts for uncollectible accounts receivable generated by home
health care franchisees. Many of these franchise locations have been converted
to company owned locations.
Medicare and Medicaid audit adjustments recorded in the nine months ended
November 30, 1998 include Federal and state audit liabilities arising from some
completed audit examinations as well as estimated liabilities for open audit
periods through November 30, 1998. As a home health care provider, Staff
Builders is subject to extensive and changing state and Federal regulations
relating to the licensing and certification of its offices and the sale and
delivery of its products and services. The Federal government and Medicare
fiscal intermediaries have become more vigilant in their review of Medicare
reimbursements to home health care providers generally, and have become more
restrictive in their interpretation of those costs for which reimbursement will
be allowed to such providers. These regulatory agencies have increased the
number of audits performed and have applied a more intensive degree of scrutiny
in the conduct of these audits.
During the three months ended November 30, 1998, the Medicare fiscal
intermediary completed and issued the results of 88 audits for the fiscal year
ended February 28, 1997, including 25 audits conducted on site at branch
operating locations. These results together with the results of the home office
audit for the year ended February 28, 1997, indicated an aggregate liability of
approximately $9.5 million. Additionally, Staff Builders has recorded an accrual
for third party liability ("TPL") to state Medicaid agencies which have claimed
that Staff Builders did not follow proper billing procedures in several
locations. These state Medicaid agencies have challenged the eligibility of
individuals for whom services were provided. The related claims are being
reviewed by the state agencies encompassing several prior years for which Staff
Builders has been paid. While Staff Builders expects to prevail in some of these
cases, it has accrued for the loss which is likely to have been incurred for
those cases in which it does not prevail in supporting its position. Staff
Builders has reached a settlement for a portion of its TPL liability and is
continuing to negotiate to resolve amounts payable to these state agencies.
Based upon Staff Builders' assessment of these findings, its estimate of
liabilities for subsequent audit periods and the balance of liabilities
previously provided, Staff Builders recorded aggregate expense for Medicare and
Medicaid audit liabilities of $29.0 million in the quarter ended November 30,
1998. The resultant liability together with the balance of liabilities
previously established, results in an aggregate liability of $36.3 million for
Federal and state audit adjustments. Staff Builders continues to appeal many
audit issues and has engaged outside professional advisors to support Staff
Builders' positions on these issues. Staff Builders anticipates that any
resolution of these appeals may require up to several years.
The BBA resulted in significant changes to cost based reimbursement for
Medicare home health care providers. The BBA provided for the interim payment
system ("IPS"), which became effective for Staff Builders as of March 1, 1998.
The effect of changes under the IPS was to reduce the limits for the amount of
costs that are reimbursable by Medicare. Accordingly, Staff Builders together
with many of Staff Builders' franchisees have modified their operations as
needed to meet the demands of the IPS, including taking steps to reduce costs
and maximize operational efficiencies.
During the year ended February 28, 1998, Staff Builders recorded
restructuring costs of $33.4 million (of which $30.3 million related to home
health care operations), which included a write-off of goodwill and intangible
assets as well as other restructuring costs. As a result of Staff Builders'
further operating modifications, including the additional closure and conversion
of many home health care locations from franchise to company owned operations,
Staff Builders has written off or reserved approximately $4.5 million during the
quarter ended November 30, 1998 relating to home health care operations.
Included in this amount is the write-off of goodwill and fixed assets related to
closed locations, the write-off or reserve for receivables generated from
converted franchise locations, the accrual for employee severance payments and
other related costs.
19
<PAGE> 26
Interest expense was approximately $2.5 million and $2.6 million for the
nine months ended November 30, 1998 and 1997, respectively. Interest expense
consists primarily of interest on Staff Builders' line of credit facility and on
capital leases.
The provision for income taxes was approximately $7.2 million for the nine
months ended November 30, 1998. The provision for income taxes in the 1998
period consists of a valuation allowance of $22.5 million offset by potential
tax benefits of $13.5 million resulting from losses incurred in the 1998 period.
Such valuation allowance was recorded as the management of Staff Builders does
not believe that the utilization of the tax benefits resulting from operating
losses and other temporary differences are "more likely than not" as required
under the Financial Accounting Standard Board's ("FASB") Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"). Staff Builders has recorded an
income tax receivable of $1.7 million resulting from the carryback of net
operating losses. The provision for income taxes was approximately $800 thousand
and $2.3 million for the three and nine months ended November 30, 1997. Staff
Builders' effective income tax rate was 19% for the 1998 period as compared to
45% in the 1997 period.
YEARS ENDED FEBRUARY 28, 1998 ("FISCAL 1998"), FEBRUARY 28, 1997 ("FISCAL 1997")
AND FEBRUARY 29, 1996 ("FISCAL 1996")
Revenues
Total revenues increased by $39.3 million or 8.2% to $519.7 million in
fiscal 1998 from $480.4 million in fiscal 1997. The increase included an
additional $24.9 million in revenues generated by Staff Builders' ATC
supplemental staffing division, which grew to $67.3 million in fiscal 1998 from
$42.4 million in fiscal 1997. The increase in ATC revenues included $9.0 million
resulting from the September 1996 acquisition of a provider in the metropolitan
New York area which generated revenues of $17.5 million and $8.5 million in
fiscal 1998 and fiscal 1997, respectively. Additionally, the increase in ATC
revenues included $4.5 million resulting from the September 1997 acquisition of
a provider of nursing services whose nursing professionals render services in
long-term assignments, away from the professional's permanent domicile, often
referred to as "travel nurses." Staff Builders' home health care revenues
increased by $14.5 million or 3.3% to $451.1 million in fiscal 1998 from $436.6
million in fiscal 1997. This increase included $28.4 million primarily due to
acquisitions made during fiscal 1997 which are included in the full fiscal 1998
period offset by a decrease in revenues of $13.9 million resulting from the
closing or sale of approximately 30 locations during fiscal 1998. Included in
Staff Builders' fiscal 1998 revenues under sales of franchises and fees, net, is
$502 thousand for license fees earned in connection with a master license
agreement with a home health care company based in Tokyo, Japan. Under the
agreement, Staff Builders granted rights to develop home health care agencies
throughout Japan using Staff Builders' home health care expertise and franchise
model.
Total revenues increased by $70.2 million or 17.1% to $480.4 million in
fiscal 1997 from $410.2 million in fiscal 1996. This increase included $24.6
million of revenues from acquisitions made in fiscal 1997. Additionally,
revenues from acquisitions made in fiscal 1996 which are included in the full
fiscal 1997 period and continued expansion of Staff Builders' franchise program
to new locations resulted in increased revenues of $19.0 million in fiscal 1997.
Locations which were included for the entire two fiscal periods generated
increased revenues of $26.6 million, or 7%, in fiscal 1997 over fiscal 1996.
The increase in Medicare and Medicaid revenues during the three years ended
February 28, 1998 results from Staff Builders' continued response to increasing
market demand for patient care due to demographic trends and the progressive
movement of care from institutions to patients' homes. In order to be certified
by the Health Care Finance Administration as a home health agency which may
participate in the Medicare program, among other things, a location must satisfy
certain operational standards with respect to the number and qualifications of
personnel, service levels and related supervision as well as meet certain
financial standards with respect to the preparation of annual budgets and
capital expenditure plans.
20
<PAGE> 27
Staff Builders' service revenues consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY
28/29,
---------------------
1998 1997 1996
----- ----- -----
($ IN MILLIONS)
<S> <C> <C> <C>
Home health care and other.................................. $451 $437 $379
ATC supplemental staffing................................... 67 42 30
---- ---- ----
Total service revenues...................................... $518 $479 $409
==== ==== ====
</TABLE>
Staff Builders receives payment for its home health care services from
several sources. The following are Staff Builders' home health care service
revenues by payment source:
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY
28/29,
---------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Medicare.................................................... 60.1% 61.0% 62.3%
Medicaid and other local government programs................ 23.1 21.7 21.0
Insurance and individuals................................... 15.1 15.4 14.5
Other....................................................... 1.7 1.9 2.2
----- ----- -----
Total....................................................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
The service revenues attributable to franchise offices increased to 86% in
fiscal 1998 from 83% in fiscal 1997 and from 82% in fiscal 1996. The increase in
revenues attributable to franchise offices was due to the increase in the number
of locations operated by franchisees from 126 locations operated by 70
franchisees as of March 1, 1995 to 188 locations operated by 78 franchises as of
February 28, 1998. Staff Builders has expanded its operations in additional
markets primarily through the recruitment of new franchisees. These increases
include the growth of Staff Builders' supplemental staffing franchises from 26
offices of which seven were franchises at March 1, 1995 to 46 offices of which
42 were franchises at February 28, 1998.
Operating Costs
Operating costs were $332.7 million, $301.5 million and $256.7 million for
fiscal 1998, fiscal 1997, and fiscal 1996, respectively. The home health care
portion of these amounts were $280.1 million, $268.6 million and $233.6 million
for fiscal 1998, fiscal 1997, and fiscal 1996, respectively.
The payroll fringe costs, consisting primarily of payroll taxes and workers
compensation insurance, represent 16.0%, 15.9% and 14.6% of direct service wages
in fiscal 1998, 1997 and 1996, respectively.
The cost of contracted services represents 6.6%, 6.5% and 8.1% of service
revenues in fiscal 1998, 1997 and 1996, respectively.
21
<PAGE> 28
The revenues, operating costs and resultant gross margins generated by
Staff Builders franchise and owned locations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY
28/29,
---------------------
1998 1997 1996
----- ----- -----
($ IN MILLIONS)
<S> <C> <C> <C>
Total revenues-Franchise.................................... $446 $398 $334
Total revenues-Owned........................................ 74 82 76
---- ---- ----
Total revenues.............................................. $520 $480 $410
==== ==== ====
Operating costs-Franchise................................... $285 $248 $207
Operating costs-Owned....................................... 48 54 50
---- ---- ----
Operating costs............................................. $333 $302 $257
==== ==== ====
Gross margin-Franchise...................................... $161 $150 $127
Gross margin-Owned.......................................... 26 28 26
---- ---- ----
Gross margin................................................ $187 $178 $153
==== ==== ====
</TABLE>
The gross margin percentages generated by owned locations are lower than
those for franchise locations primarily as a result of a proportionately higher
volume of home health care services which have lower gross margin percentages.
General and Administrative Expenses
General and administrative expenses increased by $6.5 million or 3.8% in
fiscal 1998 to $176.8 million as compared to $170.3 million in fiscal 1997 and
increased by $23.9 million or 16.3% in fiscal 1997 as compared to $146.4 million
in fiscal 1996.
These costs expressed as a percentage of service revenues were 34.1%, 35.5%
and 35.8% in fiscal 1998, 1997 and 1996, respectively. The increase in general
and administrative expenses in fiscal 1998 was primarily due to the increase in
ATC supplemental staffing expenses of approximately $3.7 million and an increase
in corporate and regional home health care expenses of approximately $2.4
million. The increase in the ATC supplemental staffing expenses is due to the
expansion of that division. The increase in ATC general and administrative
expenses include approximately $900 thousand resulting from the September 1996
acquisition of a provider in the metropolitan New York area and approximately
$500 thousand resulting from the September 1997 acquisition of a provider of
travel nurse services. The increase in corporate and regional expenses of $2.4
million, or 6.2% over the prior year, is due to increased support for expansion
of Staff Builders' home health care services, primarily resulting from
acquisitions made in fiscal 1997 which were included in the full fiscal 1998
period.
The increase in general and administrative expenses in fiscal 1997 included
approximately $13.2 million due to amounts distributed to new franchisees which
were added in fiscal 1997 and the addition of new franchise locations during
fiscal 1996 which were included in the entire fiscal 1997 period resulting from
expansion of Staff Builders franchise program. Additionally, an increase of
approximately $3.4 million resulted from locations operated by Staff Builders
and acquired in fiscal 1997 and locations added during fiscal 1996 which were
included in the entire fiscal 1997 period. Further, approximately $4.3 million
was incurred in fiscal 1997 to expand the capabilities of Staff Builders'
information systems and to develop specialized programs to augment Staff
Builders' home health care operations.
Amortization of Intangible Assets
Amortization of intangible assets was approximately $2.8 million in fiscal
1998 as compared to $2.6 million in fiscal 1997 and $1.8 million in fiscal 1996.
The increases are primarily due to acquisitions made in those periods.
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Interest Expense
Interest expense was approximately $3.6 million in fiscal 1998 as compared
to $1.6 million in fiscal 1997 and $900 thousand in fiscal 1996. The increase in
interest expense in fiscal 1998 over fiscal 1997 was primarily due to an
increase in the level of borrowings under Staff Builders' revolving line of
credit and under its acquisition line. On October 30, 1997, Staff Builders
borrowed $12.6 million under the acquisition line to purchase an additional
60.9% of the outstanding common stock of Chelsea Computer Consultants, Inc.
("Chelsea"), a provider of information technology services to clients in the
financial services, communications, manufacturing and other industries. Together
with the 20.9% of the common stock of Chelsea purchased for $2.1 million in
September 1996, Staff Builders owns 81.8% of the outstanding common stock of
Chelsea.
The increase in interest expense in fiscal 1997 over fiscal 1996 was
primarily due to an increase in the level of borrowings under Staff Builders'
revolving line of credit and increases in the amount of capital leases and other
interest bearing debt.
Interest Income
Interest income includes interest on franchise notes receivable of $481
thousand, $527 thousand and $788 thousand in fiscal 1998, 1997 and 1996,
respectively. Interest earned on franchise notes receivable is generally at the
prime rate plus three percent. Additionally, Staff Builders earned interest from
funds on deposit for workers compensation premiums of $564 thousand and $243
thousand in fiscal 1998 and 1997, respectively.
Other (Income) Expense, Net
Other (income) expense, net in fiscal 1998 includes income from Staff
Builders' investment in Chelsea of $326 thousand and gain on the sale of several
offices of $313 thousand. Fiscal 1997 income includes approximately $1.2 million
resulting from the sale of a Staff Builders division. Fiscal 1996 expense
included approximately $1.6 million to provide for the costs to close two
divisions, $358 thousand in costs associated with Staff Builders'
recapitalization and $165 thousand for settlement of litigation.
Restructuring Costs
In the fourth quarter of fiscal 1998, Staff Builders recorded a pre-tax
non-recurring charge of $33.4 million. This accounting charge included a $24.5
million write-off of goodwill and intangible assets and $8.9 million of other
restructuring costs.
Provision (Benefit) for Income Taxes
The provision (benefit) for income taxes reflects an effective rate of
(21)%, 44% and 42% in fiscal 1998, 1997 and 1996, respectively. The (benefit)
for income taxes in fiscal 1998 results from the non-recurring charge for
restructuring costs and a valuation reserve of $22.5 million. Such valuation
allowance was recorded since Staff Builders does not believe that the
utilization of the tax benefits resulting from operating losses and other
temporary differences are "more likely than not" as required under SFAS 109.
Excluding the effect of this charge, the effective rate was 45% in fiscal 1998.
Net Income (Loss)
Net (loss) for fiscal 1998 was $(21.6) million or $(.90) per share,
compared to net income in fiscal 1997 of $3.76 million, or $.16 per share, and
net income of $2.01 million, or $.09 per share in fiscal 1996. Before the
non-recurring charge for restructuring costs, the net income in fiscal 1998 was
$3.27 million, or $.14 per share.
LIQUIDITY AND CAPITAL RESOURCES
Staff Builders has a secured credit facility which consists of a revolving
line of credit, an acquisition line of credit and a standby letter of credit
facility. On January 14, 1999, the bank provided Staff Builders with written
notification that, in its opinion, Staff Builders' non-compliance with certain
financial covenants constitutes an event of default under the terms of the
credit facility agreement. Those covenants require Staff
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Builders to maintain a minimum level of net worth and a maximum ratio of senior
debt to net worth, failures of which resulted from losses incurred for the three
and nine months ended November 30, 1998. On January 14, 1999, Staff Builders had
borrowed $39.4 million under the credit facility, including $29.7 million and
$9.7 million under the revolving line of credit and the acquisition line of
credit, respectively. The bank has advised Staff Builders that while it has no
obligation to provide additional advances as a result of the non-compliance with
certain financial covenants, it is willing to consider making additional
advances to Staff Builders under such conditions as it may determine.
In connection with the bank's notice of default, the maximum aggregate
amount which can be borrowed under the credit facility was reduced from $50
million to $40 million. Additionally, the bank increased the rate of interest on
all borrowings to 2.0% over the prevailing prime lending rate on its revolving
line of credit and 2.75% over the prevailing prime lending rate on its
acquisition line of credit (such prime lending rate being 7.75% as of January
14, 1999). Staff Builders has classified its outstanding borrowings as a current
liability as of November 30, 1998 because the bank has the option to declare all
borrowings under the credit facility to become immediately due and payable. At
November 30, 1998 and February 28, 1998, Staff Builders borrowed $32.7 million
and $29.4 million, respectively, under the credit facility.
Staff Builders' working capital deficiency was $53.0 million at November
30, 1998. Current liabilities at November 30, 1998 include $26.3 million for
Medicare and Medicaid audit liabilities, $32.7 million of outstanding borrowings
under the secured credit facility and $5.5 million for the current portion of
other debt obligations. While Staff Builders cannot accurately determine the
required payment dates for audit liabilities, it has included $10 million of
such liabilities in other long term liabilities based upon its estimate of when
payments would likely become due. In order to pay its current liabilities in the
normal course of business as well as to pay its liabilities to the Medicare and
Medicaid agencies as they become due, Staff Builders is investigating
alternative sources of funding.
In addition to cash provided from operations, Staff Builders is pursuing
various strategies, including but not limited to additional equity financing,
negotiating with alternative lending sources, deferred payment terms for
Medicare and Medicaid audit liabilities as well as for any repayments of
Medicare periodic interim payments(s) ("PIP") and deferred payment terms for
other creditors. Further, Staff Builders is implementing an intensified
collection effort and has established deferred payment plans for the repayment
of a portion of excess PIP made to Staff Builders by the Federal government. As
of January 14, 1999, approximately $19 million of excess PIP amounts have been
received based upon Staff Builders' historical volume of business over current
levels of business. Staff Builders has made timely payments for all PIP
repayments.
In February 1999, Staff Builders obtained deferred payment terms for its
PIP liability and Medicare audit adjustments assessed to date, aggregating $25.8
million as of February 28, 1999. Such terms allow for repayment over 24 months
commencing in May 1999, of approximately $1.1 million per month. Additionally,
Staff Builders has secured favorable extended payment terms with some of its
trade creditors and is continuing to negotiate extended payment terms with other
vendors. However, there can be no assurance that these actions will be
successful to provide adequate funds for its current level of operations and to
pay its past-due obligations.
From March 1998 to date, Staff Builders purchased and retired a total of
5,088,060 shares of its common stock at a cost of approximately $4.8 million.
YEAR 2000
Many computer systems, applications, information technologies and equipment
containing computer related components (generally "computer systems and
equipment") are unable to differentiate between the year 2000 and the year 1900
because they were programmed with two-digit, rather than four digit, date
fields. Accordingly, older computer systems that have time-sensitive
applications may not properly recognize the year 2000 and beyond ("Year 2000
issue"). This could cause system or equipment shut downs, failures or
miscalculations resulting in inaccuracies in computer output or disruptions of
operations, including, among other things, inaccurate processing of financial
information and/or temporary inabilities to process transactions, manufacture
products, or engage in similar normal business activities.
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Staff Builders has made upgrades to its computer systems and equipment
controlling its general ledger, accounts payable, payroll and human resources
and believes that these systems are largely Year 2000 compliant. Staff Builders
is continuing its upgrades with respect to the front end systems, which include
clinical, scheduling and billing. Staff Builders expects to complete such
upgrades by the end of 1999. Staff Builders believes that with these upgrades,
the Year 2000 issue will not pose significant operational problems for its
computer systems and equipment. However, if such upgrades are not made or are
not completed in a timely fashion, the Year 2000 issue might have an adverse
impact on the operations of Staff Builders , the precise degree of which cannot
be known at this time. Staff Builders currently has no contingency plans to deal
with major Year 2000 failures.
In addition to risks associated with Staff Builders' own computer systems
and equipment, Staff Builders has relationships with, and is to varying degrees
dependent upon, a large number of third party vendors that provide information,
goods and services to Staff Builders and third party customers to which Staff
Builders provides its services. These include financial institutions, companies
in industry, and Federal and state government agencies. If significant numbers
of these third parties experience failures in their computer systems or
equipment due to the Year 2000 issue and if, in particular, the Federal
government is not Year 2000 compliant these failures could adversely affect
Staff Builders' ability to process transactions or engage in similar normal
business activities. While some of these risks are outside of Staff Builders'
control, Staff Builders has instituted programs, including internal records
review to identify key third parties, assess their level of Year 2000
compliance, update contracts and address any non-compliance issues.
The total cost of the Year 2000 systems assessment and upgrades is funded
through operating cash flows and leases and Staff Builders is expensing certain
items and capitalizing others. The estimated cost to replace existing software
applications consisting of Lawson software and HBO Corporation systems,
including modifications to accommodate the Year 2000, is approximately $25
million, including the cost of implementation. The actual financial impact
could, however, exceed this estimate.
EFFECT OF INFLATION
The rate of inflation was immaterial during the 1998 fiscal year. In the
past, the effects of inflation on salaries and operating expenses have been
offset by Staff Builders' ability to increase its charges for services rendered.
Staff Builders anticipates that it will be able to continue to do so in the
future, subject to applicable restrictions with respect to services provided to
clients eligible for Medicare and Medicaid reimbursement. Staff Builders
continually reviews its costs in relation to the pricing of its services.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS No. 131"), which establishes standards for reporting information about
operating segments. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131
becomes effective for fiscal years beginning after December 15, 1997. Management
has not yet evaluated the effect of this change on Staff Builders' financial
statement disclosures.
In April 1998, FASB adopted Statement of Position No. 98-5, "Reporting on
the Costs of Start-Up Activities" ("SOP No. 98-5") which requires that costs
previously capitalized as start-up costs will be expensed as incurred. SOP No.
98-5 becomes effective for fiscal years beginning after December 15, 1998, with
earlier application encouraged. Management does not expect the adoption of SOP
No. 98-5 to have a material effect on Staff Builders' consolidated financial
statements.
During 1998, FASB issued Statement of Financial Accounting Standards SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", and
SFAS No. 134, "Accounting for Mortgage-Backed Securities." Staff Builders does
not expect the adoption of these new accounting pronouncements to have a
material effect, if any, on its financial condition or results of operations.
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BUSINESS
GENERAL
The Company is a leading national provider of home health care services.
The Company currently has 135 offices located in 27 states and the District of
Columbia, as well as master franchise licenses in Japan, Spain and Brazil. Of
these offices, 70 are owned and operated by the Company and 65 are operated by
36 franchisees, through which services are provided by approximately 30,000
caregivers. Of the franchises, nine also operate a separate Staff Builders
supplemental staffing franchise.
TLC, a Delaware corporation and a wholly-owned subsidiary of Staff
Builders, was formed in February 1999 to acquire 100% of the outstanding capital
stock of those Staff Builders' subsidiaries which are engaged in the home health
care business. After the Distribution, the Company will operate as an
independent, publicly traded company and will own the home health care
businesses previously owned by Staff Builders.
OPERATIONS
The Company provides a wide range of home health care services. Its
licensed personnel provide skilled nursing services including cardiac care,
pulmonary management, wound management, maternal health, behavioral health care,
infusion therapy administration, hospice support, and extensive patient and
family education. Additional professional services include physical therapy,
occupational therapy, speech therapy and medical social services. The Company
also provides para-professional home health aide services and other unlicensed
personnel services, assisting patients with activities of daily living.
Approximately 60% of the Company's home health care service revenues are
generated by franchisees.
Clients' requests for home health care are typically received at a local
office and all skilled home health care services are provided pursuant to the
orders of the patient's physician. Generally, after a referral is received, the
director of clinical services will schedule a physical assessment to identify
the patient's care needs. Home care services are rendered in accordance with the
plan of care as prescribed by a physician.
During the intake process, the Company contacts third-party payors to
confirm the extent of Medicare eligibility or insurance coverage. The primary
payment sources for home health care are Medicare, Medicaid, insurance,
individuals, and state and local government health programs.
In five locations, the Company operates hospices in accordance with the
Federal Medicare program. Hospice services include a full range of medical and
nursing services as well as spiritual and emotional support, specialized pain
management and bereavement counseling with interdisciplinary support for
patients and their families, where patients are expected to live less than six
months.
The quality and reputation of the Company's personnel and operations is
critical to the Company's success. The Company maintains uniform quality
assurance programs for its home health care operations, including its consumer
hotline and service evaluation system in which patients are asked by the Company
to rate the quality of care provided. These programs are administered at the
national and local levels. The Company's clinical staff conducts periodic
on-site reviews to determine compliance with all regulations.
In addition to the on-site reviews conducted by Company personnel, the
Company seeks to maintain and improve the quality of its home health care
operations by seeking accreditation from the Joint Commission on Accreditation
of Health Care Organizations ("JCAHO"). Currently, the Company has approximately
108 offices which have been accredited by JCAHO, approximately 33 of which were
accredited with commendation.
The Company has developed the Staff Builders Clinical Outcomes and Resource
Evaluation System ("SCORES"(TM)). SCORES(TM) is a clinical management process
that identifies and analyzes patient potential for variances upon admission to
home care, customizes a transdisciplinary plan of care and quantifies clinical
outcomes and resource utilization.
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The Company has developed a number of proprietary disease-specific programs
designed to be used in the home. These programs include the areas of asthma,
cardiac care, diabetes, hospice, maternity, behavioral health, rehabilitative
services, pain management and wound care.
The Company offers its services on a national and local basis. Each office
seeks to retain strong local identification in order to best respond to
prevailing market conditions and cultivate local referrals. The Company provides
support including brochures, training seminars and materials to assist in
developing patient care programs as needed within each community.
Local efforts principally involve communicating with hospital discharge
planners, nursing management, physicians and other individuals at hospitals,
nursing homes and other health care facilities to advise them of the array of
services available from the Company.
Due to changes in health care reimbursement, insurance companies and health
maintenance organizations have become more involved in directing services for
those to whom they provide coverage. The Company has sought to adapt to the
increased role of these organizations in patient referrals. The Company provides
services to members of health maintenance organizations or policy holders of
insurance companies at negotiated rates. The Company believes that some of these
organizations, as a result of their strict guidelines, centralized
administration and geographic diversity, retain the Company because of its
ability to consistently offer quality services on a national basis. Moreover,
the Company believes that its ability to offer patients a wide variety of home
health care services will provide it with a competitive edge in obtaining
additional business from these organizations.
The Company's information systems provide for the input of information at
the branch office (including payroll, billing and other administrative
functions) which connects directly to its corporate headquarters in Lake
Success, New York. Generally, bills are rendered, payroll is processed and
collections are received at the corporate headquarters or at lock-boxes.
REIMBURSEMENT
Revenues generated from the Company's services are paid by insurance
carriers, health maintenance organizations, individuals, Medicare, Medicaid and
other state and local government health insurance programs. Approximately 19.4%
of the Company's revenues represent reimbursement from insurance carriers,
health maintenance organizations and individuals; 47.6% come from Medicare; and
31.7% come from Medicaid and other local government health programs. Medicare is
a Federally funded program available to persons with certain disabilities and
persons of age 65 or older. Medicaid, a program jointly funded by Federal and
state governments, and other local government health care programs is designed
to pay for certain health care and medical services provided to low income
individuals without regard to age.
The Company has 87 locations which are certified to provide home health
care services to Medicare patients. Medicare reimburses the Company for covered
items and services at the lower of the Company's cost, as determined by Medicare
regulations, or cost limits established by the Federal government. The Company
submits all Medicare claims to a single insurance company acting as a fiscal
intermediary which processes claims on behalf of the Federal government. The BBA
resulted in significant changes to cost based reimbursement for Medicare home
health care providers. Although the BBA retains a cost based reimbursement
system, the cost limits were reduced and new per-beneficiary limits were set for
home health care providers. The BBA provides two payment systems -- IPS, which
became applicable to the Company on March 1, 1998 and will remain in effect
until the adoption of the successor payment system, and a new prospective
payment system scheduled to be effective for all home health care agencies on or
after October 1, 2000. The Health Care Financing Administration ("HCFA")
committed to this revised schedule in a report presented to Congress dated
February 4, 1999. The effect of the changes under IPS is to reduce the limits
for the amount of costs that are reimbursable to home health care providers
under the Medicare program. Recently, management moved proactively to prepare
the Company for the impact of IPS and for long-term growth. As a result, the
Company implemented a corporate-wide restructuring and cost reduction program.
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The Company has approximately 50 offices which participate in the Periodic
Interim Payment program ("PIP"). Under PIP, the Company receives regular
bi-weekly payments based on past Medicare activity of participating offices,
which are adjusted quarterly for actual levels of activity. As presently amended
by the BBA, the PIP program will terminate for home health care providers
effective for fiscal years beginning on or after October 1, 1999. Offices which
are not participating in the PIP program receive payment for services upon
submission of individual claims.
The Company is also reimbursed for covered items by Medicaid. The Company
has approximately 90 offices in 24 states and the District of Columbia which are
approved to provide services to Medicaid recipients. Medicaid reimbursement
procedures vary from state to state.
GOVERNMENT REGULATION
The Company's business is subject to extensive and frequently changing
regulation by Federal, state and local authorities. This regulation includes
state licensing, obtaining a Certificate of Need ("CON") in certain states, and
Federal and state eligibility standards for certification as a Medicare and
Medicaid provider. The imposition of more stringent regulatory requirements or
the denial or revocation of any license or permit necessary for the Company to
operate in a particular market could have a material adverse effect on the
Company's operations.
The Federal government and all states in which the Company currently
operates regulate various aspects of the Company's business. HCFA must certify
home health agencies that seek to receive reimbursement for services from
Medicare. The Company has 111 offices in 26 states and the District of Columbia
which provide services covered by Medicare. As conditions of participation in
the Medicare program, HCFA requires a home health agency, among other things, to
satisfy certain standards with respect to: personnel and their supervision;
services and the documentation thereof; and the establishment of a professional
advisory group that must include at least one physician, one registered nurse
and other representatives from related disciplines or consumer groups.
Certain states require a provider of home health care services to obtain a
license before rendering services. Some states, including certain states in
which the Company presently operates, maintain CON legislation requiring an
office to file an application that must be approved by the appropriate state
authority before certain health care services can be provided in an area.
Approval depends upon, among other things, good character and competence,
financial capability and a demonstration that the need exists for such services.
In states having a CON requirement, HCFA will grant Medicare certification to an
office (so that the office may provide services covered by Medicare) only if the
office has obtained a CON.
New York State requires the approval by the Public Health Council of the
New York State Department of Health ("NYPHC") of any change in the "controlling
person" of an operator of a licensed health care services agency (an "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 such entity. A person
seeking approval as a controlling person of an operator of a LHCSA must file an
application for NYPHC approval within 30 days of becoming a controlling person,
and pending a decision by the NYPHC, such person may not exercise control over
the LHCSA. The Company has 10 offices in New York State which are LHCSAs. Such
offices account for approximately 15% of the Company's revenues. If any person
should become the owner or holder, or acquire control, of the right to vote 10%
or more of TLC Common Stock, such person could not exercise control of the
Company's LHCSAs until such ownership, control or holding has been approved by
the NYPHC.
FRANCHISE PROGRAM
The Company has utilized a unique form of franchising whereby it licenses
independent companies or contractors to represent the Company within a
designated territory using the Company's trade names and service marks. Of the
Company's 135 field offices, 65 are operated by 36 franchisees pursuant to the
terms of a franchise agreement with the Company. The Company's franchise program
has permitted it to quickly
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penetrate new markets and realize economies of scale. The program also has
enabled the Company to maintain stable local management by reducing personnel
turnover.
The Company is subject to a number of state laws that regulate certain
substantive aspects of the franchisor-franchisee relationship. The Company owns
all necessary health care related permits and licenses and, where required,
CON's for operation of franchise offices. The Company employs all direct service
employees. The franchisees recruit direct service personnel, solicit orders and
assign Company personnel, including registered nurses, therapists and home
health aides, to service the Company's clients. The Company pays and distributes
the payroll for the direct service personnel, administers all payroll
withholdings and payments, bills the customers and receives and processes the
accounts receivable. The franchisees are responsible for providing an office and
paying related expenses for administration including rent, utilities and costs
for administrative personnel. The Company includes all revenues and related
direct costs in its consolidated service revenues and operating costs.
Generally, the Company grants a ten year initial franchise term. A
franchisee has the option to extend for an additional five-year term, subject to
the franchisee adhering to the operating procedures and quality control
standards established by the Company. The initial franchise fee is currently
$29,500. When converting independently owned agencies into franchises, the
Company negotiates the terms of the conversion on a transaction-by-transaction
basis depending on the size of the agency, the nature of the agency's business
and the location of the agency.
The Company pays a distribution or commission to its domestic U.S.
franchisees based upon a defined formula of gross profit generated. Generally,
the Company pays the franchisee 60% of the gross profit attributable to the
non-Medicare operations of the franchise. The Company adjusts the payment to the
franchisees related to Medicare operations for cost limitations and
reimbursement of allowable Medicare costs.
The Company has an international franchise program using the Staff Builders
name and service marks. The Company has a master license agreement with
licensees in Japan and Brazil under which royalties are paid to the Company by
the licensee for certain services provided by the Company pertaining to the
transfer of home health care technology from the Company to the licensee. The
term of the Japanese master license agreement is five years with a five-year
additional term which may be exercised by the Company. The existing agreement in
Japan will expire on October 27, 2002. The Company received an initial license
fee of $1.2 million under the terms of this agreement.
The Company is currently not offering any home health care franchises.
However, if in the future the Company should offer and sell franchises, such
offers and sales will be subject to Federal and certain state franchise laws. If
the Company fails to comply with the franchise laws, rules and regulations of a
particular state relating to offers and sales of franchises, the Company will be
unable to engage in offering or selling franchises in or from such state. To
offer and sell franchises, the Federal Trade Commission requires the Company to
furnish to prospective franchisees a current franchise offering disclosure
document. The Company has used a Uniform Franchise Offering Circular ("UFOC") to
satisfy this disclosure obligation. The Company must update its UFOC annually or
upon the occurrence of certain material events. If a material event occurs, the
Company must stop offering and selling franchises until the UFOC is updated. In
addition, certain states require the Company to register or file its UFOC with
such states and to provide prescribed disclosures.
RECRUITING AND TRAINING
The Company and its franchisees recruit personnel principally through
referrals from other personnel, newspaper advertisements and direct mail
solicitations to nursing, paramedical and other recruiting sources. A large
percentage of these personnel are employed only when needed, and are paid for
the actual number of hours worked or visits made.
The Company has standardized procedures for recruiting, interviewing,
testing and reference checking prospective personnel. All nurses and therapists
must be licensed by the appropriate licensing authorities.
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Substantially all unlicensed health care personnel must be certified either
through a state-approved certification program or must have had previous
experience in providing direct patient care in a hospital, nursing home or in
the home. After selection, applicants receive instruction in the Company's
procedures and policies. Subsequently, they are included on a list of personnel
eligible for placement. The Company has an in-service training program for its
personnel which satisfies the requirements for certification required by certain
states.
In addition to personnel recruited and trained by the Company, the Company
contracts with third parties to meet its personnel requirements. These
contracted personnel must meet the same qualifications required of Company
personnel.
INSURANCE
The Company's employees make decisions which can have significant medical
consequences to the patients in their care. As a result, the Company is exposed
to substantial liability in the event of negligence or wrongful acts of its
personnel. The Company expects to be able to maintain medical professional and
general liability insurance providing for coverage in a maximum amount of $26
million per claim, subject to a limitation of $26 million for all claims in any
single year. In addition, franchisees must maintain general liability insurance
with coverage of at least $1 million.
COMPETITION
Although there are national home health care companies, the industry is
highly fragmented and competitors are often localized in particular geographical
markets. In general, there has been a trend toward consolidation in the health
care industry which is expected to continue, especially in light of the Federal
Medicare program's reductions in cost limits and establishment of per
beneficiary limits. The Company expects that it will continue to compete with
the national organizations as well as regional and local providers including
home health care providers owned or otherwise controlled by hospitals. Some of
the entities with which the Company competes have substantially greater
resources. In addition, the Company's operations depend, to a significant
degree, on its ability to recruit qualified health care personnel. Generally,
there is a shortage of qualified health care personnel and the Company faces
competition from other companies in recruiting. As a result, from time to time,
it has been difficult for the Company to hire personnel to meet demands for
services.
The Company believes that prompt service, price, quality and range of
services offered are the principal competitive factors which enable it to
compete effectively. The Company believes that its rate structure is competitive
with others in the industry. No single client or group contract accounts for ten
percent or more of the Company's consolidated revenues.
SERVICE MARKS
The Company believes that its service marks, Tender Loving Care(R), Staff
Builders(R), Staffline(R) and the Stick Figure Logo, have significant value and
are important to the marketing of its services. These names and marks are
registered as service marks with the United States Patent and Trademark Office.
The registration of the Staff Builders(R) service mark will remain in effect
through February 14, 2009, with respect to home care. The registration of the
Staffline(R) service mark will remain in effect through August 1, 2009. The
registration of the Stick Figure Logo service mark will remain in effect through
August 16, 2008. The registration of the Tender Loving Care(R) service mark will
remain in effect through January 8, 2005. Each of these marks is renewable for
additional ten-year periods, provided the Company continues to use them in the
ordinary course of business. The Company also owns other federally registered
marks for names used in connection with its business.
PERSONNEL AND EMPLOYEES
The Company has approximately 30,000 individuals who render home health
care services and the Company employs approximately 1,700 full-time
administrative and management personnel.
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The Company screens caregivers to ensure that they meet all licensing
requirements and the Company's eligibility standards. This screening process
includes skills testing, reference checking, professional license verification,
personal interviews and a physical examination. In addition, new employees
receive an orientation on the Company's policies and procedures prior to their
initial assignment. The Company is not a party to any collective bargaining
agreement and considers its relationship with its employees to be satisfactory.
Approximately 1,300 of the Company's administrative employees are located
at the Company's branch offices, and 400 are located at its corporate
headquarters in Lake Success, New York.
PROPERTIES
The Company's corporate headquarters consists of approximately 65,000
square feet of leased office space and 8,100 square feet of storage space in
Lake Success, New York. The lease for the corporate headquarters expires on
September 30, 2005 and provides for current annual rent of approximately $1.4
million, which increases annually by three percent. Approximately 2,030 square
feet of this space will be sublet to Staff Builders beginning on the
Distribution Date at an annual rent of $48,200, which rent increases annually by
three percent. See "The Distribution -- Arrangements between Staff Builders and
TLC Relating to the Distribution -- Sublease."
The Company believes that its headquarters office space is sufficient for
its immediate needs and that it will be able to obtain additional space as
needed in the future.
The Company leases substantially all of its branch office locations from
landlords unaffiliated with the Company or any of its executive officers or
directors. Most of these leases are for a specified term, although several of
them are month-to-month leases. There are 135 offices including 70 operated by
the Company and 65 operated by 36 franchisees; three of these franchise offices
sublease the office space from the Company and the remaining franchise offices
are owned by franchisees or are leased by the franchisee from third-party
landlords. The Company believes that it will be able to renew or find adequate
replacement offices for all leases which are scheduled to expire in the next
twelve months at comparable costs.
LEGAL PROCEEDINGS
On September 20, 1995, the United States Attorney for the Eastern District
of Pennsylvania alleged that (i) between 1987 and 1989, a corporation,
substantially all the assets and liabilities of which were acquired by a
subsidiary of the Company in 1993, submitted false claims to Medicare totaling
approximately $1.5 million and (ii) officers and employees of that corporation
submitted false statements in support of such claims, and made a pre-complaint
civil settlement demand of approximately $4.5 million. The alleged false claims
and false statements were made before the Company acquired that corporation in
1993. There have been significant discussions with the office of the United
States Attorney which the Company believes are likely to lead to an arbitration
within specified parameters.
On June 18, 1998, 6100 Cleveland, Inc., Orsinger Enterprises, Inc., and
First Choice Medical Staffing, Inc., three former home care and staffing
franchisees of the Company in Ohio, commenced an action in the United States
District Court for the Northern District of Ohio, Eastern Division against the
Company's subsidiary, Staff Builders International, Inc. The action sought to
recover damages and other relief alleging unpaid royalties, wrongful termination
by the Company of the Franchise Agreement between the Company and the
Plaintiffs, breach of contract and other damages. The Company answered the
complaint and moved for a change of venue. On December 1, 1998, Plaintiffs,
without the required permission of the Court, filed a Second Amended Complaint
alleging, in addition to the allegations contained in the prior Complaint,
claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"),
claiming a series of deliberate and illegal actions designed to put certain
Staff Builders franchisees out of business, as well as claims arising under New
York and Ohio loss of business opportunity statutes. The Second Amended
Complaint seeks money damages in excess of $25 million and a claim for treble
damages on the RICO claim. The Second Amended Complaint added as defendants
Staff Builders Services, Inc., and certain executive officers of the Company.
The Company has moved to dismiss the Second Amended Complaint challenging the
legal sufficiency of the RICO claims and other claims which allege a loss of
business opportunities under New York
31
<PAGE> 38
and Ohio laws. A companion case, 6100 Columbus, Inc. v. Staff Builders
International, Inc. was recently filed alleging breach of contract only. This
case will probably be consolidated with the previous case.
On December 21, 1998, H.L.N. Corporation, Frontlines Homecare, Inc.,
E.T.H.L., Inc., Phoenix Homelife Nursing, Inc., and Pacific Rim Health Care
Services, Inc., former home care franchisees of the Company for the territory
comprising certain counties in and around Los Angeles, California and their
holding company, instituted an action against the Company's subsidiaries, Staff
Builders, Inc., Staff Builders International, Inc., Staff Builders Services,
Inc., and certain executive officers of the Company in the Superior Court for
the State of California, County of Los Angeles. The action was removed to United
States District Court for the Central District of California on December 22,
1998. Plaintiffs filed a First Amended Complaint in the Central District on
January 8, 1999 to challenge the termination of the four franchise agreements
between the Company and certain of the named plaintiffs, seeking damages for
violations of California franchise law, breach of contract, fraud and deceit,
unfair trade practices, claims under the RICO, negligence, intentional
interference with contractual rights, declaratory and injunctive relief and a
request for an accounting. Plaintiffs seek an unspecified amount of damages.
Discovery is currently in process.
On July 17, 1998, the Federal government ordered that a complaint filed by
Ali Waris, the former owner of a home health care agency purchased by the
Company in 1993, be unsealed and served upon Staff Builders, Inc. and Targa
Group, Inc., a former franchisee of the Company. The government has elected not
to intervene in the action, in which Mr. Waris claimed damages for alleged
violations of the False Claims Act by the Company in connection with payments
made by the Company for consulting services. Following a motion to dismiss, on
March 4, 1999, the Court granted Mr. Waris leave to amend the Complaint, the
amended filing for which was served on March 31, 1999. The Company intends to
file a motion to dismiss the Amended Complaint.
The Company is a defendant in several civil actions which are routine and
incidental to its business. The Company purchases insurance in such amounts
which management believes to be reasonable and prudent.
Although the Company cannot estimate the ultimate cost of its open legal
matters with precision, it has an accrued loss contingency at November 30, 1998
and February 28, 1998 for the aggregate, estimated amount to resolve such
matters. In the opinion of management, the outcome of pending litigation will
not have a material adverse effect on the Company's consolidated financial
position or results of operations. However, unfavorable resolutions of these
actions could have an adverse impact on liquidity.
STAFF BUILDERS
After the Distribution Date, Staff Builders will provide supplemental
staffing to health care institutions, through its subsidiary, ATC Healthcare
Services, Inc. ("ATC") and to financial service, communications, manufacturing
and consulting clients through its subsidiary, Chelsea Computer Consultants,
Inc. ("Chelsea").
ATC provides its clients with registered nurses, licensed practical nurses,
medical technicians and other personnel, including "travel nurses" who take on
long-term arrangements far away from their homes. Health care institutions use
supplemental staffing to cover for peak periods, vacations, emergencies and
permanent positions for which they have openings. Chelsea provides highly
skilled information technology professionals on a contract basis.
ATC operates its own information systems network (including payroll,
billing and other administrative functions) for its operations which connects
its field offices with its corporate headquarters in Atlanta, Georgia. Chelsea
operates from its headquarters in New York City and a recruiting office in the
Philippines.
ATC and Chelsea together have 55 offices in 27 states of which three are
owned and operated by Staff Builders and 52 are operated by 39 franchisees.
Local offices are generally familiar with the operations, procedures and
policies of the institutions in their service areas and use this knowledge in
providing the training and orientation to their personnel. Accordingly, the
supplemental staffing personnel provided are able to assume responsibility
quickly and work effectively with the client's permanent staff members.
32
<PAGE> 39
MANAGEMENT
The following table sets forth information as to each director and each
executive officer of the Company as of the Distribution Date:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
THE PAST FIVE YEARS; OFFICE
NAME AGE TO BE HELD IN THE COMPANY
- ---- --- ---------------------------
<S> <C> <C>
Stephen Savitsky..................... 53 A founder of Staff Builders, Mr. Savitsky has
served as Chairman of the Board, Chief
Executive Officer and a Director of Staff
Builders since 1983 (and of its predecessor
from 1978 to 1983), and as President of Staff
Builders from November 1991 until November 30,
1998. Commencing on the Distribution Date, Mr.
Savitsky will be a Director and Chairman of the
Board and Chief Executive Officer of the
Company and will remain a Director, Chairman of
the Board and Chief Executive Officer of Staff
Builders. Mr. Savitsky is the brother of David
Savitsky.
Dale R. Clift........................ 48 Mr. Clift has been Executive Vice President of
Finance and Chief Financial Officer of Staff
Builders since February 1998. In addition,
since December 1, 1998, he has been Chief
Operating Officer of Staff Builders. From
January 1996 through February 1998, Mr. Clift
provided consulting services to a number of
companies, including several in the health care
industry. From April 1994 through January 1996,
Mr. Clift was Executive Vice President of Rock
Bottom Restaurants, Inc., a restaurant
operator. Commencing on the Distribution Date,
Mr. Clift will serve as a Director, President,
Chief Operating Officer and Chief Financial
Officer of the Company. As of the Distribution
Date, Mr. Clift will cease to serve as
Executive Vice President of Finance, Chief
Financial Officer and Chief Operating Officer
of Staff Builders and will serve as Senior Vice
President, Financial Strategy of Staff
Builders.
David Savitsky....................... 51 A founder of Staff Builders, Mr. Savitsky has
served as Secretary, Treasurer and a Director
of Staff Builders since 1983 (and of its
predecessor from 1978 to 1983), as Executive
Vice President from December 1987 until
November 30, 1998 and as Chief Operating
Officer from April 1991 until November 30,
1998. On December 1, 1998, Mr. Savitsky became
President of Staff Builders. Commencing on the
Distribution Date, Mr. Savitsky will serve as a
Director and Vice-Chairman, Government
Relations of the Company. As of the
Distribution Date, Mr. Savitsky will cease to
be the Secretary and Treasurer of Staff
Builders and will remain a Director and
President of Staff Builders. Mr. Savitsky is
the brother of Stephen Savitsky.
</TABLE>
33
<PAGE> 40
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING
THE PAST FIVE YEARS; OFFICE
NAME AGE TO BE HELD IN THE COMPANY
- ---- --- ---------------------------
<S> <C> <C>
Jonathan J. Halpert, Ph.D............ 54 Dr. Halpert has served as a Director of Staff
Builders since 1987. He previously served as a
Director of Staff Builders from May 1983 until
he resigned from the Board in February 1985.
Dr. Halpert is a consultant in the area of
deinstitutionalization of the mentally retarded
and Chief Executive Officer of the Camelot
Community Residence Program. Commencing on the
Distribution Date, Mr. Halpert will serve as a
Director of the Company and will remain a
Director of Staff Builders.
Bernard J. Firestone, Ph.D........... 50 Dr. Firestone has served as a Director of Staff
Builders since 1987. He is the dean of the
College of Liberal Arts and Sciences and
professor of political science at Hofstra
University, where he has been teaching for 23
years. Commencing on the Distribution Date, Dr.
Firestone will serve as a Director of the
Company and will remain a Director of Staff
Builders.
Willard T. Derr...................... 42 Mr. Derr has been Senior Vice President and
Corporate Controller of Staff Builders since
March 1998. From February 1993 to March 1998,
Mr. Derr served as Vice President and
Controller of a principal subsidiary of Staff
Builders. Commencing on the Distribution Date,
Mr. Derr will serve as Senior Vice President
and Corporate Controller of the Company and
will cease to serve as Senior Vice President
and Corporate Controller of Staff Builders.
Sandra Parshall...................... 51 Ms. Parshall has been Senior Vice President of
Operations of a principal subsidiary of Staff
Builders since March 1998. From September 1996
through March 1998, Ms. Parshall served as the
Vice President of Operations of a principal
subsidiary of Staff Builders. From June 1995 to
September 1996, Ms. Parshall served as a
regional director of operations of a principal
subsidiary of Staff Builders. From 1993 to
1995, Ms. Parshall was a Divisional Vice
President of Nursefinders, Inc., a home health
care and medical staffing company. As of the
Distribution Date, Ms. Parshall will continue
to serve as Senior Vice President of Operations
of a principal subsidiary of the Company.
Renee J. Silver...................... 43 Ms. Silver has been Vice President and General
Counsel of Staff Builders since November 1994.
From December 1990 to November 1994, Ms. Silver
was Vice President and General Counsel of
Career Horizons, Inc., a staffing and home
health care company. Commencing on the
Distribution Date, Ms. Silver will serve as
Vice President and General Counsel of the
Company and will cease to serve as Vice
President and General Counsel of Staff
Builders.
</TABLE>
34
<PAGE> 41
OPERATION OF THE BOARD OF DIRECTORS
The Board of Directors will be responsible for the overall affairs of the
Company. To assist it in carrying out its duties, certain authority will be
delegated to standing committees of the Board. Each director who is not an
officer or employee of the Company will receive a fee of $7,500 per annum for
service on the Company's Board of Directors. Directors who are officers or
employees of the Company will receive no fees for service on the Board.
COMMITTEES OF THE BOARD
Effective as of the Distribution Date, the Board of Directors of the
Company will have an Executive, Audit and Compensation and Stock Option
Committee comprised as follows:
<TABLE>
<CAPTION>
COMPENSATION AND
EXECUTIVE STOCK OPTION
COMMITTEE AUDIT COMMITTEE COMMITTEE
--------- --------------- ----------------
<S> <C> <C>
Stephen Savitsky Bernard J. Firestone Bernard J. Firestone
Dale R. Clift Jonathan J. Halpert Jonathan J. Halpert
David Savitsky
</TABLE>
The Executive Committee will be authorized to exercise all powers of the
Board when the Board is not in session, except as to matters upon which action
by the Board itself is required.
The Audit Committee generally will assist the Board with respect to
accounting, auditing and reporting practices.
The Compensation and Stock Option Committee will determine the cash and
other incentive compensation, if any, to be paid to the Company's executive
officers and other key employees. In addition, it will administer any option
plans of the Company. None of the members of the Compensation and Stock Option
Committee will be an employee of the Company.
35
<PAGE> 42
EXECUTIVE COMPENSATION
STAFF BUILDERS SUMMARY COMPENSATION TABLE
The Company was recently formed. None of the Company's executive officers
has received compensation from or on behalf of the Company since its formation.
The following sets forth the information for the last three fiscal years
concerning the compensation paid by Staff Builders to the chief executive
officer of the Company and the other individuals who are expected to be the four
other most highly compensated executive officers of the Company (the "Named
Executive Officers"). The compensation described in this table was provided by
Staff Builders. The individuals who rendered services to Staff Builders were, in
some cases, serving in capacities different from those in which they will be
providing services to TLC, and the table does not reflect the compensation to be
paid to executive officers of the Company in the future.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- ------------
SECURITIES
BONUS UNDERLYING
NAME AND PRINCIPAL POSITION WITH STAFF BUILDERS FISCAL YEAR SALARY COMPENSATION OPTIONS(#)
- ----------------------------------------------- ----------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Stephen Savitsky.............................. 1999 $594,991 -- 1,383,691
Chairman and Chief Executive 1998 $520,571 -- 580,691
Officer 1997 $474,704 -- --
Dale R. Clift................................. 1999 $244,781 $143,665(1) 700,000
Executive Vice President, Finance 1998 $ 13,599 $ 18,000(2) --
Chief Financial Officer and Chief 1997 -- -- --
Operating Officer
Sandra Parshall............................... 1999 $170,654 -- 75,000
Senior Vice President of 1998 $148,105 $ 25,000 --
Operations of a Principal 1997 $118,640 $ 14,250 25,000
Subsidiary
Willard T. Derr............................... 1999 $139,476 -- 50,000
Senior Vice President and 1998 $116,224 -- --
Corporate Controller 1997 $116,226 -- --
Renee J. Silver............................... 1999 $161,398 -- 40,000
Vice President and General Counsel 1998 $150,456 -- --
1997 $139,231 -- --
</TABLE>
- ---------------
(1) Bonus was paid to compensate for additional cost of living in the New York
metropolitan area as part of relocation.
(2) Sign on-bonus.
36
<PAGE> 43
STAFF BUILDERS OPTION GRANTS TABLE
The following table sets forth information with respect to the Named
Executive Officers concerning the grant of stock options to purchase Staff
Builders Common Stock during the fiscal year ended February 28, 1999. Staff
Builders did not have during such fiscal year, and currently does not have, any
plans providing for the grant of stock appreciation rights ("SARs").
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF % OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION GRANT DATE
NAME GRANTED FISCAL YEAR BASE PRICE DATE PRESENT VALUE(1)
- ---- ---------- ------------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Stephen Savitsky................. 397,000(2) 7.6% $.55 12/01/03 $166,740
Stephen Savitsky................. 1,383,691(3) 26.4% .59 12/01/08 636,498
Dale R. Clift.................... 333,333(4) 6.4% .50 12/01/08 153,333
Dale R. Clift.................... 366,667(3) 7.0% .53 12/01/08 168,667
Sandra Parshall.................. 25,000(2) 0.5% .50 12/01/08 11,500
Sandra Parshall.................. 50,000(3) 1.0% .53 12/01/08 23,000
Willard T. Derr.................. 40,000(3) 0.8% .53 12/01/08 18,400
Willard T. Derr.................. 10,000(4) 0.2% .50 12/01/08 4,600
Renee J. Silver.................. 25,000(4) 0.5% .50 12/01/08 11,500
Renee J. Silver.................. 15,000(2) 0.3% .50 12/01/08 6,900
</TABLE>
- ---------------
(1) The values shown were calculated utilizing the Black-Scholes option pricing
model and are presented solely for the purpose of comparative disclosure in
accordance with certain regulations of the Commission. This model is a
mathematical formula used to value traded stock price volatility. The actual
value that an executive officer may realize, if any, is dependent on the
amount by which the stock price at the time of exercise exceeds the exercise
price. There is no assurance that the value realized by an executive officer
will be at or near the value estimated by the Black-Scholes model. In
calculating the grant date present values, Staff Builders used the following
assumptions: (a) expected volatility of approximately 142%; (b) risk-free
rate of return of approximately 5.5%; (c) no dividends payable during the
relevant period; and (d) exercise at the end of a 10 year period from the
date of grant.
(2) Issued under the Staff Builders 1993 Stock Option Plan. Effective December
1, 1998, all options previously issued to the Named Executive Officers under
the Staff Builders 1993 Stock Option Plan were rescinded and new options
issued. Options become exercisable pursuant to the terms of the individual
option agreements. A total of 19,584 options are currently exercisable.
(3) Issued under the Staff Builders 1994 Performance-Based Stock Option Plan. On
March 19, 1998 options to purchase 500,000 shares issued to Stephen Savitsky
under the 1994 Performance-Based Stock Option Plan were rescinded and new
options issued. Effective December 1, 1998, all options previously issued to
the Named Executive Officers under the 1994 Performance-Based Stock Option
Plan were rescinded and new options issued. A percentage of options may
become exercisable in each of the four years following the grant date if
certain stock price targets are achieved. All options automatically become
exercisable on December 1, 2004. No options are currently exercisable.
(4) Issued under the Staff Builders 1998 Stock Option Plan. Options become
exercisable pursuant to the terms of the individual option agreements. No
options are currently exercisable.
37
<PAGE> 44
STAFF BUILDERS AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUE TABLE
The following table provides information concerning the number and value of
stock options to purchase Staff Builders Common Stock exercised during the
fiscal year ended February 28, 1999, and held at the end of such fiscal year, by
the Named Executive Officers. No SARs were exercised during such fiscal year,
and no SARs are held by any Named Executive Officer, because Staff Builders does
not have any plans providing for SARs.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS OPTIONS
ACQUIRED AT FEBRUARY 28, 1999 AT FEBRUARY 28, 1999
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- -------- -------- --------------------- --------------------
<S> <C> <C> <C> <C>
Stephen Savitsky...................... -- -- 334,000/1,780,691 0/0
Dale R. Clift......................... -- -- 0/700,000 0/0
Sandra Parshall....................... -- -- 8,334/66,666 0/0
Willard T. Derr....................... -- -- 0/50,000 0/0
Renee J. Silver....................... -- -- 11,250/28,750 0/0
</TABLE>
TLC OPTION GRANTS TABLE
The following table provides certain information concerning the stock
options which the Company expects to grant to its Named Executive Officers as of
the Distribution Date. The Company does not expect to grant any SARs as of such
date.
INDIVIDUAL OPTION GRANTS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO
NAME GRANTED(1) EMPLOYEES
- ---- ------------------ --------------------
<S> <C> <C>
Stephen Savitsky......................................... 400,000 19.7%
Dale R. Clift............................................ 500,000 24.6%
Sandra Parshall.......................................... 100,000 4.9%
Willard T. Derr.......................................... 75,000 3.7%
Renee J. Silver.......................................... 50,000 2.5%
</TABLE>
- ---------------
(1) All options are issued under the TLC 1999 Stock Option Plan (described
below). The exercise price for all options will be the average of the
closing bid and asked price of the TLC Common Stock on the Distribution
Date. Options granted to Stephen Savitsky will expire five years after the
Distribution Date. All other options will expire ten years after the
Distribution Date.
TLC 1999 STOCK OPTION PLAN
General
Prior to the Distribution Date, the Company will adopt the TLC 1999 Stock
Option Plan (the "TLC Stock Option Plan"). The primary purpose of the TLC Stock
Option Plan is to attract and retain capable key employees, directors and
consultants by offering such persons a greater personal interest in the
Company's business through stock ownership. Directors of the Company, key
employees and consultants of the Company and its subsidiaries deemed eligible by
the Compensation and Stock Option Committee are eligible for grants of stock
options under the TLC Stock Option Plan. The number of shares of TLC Common
Stock which are reserved for issuance upon the exercise of options granted under
the TLC Stock Option Plan is 2,750,000 shares. The Company intends to file a
registration statement on Form S-8 under the Securities Act to register the
shares of TLC Common Stock reserved for issuance under the TLC Stock Option
Plan. The TLC Stock Option Plan will terminate on the tenth anniversary of the
date it is approved by Staff Builders, as sole stockholder, unless terminated
earlier by the Board of Directors.
38
<PAGE> 45
The TLC Stock Option Plan will be administered by the Compensation and
Stock Option Committee. The Compensation and Stock Option Committee, in its sole
discretion, has the authority, among other things, to prescribe the form of the
agreement embodying awards of options made under the TLC Stock Option Plan, to
construe the terms of the TLC Stock Option Plan, to determine all questions
arising thereunder and to adopt and amend such rules and regulations for the
administration of the TLC Stock Option Plan as it may deem desirable; provided,
however, the terms, provisions and conditions of the agreement embodying awards
of options made under the TLC Stock Option Plan will include, but not be limited
to, such terms, provisions and conditions as may be necessary to provide the
Company with a compensation deduction if the optionee is required to recognize
ordinary income from the exercise or any disposition of the option or underlying
stock. Decisions of the Compensation and Stock Option Committee will be final,
conclusive and binding upon all parties.
Any options will become exercisable in such amounts, at such intervals and
upon such terms and conditions as the Compensation and Stock Option Committee
will provide, except that optionees must hold options granted to them under the
TLC Stock Option Plan for at least six months prior to exercise.
Generally, optionees may exercise options while they are employees of, or
providing services to, the Company or a subsidiary, or within a period of three
months thereafter. If the Company or a subsidiary has terminated the optionee
for cause, all unexercised options will automatically lapse. In the event of the
death of the optionee, the option must be exercised within nine months of the
date of the optionee's death unless the option otherwise expires prior to the
end of such nine-month period.
Options granted under the TLC Stock Option Plan are exercisable until the
earlier of (i) a date set by the Compensation and Stock Option Committee at the
time of grant, or (ii) ten years from their respective dates of grant. An
incentive stock option granted to an individual who owns, at the time of grant,
stock possessing more than ten percent of the total combined voting power of all
classes of stock of the Company or a subsidiary (a "Ten Percent Shareholder") is
exercisable for up to five years after the date of grant unless a shorter period
is designated by the Compensation and Stock Option Committee.
The aggregate fair market value (determined at the time an option is
granted) of stock with respect to which incentive stock options are exercisable
for the first time by an optionee during any calendar year (under all such plans
of the Company or its subsidiaries) will not exceed $100,000. The maximum number
of shares which may be subject to options granted under the TLC Stock Option
Plan to any individual in any fiscal year of the Company shall not exceed
500,000.
The exercise price of non-statutory stock options granted under the TLC
Stock Option Plan shall be determined by the Compensation and Stock Option
Committee. In no event, however, may the exercise price be less than the fair
market value of the shares covered by non-statutory stock options on the date of
grant. The exercise price of incentive stock options will not be less than the
fair market value of the shares covered by the options on the date of grant. In
the case of an incentive stock option granted to a Ten Percent Shareholder, the
exercise price cannot be less than 110% of such fair market value on the date of
grant. The Compensation and Stock Option Committee will determine the exercise
price of each option and the manner in which it may be exercised.
Payment for shares of TLC Common Stock purchased upon exercise of an option
granted under the TLC Stock Option Plan must be made in full at the time of
exercise. Upon the exercise of any option, the optionee will be required to pay
to the Company all Federal, state and local withholding taxes applicable to the
exercise of the option.
No award of options, or any right or interest therein, is assignable or
transferable except by will or the laws of descent and distribution. During the
lifetime of the optionee, options are exercisable only by the optionee or his
guardian or legal representative.
Subject to any required action by the Company's stockholders, the aggregate
number of shares of TLC Common Stock which may be purchased pursuant to options
granted under the TLC Stock Option Plan, the number of shares of TLC Common
Stock covered by each outstanding option and the per share option exercise price
will be adjusted by the Compensation and Stock Option Committee for any increase
or decrease
39
<PAGE> 46
in the number of outstanding shares of TLC Common Stock if there is a change in
the capital structure of the Company. Upon a sale of all or substantially all of
the assets of the Company, the discontinuance of business operations, the
dissolution or liquidation of the Company or a merger or consolidation in which
the Company is not the surviving corporation, the Company's Board of Directors
may amend or adjust the TLC Stock Option Plan and the outstanding options
thereunder so as to terminate the TLC Stock Option Plan, or to continue the TLC
Stock Option Plan with respect to the exercise of options which were exercisable
at the date the Board of Directors adopted the plan of sale, merger,
consolidation or liquidation or may take other actions as it deems desirable and
appropriate. In any such case, however, each optionee will be given either (i) a
reasonable time in which to exercise his options (to the extent possible under
the options' terms) before the effectiveness of the sale and discontinuation,
merger, consolidation or liquidation, or (ii) the right to obtain, upon payment
of the option price, an equivalent amount of any securities such optionee would
have been entitled to obtain in consequence of that event, had the optionee
exercised the options (to the extent possible under the options' terms)
immediately before the plan of sale and discontinuation, merger, consolidation
or liquidation was adopted.
The Compensation and Stock Option Committee or the Board of Directors may
from time to time amend, and the Board of Directors may terminate, the TLC Stock
Option Plan at any time without the approval of stockholders, provided that no
such action shall adversely affect options already granted thereunder without
the consent of the optionees and, provided further, that no amendment may be
made without the approval of the Company's stockholders if such stockholder
approval of the amendment is in order to comply with applicable law.
Federal Income Tax Considerations
The following is a summary of the federal income tax consequences of the
issuance and exercise of non-statutory stock options and incentive stock options
under the TLC Stock Option Plan to optionees and to the Company under the Code.
THE FOLLOWING DISCUSSION DOES NOT PURPORT TO BE COMPLETE AND DOES NOT COVER,
AMONG OTHER THINGS, STATE AND LOCAL TAX TREATMENT OF PARTICIPATION IN THE TLC
STOCK OPTION PLAN. FURTHERMORE, DIFFERENCES IN OPTIONEES' FINANCIAL SITUATIONS
MAY CAUSE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATION IN THE TLC
STOCK OPTION PLAN TO VARY. THEREFORE, EACH OPTIONEE IN THE TLC STOCK OPTION PLAN
IS URGED TO CONSULT HIS OWN ACCOUNTANT, LEGAL COUNSEL OR OTHER FINANCIAL ADVISOR
REGARDING THE PARTICULAR TAX CONSEQUENCES TO HIM OF PARTICIPATION IN THE TLC
STOCK OPTION PLAN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE OR LOCAL
TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.
Non-statutory Stock Options. The grant of a non-statutory stock option will
not result in the recognition of taxable income to the optionee for federal
income tax purposes or in deduction to the Company. Upon the exercise of a
non-statutory stock option, the optionee will recognize ordinary income for
federal income tax purposes in an amount equal to the excess of the fair market
value of the shares of TLC Common Stock over the option exercise price. Such
amount may be deductible by the Company if it complies with applicable
withholding requirements and the non-statutory stock option qualifies, if
necessary, as "performance-based" compensation under Section 162(m) of the Code
as discussed below.
If an optionee disposes of any shares of TLC Common Stock received upon the
exercise of a non-statutory stock option, such optionee will recognize a capital
gain or loss for federal income tax purposes equal to the difference between the
amount realized on the disposition of such shares and the fair market value of
such shares at the time the option was exercised. The gain or loss will be
either long-term or short-term, depending on the holding period. The Company
will not be entitled to any tax deduction in connection with such disposition of
shares.
Incentive Stock Options. In general no income will be recognized, for
federal income tax purposes, by the optionee and no deduction will be allowed to
the Company at the time of the grant or the time of exercise of an incentive
stock option.
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<PAGE> 47
When the shares of TLC Common Stock received upon the exercise of an
incentive stock option are sold, the optionee will recognize long-term capital
gain or loss for federal income tax purposes equal to the difference between the
amount realized and the option exercise price of the incentive stock option
relating to such shares, provided that the shares are not sold earlier than two
years from the date of grant of the option and one year from the date the shares
are transferred to the optionee. If the above-mentioned holding period
requirements of the Code are not met, the subsequent sale of the shares of TLC
Common Stock received upon the exercise of an incentive stock option is a
"disqualifying disposition." In general, an optionee will recognize taxable
income for federal income tax purposes at the time of a disqualifying
disposition as follows: (i) ordinary income in an amount equal to the difference
between the option exercise price and the lesser of (a) the fair market value of
the shares of TLC Common Stock on the date the incentive stock option was
exercised and (b) the amount realized on such disqualifying disposition and (ii)
capital gain or loss to the extent of any difference between the amount realized
on such disqualifying disposition and the fair market value of the shares of TLC
Common Stock on the date the incentive stock option was exercised. Any capital
gain or loss will be long-term or short-term depending upon the holding period
of the shares that are sold. Under these circumstances, the Company may be
entitled to claim a deduction at the time of the disqualifying disposition equal
to the amount taxable to the optionee as ordinary income.
The difference between the option exercise price and the fair market value
of the shares of TLC Common Stock on the date the option is exercised will
constitute an adjustment to taxable income for the year of exercise for purposes
of the alternative minimum tax imposed under the Code. In computing alternative
minimum taxable income in the year of disposition of the shares acquired through
the exercise of an incentive stock option, the tax basis of such shares will be
the fair market value on the date of exercise.
In general, under Section 162(m) of the Code, compensation expense
deductions of publicly-held corporations may be limited to the extent total
compensation (including base salary, annual bonus, stock option exercises and
non-qualified benefits paid) for certain executive officers exceeds $1 million
in any one year. However, under Section 162(m), the deduction limit does not
apply to certain "performance-based compensation" established by an independent
compensation committee which is adequately disclosed to, and approved by, the
Company's stockholders.
The Company has attempted to structure the TLC Stock Option Plan in such a
manner that, subject to obtaining stockholder approval of the TLC Stock Option
Plan, the remuneration attributable to such plan which meet the other
requirements of Section 162(m) will not be subject to the $1,000,000 limitation.
The Company has not, however, requested a ruling from the IRS or an opinion of
counsel regarding this issue.
EMPLOYMENT AGREEMENTS
Effective as of the Distribution Date, the Company will enter into a
five-year employment agreement with Stephen Savitsky under which Mr. Savitsky,
as Chairman and Chief Executive Officer of the Company, will receive an initial
base salary of $295,374 per year, plus annual cost of living increases. Mr.
Savitsky's employment agreement will be automatically extended at the end of
each year for an additional year and is terminable by the Company upon five
years' notice. Mr. Savitsky's employment agreement will provide that, upon a
"change of control" of the Company and his termination of employment (other than
for his conviction of a felony) within 12 months thereafter, he will be entitled
to receive a lump sum severance payment equal to 2.99 times his average annual
compensation for the five calendar years prior to termination. Mr. Savitsky will
be required to devote approximately one-half of his business time to the affairs
of the Company and his employment agreement will provide that during the term of
his employment and for a period of six months thereafter he will not compete
with the Company.
As of the Distribution Date, the Company will enter into a five-year
employment agreement with Dale R. Clift to serve as President, Chief Operating
Officer and Chief Financial Officer of the Company. The employment agreement
will provide for a base salary of $400,000 per annum, plus annual cost of living
increases. Under his employment agreement, Mr. Clift is required to devote his
full business time to the affairs of the Company, subject to his limited duties
as an employee of Staff Builders. The remainder of Mr. Clift's
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<PAGE> 48
employment agreement is substantially similar to Stephen Savitsky's employment
agreement with the Company.
As of the Distribution Date, the Company will enter into a three-year
employment agreement with Willard T. Derr to serve as Senior Vice President and
Corporate Controller of the Company. The employment agreement will provide for a
base salary of $160,000 per annum. In addition, the Company will lease an
automobile for Mr. Derr's use until October 1999 and thereafter Mr. Derr will
receive an automobile allowance of $300 per month. If within 12 months after a
"change of control" Mr. Derr's employment is terminated other than for "cause,"
he will be entitled to receive a lump sum severance payment equal to 2.99 times
his average annual compensation for the five calendar years prior to
termination. A termination is for "cause" if Mr. Derr is insubordinate,
materially breaches the terms of his employment agreement, engages in willful
misconduct, acts in bad faith, commits a felony or perpetrates a fraud against
the Company. Under his employment agreement, Mr. Derr is obligated to devote his
full business time to the affairs of the Company, subject to his limited
consulting duties to Staff Builders, and he is prevented from competing with the
Company during his employment with the Company and for six months thereafter and
from soliciting any employees or customers of the Company during the term of his
employment and for 12 months thereafter. Effective as of the Distribution Date,
Mr. Derr's current employment agreement with Staff Builders will be terminated
and Mr. Derr will enter into a one-year consulting agreement with Staff Builders
where he will provide his services in connection with the transition of the
business for $1,000 per month.
As of the Distribution Date, the Company will enter into a three-year
employment agreement with Renee J. Silver to serve as Vice President and General
Counsel of the Company. The employment agreement will provide for a base salary
of $170,000 per annum. If within 12 months after a "change of control" Ms.
Silver's employment is terminated other than for "cause", she will be entitled
to receive a lump sum severance payment equal to 2.99 times her average annual
compensation for the five calendar years prior to termination. A termination is
for "cause" if Ms. Silver is insubordinate, materially breaches the terms of her
employment agreement, engages in willful misconduct, acts in bad faith, commits
a felony or perpetrates a fraud against the Company. Ms. Silver is obligated to
devote her full business time to the Company, subject to her limited consulting
duties for Staff Builders, and she is prevented from competing with the Company
during her employment with the Company and for six months thereafter and from
soliciting any employees or customers of the Company during the term of her
employment and for 12 months thereafter. Effective as of the Distribution Date,
Ms. Silver's current employment agreement with Staff Builders will be terminated
and Ms. Silver will enter into a one-year consulting agreement with Staff
Builders where she will provide her services in connection with the transition
of the business for $1,000 per month.
A principal subsidiary of the Company has entered into a three-year
employment agreement with Sandra Parshall to serve as its Vice President of
Operations until February 28, 2002. The employment agreement provides for an
annual base salary of $204,000. In addition, the Company leases an automobile
for Ms. Parshall's use at an annual cost of approximately $6,400. If within 12
months after a "change of control" Ms. Parshall's employment is terminated other
than for "cause", she will be entitled to receive a lump sum severance payment
equal to 2.99 times her average annual compensation for the five calendar years
prior to termination. A termination is for "cause" if Ms. Parshall is
insubordinate, materially breaches the terms of her employment agreement,
engages in willful misconduct, acts in bad faith, commits a felony or
perpetrates a fraud against the Company. The employment agreement requires Ms.
Parshall to devote her full business time to the affairs of the Company and
prevents her from competing with the Company during her employment with the
Company and for six months thereafter and from soliciting any employees or
customers of the Company during the term of her employment and for 12 months
thereafter.
If after the Distribution Date, but prior to the next anniversary date of
the respective employment agreements of the officers described above, a "change
of control" were to occur and such officers' employment relationships with the
Company were to terminate for reasons triggering the severance payments noted
above, then the Company would be obligated to make lump sum payments to Stephen
Savitsky, Dale R. Clift, Willard T. Derr, Renee J. Siler and Sandra Parshall in
the amounts of $883,168, $1,196,000, $478,400, $508,300, and $609,960,
respectively. The severance payments payable would change as a result of changes
in such individuals' compensation. The term "change of control" as used in the
employment agreements with the
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<PAGE> 49
Company's executive officers refers to an event in which a person, corporation,
partnership, association or entity (i) acquires a majority of the Company's
outstanding voting securities, (ii) acquires securities of the Company bearing a
majority of voting power with respect to election of directors of the Company,
or (iii) acquires all or substantially all of the Company's assets.
CERTAIN TRANSACTIONS
As of the Distribution Date, four of the Company's directors will also be
directors of Staff Builders and two of the Company's directors will be executive
officers of Staff Builders. Also as of the Distribution Date, two executive
officers of TLC will be employed by Staff Builders and two executive officers of
TLC will serve as consultants to Staff Builders.
Effective as of the Distribution Date, the Company will enter into a
five-year employment agreement with David Savitsky under which Mr. Savitsky, as
Vice Chairman, Government Relations of the Company, will receive an initial base
salary of $110,000 per year, plus annual cost of living increases. Mr.
Savitsky's employment agreement will be automatically extended at the end of
each year for an additional year and is terminable by the Company upon five
years' notice. Mr. Savitsky's employment agreement will provide that, upon a
"change of control" of the Company and his termination of employment (other than
for his conviction of a felony) within 12 months thereafter, he will be entitled
to receive a lump sum severance payment equal to 2.99 times his average annual
compensation for the five years prior to termination. Mr. Savitsky will be
required to devote approximately 20% of his business time to the affairs of the
Company and his employment agreement will provide that during the term of his
employment and for a period of six months thereafter he will not compete with
the Company.
Stephen Savitsky and Staff Builders are party to a five-year employment
agreement dated June 1, 1987, under which Mr. Savitsky currently receives a base
salary of $590,747 per year, plus annual cost of living increases. Mr.
Savitsky's employment agreement automatically extends at the end of each year
for an additional year and is terminable by the Company upon five years' notice.
If within 12 months after a "change of control" Mr. Savitsky's employment is
terminated (other than for his conviction of a felony), Mr. Savitsky is entitled
to receive a lump sum severance payment equal to 2.99 times his average annual
compensation for the five years prior to termination. Mr. Savitsky's employment
agreement provides that during the term of his employment and for a period of
six months thereafter he will not compete with Staff Builders. The employment
agreement between Mr. Savitsky and Staff Builders will remain in effect after
the Distribution Date, but will be amended to reduce his base salary to
$295,373, plus annual cost of living increases, and to eliminate his annual
post-termination consulting fee and his annual 10% salary increase.
David Savitsky and Staff Builders are party to an employment agreement
dated June 1, 1987 under which Mr. Savitsky currently receives a base salary of
$467,080 per year, plus annual cost of living increases. The remainder of the
terms of Mr. Savitsky's employment agreement with Staff Builders are
substantially similar to Stephen Savitsky's employment agreement terms. The
employment agreement between Mr. Savitsky and Staff Builders will remain in
effect after the Distribution Date, but will be amended to reduce his base
salary to $357,080, plus annual cost of living increases, and to eliminate his
annual post-termination consulting fee and his annual 10% salary increase.
Dale R. Clift and Staff Builders are party to a four-year employment
agreement dated February 9, 1998 under which Mr. Clift currently receives a base
salary of $300,000 per year. The employment agreement between Mr. Clift and
Staff Builders will remain in effect after the Distribution Date, but will be
amended to reduce his annual base salary to $24,000, to change his position to
Senior Vice President, Financial Strategy and change his duties accordingly, and
to eliminate his severance payment and certain benefits.
Effective April 1, 1992, the Company approved the sale by CTR Management
Corp. ("CTR") of a home care franchise for Nassau County, New York to Bayit Care
Corp. ("BCC"). The stockholders, officers and directors of BCC are Stuart
Savitsky, son of Stephen Savitsky, Samuel Schreier, the son-in-law of Stephen
Savitsky, and Julie Schreier, the daughter of Stephen Savitsky. The terms and
conditions of the franchise agreement between the Company and BCC, entered into
at the time of the sale, are substantially similar to
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those for other franchisees of the Company, including the term of ten years with
a five year renewal option. In connection with the acquisition of its franchise,
CTR purchased certain assets of an existing branch office of the Company for
$911,000. The purchase price was evidenced by a promissory note, dated August
30, 1989. BCC purchased the franchise from CTR by assuming this promissory note
which, at the time of BCC's purchase of the franchise, had an outstanding
principal balance of $844,573 (the "BCC Note"). The terms of the BCC Note
originally provided for repayment of the outstanding principal amount in 120
consecutive monthly installments of $7,038 each, commencing May 1, 1994,
together with interest at 3% over the prime rate, payable monthly. Effective
June 1, 1994, the BCC Note was amended and restated to (i) provide for the
repayment of the outstanding principal amount over a fifteen (15) year period,
and (ii) reduce the interest rate to the prime rate. The amended principal
payment schedule requires fixed monthly principal payments of $3,500 each with
all unpaid principal due at the end of the fifteen (15) year period or earlier
upon the termination of the franchise agreement for such franchise. The BCC Note
is secured by all of the franchisee's assets. The Company restructured the BCC
Note because it found the additional monthly expense associated with the start
of the principal repayment schedule in May 1994 to have a clear negative impact
on the franchisee's ability to operate the franchise. As described in greater
detail below, during the nine months ended November 30, 1998, the Company
retained $42,512 from the amount otherwise due to BCC under the terms of its
franchise agreement as interest payments on the BCC Note. The outstanding
balance of the BCC Note was $659,073 at November 30, 1998.
During the period from March 1, 1998 through February 1, 1999, Boro Care
Corp. ("Boro") operated a home care franchise for Bronx, Kings, New York and
Queens counties in New York. Stuart Savitsky and Samuel Schreier each own 45% of
the capital stock of Boro. To acquire the franchise, Boro agreed to pay a
$29,500 franchise fee, payable in 12 consecutive monthly payments of $2,458
commencing March 1, 1998. As part of the franchise transaction, Boro purchased
certain assets for $50,000 and issued a $50,000 promissory note (the "First Boro
Note") to the Company with respect to such purchase. Boro also received a
$200,000 line of credit and issued a $200,000 promissory note (the "Second Boro
Note") to the Company with respect to such line of credit. The terms of the
First Boro Note required repayment of the $50,000 in 108 consecutive monthly
payments of principal plus interest, computed at 3% over prime, commencing March
1, 1999. The terms of the Second Boro Note required monthly payments of
interest, computed at 3% over prime, commencing 30 days after the first
withdrawal of funds on the available line of credit. Monthly principal payments
are required commencing 24 months after the first withdrawal of funds on the
available line of credit, through the expiration date of the line of credit on
March 1, 2006. The outstanding balance of the Second Boro Note was $152,974 at
November 30, 1998. The terms and conditions of the franchise agreement between
the Company and Boro are substantially similar to those for other franchises of
the Company, except that the Boro franchise agreement provides the franchise
with two additional five-year renewal options. Effective February 1, 1999, the
Company repurchased the franchise territories from Boro and the franchise
agreement was terminated in an arm's length transaction. The purchase price paid
by the Company was $1.00 plus the forgiveness of $286,548 in debt owed by Boro
to the Company, including amounts owed as of February 1, 1999 pursuant to the
First Boro Note and Second Boro Note noted above. The terms of the termination
agreement, including the forgiveness of debt, are substantially similar to those
for other recently terminated franchises.
Under the Company's franchise program, the Company processes and pays the
payroll to the field employees who service clients and invoices the clients for
such services. Each month the Company pays the franchisee 60% of the gross
margin dollars (in general, the difference between the amount so invoiced and
the payroll and related expenses for such field employees) from the franchisee's
business for the prior month's activity. Franchisees are responsible for their
general and administrative expenses, including office payroll. If the franchisee
elects, the Company will process payment of the franchisee's office payroll and
some or all of the franchisee's other administrative expenses, and withhold the
amount so expended from the 60% gross margin otherwise due the franchisee.
During the nine months ended November 30, 1998, the Company paid BCC $124,842
under the terms of its franchise agreement, representing a 60% gross margin of
$962,207 less $42,510 and $31,500 of interest and principal, respectively,
withheld on the BCC Note and $763,355 withheld for administrative expenses.
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In order to facilitate the acquisition of a franchise by a willing
prospective franchisee, the Company will frequently accept a promissory note as
consideration for the purchase from the Company of an existing branch location
and will occasionally advance expenses to a franchisee. The Company's
transactions with BCC and Boro described above are consistent with this business
purpose and with accommodations which have been granted to other, unaffiliated
franchisees.
Although the Company has no formal policy regarding transactions with
affiliates, it does not intend to enter into a transaction with any affiliate on
terms less favorable to the Company than those it would receive in an arm's
length transaction with an unaffiliated party.
OWNERSHIP OF SECURITIES BY CERTAIN BENEFICIAL
OWNERS, DIRECTORS AND EXECUTIVE OFFICERS
Prior to the Distribution, 100% of the issued and outstanding shares of TLC
Common Stock is owned by Staff Builders. Based on the number of outstanding
shares of Staff Builders Common Stock on April 5, 1999, the following table sets
forth the number of shares of TLC Common Stock and the approximate percent
expected to be beneficially owned immediately following the Distribution by (i)
each person expected to own more than 5% of any class of voting securities of
the Company, (ii) each director of the Company, (iii) the Company's Named
Executive Officers, and (iv) all directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
---------------------------------
NUMBER OF PERCENTAGE OF
NAME OF SHARES OF OUTSTANDING SHARES
BENEFICIAL OWNER COMMON STOCK OF COMMON STOCK
- ---------------- ------------ ------------------
<S> <C> <C>
Stephen Savitsky(2)......................................... 1,285,369(3) 10.9%
Dale R. Clift(2)............................................ -- --
David Savitsky(2)........................................... 1,313,268(4) 11.1%
Bernard J. Firestone(2)..................................... 1,050(5) *
Jonathan J. Halpert(2)...................................... -- --
Sandra Parshall(2).......................................... 2,033 *
Willard T. Derr(2).......................................... 2,000 *
Renee J. Silver(2).......................................... 2,975 *
S Squared Technology Corp.(6)............................... 1,307,250 11.1%
Dimensional Fund Advisors, Inc.(7).......................... 686,230 5.8%
All executive officers and directors as a group (8
persons).................................................. 2,606,695 22.0%
</TABLE>
- ---------------
* Less than one percent
(1) "Beneficial ownership" is determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended. In general, a person is treated
as the "beneficial owner" of stock under Rule 13d-3 if such person has (or
shares) (i) either investment power or voting power over such stock (which
may be by means of a contract, arrangement, understanding, relationship or
otherwise), or (ii) the right to acquire such stock within 60 days,
including by means of the exercise of an option or the conversion of a
convertible security. Each beneficial owner's percentage of ownership and
percentage of votes is determined by assuming that options that are held by
such person (but not those held by any other person) and which are
exercisable within 60 days of the date of this table have been exercised.
Except as indicated in the footnotes that follow, shares listed in the table
are held with sole voting and investment power.
(2) The address of each of these persons is c/o Staff Builders, Inc., 1983
Marcus Avenue, Lake Success, New York 11042. Each of these persons has sole
power with respect to the voting and investment of the shares which he owns.
(3) Includes 30,000 shares of TLC Common Stock held by Mr. Savitsky's wife as
trustee for the benefit of one of their children. Mr. Savitsky disclaims
beneficial ownership of these shares.
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(4) Includes 3,725 shares of TLC Common Stock held by Mr. Savitsky's wife, 500
shares of TLC Common Stock held by his wife as trustee for the benefit of
their three children, 100,000 shares of TLC Common Stock held by his wife as
trustee for the benefit of two of their children, 800 shares of TLC Common
Stock held by his wife as trustee for the benefit of one of their children,
and 50,600 shares of TLC Common Stock held by one of his children. Mr.
Savitsky disclaims beneficial ownership of these shares.
(5) Includes 500 shares of TLC Common Stock held by Dr. Firestone's wife. Dr.
Firestone disclaims beneficial ownership of these shares.
(6) S Squared Technology Corp. ("S Squared"), a registered investment adviser,
is located at 515 Madison Avenue, New York, New York 10022. Includes
1,201,250 shares of TLC Common Stock for which S Squared has sole voting and
sole investment power and 106,000 shares of TLC Common Stock for which S
Squared has shared voting and shared investment power. The shares are owned
by limited partnerships for which S Squared is the sole general partner, by
advisory clients of S Squared, and by Seymour Goldblatt, the principal of S
Squared, and members of his family.
(7) Dimensional Fund Advisors, Inc. ("Dimensional"), a registered investment
advisor, is located at 1299 Ocean Avenue, Santa Monica, California 90401.
Dimensional is deemed to have beneficial ownership of 686,230 shares of TLC
Common Stock, all of which shares are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company, or in
series of the DFA Investment Trust Company, a Delaware business trust, or
the DFA Group Trust and DFA Participation Group Trust, investment vehicles
for qualified employee benefit plans, all of which Dimensional Fund Advisors
Inc. serves as investment manager. Dimensional disclaims beneficial
ownership of all such shares.
DESCRIPTION OF CAPITAL STOCK
COMPARISON OF RIGHTS OF STOCKHOLDERS
TLC is incorporated under the laws of the State of Delaware. The
Certificate of Incorporation and By-laws of TLC are identical to those of Staff
Builders in all material respects, except for the number of authorized shares of
capital stock. As a result, there are no significant differences between the
rights of holders of shares of Staff Builders Common Stock and the rights of
holders of TLC Common Stock.
TLC COMMON STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of common stock, par value $.01 per share. Holders of shares of TLC Common Stock
are entitled to one vote per share on all matters to be voted upon by the
stockholders and are not entitled to cumulate votes for the election of
directors. Subject to preferences that may be applicable to any outstanding
preferred stock, holders of shares of TLC Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by TLC's
Board of Directors out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of the Company, the holders of shares of
TLC Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of preferred stock,
if any, then outstanding. Holders of TLC Common Stock have no preemptive,
conversion or other subscription rights and there are no redemption or sinking
fund provisions applicable to TLC Common Stock. After the completion of the
Distribution, there are expected to be approximately 11,809,694 shares of TLC
Common Stock outstanding, held of record by approximately 750 persons, excluding
shares of TLC Common Stock issuable upon the exercise of TLC's stock options
expected to be granted pursuant to the TLC Stock Option Plan.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
5,000,000 shares of preferred stock. The Company's Board of Directors has the
authority to issue preferred stock in one or more series and to fix for each
such series the voting powers, full, limited or none, and the designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereon, and
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<PAGE> 53
the number of shares constituting any series and the designations of such
series, without any further vote or action by the stockholders of the Company.
Because the terms of the preferred stock may be fixed by the Company's Board of
Directors without stockholder action, the preferred stock could be issued
quickly with terms calculated to defeat a proposed takeover of the Company or to
make the removal of management of the Company more difficult. Under certain
circumstances, this could have the effect of decreasing the market price of TLC
Common Stock. The Company has not issued and does not presently intend to issue
any shares of preferred stock.
NO PREEMPTIVE RIGHTS
No holder of any class of stock of the Company authorized at the time of
the Distribution will have any preemptive right to subscribe for or purchase any
kind or class of securities of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the TLC Common Stock is American Stock
Transfer and Trust Company.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("DGCL"). In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder. An "interested stockholder" is
a person who, together with affiliates and associates, owns (or, in certain
cases, within three years prior, did own) 15% or more of the corporation's
voting stock. These restrictions do not apply where:
(i) the business combination or the transaction in which the
stockholder becomes interested is approved by the corporation's board of
directors prior to the time the interested stockholder acquired its shares;
(ii) the interested stockholder acquired at least 85% of the
outstanding voting stock of the corporation in the transaction in which the
stockholder became an interested stockholder excluding, for purposes of
determining the number of shares outstanding, shares owned by persons who
are directors as well as officers and by employee stock plans in which
participants do not have the right to determine confidentiality whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
(iii) the business combination is approved (not by written consent) by
the board of directors and the affirmative vote of two-thirds of the
outstanding voting stock not owned by the interested stockholder at an
annual or special meeting.
The business combinations provisions of Section 203 of the DGCL may have
the effect of deterring merger proposals, tender offers or other attempts to
effect changes in control of the Company that are not negotiated with and
approved by the Company's Board of Directors.
Certain provisions of the Company's Certificate of Incorporation and the
By-laws may have the effect, either alone or in combination with each other, of
making more difficult or discouraging a tender offer, takeover attempt or change
in control that is opposed by the Company's Board of Directors but that a
stockholder might consider to be in the Company's best interest. The Company
believes that such provisions are necessary to enable the Company to develop its
business in a manner that will foster its long-term growth without the
disruption caused by the threat of a takeover not deemed by the Company's Board
of Directors to be in the best interests of the Company and its stockholders.
These provisions are summarized in the following paragraphs.
47
<PAGE> 54
Classified Board of Directors
The Company's Certificate of Incorporation and By-laws provide that the
Company's Board of Directors will be divided into three classes of directors,
with the classes to be as nearly equal in number as possible. The Board of
Directors consists of the persons referred to in "Management." One-third of the
Board of Directors will continue to serve until the 2000 Annual Meeting of
Stockholders; one-third will continue to serve until the 2001 Annual Meeting of
Stockholders; and one-third will continue to serve until the 2002 Annual Meeting
of Stockholders. Of the initial directors, Mr. Stephen Savitsky will serve until
the 2000 Annual Meeting of Stockholders; Messrs. David Savitsky and Jonathan J.
Halpert will serve until the 2001 Annual Meeting of Stockholders; and Messrs.
Dale R. Clift and Bernard J. Firestone will serve until the 2002 Annual Meeting
of Stockholders. Starting with the 2000 Annual Meeting of Stockholders, one
class of directors will be elected each year for a three-year term.
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the Company's Board of
Directors. At least two annual meetings of stockholders, instead of one, will
generally be required to effect a change in a majority of the Board of
Directors. Such a delay may help ensure that the Company's directors, if
confronted by a holder attempting to force a proxy contest, a tender or exchange
offer, or an extraordinary corporate transaction would have sufficient time to
review the proposal as well as any available alternatives to the proposal and to
act in what they believe to be the best interest of the stockholders. The
classification provisions will apply to every election of directors, regardless
of whether a change in the composition of the Board of Directors would be
beneficial to the Company and its stockholders and whether or not a majority of
the Company's stockholders believe that such a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and its stockholders. The classification of the
Board of Directors could thus increase the likelihood that incumbent directors
will retain their positions. In addition, because the classification provisions
may discourage accumulations of large blocks of TLC Common Stock by purchasers
whose objective is to take control of the Company and remove a majority of the
Board of Directors, the classification of the Board of Directors could tend to
reduce the likelihood of fluctuations in the market price of TLC Common Stock
that might result from accumulations of large blocks for such a purpose.
Accordingly, stockholders could be deprived of certain opportunities to sell
their shares of TLC Common Stock at a higher market price than might otherwise
be the case.
Number of Directors; Removal of Directors; Vacancies
As of the Distribution Date, the number of directors of the Company will be
five. The By-laws provide that the number of directors (as well as the number of
each class of directors) may be increased or decreased by a resolution adopted
by the vote of the majority of the entire Board of Directors then in office. The
Company's Certificate of Incorporation and By-laws also provides that, subject
to the rights of holders of any preferred stock then outstanding, a director or
the entire Board of Directors may be removed only for cause by the affirmative
vote of the holders of at least 80% of the outstanding shares of the Company
then entitled to vote generally in the election of directors, voting as a single
class (without a separate vote of the holders of the preferred stock). Subject
to the rights of holders of any outstanding preferred stock then outstanding,
vacancies on the Board of Directors may be filled only by a majority of the
members of the Board of Directors then in office, whether or not they constitute
a quorum of directors. The affirmative vote of the holders of at least 80% of
the voting power of the outstanding TLC Common Stock is required to amend, alter
or repeal the foregoing provisions.
Special Meeting of Stockholders; No Stockholder Action by Written Consent;
Stockholder Action at Meetings
The Certificate of Incorporation and By-laws provide that special meetings
of the stockholders may only be called by the Board of Directors. Any action
required or permitted to be taken by the stockholders must be
48
<PAGE> 55
effected at a duly called annual or special meeting and may not be effected by
any consent in writing by such stockholders. The affirmative vote of the holders
of at least 80% of the voting power of the outstanding TLC Common Stock is
required to amend, alter or repeal the foregoing provisions.
Supermajority Voting in Change of Control Transactions
The Certificate of Incorporation provides that the affirmative votes of the
holders of at least (i) 80% of the then outstanding shares of TLC Common Stock
entitled to vote generally in the election of directors, and (ii) 66% of the
then outstanding shares of each series of preferred stock then issued and
outstanding are required before an Interested Stockholder can consummate certain
business combinations with the Company if such transactions are not approved by
a majority of the Continuing Directors. A "Continuing Director" means any member
of the Company's Board of Directors who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors prior to the time that
the Interested Stockholder became an Interested Stockholder, and any successor
of a Continuing Director who is unaffiliated with the Interested Stockholder and
is recommended to succeed a Continuing Director by a majority of Continuing
Directors then on the Board of Directors. According to the Company's Certificate
of Incorporation, an "Interested Stockholder" means any person (other than the
Company or any subsidiary) who or which: (i) is the beneficial owner, directly
or indirectly, of more than 10% of the voting power of the outstanding voting
stock; or (ii) is an affiliate of the Company and at any time within the
two-year period immediately prior to the date in question was the beneficial
owner, directly or indirectly, of 10% or more of the voting power of the then
outstanding voting stock; or (iii) is an assignee of or has otherwise succeeded
to any shares of voting stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any Interested
Stockholder, if such assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a public offering
within the meaning of the Securities Act. The affirmative vote of the holders of
at least 80% of the voting power of the shares of TLC Common Stock is required
to amend, repeal or adopt any provision inconsistent with the foregoing
provision.
Although no stockholder rights plan (or, as such plans are commonly called,
"poison pill") has been adopted, the Company's Certificate of Incorporation
affirms that the Company's Board of Directors may contest or oppose any unfair,
abusive or otherwise undesirable transaction which may result in a change in
control of the Company, including, without limitation, by the adoption of such
plans or the issuance of such rights, options, stock, evidences or indebtedness
or other securities of the Company which (i) may be exchangeable for or
convertible into cash or other securities and (ii) may provide for the treatment
of any holder or class of holders thereof designated by the Company Board of
Directors which is different from, and unequal to, the terms, conditions,
provisions and rights applicable to all other holders thereof. Such provisions
are not included in Staff Builders' Certificate of Incorporation.
LIMITED LIABILITY AND INDEMNIFICATION
Indemnification Agreements
The Company will enter into indemnification agreements (the
"Indemnification Agreements") with its directors, officers, employees, agents
and fiduciaries (each, an "Indemnitee"). An Indemnitee is specifically
indemnified and held harmless under the Indemnification Agreements by reason of
the fact that he or she is or was a director, officer, employee, agent or
fiduciary of the Company or any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person is or was
serving at the request of the Company ("Corporate Status").
Pursuant to the Indemnification Agreements, the Company will indemnify the
Indemnitee (i) when he or she is, or is threatened to be made a party to any
threatened, pending or complete Proceeding, other than a Proceeding by or in the
right of the Company; (ii) when he or she is, or is threatened to be made a
party to any threatened, pending or completed Proceeding brought by or in the
right of the Company to procure a judgment in its favor; (iii) to the extent the
Indemnitee is a party to, and wholly or partly successful, on the merits or
otherwise, in any Proceeding; or (iv) to the extent he or she is, by reason of
his or her Corporate
49
<PAGE> 56
Status, a witness in any Proceeding. The extent the Company indemnifies the
Indemnitee is subject to the cause which gives rise to the need for
indemnification. An Indemnitee seeking indemnification under clause (i) is
indemnified against Expenses, judgments, penalties, fines and amounts paid in
settlement actually or reasonably incurred by the Indemnitee or on the
Indemnitee's behalf in connection with a Proceeding. An Indemnitee seeking
indemnification pursuant to clause (ii) is indemnified against Expenses actually
and reasonably incurred by the Indemnitee or on the Indemnitee's behalf in
connection with a proceeding. An Indemnitee seeking indemnification pursuant to
clause (iii) is indemnified against all Expenses actually and reasonably
incurred by the Indemnitee or on the Indemnitee's behalf in connection with each
successfully resolved claim, issue or matter. An Indemnitee seeking
indemnification pursuant to clause (iv) is indemnified against all expenses
actually and reasonably incurred by the Indemnitee or on behalf of the
Indemnitee. A "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil or criminal, administrative or investigative except one
initiated by the Indemnitee to enforce his rights under the Indemnification
Agreement. "Expenses" include all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplication costs, printing and binding costs, telephone charges, postage
delivery fees, and all other disbursements and expenses of the type customarily
incurred in connection with prosecuting, defending, preparing to prosecute or
defend, investigating, or being or preparing to be a witness in a Proceeding.
Under the Indemnification Agreements, the Company will advance Expenses
incurred by or on behalf of the Indemnitee whether prior to or after final
disposition of a Proceeding if the Indemnitee or someone on behalf of the
Indemnitee undertakes to repay the amounts advanced if it is ultimately
determined that he or she is not entitled to be indemnified by the Company. The
indemnification provisions and provisions for advancing expenses in the
Indemnification Agreements are expressly not exclusive of any other rights of
indemnification or advancement of expenses pursuant to any applicable law, the
Company's Certificate of Incorporation or By-laws, any agreement, vote of
stockholders or directors or otherwise.
Certificate of Incorporation
The Company's Certificate of Incorporation eliminates to the fullest extent
now or hereafter permitted by Delaware law, liability of a director to the
Company or its stockholders for monetary damages for any action taken, or
failure to take any action, as a director, except for liability:
(i) for any breach of the director's duty of loyalty to the Company or
its stockholders;
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
(iii) under Section 174 of the DGCL, relating to prohibited dividends,
distributions and repurchases or redemptions of stock; or
(iv) for any transaction for which the director derives an improper
personal benefit.
Section 145 of the DGCL ("Section 145") permits indemnification of
directors, officers, agents and controlling persons of a corporation under
certain conditions and subject to certain limitations. Section 145 empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director, officer or agent of the corporation or
another enterprise if serving at the request of the corporation. Depending on
the character of the proceeding, a corporation may indemnify against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding if the person indemnified acted in good faith and in a manner such
person reasonably believed to be in or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. In the case of
an action by or in the right of the Company, no indemnification may be made with
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Company unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine that despite the adjudication of
50
<PAGE> 57
liability such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper. Section 145 further provides that to
the extent a director or officer of the Company has been successful in the
defense of any action, suit or proceeding referred to above or in the defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
The Company's Certificate of Incorporation contains provisions for
indemnification of directors, officers, employees and agents to the fullest
extent permitted by Section 145 and Delaware law which, in general, presently
requires that the individual act in good faith and in a manner he or she
reasonably believed to be in or not opposed to the Company's best interests and,
in the case of any criminal proceedings, that the individual has no reasonable
cause to believe his or her conduct was unlawful.
51
<PAGE> 58
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
TENDER LOVING CARE HEALTH CARE
SERVICES, INC
By: /s/ STEPHEN SAVITSKY
----------------------------------
Stephen Savitsky
Chairman of the Board
and Chief Executive Officer
Dated: April 13, 1999
<PAGE> 59
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
of Staff Builders, Inc.:
We have audited the accompanying consolidated balance sheets of Staff
Builders, Inc. and subsidiaries (the "Company") as of February 28, 1998 and 1997
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended February 28, 1998.
Our audits also included the financial statement schedule listed in the Table of
Contents. These financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedule
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, such consolidated financial statements present fairly, in
all material respects, the financial position of Staff Builders, Inc. and
subsidiaries at February 28, 1998 and 1997 and the results of their operations
and their cash flows for each of the three years in the period ended February
28, 1998 in conformity with generally accepted accounting principles. Also, in
our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
We have not audited any financial statements of the Company for any period
subsequent to February 28, 1998. However, as discussed in Note 4 to the
consolidated financial statements, on January 14, 1999 a secured lender notified
the Company that they considered Staff Builders, Inc. to be in default of a
secured credit facility as a result of a decline in the Company's net worth,
based on unaudited results of operations through November 30, 1998. This matter
raises substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to this matter is also described in Note
4. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ DELOITTE & TOUCHE, LLP
------------------------------------
Jericho, New York
April 20, 1998
(January 19, 1999 as to Note 4)
F-1
<PAGE> 60
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28, FEBRUARY 28,
1998 1998 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 1,573 $ 1,931 $ 2,006
Accounts receivable, net of allowance for doubtful
accounts of $7,100, $3,600 and $2,800,
respectively........................................ 52,116 76,668 77,103
Tax refund receivable.................................. 1,733 -- --
Prepaid expenses and other current assets.............. 4,185 4,371 4,989
Deferred income taxes.................................. -- 3,081 1,855
-------- -------- --------
Total current assets........................... 59,607 86,051 85,953
FIXED ASSETS, net........................................ 10,581 11,548 12,082
INTANGIBLE ASSETS, net................................... 28,306 26,995 51,022
INVESTMENT IN UNCONSOLIDATED AFFILIATE................... 17,381 15,125 2,125
OTHER ASSETS............................................. 8,378 5,318 4,990
DEFERRED TAXES........................................... -- 5,364 --
-------- -------- --------
TOTAL.......................................... $124,253 $150,401 $156,172
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................... $ 12,111 $ 17,039 $ 14,429
Accrued expenses....................................... 11,730 11,541 10,094
Medicare and Medicaid audit liabilities payable........ 26,330 7,330 7,372
Accrued payroll and related expenses................... 24,336 27,233 21,742
Amounts due under secured credit facility.............. 32,672 3,156 --
Current portion of long-term debt...................... 5,474 5,440 5,071
-------- -------- --------
Total current liabilities...................... 112,653 71,739 58,708
-------- -------- --------
LONG-TERM LIABILITIES.................................... 8,154 36,293 35,449
-------- -------- --------
OTHER LIABILITIES........................................ 14,906 4,000 2,549
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 14)
STOCKHOLDERS' EQUITY:
Common stock --
Class A Common Stock -- $.01 par value; 50,000,000
shares authorized; 23,200,989, 23,009,247 and
22,343,970 outstanding at November 30, 1998,
February 28, 1998 and February 28,1997,
respectively...................................... 232 230 223
Class B Common Stock -- $.01 par value; 1,554,936
shares authorized; 313,104, 1,056,356 and
1,462,361 outstanding at November 30, 1998,
February 28, 1998 and February 28, 1997,
respectively...................................... 3 10 15
Convertible preferred stock, 10,000 shares authorized;
666 2/3 shares outstanding at February 28, 1998 and
February 28, 1997................................... -- 1 1
Additional paid-in capital............................. 69,203 73,692 73,159
Accumulated deficit.................................... (80,898) (35,564) (13,932)
-------- -------- --------
Total stockholders' equity (deficiency)........ (11,460) 38,369 59,466
-------- -------- --------
TOTAL.......................................... $124,253 $150,401 $156,172
======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE> 61
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
--------------------------- ------------------------------------------
NOVEMBER 30, NOVEMBER 30, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1997 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Service revenues
Home health care............... $237,122 $344,108 $451,098 $436,599 $378,419
ATC supplemental staffing...... 68,230 48,295 67,331 42,430 30,454
-------- -------- -------- -------- --------
Total service revenues......... 305,352 392,403 518,429 479,029 408,873
Sales of franchises and fees,
net......................... 2,056 977 1,275 1,326 1,287
-------- -------- -------- -------- --------
Total revenues......... 307,408 393,380 519,704 480,355 410,160
-------- -------- -------- -------- --------
COSTS AND EXPENSES:
Operating costs................ 205,152 252,313 332,739 301,508 256,719
General and administrative
expenses.................... 105,887 132,707 176,783 170,290 146,382
Amortization of intangible
assets...................... 961 2,214 2,807 2,623 1,823
Interest expense............... 2,481 2,579 3,600 1,601 948
Interest (income).............. (739) (1,008) (1,358) (896) (976)
Other (income) expense, net.... (1,741) (543) (818) (1,487) 1,791
Medicare and Medicaid audit
adjustments................. 29,000 -- -- -- --
Restructuring costs............ 4,500 -- 33,447 -- --
-------- -------- -------- -------- --------
Total costs and
expenses............. 345,501 388,262 547,200 473,639 406,687
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES.......................... (38,093) 5,118 (27,496) 6,716 3,473
PROVISION (BENEFIT) FOR INCOME
TAXES.......................... 7,241 2,305 (5,864) 2,955 1,459
-------- -------- -------- -------- --------
NET INCOME (LOSS)................ $(45,334) $ 2,813 $(21,632) $ 3,761 $ 2,014
======== ======== ======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE:
BASIC............................ $ (1.97) $ .12 $ (.90) $ .16 $ .09
======== ======== ======== ======== ========
DILUTED.......................... $ (1.97) $ .12 $ (.90) $ .15 $ .08
======== ======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
BASIC............................ 23,026 23,907 23,939 23,668 23,598
======== ======== ======== ======== ========
DILUTED.......................... 23,026 24,180 23,939 24,577 25,504
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 62
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED ADDITIONAL
------------------- STOCK PAID-IN ACCUMULATED
SHARES AMOUNT CLASS A CAPITAL DEFICIT TOTAL
---------- ------ --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances, March 1, 1995............ 22,937,049 $229 $ 1 $71,828 $(19,707) $ 52,351
Additional common stock in
connection with a 1987
acquisition...................... 1,360 -- --
Common stock issued -- exercise of
stock options, net of 683,054
shares used to pay for shares and
withholding taxes, net of related
tax benefits of $772............. 437,681 4 405 409
Exercise of common stock
warrants......................... 398,016 4 1,126 1,130
Common stock issued -- employee
stock purchase plan.............. 149,214 2 429 431
Purchase and retirement of common
stock............................ (386,000) (4) (1,021) (1,025)
Net Income......................... 2,014 2,014
---------- ---- --- ------- -------- --------
Balances, February 29, 1996........ 23,537,320 235 1 72,767 (17,693) 55,310
Additional common stock in
connection with a 1987
acquisition...................... 4,870 -- --
Common stock issued -- exercise of
stock options, net of 15,232
shares used to pay for shares.... 23,768 -- 29 29
Exercise of common stock
warrants......................... 160,680 2 193 195
Common stock issued -- employee
stock purchase plan.............. 234,693 2 579 581
Purchase and retirement of common
stock............................ (155,000) (1) (409) (410)
Net Income......................... 3,761 3,761
---------- ---- --- ------- -------- --------
Balances, February 28, 1997........ 23,806,331 238 1 73,159 (13,932) 59,466
Additional common stock in
connection with a 1987
acquisition...................... 171 -- -- --
Exercise of stock options.......... 5,000 -- 11 11
Common stock issued -- employee
stock purchase plan.............. 254,101 2 522 524
Net (Loss)......................... (21,632) (21,632)
---------- ---- --- ------- -------- --------
Balances, February 28, 1998........ 24,065,603 240 1 73,692 (35,564) 38,369
Additional common stock in
connection with a 1987
acquisition...................... 26,935 -- --
Exercise of stock options.......... 20,000 -- 35 35
Common stock issued -- employee
stock purchase plan.............. 219,795 2 237 239
Repurchase of common stock......... (5,088,060) (50) (4,719) (4,769)
Conversion of preferred stock into
common stock..................... 4,269,820 43 (1) (42) --
Net loss........................... (45,334) (45,334)
---------- ---- --- ------- -------- --------
Balances, November 30, 1998
(unaudited)...................... 23,514,093 $235 $-- $69,203 $(80,898) $(11,460)
========== ==== === ======= ======== ========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 63
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
--------------------------- ------------------------------------------
NOVEMBER 30, NOVEMBER 30, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1997 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $(45,334) $ 2,813 $(21,632) $ 3,761 $ 2,014
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operations:
Depreciation and amortization of fixed
assets..................................... 2,977 2,823 3,791 2,757 2,120
Amortization of intangibles and other
assets..................................... 961 2,214 2,807 2,623 1,823
Write-off of investments and other assets.... 911 -- 1,198 -- --
Write-off of goodwill and intangible
assets..................................... 1,161 492 24,540 -- --
Earnings of unconsolidated affiliate......... (2,315) (181) (326) -- --
Increase (decrease) in other long term
liabilities................................ (68) (638) 424 (758) 477
Allowance for doubtful accounts.............. 3,500 300 800 600 450
Deferred income taxes........................ 8,445 (130) (6,838) 548 (1,013)
Loss (gain) on sale of assets................ 40 -- (290) (1,247) --
Change in operating assets and liabilities:
Accounts receivable.......................... 21,052 (9,012) (1,019) (23,443) 3,993
Prepaid expenses and other current assets.... (1,541) 1,866 455 (1,193) (1,447)
Accounts payable............................. (4,928) 577 2,611 4,977 (1,139)
Accrued expenses............................. (3,997) 5,260 6,745 (6,861) 8,608
Increase (decrease) in Medicare and Medicaid
audit liabilities.......................... 29,000 -- (42) 336 4,183
Other assets................................. (3,840) 153 226 (1,529) (10)
-------- -------- -------- -------- -------
Net cash provided by (used in) operating
activities............................. 6,024 6,537 13,450 (19,429) 20,059
-------- -------- -------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired............. (1,819) (3,358) (3,724) (8,202) (7,981)
Investment in unconsolidated affiliate......... -- (12,732) (12,732) (2,125) --
Purchase of fixed assets....................... (764) (344) (1,023) (2,334) (1,127)
Proceeds from disposal of assets............... -- -- 855 775 14
-------- -------- -------- -------- -------
Net cash used in investing activities.... (2,583) (16,434) (16,624) (11,886) (9,094)
-------- -------- -------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Employee Stock Purchase Plan..... 239 411 524 581 431
Proceeds from exercise of stock options........ 35 -- 11 29 409
Proceeds from exercise of warrants............. -- -- -- 195 1,130
Purchase and retirement of common stock........ (4,770) -- -- (410) (1,025)
Increase (decrease) in borrowings under
revolving line of credit..................... 4,849 1,190 (3,978) 21,565 (6,461)
Increase (decrease) in acquisition line of
credit....................................... (1,599) 12,625 12,625 -- --
Proceeds from other note payable............... -- -- -- 5,727 --
Payment of notes payable and other long-term
liabilities.................................. (2,553) (3,726) (6,083) (3,076) (1,247)
-------- -------- -------- -------- -------
Net cash provided by (used in) financing
activities............................. (3,799) 10,500 3,099 24,611 (6,763)
-------- -------- -------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... (358) 603 (75) (6,704) 4,202
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD... 1,931 2,006 2,006 8,710 4,508
-------- -------- -------- -------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD......... $ 1,573 $ 2,609 $ 1,931 $ 2,006 $ 8,710
======== ======== ======== ======== =======
SUPPLEMENTAL DATA:
Cash paid for:
Interest..................................... $ 2,355 $ 2,402 $ 3,343 $ 1,081 $ 806
Income taxes, net............................ $ (1,257) $ 1,580 $ 2,344 $ 1,867 $ 3,485
Fixed assets purchased through capital lease
agreements..................................... $ 2,197 $ 2,127 $ 2,351 $ 4,770 $ 2,425
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 64
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1998 ("FISCAL 1998"), FEBRUARY 28, 1997 ("FISCAL
1997"), AND FEBRUARY 29, 1996 ("FISCAL 1996"), AND NINE MONTHS ENDED NOVEMBER
30, 1998 ("FISCAL 1999 STUB
PERIOD" -- UNAUDITED) AND NOVEMBER 30, 1997 ("FISCAL 1998 STUB
PERIOD" -- UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED OTHERWISE AND, FOR PER SHARE
AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Staff Builders, Inc. ("Staff Builders" or "SBLI") is a national provider of
home health care personnel and supplemental staffing of health care and
information technology personnel. On March 22, 1999, the Board of Directors of
Staff Builders approved a spin-off transaction subject to certain further bank
and regulatory approval by which Staff Builders will distribute the shares of
Tender Loving Care Health Care Services, Inc. ("TLC" or "the Company") directly
to shareholders of Staff Builders (See "Unaudited Pro Forma Consolidated
Financial Statements" for the pro-forma effects of the spin-off on the
historical financial statements of Staff Builders). TLC will consist of the home
health care business which had previously been a part of Staff Builders. The
spin-off will be made following the effectiveness of a Registration Statement on
Form 10 filed by SBLI with the Securities and Exchange Commission and the
consent of the bank, as discussed further in Note 4. After the spin-off, TLC
will own the majority of the operations, employees and assets of the historical
businesses of Staff Builders. Accordingly, the spin-off will be treated as a
"reverse spin-off" for financial reporting purposes and the supplemental
staffing business will be retained by Staff Builders. There is no gain or loss
to either TLC or Staff Builders resulting from the spin-off. Upon completion of
the spin-off, the historical financial statements of Staff Builders will become
the historical financial statements of TLC. The financial statements of Staff
Builders after the spin-off will include only the retained operations of ATC and
Chelsea.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Staff Builders and its wholly-owned subsidiaries. SBLI maintains its records on
a fiscal year ending the last day in February. In the opinion of the management
of SBLI, the unaudited consolidated financial statements for the fiscal 1999 and
fiscal 1998 stub periods contain all adjustments (consisting of only normal and
recurring accruals, other than the items referred to in Notes 2 and 3) necessary
to present fairly the financial position of SBLI and its subsidiaries as of
November 30, 1998 and the results of their operations for the nine months then
ended. The results of operations for the fiscal 1999 stub period are not
necessarily indicative of the results for the entire year. All material
intercompany accounts and transactions have been eliminated. Certain prior
period amounts have been reclassified to conform with the fiscal 1999 stub
period presentation.
A substantial portion of SBLI's service revenues are derived under a unique
form of franchising where it licenses independent companies or contractors to
represent SBLI within a designated territory using its trade names and service
marks. The number of franchisees have decreased but still represent a
significant portion of SBLI's home health care and supplemental staffing
revenue. These franchisees recruit direct service personnel and solicit orders
and assign company personnel including registered nurses, therapists and home
health aides to service the SBLI's clients. SBLI pays and distributes the
payroll for the direct service personnel who are all company employees,
administers all payroll withholdings and payments, bills the customers and
receives and processes the accounts receivable. The franchisees are responsible
for providing an office and paying related expenses for administration including
rent, utilities and costs for administrative personnel.
SBLI owns all necessary health care related permits and licenses and, where
required, certificates of need for operation of franchise offices. The revenues
generated by the franchise operations along with the related accounts receivable
belong to SBLI. The revenues and related direct costs are included in SBLI's
consolidated service revenues and operating costs.
F-6
<PAGE> 65
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SBLI pays a distribution or commission to the franchisees based on a
defined formula of gross margin generated. Generally, SBLI pays the franchisee
60% of the gross margin attributable to the non-Medicare operations of the
franchise. The payment to SBLI's franchises related to Medicare operations is
adjusted for cost limitations and reimbursement of allowable Medicare costs.
For the fiscal 1999 stub period, fiscal 1998, 1997, and 1996 total
franchisee distributions or commissions of approximately $43.0 million, $92.9
million, $88.6 million and $75.4, million respectively, were included in SBLI's
general and administrative expenses.
Use of Estimates
The preparation of consolidated 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,
revenues and expenses as well as the disclosure of contingent assets and
liabilities in the consolidated financial statements. Actual results could
differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include certificates of deposit and commercial
paper purchased with a maturity of less than three months.
Fixed Assets
Fixed assets, primarily consisting of equipment, furniture and fixtures,
and leasehold improvements, are stated at cost and depreciated over the
estimated useful lives of the assets (or amortized over the lease term for
leasehold improvements) using the straight-line method. The estimated useful
lives of the related assets are generally five to seven years.
Goodwill and Intangible Assets
The excess of the purchase price and related acquisition costs over the
fair market value of the net assets of the businesses acquired is amortized on a
straight-line basis over periods ranging from five to forty years. Intangible
assets include customer lists, which are being amortized over five years on a
straight-line basis.
In fiscal 1997, SBLI adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." This Statement requires that certain
assets be reviewed for impairment and, if impaired, remeasured at fair value,
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. In the fourth quarter of fiscal 1998, SBLI
wrote off $24.5 million of goodwill and intangible assets. The write-down of
goodwill was based on management's analysis of the estimated future cash flows
to be generated by each purchased location. Where such cash flows were not
sufficient to recover SBLI's investment, the goodwill was written down to the
estimated amounts which would be realized if the location were to be sold. This
write-down primarily resulted from the adverse change in health care reform (See
Note 2).
The accumulated amortization as of November 30, 1998, February 28, 1998 and
February 28, 1997 was $10,696, $10,413 and $9,126, respectively. Additionally,
during fiscal 1998 and fiscal 1997 SBLI wrote off $1,206 and $659, respectively,
of fully amortized intangible assets.
Revenue Recognition
Revenues generated from the sales and licensing of franchises and initial
franchise fees are recognized when SBLI has performed substantially all of its
obligations under its franchise agreements and when
F-7
<PAGE> 66
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
collectibility of such amounts is reasonably assured. In circumstances where a
reasonable basis does not exist for estimating collectibility of the proceeds of
the sales of franchises and initial franchise fees, such proceeds are deferred
and recognized as collections are made, utilizing the cost recovery method (see
Note 5).
Medicare reimburses SBLI for covered items and services at the lower of
SBLI's cost as determined by Medicare, cost limits established by the Federal
government, or the amount charged by SBLI. Revenues generated from Medicare
services are recorded when services are provided at an estimated reimbursement
rate. Certain factors used to develop these rates are subject to review and
adjustment by the appropriate governmental authorities and may result in
additional amounts due to or due from SBLI. Management reduces revenues by its
estimate of the amount of net adjustments which should ultimately occur.
Adjustments, if any, are recorded to these estimates in the period during which
they arise. SBLI reduced its Medicare revenues $3 million in the third quarter
of fiscal 1996 due to a revision in the methodology used to allocate corporate
overhead.
Income Taxes
Deferred income taxes result from timing differences between financial and
income tax reporting which primarily include the deductibility of certain
expenses in different periods for financial reporting and income tax purposes.
Earnings (Loss) per Share
The basic net earnings (loss) per share is computed using weighted average
number of common shares outstanding for the applicable period. The diluted
earnings (loss) per share is computed using the weighted average number of
common shares plus common equivalent shares outstanding, except if the effect on
the per share amounts of including equivalents would be anti-dilutive.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, franchise notes
receivable, obligations under capital leases and notes payable and other
liabilities related to acquisitions approximate fair value.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information" ("SFAS No. 131"), which establishes
standards for reporting information about operating segments. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 becomes effective for fiscal
years beginning after December 15, 1997. Management has not yet evaluated the
effect of this change on SBLI's financial statement disclosures.
In April 1998, the FASB adopted Statement of Position No. 98-5, "Reporting
on the Costs of Start-Up Activities" ("SOP No. 98-5") which requires that costs
previously capitalized as start-up costs will be expensed as incurred. SOP No.
98-5 becomes effective for fiscal years beginning after December 15, 1998, with
earlier application encouraged. Management does not expect the adoption of SOP
No. 98-5 to have a material effect on SBLI's consolidated financial statements.
During 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities",
and (SFAS No. 134), "Accounting for Mortgage-Backed Securities." SBLI does not
expect the adoption of these new accounting pronouncements to have a material
effect, if any, on its financial condition or results of operations.
F-8
<PAGE> 67
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. HEALTH CARE REFORM AND RELATED RESTRUCTURING COSTS
The Balanced Budget Act of 1997 ("BBA") resulted in significant changes to
cost based reimbursement for Medicare home health care providers. Although a
cost based reimbursement system remains, the BBA reduced the cost limits and
created new per-beneficiary limits. The BBA provided for two payment systems --
an interim payment system ("IPS") which is effective for SBLI from March 1, 1998
until the adoption of the successor payment system which is a new prospective
payment system scheduled to be effective for all home health care agencies on or
after October 1, 2000. The Health Care Financing Administration committed to
this revised schedule in a report presented to Congress dated February 4, 1999.
The effect of the changes under IPS is to reduce the limits for the amount of
costs that are reimbursable to home health care providers under the Medicare
program. Accordingly, SBLI together with many of SBLI's franchisees have
modified their operations as needed to meet the restrictive demands of IPS,
including taking steps to reduce costs and maximize operational efficiencies
within the constraints of the IPS.
During the fourth quarter of fiscal 1998, management prepared SBLI for the
impact of IPS and for long-term growth. As a result, SBLI implemented a
corporate-wide restructuring and cost reduction program. These actions, together
with SBLI's assessment of the impact of health care reform legislation, resulted
in a pre-tax non-recurring charge in the fourth quarter of fiscal 1998 of $33.4
million. This accounting charge included a $24.5 million write-off of goodwill
and intangible assets and $8.9 million of other restructuring costs. The other
restructuring costs included $1.0 million for employee severance arrangements
and the closure, consolidation or reduction in the size of operating locations,
$6.3 million for the write-down of certain home health care related investments
and receivables, $1.2 million of litigation related costs and $0.4 million of
other costs. The restructuring costs accrued for employee severance and the
closure, consolidation or reduction due to the size of operating locations have
all been expended during the period ended November 30, 1998 and there were no
adjustments to such amounts other than the additional restructuring costs
described in the next sentence. During the quarter ended November 30, 1998, as a
result of SBLI's further operating modifications, including the additional
closure and conversion of many locations from franchise to company-owned
operations, SBLI has written off or reserved approximately $4.5 million.
Included in this amount is the write-off of goodwill and fixed assets related to
closed locations, the write-off or reserve for receivables generated from
converted franchise locations, the accrual for additional employee severance
payments and other related costs. The write-off of goodwill and intangible
assets is required under SFAS No. 121.
3. MEDICARE AND MEDICAID AUDIT ADJUSTMENTS
As a home health care provider, SBLI is subject to extensive and changing
state and Federal regulations relating to the licensing and certification of its
offices and the sale and delivery of its products and services. The Federal
government and Medicare fiscal intermediaries have become more vigilant in their
review of Medicare reimbursements to home health care providers generally, and
have become more restrictive in their interpretation of those costs for which
reimbursement will be allowed to such providers. These regulatory agencies have
increased the number of audits performed and have applied a more intensive
degree of scrutiny in the conduct of these audits.
During the quarter ended November 30, 1998, the Medicare fiscal
intermediary completed and issued the results of 88 audits for the fiscal year
ended February 28, 1997, including 25 audits conducted on site at branch
operating locations. These results together with the results of the home office
audit for the year ended February 28, 1997, indicated an aggregate liability of
approximately $9.5 million. Additionally, SBLI has recorded an accrual for third
party liability ("TPL") to state Medicaid agencies which have claimed that SBLI
did not follow proper billing procedures in several locations. These state
Medicaid agencies have challenged the eligibility of individuals for whom
services were provided. The related claims are being reviewed by the state
agencies encompassing several prior years for which the company has been paid.
While SBLI believes that it will ultimately prevail in many of these cases, it
has accrued for the loss which is likely to
F-9
<PAGE> 68
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
have been incurred for the cases in which it does not prevail in supporting its
position. SBLI has reached a settlement for a portion of its TPL liability and
is continuing to negotiate to resolve amounts payable to these state agencies.
Based upon SBLI's assessment of these findings, its estimate of liabilities for
subsequent audit periods and the balance of liabilities previously provided,
SBLI recorded aggregate expense of $29.0 million in the quarter ended November
30, 1998. The resultant liability together with the balance of liabilities
previously established, results in an aggregate audit liability of $36.3 million
for Federal and state audit adjustments. SBLI continues to appeal many audit
issues and has engaged outside professional advisors to support SBLI's positions
on these issues. SBLI anticipates that any resolution of these appeals may take
several years.
4. BANK DEFAULT AND GOING CONCERN MATTERS
As described more fully in Note 11, SBLI has a secured credit facility with
a bank. On January 14, 1999, the bank provided SBLI with written notification
that, in its opinion, SBLI's non-compliance with certain financial covenants as
of November 30, 1998 constitutes an event of default under the terms of the
credit facility agreement. Those covenants require SBLI to maintain a minimum
level of net worth and a maximum ratio of senior debt to net worth, failures of
which resulted from losses incurred for the nine months ended November 30, 1998
(Note 3). On January 14, 1999, SBLI had borrowed $39.4 million under the credit
facility, including $29.7 million and $9.7 million under the revolving line of
credit and the acquisition line of credit, respectively. The bank has advised
SBLI that while it has no obligation to provide additional advances as a result
of the non-compliance with certain financial covenants, it is willing to
consider making additional advances to SBLI under such conditions as it may
determine.
In connection with the bank's notice of default, the maximum aggregate
amount which can be borrowed under the credit facility was reduced from $50
million to $40 million. Additionally, the bank increased the rate of interest on
all borrowings to 2.0% over the prevailing prime lending rate on its revolving
line of credit and 2.75% over the prevailing prime lending rate on its
acquisition line of credit (such prime lending rate being 7.75% as of January
14, 1999). SBLI has classified its outstanding borrowings as a current liability
as of November 30, 1998 because the bank has the option to declare all
borrowings under the credit facility to become immediately due and payable. At
November 30, 1998 and February 28, 1998, SBLI, borrowed $32.7 million and $29.4
million, respectively, under the credit facility. A commitment fee on the unused
portion of the credit facility is payable at the rate of .375% per annum,
together with an annual collateral management fee of $85. SBLI's working capital
deficiency was $(53.0) million at November 30, 1998 as shown on the accompanying
balance sheet. Current liabilities at November 30, 1998 include $26.3 million
for Medicare and Medicaid audit liabilities, $32.7 of outstanding borrowings
under the secured credit facility and $5.5 million for the current portion of
other debt obligations. While SBLI cannot accurately determine the required
payment dates for its total Medicare and Medicaid audit liabilities, it has
included $10 million thereof in other long term liabilities based upon its
estimate of when payments would likely become due. In order to pay its current
liabilities in the normal course of business as well as to pay its liabilities
to the Medicare and Medicaid agencies as they become due, SBLI is investigating
alternative sources of funding.
The above conditions raise substantial doubt about the ability of SBLI to
continue as a going concern. As a result, management of SBLI is pursuing various
strategies, including but not limited to, negotiating with alternative lending
sources, deferred payment terms for Medicare and Medicaid audit liabilities as
well as for repayments of Medicare periodic interim payments(s) ("PIP") and
deferred payment terms for other creditors. Further, management of SBLI is
implementing an intensified collection effort and has obtained a deferred
payment schedule for the repayment of excess PIP payments made to SBLI by the
Federal government as well as for audit liabilities assessed to date. Such
payment schedule requires these amounts to be paid in 24 equal monthly
installments beginning in May 1999. As of February 28, 1999, the total amount of
excess PIP amounts received and settled Medicare audit liabilities were
approximately $19.0 million and $6.8 million, respectively. However, there can
be no assurance that these actions will be successful to provide adequate funds
for its current level of operations and to pay its past-due obligations. In
addition, the spin-off
F-10
<PAGE> 69
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
described in Note 1 will be completed only if the bank or another lender creates
a separate credit facility for the home health care business under TLC and the
supplemental staffing business retained by Staff Builders, and allocates the
aggregate pre-spin-off debt between those two entities.
5. FRANCHISE OPERATIONS
Franchise notes receivable generally bear interest at the prevailing prime
lending rate plus three percent and are generally payable over a term of ten
years. The balance of these notes receivable at November 30, 1998, February 28,
1998 and February 28, 1997 amounted to $1,050, $1,734 and $1,953 net of deferred
income reflected as a valuation reserve for financial reporting purposes of
$2,794, $4,387 and $5,600, respectively. The net balances of these notes at
November 30, 1998, February 28, 1998 and February 28,1997 include $210, $306 and
$302 in Prepaid Expenses and Other Current Assets and $840, $1,428 and $1,651 in
Other Assets, respectively. In the third quarter ended November 30, 1998, SBLI
increased its valuation reserve by $595. During the fiscal 1999 stub period,
fiscal 1998, fiscal 1997, and fiscal 1996, $131, $473, $444, and $526,
respectively, of notes receivable previously not recognized into income were
collected and included in revenues. Interest income on franchise notes
receivable is included in other income.
Sales of franchises and fees, net for the fiscal 1999 stub period includes
$1,120 from the sale of five franchise locations' business operations.
Additionally, initial fees for the right to operate locations by franchisees
were $805, $792, $827 and $761 for the fiscal 1999 stub period, fiscal 1998,
fiscal 1997 and fiscal 1996, respectively. The initial franchise fees received
in the fiscal 1999 stub period, fiscal 1998, fiscal 1997 and fiscal 1996 include
$629, $135, $488 and $507 for home health care franchises and $176, $155, $339
and $245 for supplemental staffing franchises, respectively. The initial
franchise fees include $331 and $502, in the fiscal 1999 stub period and fiscal
1998, respectively, of a license fee received from its master license agreement
with a home health care company based in Tokyo, Japan. As of March 1998, SBLI
received the entire balance of the master license fee totalling $1.2 million and
is recording the related income as it is earned. Under its revised agreement
which expires in October 2002 with a five-year renewable term, SBLI will receive
periodic royalty payments based upon the Japanese company's service revenues.
Franchise sales and fees, net for the fiscal 1999 stub period includes $67 of
such periodic royalties. SBLI has performed substantially all of its obligations
as required under the terms of its franchise agreements.
In September 1996, in connection with the acquisition of a supplemental
staffing business (see Note 6), a corporation acquired the rights to operate
this business as a franchise and paid a fee of $75 to SBLI. A majority of the
stock of this corporation is owned by two family members of SBLI's executive
officers.
In April 1992, one of SBLI's franchises was acquired by a corporation owned
by a family member of one of SBLI's executive officers. The purchase price for
the franchise included the assumption of a note payable to SBLI of $845 of which
$659 remains outstanding at November 30, 1998. The note bears interest at the
prevailing prime lending rate and matures in 2009.
6. ACQUISITIONS
During the fiscal 1999 stub period, fiscal 1998, 1997, and 1996, SBLI made
numerous acquisitions for which consideration was paid in cash, the issuance of
notes payable and the assumption of certain liabilities. The transactions were
accounted for as purchases and, accordingly, the results of operations of the
acquired businesses are included in the accompanying consolidated financial
statements from their respective dates of acquisition.
In fiscal 1998, SBLI acquired the assets of seven home health care
operations, which added five locations, and two supplemental staffing
operations. The aggregate consideration included cash paid of approximately $3.7
and liabilities assumed of approximately $1.3 million.
F-11
<PAGE> 70
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In fiscal 1997, SBLI acquired the assets of 17 home health care operations,
which added 31 locations and two supplemental staffing operations. The aggregate
consideration included net cash paid of $8.2 million, the issuance of notes
payable of $3.1 million and liabilities assumed of $1.0 million.
In fiscal 1996, SBLI acquired the assets of 13 businesses and the stock of
one business, all consisting of home health care providers, which added 30
locations. The aggregate consideration included cash paid of $8.0 million, the
issuance of notes payable of $4.5 million and liabilities assumed of $1.0
million.
The effect of the fiscal 1998 acquisitions on revenue, net loss and net
loss per share on an unaudited pro forma basis for the fiscal 1999 stub period
and fiscal 1998 is not material. Revenues, net income and earnings per share, on
an unaudited pro forma basis for the year ended February 28, 1997, if the fiscal
1998 and fiscal 1997 acquisitions had occurred on March 1, 1996, would have
approximated $500 million, $4.9 million and $.20, respectively. Revenues, net
income and earnings per share on an unaudited pro forma basis for the year ended
February 29, 1996, if the fiscal 1997 and fiscal 1996 acquisitions had occurred
on March 1, 1995, would have approximated $448 million, $2.6 million and $.10
per share, respectively.
In connection with the fiscal 1998 and fiscal 1997 acquisitions, assets
acquired and consideration paid was as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Fair value of assets acquired............................... $ 4,904 $12,310
Net cash paid for acquired assets and stock................. (3,724) (8,202)
------- -------
Liabilities assumed and notes payable issued for
acquisitions.............................................. $ 1,180 $ 4,108
======= =======
</TABLE>
7. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28, FEBRUARY 28,
1998 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Equipment under capital leases (see Note 11)..... $11,916 $11,196 $ 9,972
Office equipment, furniture and fixtures......... 7,575 7,344 7,053
Leasehold improvements........................... 1,121 1,089 1,000
Land and buildings............................... 106 106 181
------- ------- -------
Total, at cost......................... 20,718 19,735 18,206
Less accumulated depreciation and amortization... 10,137 8,187 6,124
------- ------- -------
Fixed assets, net................................ $10,581 $11,548 $12,082
======= ======= =======
</TABLE>
During the quarter ended November 30, 1998 SBLI wrote off fixed assets with
a net book value of $911. During fiscal 1998, and fiscal 1997 SBLI wrote off
fully depreciated fixed assets of approximately $1.7 million and $1.4 million,
respectively.
8. INVESTMENT IN UNCONSOLIDATED AFFILIATE
On October 30, 1997, SBLI purchased 60.9% of the outstanding common stock
of Chelsea Computer Consultants, Inc. ("Chelesa") for a total of $12.4 million
plus purchase related costs of $300. SBLI utilized $12.6 million under its
acquisition line of credit to fund this purchase (See Note 11). Chelsea is a
provider of information technology services to clients in the financial
services, communications, manufacturing and other industries. Together with the
20.9% of the common stock of Chelsea purchased for $2.1 million in September
1996, SBLI owns 81.8% of the outstanding common stock of Chelsea. SBLI was
actively engaged in the selling process of its majority position in Chelsea as
of November 30, 1998, was evaluating offers and believed
F-12
<PAGE> 71
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that its majority control over Chelsea would be temporary; accordingly, SBLI has
accounted for Chelsea as an unconsolidated subsidiary. The excess of SBLI's cost
of its investment over its pro rata share of the net fair value of assets
acquired is being amortized on a straight-line basis. Revenues of Chelsea were
$23.4 million for the fiscal 1999 stub period, and were $7.0 million for the
period from October 30, 1997 through February 28, 1998. SBLI's equity in the
earnings of Chelsea were $2.3 million and $326, respectively, during those
periods. SBLI performed certain consulting services for Chelsea amounting to
$700 and $500 in fiscal 1998 and 1997, respectively, which are included in
service revenues.
9. ACCRUED EXPENSES
Accrued expenses include $4,865, $6,877 and $7,424 at November 30, 1998,
February 28, 1998 and February 28, 1997, respectively, of accrued franchise
distributions. Also included in accrued expenses at November 30, 1998, February
28, 1998 and February 28, 1997 was $26,330, $7,330 and $7,372, respectively,
reflecting the current portion of the Company's third-party payor settlement
liability.
10. ACCRUED PAYROLL AND PAYROLL RELATED EXPENSES
Accrued payroll and payroll related expenses consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28, FEBRUARY 28,
1998 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Accrued payroll.................................. $ 7,875 $ 8,131 $ 8,142
Accrued insurance................................ 10,867 10,381 5,447
Accrued payroll taxes............................ 2,162 4,755 5,002
Other............................................ 3,432 3,966 3,151
------- ------- -------
Total.................................. $24,336 $27,233 $21,742
======= ======= =======
</TABLE>
11. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28, FEBRUARY 28,
1998 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Borrowings under a secured revolving line of
credit(a)...................................... $22,436 $17,587 $21,565
Borrowings under acquisition line of credit(a)... 10,236 11,836 --
Obligations under capital leases(b).............. 6,641 6,606 6,768
Notes payable and other liabilities related to
acquisitions(c)................................ 4,786 5,225 6,749
Other note payable(d)............................ 2,201 3,635 5,438
------- ------- -------
Total.................................. 46,300 44,889 40,520
Less current portion............................. 38,146 8,596 5,071
------- ------- -------
Long-term debt(e)................................ $ 8,154 $36,293 $35,449
======= ======= =======
</TABLE>
As described in Note 4, SBLI is presently in default of its bank agreement
and is taking actions as described therein. Accordingly, at November 30, 1998
such bank debt is shown as a current liability.
The paragraphs below provide further information about the specific terms
of the outstanding debt.
(a) SBLI has a secured credit facility which consists of a revolving
line of credit, an acquisition line of credit and a standby letter of
credit facility, under which SBLI can borrow up to an aggregate amount of
$40 million. Amounts borrowed under the revolving line of credit are
collateralized by a pledge of all
F-13
<PAGE> 72
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the stock of SBLI's subsidiaries, by all accounts receivable and by liens
on substantially all other assets of SBLI and its subsidiaries. The
agreement contains certain financial covenants which, among other things,
(i) require the maintenance of a specified minimum defined level of book
net worth, a minimum ratio of net income before depreciation and
amortization to the sum of payments made for long term debt, unfunded
capital expenditures, stock repurchases and permitted acquisitions, and a
maximum ratio of senior debt to book net worth, (ii) limit the amount of
unfunded capital expenditures, and (iii) prohibit the declaration or
payment of cash dividends. Based upon the non-recurring charge recorded in
the fourth quarter of fiscal 1998, which primarily consisted of the
write-down of goodwill, SBLI had obtained an amendment with its bank to
provide some relief from the terms of those covenants which required a
specified level of net worth and net income before depreciation and
amortization.
At November 30, 1998, February 28, 1998 and February 28, 1997, the
amounts available for borrowing under the credit facility were $5.5
million, $18.6 million and $31.4 million, respectively. The amount
outstanding under the acquisition line of credit was $10.2 million and
$11.8 million at November 30, 1998 and February 28, 1998, respectively. No
amounts were outstanding under the acquisition line of credit as of
February 28, 1997 or for any time during fiscal 1997. The maximum amounts
borrowed under the credit facility for the fiscal 1999 stub period and
fiscal 1998 were $40.1 million and $37.0 million, respectively. The maximum
amount outstanding under the revolving line of credit portion of the
facility was $30.4 in the fiscal 1999 stub period and $28.1 million in
fiscal 1998. The average interest rates were 8.50% and 7.96% in fiscal 1998
and 1997, respectively.
SBLI is permitted to borrow up to 75% of eligible accounts receivable,
up to a maximum amount of the credit facility less amounts outstanding
under the acquisition line of credit and any outstanding letters of credit.
No additional amounts can be borrowed under the acquisition line of credit.
The total amount of $8.4 million outstanding under the acquisition line as
of March 25, 1999, is being repaid in equal monthly installments of $263
which began on December 1, 1997. Effective March 25, 1999, the bank
established a separate and distinct borrowing base calculation which
limited the maximum amount of borrowings for each of the home health care
operations and the supplemental staffing operations to approximately $16.1
million and $15.5 million, respectively. Together with the current
outstanding balance of $8.4 million under the acquisition line of credit,
the aggregate maximum level of borrowings permitted remains at $40 million.
As of February 28, 1998, the acquisition line of credit provided for
borrowings up to $15 million without collateral to finance acquisitions,
provided that the sum of all borrowings did not exceed $50 million.
Subsequent to February 28, 1998, an amendment was made to the credit
facility which increased the maximum available amount of the acquisition
line of credit from $15 million to $25 million and expanded the purpose to
include stock repurchases in amounts up to a new $10 million sublimit under
the facility. Since March 6, 1998 through October 16, 1998, SBLI purchased
and retired a total of 5,088,060 shares of its common stock at a cost of
$4.8 million. No repurchases were made in fiscal 1998. During fiscal 1997
and 1996, SBLI purchased and retired a total of 541,000 shares of its
common stock at a cost of $1.4 million.
(b) At November 30, 1998, SBLI had capital lease agreements for
computers and other equipment through September 2002. The net carrying
value of the assets under capital leases was approximately $6.3 and $7.1
million at November 30, 1998 and February 28, 1998, respectively and such
amounts are included in Fixed Assets.
(c) At November 30, 1998, SBLI has a balance of notes payable related
to acquisitions of $4.8 million. The notes payable bear interest at 7.0%
per annum to 10.0% per annum and have maturity dates through September
2010.
F-14
<PAGE> 73
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) SBLI has a secured term loan which bears interest at 6.69% per
annum and requires monthly payments of $176 through December 1999.
(e) Repayments of long-term debt at November 30, 1998 are due as
follows:
<TABLE>
<CAPTION>
OBLIGATIONS
UNDER
CAPITAL OTHER
YEARS ENDING FEBRUARY LEASES DEBT TOTAL
- --------------------- ----------- ------- -------
<S> <C> <C> <C>
1999 (Fourth quarter then ended)....................... $ 766 $33,487 $34,253
2000................................................... 2,769 2,012 4,781
2001................................................... 1,953 238 2,191
2002................................................... 896 337 1,233
2003................................................... 256 344 600
2004................................................... -- 319 319
Thereafter............................................. -- 2,923 2,923
------ ------- -------
Total........................................ $6,640 $39,660 $46,300
====== ======= =======
</TABLE>
12. OTHER LIABILITIES
Other liabilities consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28, FEBRUARY 28,
1998 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Medicare and Medicaid audit liabilities.......... $10,000 $ -- $ --
Accrued litigation (a)........................... 2,728 1,168 --
Rent escalation liability (b).................... 790 883 982
Accrued acquisition costs (c).................... -- 700 --
Other............................................ 1,388 1,249 1,567
------- ------ ------
Total.................................. $14,906 $4,000 $2,549
======= ====== ======
</TABLE>
(a) At November 30, 1998, SBLI has an accrued loss contingency for the
aggregate, estimated amount to settle open legal matters.
(b) The lease on SBLI's corporate headquarters requires scheduled rent
increases through September 30, 2005. A rent escalation liability is
recorded for the amounts required to record the expense of this lease on a
straight-line basis over the life of the lease, in excess of payments made.
The balance of this liability was $790 and $982 at November 30, 1998 and
February 28, 1998, respectively, of which $110 and $99, respectively, was
included in accrued expenses.
(c) In connection with SBLI's September 1997 acquisition of a provider
of travel nurse services, SBLI is liable to pay additional amounts based
upon the attainment of certain gross margin levels. SBLI's estimate of such
amounts at February 28, 1998 is $1,124 of which $424 is included in accrued
expenses.
F-15
<PAGE> 74
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
NINE
MONTHS YEARS ENDED
ENDED ------------------------------------------
NOVEMBER 30, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1998 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current:
Federal............................... $(1,733) $ 1,051 $1,709 $ 1,829
State................................. 761 377 558 643
Deferred................................ 8,213 (7,292) 688 (1,013)
------- ------- ------ -------
Total......................... $ 7,241 $(5,864) $2,955 $ 1,459
======= ======= ====== =======
</TABLE>
The provision for income taxes in the fiscal 1999 stub period consists of a
valuation allowance of $22.5 million offset by potential tax benefits of $13.5
million resulting from losses incurred in that period. Such valuation allowance
was recorded because the management of SBLI does not believe that the
utilization of the tax benefits resulting from operating losses and other
temporary differences are "more likely than not" as required under SFAS 109.
SBLI has recorded an income tax receivable of $1.7 million resulting from the
carryback of net operating losses.
The deferred tax assets (liabilities) at November 30, 1998, February 28,
1998 and February 28, 1997 are comprised of the following:
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28, FEBRUARY 28,
1998 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Allowance for doubtful accounts receivable..... $ 2,274 $1,215 $ 903
Nondeductible accruals......................... 9,957 1,866 952
-------- ------ ------
12,231 3,081 1,855
Valuation allowance............................ (12,231) -- --
-------- ------ ------
Current..................................... 0 3,081 1,855
-------- ------ ------
Non-Current:
Goodwill and intangible assets................. 5,056 5,623 --
Revenue recognition............................ 418 409 464
Accelerated depreciation....................... (1,071) (972) (516)
Other assets (liabilities)..................... 325 305 (196)
Net operating loss carryforward................ 5,545 -- --
-------- ------ ------
10,273 5,365 (248)
Valuation allowance............................ (10,273) -- --
-------- ------ ------
Non-current................................. 0 5,365 (248)
-------- ------ ------
Total.................................. $ 0 $8,446 $1,607
======== ====== ======
</TABLE>
Generally, net operating loss carryforwards will expire in the year 2013
and beyond.
The non-current deferred tax assets (liabilities) are included in Other
Assets and Long-Term Liabilities on the accompanying balance sheets.
F-16
<PAGE> 75
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of the effective income tax rate to the
Federal statutory rate:
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED
ENDED ------------------------------------------
NOVEMBER 30, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1998 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Federal statutory rate.................. 34.0% 34.0% 34.0% 34.0%
State and local income taxes, net of
Federal income tax benefit............ 2.4 3.8 7.6 8.7
Write-off of goodwill and intangible
assets................................ (0.3) (12.3) (0.2) --
Tax credits............................. -- -- (0.4) (3.9)
Goodwill amortization................... (0.5) (1.1) 4.6 8.9
Reversal of prior year accrual.......... -- (1.8) (2.3) (7.4)
Other................................... (0.1) (1.3) 0.7 1.7
Valuation allowance..................... (54.5) -- -- --
----- ----- ---- ----
Effective rate.......................... (19.0)% 21.3% 44.0% 42.0%
===== ===== ==== ====
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
Approximate minimum annual rental commitments for the remaining terms of
SBLI's noncancellable operating leases relating to office space and equipment
rentals are as follows:
<TABLE>
<CAPTION>
YEARS ENDING FEBRUARY
- ---------------------
<S> <C>
2000...................................................... $ 5,411
2001...................................................... 3,877
2002...................................................... 2,698
2003...................................................... 2,227
2004...................................................... 2,030
Thereafter................................................ 2,918
-------
Total........................................... $19,161
=======
</TABLE>
Certain leases require additional payments based upon property tax and
maintenance expense escalations. Aggregate rent expense for the fiscal 1999 stub
period, fiscal 1998, fiscal 1997, and fiscal 1996 approximated $4,037, $4,823,
$3,967 and $3,409, respectively.
SBLI has entered into employment or consulting agreements with several
officers and other individuals which require minimum aggregate payments of
approximately $2,688, $2,278, $1,812, $1,438 and $1,582 over the next five
fiscal years. Agreements with two executives provide, in the event of their
death, for the continued payment of their compensation to their beneficiaries
for the duration of their agreements. Additionally, certain officers have
entered into agreements which provide that in the event of change in control of
SBLI, and the discontinuance of such employee's employment with SBLI, SBLI will
pay a lump sum amount of 2.99 times the average annual compensation paid to the
employee during the five-year period immediately preceding the date of the
discontinuance of employment. Upon completion of the Distribution, certain
employment agreements will be terminated by SBLI and those individuals will be
employed under agreements with TLC.
Accrued expenses include $155 and $120 at November 30, 1998 and February
28, 1998, respectively which represents the estimated amount of liability claims
payable. Such amount represents the deductible amount for which SBLI is liable,
net of payments by SBLI's insurers which are probable of realization, which were
estimated at approximately $1.3 million as of February 28, 1998.
F-17
<PAGE> 76
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On September 20, 1995, the United States Attorney for the Eastern District
of Pennsylvania alleged that (i) between 1987 and 1989, a corporation,
substantially all the assets and liabilities of which were acquired by a
subsidiary of SBLI in 1993, submitted false claims to Medicare totaling
approximately $1.5 million and (ii) officers and employees of that corporation
submitted false statements in support of such claims, and made a pre-complaint
civil settlement demand of approximately $4.5 million. The alleged false claims
and false statements were made before SBLI acquired that corporation in 1993.
There have been significant discussions with the office of the United States
Attorney which SBLI believes are likely to lead to an arbitration within
specified parameters.
On June 18, 1998, 6100 Cleveland, Inc., Orsinger Enterprises, Inc., and
First Choice Medical Staffing, Inc., three former corporate home care and
staffing franchisees of SBLI in Ohio, commenced an action in the United States
District Court for the Northern District of Ohio, Eastern Division against
SBLI's subsidiary, Staff Builders International, Inc. The action sought to
recover damages and other relief alleging unpaid royalties, wrongful termination
by SBLI of the Franchise Agreement between the Company and the Plaintiffs,
breach of contract and other damages. The Company answered the complaint and
moved for a change of venue. On December 1, 1998, Plaintiffs, without the
required permission of the Court, filed a Second Amended Complaint alleging, in
addition to the allegations contained in the prior Complaint, claims under the
Racketeer Influenced and Corrupt Organizations Act ("RICO"), claiming a series
of deliberate and illegal actions designed to put certain Staff Builders
franchisees out of business, as well as claims arising under New York and Ohio
loss of business opportunity statutes. The Second Amended Complaint seeks money
damages in excess of $25 million and a claim for treble damages on the RICO
claim. The Second Amended Complaint added as defendants Staff Builders Services,
Inc., and three executive officers of SBLI. SBLI has moved to dismiss the Second
Amended Complaint challenging the legal sufficiency of the RICO claims and other
claims which allege a loss of business opportunities under New York and Ohio
laws. A companion case, 6100 Columbus, Inc. v. Staff Builders International,
Inc., was recently filed alleging breach of contract only. This case will
probably be consolidated with the previous case.
On December 21, 1998, H.L.N. Corporation, Frontlines Homecare, Inc.,
E.T.H.L., Inc., Phoenix Homelife Nursing, Inc., and Pacific Rim Healthcare
Services, Inc., former home care franchisees of SBLI for the territory
comprising certain counties in and around Los Angeles, California and their
holding company, instituted an action against the Company's subsidiaries, Staff
Builders, Inc., Staff Builders International, Inc., Staff Builders Services,
Inc., and certain executive officers of SBLI in the Superior Court for the State
of California, County of Los Angeles. The action was removed to United States
District Court for the Central District of California on December 22, 1998.
Plaintiffs filed a First Amended Complaint in the Central District on January 8,
1999 to challenge the termination of the three franchise agreements between SBLI
and certain of the named plaintiffs, seeking damages for violations of
California franchise law, breach of contract, fraud and deceit, unfair trade
practices, claims under the RICO, negligence, intentional interference with
contractual rights, declaratory and injunctive relief and a request for an
accounting. Plaintiffs seek an unspecified amount of damages. Discovery is
currently in process.
On July 17, 1998, the Federal government ordered that a complaint filed by
Ali Waris, the former owner of a home health care agency purchased by SBLI in
1993, be unsealed and served upon Staff Builder, Inc. and Targa Group, Inc., a
former franchisee of SBLI. The government had elected not to intervene in the
action, which alleged violations of the False Claims Act by SBLI in connection
with payments made by SBLI for consulting services. Following a motion to
dismiss, on March 4, 1999 the Court granted Waris leave to amend the Complaint,
the amended filing for which was served on March 31, 1999. SBLI intends to file
a motion to dismiss the Amended Complaint.
SBLI is a defendant in several civil actions which are routine and
incidental to its business. SBLI purchases insurance in such amounts which
management believes to be reasonable and prudent.
F-18
<PAGE> 77
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Although SBLI cannot estimate the ultimate cost of its open legal matters
with precision, it has an accrued loss contingency at November 30, 1998 and
February 28, 1998 for the aggregate, estimated amount to resolve such matters
(See Note 12). In the opinion of management the outcome of pending litigation
will not have a material adverse effect on SBLI's consolidated financial
position or results of operations. However, unfavorable resolutions of these
actions could have an adverse impact on liquidity.
15. STOCKHOLDERS' EQUITY
Common Stock -- Recapitalization and Voting Rights
During fiscal 1996, the shareholders approved a plan of recapitalization by
which the existing Common Stock, $.01 par value, was reclassified and converted
into either Class A Common Stock, $.01 par value per share, or Class B Common
Stock, $.01 par value per share. Prior to the recapitalization, shares of common
stock that were held by the beneficial owner for at least 48 consecutive months
were considered long-term shares, and, were entitled to ten votes for each share
of stock. Pursuant to the recapitalization, long-term shares were converted into
Class B Common Stock and short-term shares (beneficially owned for less than 48
months) were converted into Class A Common Stock. As a result of the
recapitalization, 1,554,936 shares of Class B Common Stock were issued.
A holder of Class B Common Stock is entitled to ten votes for each share
and each share is convertible into one share of Class A Common Stock (and will
automatically convert into one share of Class A Common Stock upon any transfer
subject to certain limited exceptions). Except as otherwise required by the
Delaware General Corporation Law, all shares of common stock vote as a single
class on all matters submitted to a vote by the stockholders.
The recapitalization included all outstanding options and warrants to
purchase shares of common stock which were converted automatically into options
and warrants, to purchase an equal number of shares of Class A Common Stock.
Stock Options
SBLI has adopted the disclosure provisions of the Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123"). Accordingly, no compensation expense has been recognized for the stock
option plans. Had SBLI recorded compensation expense for the stock options based
on the fair value at the grant date for awards in the fiscal 199 stub period,
fiscal years ended 1998, 1997 and 1996 consistent with the provisions of SFAS
123, SBLI's net income (loss) and net income (loss) per share would have
reflected to the following pro forma amounts:
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED
------------ ------------------------------------------
NOVEMBER 30, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1998 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) -- as reported........ $(45,334) $(21,632) $3,761 $2,014
Net income (loss) -- pro forma.......... (45,430) (22,075) 3,708 2,008
Basic earnings per share -- as
reported.............................. (1.97) (0.90) .16 .09
Basic earnings per share -- pro forma... (1.97) (0.92) .16 .09
Diluted earnings per share -- as
reported.............................. (1.97) (0.90) .15 .08
Diluted earnings per share -- pro
forma................................. (1.97) (0.92) .15 .08
</TABLE>
F-19
<PAGE> 78
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The number of shares that are anti-dilutive and therefore not included in
the foregoing calculations are as follows:
Because the SFAS 123 method of accounting has not been applied to options
granted prior to March 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The fair value of each option grant is estimated on the date of grant using
the Black Scholes option pricing model with the following weighted-average
assumptions used for grants in fiscal years 1998, 1997 and 1996, respectively:
expected volatility of 56%, 48% and 48%; risk-free interest rate averaging 5.8%,
7.1% and 7.1%; and expected lives of 10 years for all.
During the year ended February 28, 1994 ("fiscal 1994"), SBLI adopted a
stock option plan (the "1993 Stock Option Plan") under which an aggregate of one
million shares of common stock are reserved for issuance upon exercise of
options thereunder. Options granted under this plan may be incentive stock
options ("ISO's") or non-qualified options ("NQSO's"). This plan replaces the
1986 Non-Qualified Plan ("1986 NQSO Plan") and the 1983 Incentive Stock Option
Plan ("1983 ISO Plan") which terminated in 1993 except as to options then
outstanding. Employees, officers, directors and consultants are eligible to
participate in the plan. Options are granted at not less than the fair market
value of the common stock at the date of grant.
A total of 1,313,000 stock options were granted under the 1993 Stock Option
Plan, at prices ranging from $2.06 to $3.87, of which 940,500 remain outstanding
at November 30, 1998. Effective December 1, 1998, 914,750 of these options
issued to certain employees under the 1993 Stock Option Plan were rescinded and
the same number of new options at an option price of $.50 reissued to these
employees.
A summary of activity under the 1993 Stock Option Plan, the 1986 NQSO Plan
and the 1983 ISO Plan as of November 30, 1998, is as follows:
<TABLE>
<CAPTION>
OPTIONS
FOR SHARES PRICE PER SHARE
---------- ---------------
<S> <C> <C>
Options outstanding at February 28, 1995.................. 3,664,865 $1.63 to $6.38
Granted................................................... 31,000 $2.63 to $2.94
Exercised................................................. (1,120,735) $1.75 to $3.00
Terminated................................................ (72,100) $2.19 to $4.00
----------
Options outstanding at February 29, 1996.................. 2,503,030 $1.63 to $6.38
Granted................................................... 222,500 $2.50 to $3.19
Exercised................................................. (39,000) $ 2.27
Terminated................................................ (213,500) $2.19 to $6.38
----------
Options outstanding at February 28, 1997.................. 2,473,030 $1.63 to $6.13
Granted................................................... 414,000 $2.28 to $2.50
Exercised................................................. (5,000) $ 2.19
Terminated................................................ (392,750) $2.19 to $4.00
----------
Options outstanding at February 28, 1998.................. 2,489,280 $1.63 to $6.13
Granted................................................... 5,000 $ 2.06
Exercised................................................. (20,000) $ 1.75
Terminated................................................ (394,040) $2.06 to $3.00
----------
Options outstanding at November 30, 1998.................. 2,080,240 $1.63 to $6.13
==========
</TABLE>
Included in the outstanding options are 259,550 ISO's and 1,804,524 NQSO's
which are exercisable at November 30, 1998. The remaining options to purchase
16,166 shares become exercisable at various dates through March 2000.
F-20
<PAGE> 79
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarize information about stock options outstanding
at November 30, 1998:
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
RANGE OF NUMBER CONTRACTUAL LIFE EXERCISE
EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE
- --------------- ----------- ---------------- --------
<S> <C> <C> <C>
$1.63 to $2.50 1,471,240 4.5 $1.98
$2.51 to $3.50 206,500 6.4 $2.98
$3.51 to $6.13 402,500 5.9 $3.76
--------- --- -----
2,080,240 5.0 $2.42
========= === =====
</TABLE>
OPTIONS EXERCISABLE
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
RANGE OF NUMBER CONTRACTUAL LIFE EXERCISE
EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE
- --------------- ----------- ---------------- --------
<S> <C> <C> <C>
$1.63 to $2.50 1,471,240 4.5 $1.98
$2.51 to $3.50 183,334 6.1 $2.99
$3.51 to $6.13 402,500 5.9 $3.76
--------- --- -----
2,057,074 4.9 $2.42
========= === =====
</TABLE>
During the year ended February 28, 1999 ("fiscal 1999"), SBLI adopted a
stock option plan (the "1998 Stock Option Plan") under which an aggregate of two
million shares of common stock are reserved for issuance upon exercise of
options thereunder. Options granted under this plan may be incentive stock
options ("ISO's") or non-qualified options ("NQSO's"). Employees, officers,
directors and consultants are eligible to participate in the plan. Stephen
Savitsky and David Savitsky are not eligible to receive options under the plan.
Options are granted at not less than fair market value of the common stock at
the date of grant.
Effective December 1, 1998, 117,550 options issued to certain employees
under the 1983 ISO Plan and 31,250 options issued to certain employees under the
1986 NQSO Plan were recinded and 148,800 options at an option price of $.50 were
issued to these employees under the 1998 Stock Option Plan. Also, on December 1,
1998, an additional 811,783 options at an option price of $.50 were issued to
certain other employees. A total of 960,583 options have been issued under the
1998 Stock Option Plan. None of these options are currently exercisable.
During the year ended February 28, 1995, SBLI adopted a stock option plan
(the "1994 Performance-Based Stock Option Plan") which provides for the issuance
of up to 3,400,000 shares of its common stock. Executive officers of SBLI and
its wholly-owned subsidiaries are eligible for grants. Performance-based stock
options are granted for periods of up to six years and the exercise price is
equal to the average of the closing price of the common stock for the twenty
consecutive trading days prior to the date on which the option is granted. A
percentage of options may become exercisable in each of the four years following
the grant date if certain stock price targets are achieved.
Since inception a total of 4,320,714 stock options were granted under the
1994 Performance-Based Stock Option Plan, at option prices ranging from $1.81 to
$3.14, of which 3,205,714 remain outstanding at November 30, 1998. Effective
December 1, 1998, 3,150,714 of these options issued to certain employees under
the plan were rescinded and new options at option prices ranging from $.53 to
$.59 were issued to these employees. Of the 3,205,714 outstanding options,
40,000 are currently exercisable through September, 2004,
F-21
<PAGE> 80
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
an additional 15,000 options may become exercisable through September, 2004 and
the remaining 3,150,714 options will become exercisable on, or before, December
1, 2004.
During fiscal 1994, SBLI adopted an Employee Stock Purchase Plan which
provides for the issuance of up to one million shares of its common stock. The
purchase price of the shares is the lesser of 90 percent of the fair market
value at the enrollment date, as defined, or the exercise date. Since inception
of this plan a total of 991,347 shares were issued.
During fiscal 1999, SBLI adopted an employee stock purchase plan (the "1998
Stock Purchase Plan") which provides for the issuance of up to one million
shares of its common stock. This plan replaces the 1993 Employee Stock Purchase
Plan. The purchase price of the shares is the lesser of 90 percent of the fair
market value at the enrollment date, as defined, or the exercise date. Since
inception of this plan, a total of 96,634 shares were issued. The 1998 Employee
Stock Purchase Plan has been indefinitely suspended and no further shares will
be issued during the suspension.
Preferred Stock, Class A
During fiscal 1999, the holders of all issued outstanding shares of Class A
Preferred Stock (the "Preferred Stock") exchanged their Preferred Stock for
4,269,820 shares of Class A Common Stock. There are currently no outstanding
shares of Preferred Stock.
Common Shares Reserved
The following represents common shares reserved and available for issuance,
at November 30, 1998, for options granted and outstanding warrants and employee
stock purchases:
<TABLE>
<CAPTION>
AVAILABLE
FOR
RESERVED ISSUANCE
--------- ---------
<S> <C> <C>
1994 Performance-Based Stock Option Plan.................... 3,205,714 194,286
1993, 1986 and 1983 Stock Option Plans...................... 2,080,240 --
1993 Employee Stock Purchase Plan........................... -- 8,653
--------- -------
Total............................................. 5,285,954 202,939
========= =======
</TABLE>
Since March 1998 to date, the company purchased and retired a total of
5,088,060 shares of its common stock at a cost of approximately $4.8 million.
F-22
<PAGE> 81
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. EARNINGS (LOSS) PER COMMON SHARE
The following table sets for the computation of the basic and diluted
earnings (loss) per share (In thousands, except per share amounts):
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED
ENDED ------------------------------------------
NOVEMBER 30, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1998 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss)..................... $(45,334) $(21,632) $ 3,761 $ 2,014
======== ======== ======= =======
Denominator:
Share reconciliation:
Shares used for basic earnings (loss)
per share.......................... 23,026 23,939 23,668 23,598
Effect of dilutive items:
Stock options...................... -- -- 864 1,856
Other.............................. -- -- 45 50
-------- -------- ------- -------
Shares used for dilutive earnings
(loss) per share................... 23,026 23,939 24,577 25,504
======== ======== ======= =======
Earnings (loss) per share:
Basic................................. $ (1.97) $ (0.90) $ 0.16 $ 0.09
======== ======== ======= =======
Diluted............................... $ (1.97) $ (0.90) $ 0.15 $ 0.08
======== ======== ======= =======
</TABLE>
F-23
<PAGE> 82
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized unaudited quarterly financial data for the fiscal 1999 stub
period, fiscal 1998 and fiscal 1997 are as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
-------- -------- --------
<S> <C> <C> <C> <C>
FISCAL 1999 STUB PERIOD
Revenues................................... $104,637 $103,362 $ 99,409
Gross profit............................... $ 33,396 $ 35,352 $ 33,508
Net income (loss).......................... $ (99) $ 135 $(45,370)
Income (loss) per common share:
Basic.................................... $ .00 $ .01 $ (1.99)
Diluted.................................. $ .00 $ .01 $ (1.99)
Weighted average number of common shares:
Basic.................................... 23,647 22,526 22,846
Diluted.................................. 23,647 22,563 22,846
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
FISCAL 1998
Revenues................................... $130,501 $131,617 $131,262 $126,324
Gross profit............................... $ 46,525 $ 47,548 $ 46,994 $ 45,898
Net income (loss).......................... $ 849 $ 989 $ 975 $(24,445)
Income per common share:
Basic.................................... $ .04 $ .04 $ .04 $ (1.02)
Diluted.................................. $ .04 $ .04 $ .04 $ (1.02)
Weighted average number of common shares:
Basic.................................... 23,842 23,910 23,970 24,035
Diluted.................................. 24,080 24,246 24,388 24,035
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
FISCAL 1997
Revenues................................... $113,421 $114,824 $123,307 $128,803
Gross profit............................... $ 42,803 $ 43,705 $ 45,754 $ 46,585
Net income (loss).......................... $ 884 $ 979 $ 989 $ 909
Income per common share:
Basic.................................... $ .04 $ .04 $ .04 $ .04
Diluted.................................. $ .04 $ .04 $ .04 $ .04
Weighted average number of common shares:
Basic.................................... 23,530 23,614 23,762 23,759
Diluted.................................. 24,527 24,826 24,454 24,195
</TABLE>
During the third quarter ended November 30, 1998, SBLI recorded a pre-tax
non-recurring charge of $4.5 million (see Note 2).
During the fourth quarter of fiscal 1998, SBLI recorded a pre-tax
non-recurring charge of $33.4 million. (See Note 2).
During the fourth quarter ended February 28, 1997, SBLI recorded a gain of
approximately $834 from the sale of a closed division.
F-24
<PAGE> 83
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SBLI reduced its revenues by $3 million in the third quarter of fiscal 1996
due to a change in the method of allocating overhead to SBLI's Medicare
operations. SBLI also recorded charges in other (income) expense, net including
$1.6 million during the third quarter of fiscal 1996 for the closure of two
divisions, $165 for settlement of litigation and $358 of costs associated with
SBLI's recapitalization (See Note 15).
F-25
<PAGE> 84
STAFF BUILDERS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
NINE MONTHS ------------------------------------------
ENDED
NOVEMBER 30, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1998 1997 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Balance, beginning of period............... $ 3,600 $ 2,800 $ 2,200 $ 1,750
Charged to costs and expenses.............. 5,484 4,800 2,740 2,678
Deductions................................. (1,984) (4,000) (2,140) (2,228)
------- ------- ------- -------
Balance, end of period..................... $ 7,100 $ 3,600 $ 2,800 $ 2,200
======= ======= ======= =======
ACCUMULATED AMORTIZATION OF INTANGIBLE
ASSETS:
Balance, beginning of period............... $10,413 $ 9,126 $ 7,282 $ 6,532
Charged to costs and expenses.............. 711 2,556 2,503 1,764
Write-off of fully amortized assets........ -- (1,206) (659) (1,014)
Reduction from disposal of assets.......... (428) (63) -- --
------- ------- ------- -------
Balance, end of period..................... $10,696 $10,413 $ 9,126 $ 7,282
======= ======= ======= =======
DEFERRED INCOME (NETTED AGAINST FRANCHISE
NOTES RECEIVABLE):
Balance, beginning of period............... $ 4,387 $ 5,600 $ 5,735 $ 5,050
Charged to notes receivable................ 719 89 341 1,315
Deductions................................. (2,312) (1,302) (476) (630)
------- ------- ------- -------
Balance, end of period..................... $ 2,794 $ 4,387 $ 5,600 $ 5,735
======= ======= ======= =======
</TABLE>
Certain reclassifications have been made to prior periods to conform with
the November 30, 1998 presentation.
F-26
<PAGE> 85
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated balance sheet as of November
30, 1998 and unaudited pro forma consolidated statement of operations of the
Company for the nine months ended November 30, 1998 (collectively, the "Pro
Forma Statements") are based on the historical Consolidated Financial Statements
of Staff Builders included elsewhere in this Information Statement as adjusted
to give effect to the Distribution. Since after the Distribution TLC will own a
majority of the operations, employees and assets of the historical businesses of
Staff Builders, the Distribution will be treated as a "reverse spin off" for
financial reporting purposes under GAAP. See assumptions and adjustments in the
accompanying Notes to the Pro Forma Statements. The pro forma consolidated
balance sheet gives effect to the Distribution as if it occurred on November 30,
1998 and the pro forma consolidated statement of operations gives effect to the
Distribution as if it occurred on the first day of the respective periods.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable. The Pro Forma Statements
do not purport to represent what the Company's financial position and result of
operations would actually have been had the Distribution occurred on such dates
or to project the Company's financial position or results of operations for any
future period.
F-27
<PAGE> 86
PRO FORMA CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
STAFF BUILDERS
HISTORICAL
NOVEMBER 30, TLC PRO FORMA TLC PRO FORMA
1998 ADJUSTMENTS(A) CONSOLIDATED
-------------- -------------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 1,573 $ (343)(B) $ 1,230
Accounts receivable, net......................... 52,116 (27,678)(B) 24,438
Tax refund receivable............................ 1,733 1,733
Prepaid expenses and other....................... 4,185 529(B) 4,714
-------- -------- --------
Total current assets..................... 59,607 (27,492) 32,115
FIXED ASSETS, net.................................. 10,581 (765)(B) 9,816
INTANGIBLE ASSETS, net............................. 28,306 (9,044)(B) 19,262
INVESTMENT IN UNCONSOLIDATED
AFFILIATE........................................ 17,381 (17,381)(B) --
OTHER ASSETS....................................... 8,378 (113)(B) 8,265
-------- -------- --------
TOTAL ASSETS............................. $124,253 $(54,795) $ 69,458
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses............ $ 23,841 $ (4,695)(B) $ 19,146
Medicare and Medicaid audit liabilities.......... 26,330 26,330
Accrued payroll and related expenses............. 24,336 (2,480)(B) 21,856
Amounts due under secured credit facility........ 32,672 (23,155)(B) 9,517
Current portion of long-term debt................ 5,474 (177)(B) 5,297
-------- -------- --------
Total current liabilities................ 112,653 (30,507) 82,146
-------- -------- --------
LONG-TERM LIABILITIES.............................. 8,154 8,154
-------- --------
OTHER LIABILITIES.................................. 14,906 (24)(B) 14,882
-------- -------- --------
STOCKHOLDERS' EQUITY:
Class A Common Stock............................... 232 (114)(E) 118
Class B Common Stock............................... 3 (3)(E) --
Additional paid-in capital......................... 69,203 (22,152)(E) 47,051
Accumulated deficit................................ (80,898) (1,995)(B) (82,893)
-------- -------- --------
Total stockholders' equity
(deficiency)........................... (11,460) (24,264) (35,724)
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $124,253 $(54,795) $ 69,458
======== ======== ========
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements
F-28
<PAGE> 87
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
STAFF BUILDERS
HISTORICAL
NINE MONTHS
ENDED
NOVEMBER 30, TLC PRO FORMA TLC PRO FORMA
1998 ADJUSTMENTS(A) CONSOLIDATED
-------------- -------------- -------------
<S> <C> <C> <C>
REVENUES
Home health care................................. $237,122 $ -- $237,122
ATC supplemental staffing........................ 68,230 (68,230)(B) --
Sales of franchises and fees..................... 2,056 (177)(B) 1,879
-------- -------- --------
Total revenues........................... 307,408 (68,407) 239,001
-------- -------- --------
COSTS AND EXPENSES:
Operating costs.................................. 205,152 (53,526)(B) 151,626
General and administrative expenses.............. 105,887 (12,205)(B) 93,682
Medicare and Medicaid audit adjustments.......... 29,000 -- 29,000
Amortization of intangible assets................ 961 (511)(B) 450
Interest expense................................. 2,481 (1,722)(B) 759
Interest (income)................................ (739) 44(B) (695)
Other (income) expense, net...................... (1,741) 2,168(B) 427
Restructuring costs.............................. 4,500 -- 4,500
-------- -------- --------
Total costs and expenses................. 345,501 (65,752) 279,749
-------- -------- --------
(LOSS) BEFORE INCOME TAXES......................... (38,093) (2,655) (40,748)
PROVISION FOR INCOME TAX........................... 7,241 (1,902)(C) 5,339
-------- -------- --------
NET (LOSS)......................................... $(45,334) $ (753) $(46,087)
======== ======== ========
NET (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
BASIC............................................ $ (1.97) $ (4.00)
======== ========
DILUTED.......................................... $ (1.97) $ (4.00)
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES:
BASIC............................................ 23,026 11,513(D) 11,513
======== ======== ========
DILUTED.......................................... 23,026 11,513(D) 11,513
======== ======== ========
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements
F-29
<PAGE> 88
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
STAFF BUILDERS
HISTORICAL
YEAR ENDED
FEBRUARY 28, TLC PRO FORMA TLC PRO FORMA
1998 ADJUSTMENTS(A) CONSOLIDATED
-------------- -------------- -------------
<S> <C> <C> <C>
REVENUES
Home health care................................. $451,098 $ -- $451,098
ATC supplemental staffing........................ 67,331 (67,331)(B) --
Sales of franchises and fees..................... 1,275 (156)(B) 1,119
-------- -------- --------
Total revenues........................... 519,704 (67,487) 452,217
-------- -------- --------
COSTS AND EXPENSES:
Operating costs.................................. 332,739 (52,650)(B) 280,089
General and administrative expenses.............. 176,783 (12,203)(B) 164,580
Medicare and Medicaid audit adjustments.......... -- -- --
Amortization of intangible assets................ 2,807 (631)(B) 2,176
Interest expense................................. 3,600 (1,190)(B) 2,410
Interest (income)................................ (1,358) 11(B) (1,347)
Other (income) expense, net...................... (818) 326(B) (492)
Restructuring costs.............................. 33,447 (3,178)(B) 30,269
-------- -------- --------
Total costs and expenses................. 547,200 (69,515) 477,685
-------- -------- --------
(LOSS) BEFORE INCOME TAXES......................... (27,496) 2,028 (25,468)
PROVISION (BENEFIT) FOR INCOME TAX................. (5,864) 566(C) (5,298)
-------- -------- --------
NET (LOSS)......................................... $(21,632) $ 1,462 $(20,170)
======== ======== ========
NET (LOSS) PER COMMON SHARE:
BASIC............................................ $ (.90) $ (1.69)
======== ========
DILUTED.......................................... $ (.90) $ (1.69)
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES:
BASIC............................................ 23,939 11,969(D) 11,970
======== ======== ========
DILUTED.......................................... 23,939 11,969(D) 11,970
======== ======== ========
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements
F-30
<PAGE> 89
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS:
(A) The following pro forma adjustments reflect the Distribution. Since
after the Distribution TLC will own a majority of the operations, employees and
assets of the historical businesses of Staff Builders, the Distribution will be
treated as a "reverse spin-off" for financial reporting purposes under GAAP.
(B) Pro forma adjustments to remove assets, liabilities, revenues and
expenses not part of the home health operations of Staff Builders. Bank
borrowings and related interest expense have been accounted for in the pro forma
financial data based on the historical allocation of such borrowings by Staff
Builders to its home health care and supplemental staffing businesses.
(C) Pro forma adjustments to give effect to the computation of income taxes
as if separate income tax returns were filed.
(D) Pro forma adjustment to reflect the average outstanding shares of Staff
Builders adjusted for the one share of TLC which will be issued for each
previously outstanding two shares of Staff Builders.
(E) Pro forma adjustment to reflect the capitalization of TLC.
F-31
<PAGE> 90
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 -- Form of Amended and Restated Certificate of Incorporation
of the Company.
3.2 -- Form of Amended and Restated By-laws of the Company.
4.1 -- Specimen Common Stock Certificate.*
10.1 -- Form of Distribution Agreement between Staff Builders and
TLC.
10.2 -- Form of Tax Allocation Agreement between Staff Builders
and TLC.
10.3 -- Form of Transitional Services Agreement between Staff
Builders and TLC.
10.4 -- Form of Trademark License Agreement between Staff
Builders and Staff Builders International, Inc.
10.5 -- Form of Sublease between Staff Builders and TLC.*
10.6 -- Form of Employee Benefits Agreement between Staff
Builders and TLC.*
10.7 -- Form of Employment Agreement between the Company and
Stephen Savitsky.
10.8 -- Form of Employment Agreement between the Company and
David Savitsky.
10.9 -- Form of Employment Agreement between the Company and Dale
R. Clift.
10.10 -- Form of Employment Agreement between Staff Builders, Inc.
(NY) and Sandra Parshall.
10.11 -- Form of Employment Agreement between the Company and
Willard T. Derr.
10.12 -- Form of Employment Agreement between the Company and
Renee J. Silver.
10.13 -- Form of Indemnification Agreement between the Company and
Stephen Savitsky.
10.14 -- Form of Indemnification Agreement between the Company and
David Savitsky.
10.15 -- Form of Indemnification Agreement between the Company and
Bernard J. Firestone.
10.16 -- Form of Indemnification Agreement between the Company and
Jonathan Halpert.
10.17 -- Form of Indemnification Agreement between the Company and
Dale R. Clift.
10.18 -- Form of Indemnification Agreement between the Company and
Willard T. Derr.
10.19 -- Form of Indemnification Agreement between the Company and
Renee J. Silver.
10.20 -- 1999 Stock Option Plan.
10.21 -- Form of Stock Option Agreement.
10.22 -- Form of Home Health Care Services Franchise Agreement.(A)
10.23 -- Executive Deferred Compensation Plan, effective as of
March 1, 1994.
10.24 -- Form of Split-Dollar Life Insurance Agreement.
10.25 -- Master Lease Agreement, dated as of December 4, 1996,
between the Company and Chase Equipment Leasing, Inc.(B)
10.26 -- Premium Finance Agreement, Disclosure Statement and
Security Agreement, dated as of December 26, 1996,
between the Company and A.I. Credit Corp.(B)
10.27 -- Agreement of Lease, dated as of October 1, 1993, between
Triad III Associates and Staff Builders, Inc. (NY).(C)
10.28 -- Supplemental Agreement, dated as of January 21, 1994,
between General Electric Capital Corporation, Triad III
Associates and Staff Builders, Inc. (NY)(C)
10.29 -- First Lease Amendment, dated October 28, 1998, between
Matterhorn USA, Inc. and Staff Builders, Inc. (NY)
10.30 -- License Agreement, dated as of April 23, 1996, between
Matterhorn One, Ltd. and Staff Builders, Inc. (NY).(B)
10.31 -- License Agreement, dated as of December 16, 1998, between
Matterhorn USA, Inc. and Staff Builders, Inc. (NY).
10.32 -- Lease Agreement, dated as of November 4, 1996, between
Airport Landing Center, L.L.C. and Staff Builders Home
Health Care, Inc.(B)
10.33 -- Asset Purchase Agreement dated as of June 22, 1993,
between Albert Gallatin Home Care, Inc and Albert
Gallatin Visiting Nurse Association, Inc.(D)
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.34 -- Stock Purchase Agreement, dated as of June 22, 1993,
between Staff Builders, Inc. (NY) and Albert Gallatin
Planning and Development Corporation.(D)
10.35 -- Stock Purchase Agreement, dated as of August 30, 1995,
between Staff Builders Services, Inc., MedVisit, Inc. and
Roger Jack Pleasant.(E)
10.36 -- Asset Purchase and Sale Agreement, dated as of September
1, 1995, between Staff Builders Services, Inc. and
Accredicare, Inc.(E)
10.37 -- Stock Redemption Agreement, dated as of March 18, 1997,
between the Company and American HomeCare Management
Corp.(B)
10.38 -- Agreement and Release, dated December 24, 1998, between
Cynthia Nye and Staff Builders, Inc. (NY).
10.39 -- Agreement and Release, dated February 28, 1997, between
Larry Campbell and Staff Builders, Inc. (NY).(B)
21 -- Subsidiaries of the Company.
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
NOTES TO EXHIBITS
(A) Incorporated by reference to Staff Builders, Inc.'s Registration
Statement on Form S-1 (File No. 33-43728), dated January 29, 1992.
(B) Incorporated by reference to Staff Builders, Inc.'s exhibit booklet to
its Form 10-K for the fiscal year ended February 28, 1997 (File No.
0-11380), filed with the Commission on May 27, 1997.
(C) Incorporated by reference to Staff Builders, Inc.'s exhibit booklet to
its Form 10-K for the fiscal year ended February 28, 1995 (File No.
0-11380), filed with the Commission on May 5, 1995.
(D) Incorporated by reference to Staff Builders, Inc.'s exhibit booklet to
its Form 10-K for the fiscal year ended February 28, 1994 (File No.
0-11380), filed with the Commission on May 13, 1994.
(E) Incorporated by reference to Staff Builders, Inc.'s exhibit booklet to
its Form 10-K for the fiscal year ended February 28, 1996 (File No.
0-11380), filed with the Commission on May 13, 1996.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
TENDER LOVING CARE HEALTH CARE SERVICES, INC., a corporation organized
and existing under the laws of the State of Delaware, hereby certifies as
follows:
1. The name of the corporation is TENDER LOVING CARE HEALTH CARE
SERVICES, INC. (the "CORPORATION"). The date of filing its original Certificate
of Incorporation with the Secretary of State was February 26, 1999.
2. This Amended and Restated Certificate of Incorporation amends and
restates in its entirety the original Certificate of Incorporation.
First: The name of the Corporation is:
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
Second: The registered office of the Corporation is located at 1013
Centre Road, City of Wilmington, County of New Castle, State of Delaware,
19805-1297. The name of its registered agent at that address is The
Prentice-Hall Corporation System, Inc.
Third: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
Fourth: The total number of shares of stock that the Corporation shall
have authority to issue 50,000,000 shares of Common Stock, par value $.01 per
share ("COMMON
<PAGE> 2
STOCK"), and 5,000,000 shares of Preferred Stock, par value [$1.00] per share
(the "PREFERRED STOCK").
The designations, powers, preferences and rights, and the
qualifications and restrictions, of the Common Stock and the Preferred Stock are
as follows:
(a) Except as otherwise required by statute, as set forth in a
resolution or resolutions of the Board of Directors as hereinafter provided, or
as otherwise provided herein, the holders of shares of Common Stock of the
Corporation shall (i) possess the exclusive right to vote for the election of
directors and for all other corporate purposes, and (ii) vote together without
regard to class. Except as otherwise required by the General Corporation Law of
Delaware or as otherwise provided herein, each share of Common Stock shall have
identical powers, preferences and rights, including rights in liquidation and to
dividends and distributions. With respect to any proposed amendment to the
Amended and Restated Certificate of Incorporation of the Corporation that would
increase or decrease the number of authorized shares of Common Stock, increase
or decrease the par value of the shares of Common Stock, or alter or change the
powers, preferences, relative voting power or special rights of the shares of
the Common Stock so as to affect them adversely, the approval of a majority of
the votes entitled to be cast by the holders of the class adversely affected by
the proposed amendment, voting separately as a class, shall be obtained in
addition to the approval of a majority of the votes entitled to be cast by the
holders of the Common Stock voting together without regard to class as
hereinabove provided.
-2-
<PAGE> 3
(b) A holder of the Common Stock shall be entitled to one (1) vote on
each matter submitted to a vote at a meeting of stockholders for each share of
Common Stock held of record by such holder as of the record date for such
meeting.
(c) The Preferred Stock of the Corporation shall be issued in whole or
in part, in series or otherwise, and the designations, powers, preferences,
qualifications, limitations or restrictions thereof, of the various classes or
series including such provisions as may be desired for the redemption of shares
of stock and/or the conversion of shares of stock into or exchanged for shares
of any other series or class of stock, and the time or times, price or prices,
rates of exchange, adjustments, and other conditions of such redemption,
conversion, and/or exchange, shall be designated from time to time by resolution
or resolutions duly adopted by the Board of Directors.
Fifth: (a) The following provisions are inserted for the management of
the business and for the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the Corporation
and of its directors and stockholders:
1. The number of directors of the Corporation shall be fixed
as provided in the By-Laws. The directors shall be divided into three
classes, each class to contain as near as possible to one-third (1/3)
of the whole number of directors of the Board of Directors so fixed in
the By-Laws, and, except as otherwise provided by statute, in the case
of any increase in the number of directors fixed as provided in the
By-Laws, such increase shall be apportioned among the classes of
directors so as to maintain each class as near as possible to one-third
of the whole number
-3-
<PAGE> 4
of directors as so increased. The initial term of office for members of
the first class shall expire at the annual meeting of stockholders next
following; the initial term for members of the second class shall
expire at the annual meeting of stockholders one year thereafter; and
the initial term for members of the third class shall expire at the
annual meeting of stockholders two years thereafter. At the expiration
of the initial term, and of each succeeding term of each class, the
directors of each class shall be elected to serve for a term of three
years. The By-Laws may contain any provision regarding classification
not inconsistent with the terms hereof.
2. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorships resulting
from any increase in the authorized number of directors or any
vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause shall
be filled by a majority vote of the directors then in office, and
directors so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of the class to which they
have been elected expires. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any
incumbent director.
3. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any director, or the entire Board of
Directors, may be removed from office at any time, but only for cause
and only by the affirmative vote of the
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holders of at least 80% of the voting power of all of the shares of the
Corporation entitled to vote for the election of directors.
4. Notwithstanding anything contained in this Amended and
Restated Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least 80% of the voting power of all of the
shares of the Corporation entitled to vote for the election of
directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article FIFTH (a).
(b) The Board of Directors shall have power, without the assent or vote
of the stockholders:
1. To make, alter, amend, change, add to or repeal the By-Laws
of the Corporation; to fix and vary the amount to be reserved for any
proper purpose; to authorize and cause to be executed mortgages and
liens upon all or any part of the property of the Corporation; to
determine the use and disposition of any surplus or net profits; and to
fix the times for the declaration and payment of dividends.
2. To determine from time to time whether, and to what times
and places, and under what conditions the accounts and books of the
Corporation (other than the stockledger) or any of them, shall be open
to the inspection of the stockholders.
(c) The directors in their discretion may submit any contract or act
for approval or ratification at any annual meeting of the stockholders or at any
meeting of the stockholders called for the purpose of considering any such act
or contract, and any contract or act that shall be approved or be ratified by
the vote of the holders of a majority of the stock of the
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Corporation which is represented in person or by proxy at such meeting and
entitled to vote thereat (provided that a lawful quorum of stockholders be there
represented in person or by proxy) shall be as valid and as binding upon the
Corporation and upon all the stockholders as though it had been approved or
ratified by every stockholder of the Corporation, whether or not the contract or
act would otherwise be open to legal attack because of directors' interest, or
for any other reason.
(d) Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders. Special meetings of stockholders of the
Corporation may be called only by the Board of Directors, upon not less than 10
nor more than 60 days written notice. Notwithstanding anything contained in this
Amended and Restated Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least 80% of the voting power of all of
the shares of the Corporation entitled to vote for the election of directors
shall be required to amend or repeal, or to adopt any provision inconsistent
with this Article FIFTH (d).
(e) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation; subject, nevertheless, to the provisions of the statutes of
Delaware, of this certificate, and to any By-Laws from time to time made by the
stockholders; provided, however, that no By-Laws so made shall
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invalidate any prior act of the directors which would have been valid if such
By-law had not been made.
Sixth: The Corporation shall, to the full extent permitted by Section
145 of the Delaware General Corporation Law, as amended, from time to time,
indemnify all persons whom it may indemnify pursuant thereto.
Seventh: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation in the manner now or hereafter prescribed by law, and all rights
and powers conferred herein on stockholders, directors and officers are subject
to this reserved power.
Eighth: (a) 1. In addition to any affirmative vote required by law or
this Amended and Restated Certificate of Incorporation, and except as otherwise
expressly provided in section (b) of this Article EIGHTH:
a. any merger or consolidation of the Corporation or
any Subsidiary (as hereinafter defined) with (i) any
Interested Stockholder (as hereinafter defined) or (ii) any
other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
b. any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series
of transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder
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of any assets of the Corporation or any Subsidiary having an
aggregate Fair Market Value of $1,000,000 or more; or
c. the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of
any securities of the Corporation or any Subsidiary to any
Interested Stockholder or any Affiliate of any Interested
Stockholder in exchange for cash, securities or other property
(or combination thereof) having an aggregate Fair Market Value
of $1,000,000 or more; or
d. the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or
on behalf of an Interested Stockholder or any Affiliate of any
Interested Stockholder; or
e. any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation,
or any merger or consolidation of the Corporation with any of
its Subsidiaries or any transaction (whether or not with or
into or otherwise involving an Interested Stockholder) which
has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of
equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any
Interested Stockholder or any Affiliate of any Interested
Stockholder;
shall require the affirmative vote of the holders of (i) at least 80% of the
then outstanding shares of Common Stock of the Corporation entitled to vote
generally in the election of directors voting together as a single class; and
(ii) at least 66% of the then outstanding shares of each series of
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Preferred Stock then issued and outstanding, each such series of Preferred Stock
voting separately and having one vote for each share of Preferred Stock issued
and outstanding. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be specified,
by law or in any agreement with any national securities exchange or otherwise.
2. The Term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of clauses (a)
through (e) of paragraph 1 of this Section (a).
(b) The provisions of Section (a) of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote as is required by law and any other
provision of this Amended and Restated Certificate of Incorporation, if the
Business Combination shall have been approved by a majority of the Continuing
Directors (as hereinafter defined).
(c) For the purposes of this Article EIGHTH:
1. A "person" shall mean any individual, firm, corporation or
other entity.
2. "Interested Stockholder" shall mean any person (other than
the Corporation or any Subsidiary) who or which:
a. is the beneficial owner, directly or indirectly,
of more than 10% of the voting power of the outstanding Voting
Stock; or
b. is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the date in
question was the
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beneficial owner, directly or indirectly, of 10% or more of
the voting power of the then outstanding Voting Stock; or
c. is an assignee of or has otherwise succeeded to
any shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question
beneficially owned by any Interested Stockholder, if such
assignment or succession shall have occurred in the course of
a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
3. A person shall be a "beneficial owner" of any Voting Stock:
a. which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns,
directly or indirectly; or
b. which such person or any of its Affiliates or
Associates has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding; or
c. which are beneficially owned, directly or
indirectly, by any person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Voting Stock.
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4. For the purposes of determining whether a person is an Interested
Stockholder pursuant to paragraph 2 of this Section (c), the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed owned through
application of paragraph 3 of this Section (c) but shall not include any of the
shares of Voting Stock which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
5. "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934,
as amended.
6. "Subsidiary" means any corporation of which a majority of any class
of equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in paragraph 2 of this Section (c), the term "Subsidiary"
shall mean only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
7. "Continuing Director" means any member of the Board of Directors of
the Corporation (the "Board") who is unaffiliated with the Interested
Stockholder and was a member of the Board prior to the time that the Interested
Stockholder became an Interested Stockholder, and any successor of a Continuing
Director who is unaffiliated with the Interested Stockholder and is recommended
to succeed a Continuing Director by a majority of Continuing Directors then on
the Board.
8. "Fair Market Value" means:
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a. In the case of stock, the highest closing sale
price during the 30-day period immediately preceding the date
in question of a share of such stock on the Composite Tape for
New York Stock Exchange Listed Stocks, or, if such stock is
not quoted on the Composite Tape, on the New York Stock
Exchange, or, if such stock is not listed on such Exchange, on
the principal United States securities exchange or, if such
stock is not listed on any such exchange, the highest closing
bid quotation with respect to a share of such stock during the
30-day period preceding the date in question on the Nasdaq
Market or the OTC Bulletin Board or any system then in use, or
if no such quotations are available, the fair market value on
the date in question of a share of such stock as determined by
the Board in good faith; and
b. In the case of property other than cash or stock,
the fair market value of such property on the date in question
as determined by the Board in good faith.
9. "Voting Stock" means stock of any class or series entitled to vote
generally in the election of directors.
(d) The directors of the Corporation shall have the power and duty to
determine for the purposes of this Article EIGHTH, on the basis of information
known to them after reasonable inquiry:
1. whether a person is an Interested Stockholder;
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2. the number of shares of Voting Stock beneficially owned by
any person;
3. whether a person is an Affiliate or Associate of another;
4. whether the assets which are the subject of any Business
Combination have, or to be received for the issuance or transfer of
securities by the Corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $1,000,000 or more.
(e) Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
(f) Notwithstanding any other provision of this Amended and Restated
Certificate of Incorporation or the By-Laws (and notwithstanding the fact that a
lesser percentage may be specified by law, this Amended and Restated Certificate
of Incorporation or the By-Laws), the affirmative vote of the holders of 80% or
more of the then outstanding shares of each class entitled to vote under Section
(a) hereof, voting separately, shall be required to amend or repeal, or adopt
any provisions inconsistent with, this Article EIGHTH of this Amended and
Restated Certificate of Incorporation.
Ninth: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by Paragraph 7 of Subsection
(b) of Section 102 of the General Corporation Law of the State of Delaware as
the same may be amended or supplemented.
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Tenth: In furtherance and not in limitation of the powers conferred by
law or in this Amended and Restated Certificate of Incorporation, the Board of
Directors (and any committee of the Board of Directors) is expressly authorized,
to the extent permitted by law, to take such action or actions as the Board or
such committee may determine to be reasonably necessary or desirable to (A)
encourage any person (as defined in Article EIGHTH of this Amended and Restated
Certificate of Incorporation) to enter into negotiations with the Board of
Directors and management of the Corporation with respect to any transaction
which may result in a change of control of the Corporation which is proposed or
initiated by such person or (B) contest or oppose any such transaction which the
Board of Directors or such committee determines to be unfair, abusive or
otherwise undesirable with respect to the Corporation and its business, assets
or properties or the stockholders of the Corporation, including, without
limitation, the adoption of such plans or the issuance of such rights, options,
capital stock, notes, debentures or other evidences of indebtedness or other
securities of the Corporation, which rights, options, capital stock, notes,
evidences of indebtedness and other securities (i) may be exchangeable for or
convertible into cash or other securities on such terms and conditions as may be
determined by the Board or such committee and (ii) may provide for the treatment
of any holder or class of holders thereof designated by the Board of Directors
or any such committee in respect of the terms, conditions, provisions and rights
of such securities which is different from, and unequal to, the terms,
conditions, provisions and rights applicable to all other holders thereof.
Eleventh: The name and mailing address of the incorporator is Edward B.
McNicholas, Staff Builders, Inc., 1983 Marcus Avenue, Lake Success, New York,
11042.
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This Amended and Restated Certificate of Incorporation was duly adopted
by the Board of Directors in accordance with Section 245 of the General
Corporation Law of the State of Delaware.
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IN WITNESS WHEREOF, said Tender Loving Care Health Services, Inc. has
caused this Certificate to be signed by Dale R. Clift, its President, and
attested by [______________], its Secretary, this [___] day of [________], 1999.
TENDER LOVING CARE HEALTH CARE
SERVICES, INC.
By:
----------------------------
Dale R. Clift, President
ATTEST:
By:
-------------------------------
[ ], Secretary
-------------
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<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
TENDER LOVING CARE
HEALTH CARE SERVICES, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICE
Section 1.1. Registered Office. The registered office of TENDER LOVING
CARE HEALTH CARE SERVICES, INC. ("Corporation") in the State of Delaware shall
be located at 1013 Centre Road, City of Wilmington, County of New Castle, State
of Delaware, 19805-1297, or at such other place as the Board of Directors may at
any time or from time to time designate.
Section 1.2. Registered Agent. The registered agent of the Corporation
in the State of Delaware at its registered office is The Prentice-Hall
Corporation System, Inc., or such other person, firm or corporation as the Board
of Directors may at any time or from time to time designate.
Section 1.3. Principal Office. The principal place of business of the
Corporation shall be at 1983 Marcus Avenue, in the Town of Lake Success in the
State of New York, or at such other place as the Board of Directors may at any
time or from time to time designate.
Section 1.4. Other Offices. The Corporation may establish or
discontinue, from time to time, such other offices and places of business within
or without the State of Delaware as may be deemed proper for the conduct of the
business of the Corporation.
<PAGE> 2
ARTICLE II
MEETING OF STOCKHOLDERS
Section 2.1. Annual Meeting. The annual meeting of holders of capital
stock of the Corporation ("Stock") as are entitled to vote thereat ("Annual
Meeting of Stockholders") shall be held for the election of directors and
transaction of such other business as properly may come before it no more than
180 days after the close of the fiscal year of the Corporation.
Section 2.2. Special Meetings. In addition to such special meetings as
are provided for by law or by the Certificate of Incorporation, special meetings
of the stockholders of the Corporation may be called at any time only by the
Board of Directors. Special meetings shall be called by means of a notice as
provided in Section 2.4 hereof.
Section 2.3. Place of Meetings. All meetings of the stockholders shall
be held at such place within or without the State of Delaware as shall be
designated by the Board of Directors.
Section 2.4. Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting and in case
of a special meeting, the purpose or purposes for which the meeting is called.
The notice of each annual Meeting of Stockholders shall identify each matter
intended to be acted upon at such meeting. If mailed, the notice shall be
addressed to each stockholder in a postage prepaid envelope at his address as it
appears on the records of the Corporation unless prior to the time of mailing
the Secretary shall have received from any such stockholder a written request
that notices intended for him be mailed to some other address. In such case the
notice intended for such stockholder shall be mailed to the address designated
in such request. Notice of each meeting of stockholders shall be delivered
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personally or mailed not less than ten (10) nor more than sixty (60) days before
the date fixed for the meeting to each stockholder entitled to vote at such
meeting.
Section 2.5. Waiver of Notice. Whenever notice is required to be given,
a written waiver thereof signed by the person entitled to notice or by his proxy
or attorney duly authorized, whether before or after the time stated therein for
such meeting, shall be deemed equivalent to notice. Attendance of a person at a
meeting of stockholders shall constitute a waiver of notice of such meeting,
except as otherwise provided by law. Neither the business to be transacted at
nor the purpose of any regular or special meeting of the stockholders need be
specified in any written waiver of notice.
Section 2.6. Organization of Meetings. The Chairman of the Board, if
any, shall act as chairman at all meetings of stockholders at which he is
present and, as such chairman, shall call such meetings of stockholders to order
and shall preside thereat. If the Chairman of the Board shall be absent from any
meeting of stockholders, the duties otherwise provided in this Section to be
performed by him at such meeting shall be performed at such meeting by the
President. If both the Chairman of the Board and the President shall be absent,
such duties shall be performed by a Vice President designated by the President
to preside at such meeting. If no such officer is present at such meeting, any
stockholder or the proxy of any stockholder entitled to vote at the meeting may
call the meeting to order and a chairman to preside thereat shall be elected by
a majority of those present and entitled to vote. The Secretary of the
Corporation shall act as secretary at all meetings of the stockholders but, in
his absence, the chairman of the meeting may appoint any person present to act
as secretary of the meeting.
Section 2.7. Stockholders Entitled to Vote. The Board of Directors may
fix a date not less than ten (10) no more than sixty (60) days preceding the
date of any meeting of
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stockholders, or preceding the last day on which the consent of stockholders may
be effectively expressed for any purpose without a meeting, as a record date for
the determination of the stockholders entitled: (a) To notice of, and to vote
at, such meeting and any adjournment thereof; or (b) to express such consent. In
such case such stockholders of record on the date so fixed shall be entitled to
notice of, and to vote at, such meeting and any adjournment thereof or to
express such consent, as the case may be, notwithstanding any transfer of any
stock on the books of the Corporation after any such record date is so fixed.
Section 2.8. List of Stockholders Entitled to Vote. The Secretary shall
prepare and make or cause to be prepared and made, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at such meeting, arranged in alphabetical order and showing the address of
each such stockholder as it appears on the records of the Corporation and the
number of shares registered in the name of each such stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place specified in the notice of meeting
within the city where the meeting is to be held or, if not so specified, at the
place where the meeting is to be held, and a duplicate list shall be similarly
open to examination of the principal place of business of the Corporation. Such
list shall be produced and kept at the time and place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present.
Section 2.9. Quorum and Adjournment. Except as otherwise provided by
law and in the Certificate of Incorporation, the holders of 33 1/3% of the
shares of Stock entitled to vote at the meeting, shall constitute a quorum at
each meeting of the stockholders. Where a separate vote by class is required, 33
1/3% of the shares of each such class or series of Stock
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entitled to vote at such meeting shall constitute a quorum at such meeting. In
the absence of a quorum, the holders of a majority of the shares of Stock
present in person or by proxy may adjourn any meeting from time to time until a
quorum shall attend. At any such adjourned meeting at which a quorum may he
present, any business may be transacted which might have been transacted at the
meeting as originally called. Notice of an adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 2.10. Order of Business. The order of business at all meetings
of stockholders shall be as determined by the chairman of the meeting.
Section 2.11. Vote of Stockholders. Except as otherwise permitted by
law or by the Certificate of Incorporation, all action by stockholders shall be
taken at a meeting of the stockholders. Except as otherwise provided in the
Certificate of Incorporation, every stockholder of record, as determined
pursuant to Section 2.7 hereof, who is entitled to vote shall at every meeting
of the stockholders be entitled to one vote for each share of Stock entitled to
participate in such vote held by such stockholder on the record date. Each
Stockholder entitled to vote shall have the right to vote in person or by proxy.
Except as otherwise provided by law, no vote on any question upon which a vote
of the stockholders may be taken need be by ballot unless the chairman of the
meeting shall determine that it shall be by ballot or the holders of a majority
of the shares of Stock present in person or by proxy and entitled to participate
in such vote shall so demand. In a vote by ballot each ballot shall state the
number of shares voted and the name of the stockholder or proxy voting. Unless
otherwise provided by law or by the Certificate of Incorporation, each director
shall be elected and all other questions shall be decided by the vote of the
holders of a majority of all shares of Stock present in person or by proxy at
the meeting and entitled to vote on the question; provided, however, that the
Board of Directors may require
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on any question a vote of the holders of a majority of the shares of Stock
outstanding and entitled to vote thereon. Notwithstanding anything contained in
these By-Laws to the contrary, the affirmative vote of at least 80% of the
shares of the Corporation entitled to vote for the election of directors shall
be required to amend or repeal, or to adopt any provision inconsistent with this
Section.
Section 2.12. Proxies. Each stockholder entitled to vote at a meeting
of stockholders or to express consent to corporate action in writing without a
meeting may authorize another person or persons to act for him by proxy. A proxy
acting for any stockholder shall be duly appointed by an instrument in writing
subscribed by such stockholder.
Section 2.13. Attendance at Meetings of Stockholders. Any stockholder
of the Corporation not entitled to notice of the meeting or to vote at such
meeting shall nevertheless be entitled to attend any meeting of stockholders of
the Corporation.
Section 2.14. Nominations of Directors. Nominations for the election of
a Director made by a stockholder must be submitted in writing to the Secretary
of the Corporation not less than 30 nor more than 60 days prior to any
stockholders meeting called for the election of Directors. Such notice shall set
forth the following information with respect to each nominee and each
stockholder making a nomination: (1) name, age and business address; (2)
business experience during the last five years and other directorships presently
held; and (3) number of shares and percentage of the Corporation's capital stock
beneficially owned (or securities convertible into or exchangeable for capital
stock). Within such time period, the Secretary of the Corporation must also
receive from each nominee a written consent to being a nominee and a statement
of intention to serve as a Director, if elected.
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ARTICLE III
BOARD OF DIRECTORS
Section 3.1. Number, Qualifications, Election and Term of Office. The
number of directors of the Corporation shall be fixed from time to time by the
vote of a majority of the entire Board then in office and the number thereof may
thereafter by like vote be increased or decreased to such greater or lesser
number (not less than three) as may be so provided, subject to the provisions of
3.12. All of the directors shall be of full age and need not be shareholders.
The directors shall be divided into three classes, each class to contain as near
as possible to one-third (1/3) of the whole number of directors of the Board of
Directors so fixed in the By-Laws, and, except as otherwise provided by statute,
in the case of any increase in the number of directors fixed in the By-Laws,
such increase shall be appointed among the classes of directors so as to
maintain each class as near as possible to one-third of the whole number of
directors as so increased. The initial term of office for members of the first
class shall expire at the annual meeting of stockholders next following; the
initial term for members of the second class shall expire at the annual meeting
of stockholders one year thereafter; and the initial term for members of the
third class shall expire at the annual meeting of stockholders two years
thereafter. At the expiration of the initial term, and of each succeeding term
of each class, the directors of each class shall be elected to serve for a term
of three years.
Section 3.2. General Powers. The business, properties and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors which, without limiting the generality of the foregoing, shall have
the power to appoint the officers and agents of the Corporation, to fix and
alter the salaries of officers, employees and agents of the Corporation, to
grant general or limited authority (including authority to delegate and
sub-delegate) to
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officers, employees and agents of the Corporation to make, execute, affix the
corporate seal to and deliver contracts and other instruments and documents
including bills, notes, checks or other instruments for the payment of money, in
the name and on behalf of the Corporation without specific authority in each
case and to appoint committees in addition to those provided for in Articles IV
and V hereof with such powers and duties as the Board of Directors may
determine. The membership of such committees shall consist of such persons as
are designated by the Board of Directors whether or not any such person is then
a director of the Corporation, provided that each such committee shall consist
of at least one (1) director of the Corporation. In addition, the Board of
Directors may exercise all the powers of the Corporation and do all lawful acts
and things which are not reserved to the stockholders by laws by the Certificate
of Incorporation or by the By-Laws.
Section 3.3. Place of Meetings. Meetings of the Board of Directors may
be held at the principal place of business of the Corporation in the Town of
Lake Success, County of Nassau, State of New York or at any other place, within
or without the State of Delaware, from time to time as designated by the Board
of Directors.
Section 3.4. Organization Meeting. A newly elected Board of Directors
shall meet and organize without notice as soon an practicable after each Annual
Meeting of Stockholders at the place at which such meeting of stockholders took
place. If a quorum is not present, such organization meeting may be held at any
other time or place which may be specified for special meetings of the Board of
Directors in a notice given in the manner provided in Section 3.6 hereof or in a
waiver of notice thereof.
Section 3.5. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times as may be determined by resolution of the
Board of Directors. No
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notice shall be required for any regular meeting. Except as otherwise provided
by law, any business may be transacted at any regular meeting of the Board of
Directors.
Section 3.6. Special Meetings; Notice; and Waiver of Notice. Special
meetings of the Board of Directors shall be called by the Secretary or an
Assistant Secretary at the request of the Chairman of the Board, if any, the
President, a Vice President or at the request in writing of one or more of the
whole Board of Directors stating the purpose or purposes of such meeting.
Notices of special meetings shall be mailed to each director addressed to him at
his residence or usual place of business not later than three (3) days before
the day on which the meeting is to be held or shall be sent to him at either of
such places by facsimile or shall be communicated to him personally or by
telephone, not later than the day before the date fixed for the meeting. Notice
of any meeting of the Board of Directors shall not be required to be given to
any director if he shall sign a written waiver thereof either before or after
the time stated therein for such meeting or if he shall be present at the
meeting and participate in the business transacted thereat. Any and all business
transacted at any meeting of the Board of Directors shall be fully effective
without any notice thereof having been given if all the members shall be present
thereat. Unless limited by law, the Certificate of Incorporation, the By-Laws or
by the terms of the notice thereof, any and all business may be transacted at
any special meeting without the notice thereof having so specifically enumerated
the matters to be acted upon.
Section 3.7. Organization. The Chairman of the Board, if any, shall
preside at all meetings of the Board of Directors at which he in present. If the
Chairman of the Board shall be absent from any meeting of the Board of
Directors, the duties otherwise provided in this Section 3.7 to be performed by
him at such meeting shall be performed by the President. If both the Chairman of
the Board and the President shall be absent, such duties shall be performed by a
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director designated by the President to preside at such meeting. If no such
officer or director is present at such meeting, one of the directors present
shall be chosen to preside by the members of the Board of Directors present at
such meeting. The Secretary of the Corporation shall act as the secretary at all
meetings of the Board of Directors and, in his absence, a temporary secretary
shall be appointed by the chairman of the meeting.
Section 3.8. Quorum and Adjournment. Except as otherwise provided by
Section 3.13 hereof and in the Certificate of Incorporation, at every meeting of
the Board of Directors a majority of the total number of directors shall
constitute a quorum. In no event shall a quorum consist of less than two
directors. Except as otherwise provided by law, by the Certificate of
Incorporation, by Sections 3.13, 4.1, 4.8, 5.1 and 6.3 hereof, the vote of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors. In the absence of a quorum, any
meeting may be adjourned from time to time until a quorum is present. Notice of
an adjourned meeting shall be required to be given if notice was required to be
given of the meeting as originally called.
Section 3.9. Voting. On any question on which the Board of Directors
shall vote, the names of those voting and their votes shall be entered in the
minutes of the meeting when any member of the Board of Directors present at the
meeting so requests.
Section 3.10. Acting Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board of
Directors or of such committee, as the case may be, consent thereto in writing
and such written consents are filed with the minutes of such proceeding.
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Section 3.11. Resignations. Any director may resign at any time by
written notice thereof to the Corporation. Any resignation shall be effective
immediately unless some other time is specified for it to take effect.
Acceptance of any resignation shall not be necessary to make it effective unless
such resignation is tendered subject to such acceptance.
Section 3.12. Removal of Directors. Subject to the rights of the
holders of any series of Preferred Stock then outstanding, any director, or the
entire Board of Directors, may be removed at any time, but only for cause and
only by the affirmative vote of the holders of at least 80% of the shares of the
Corporation entitled to vote for the election of directors.
Section 3.13. Filling of Vacancies. Subject to the rights of the
holders of any series of Preferred Stock then outstanding, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancy created by death, resignation, retirement, disqualification,
removal from office or other cause shall be filled by the affirmative vote of a
majority of the remaining directors or by a sole remaining director though the
remaining director or directors be less than the quorum provided for in Section
3.8 hereof. Each director so chosen shall hold office for a term expiring at the
next annual meeting of stockholders at which the term of the class which he has
been elected expires. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
Section 3.14. Amendment and Repeal. Notwithstanding anything contained
in these By-Laws to the contrary, the affirmative vote of the holders of at
least 80% of the shares of the Corporation entitled to vote for the election of
directors shall be required to amend or repeal, or to adopt any provision
inconsistent with this Article.
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ARTICLE IV
EXECUTIVE COMMITTEE
Section 4.1. Appointment and Powers. The Board of Directors may, by
resolution adopted by affirmative vote of a majority of the whole Board of
Directors, appoint an Executive Committee and the members thereof consisting of
one or more members which shall have and may exercise, during the intervals
between the meetings of the Board of Directors, all of the powers of the Board
of Directors in the management of the business, properties and affairs of the
Corporation; provided, however, that the foregoing is subject to the applicable
provisions of law and the Certificate of Incorporation and shall not be
construed as authorizing action by the Executive Committee with respect to any
action which is required to be taken by vote of a specified proportion of the
whole Board of Directors. The Executive Committee shall consist of the President
and such directors as may from time to time be designated by the Board of
Directors. So far an practicable, the members of the Executive Committee shall
be appointed at the organization meeting of the Board of Directors in each year
and, unless sooner discharged by affirmative vote of a majority of the whole
Board of Directors, shall hold office until the next annual organization meeting
of the Board of Directors and until their respective successors are appointed or
until they sooner die, resign or are removed. All acts done and powers conferred
by the Executive Committee shall be deemed to be, and may be certified as being,
done or conferred under authority of the Board of Directors.
Section 4.2. Place of Meetings. Meetings of the Executive Committee may
be held at the principal place of business of the Corporation in the Town of
Lake Success, County of Nassau or at any other place within or without the State
of Delaware from time to time designated by the Board of Directors or the
Executive Committee.
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Section 4.3. Meetings; Notice; and Waiver of Notice. Regular meetings
of the Executive Committee shall be held at such times as may be determined by
resolution either of the Board of Directors or the Executive Committee and no
notice shall be required for any regular meeting. Special meetings of the
Executive Committee shall be called by the Secretary or an Assistant Secretary
upon the request of any member thereof. Notices of special meetings shall be
mailed to each member, addressed to him at his residence or usual place of
business not later than three days before the day on which the meeting is to be
held or shall be sent to him at either of such places by facsimile, or shall be
delivered to him personally or by telephone, not later than the day before the
date fixed for the meeting. Notice of any such meeting shall not be required to
be given to any member of the Executive Committee if he shall sign a written
waiver thereof either before or after the time stated therein for such meeting
or if he shall be present at the meeting and participate in the business
transacted thereat, and all business transacted at any meeting of the Executive
Committee shall be fully effective without any notice thereof having been given
if all the members shall be present thereat. Unless limited by law, the
Certificate of Incorporation, the By-Laws or the terms of the notice thereof,
any and all business may be transacted at any special meeting without the notice
thereof having specifically enumerated the matters to be acted upon.
Section 4.4. Organization. The Chairman of the Executive Committee
shall preside at all meetings of the Executive Committee at which he is present.
In the absence of the Chairman of the Executive Committee, the Chairman of the
Board shall preside at meetings of the Executive Committee at which he is
present. In the absence of the Chairman of the
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Executive Committee and the Chairman of the Board, the President shall preside
at meetings of the Executive Committee at which he is present. In the absence of
the Chairman of the Executive Committee, the Chairman of the Board, and the
President, one of the members present shall be chosen by the members of the
Executive Committee present to preside at such meeting. The Secretary of the
Corporation shall act as secretary at all meetings of the Executive Committee
and, in his absence, a temporary secretary shall be appointed by the chairman of
the meeting.
Section 4.5. Quorum and Adjournment. A majority of the members of the
Executive Committee shall constitute a quorum for the transaction of business.
The act of a majority of those present at any meeting at which a quorum is
present shall be the act of the Executive Committee. In the absence of a quorum,
any meeting may be adjourned from time to time until a quorum is present. No
notice of any adjourned meeting shall be required to be given other than by
announcement at the meeting that is being adjourned.
Section 4.6. Voting. On any question on which the Executive Committee
shall vote, the names of those voting and their votes shall be entered in the
minutes of the meeting when any member of the Executive Committee present at the
meeting so requests.
Section 4.7. Records. The Executive Committee shall keep minutes of its
acts and proceedings which shall be submitted at the next regular meeting of the
Board of Directors. Any action taken by the Board of Directors with respect
thereto shall be entered in the minutes of the Board of Directors.
Section 4.8. Vacancies; Alternate Members; and Absences. Any vacancy
among the appointed members of the Executive Committee may be filled by
affirmative vote of a majority of the whole Board of Directors. By similar vote,
the Board of Directors may designate one or more directors as alternate members
of the Executive Committee who may replace any absent or disqualified member at
any meeting of the Executive Committee.
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Section 4.9. Compensation. No compensation shall be paid to directors,
as such, for their services, but by resolution of the Board a fixed sum and
expenses for actual attendance, at each regular or special meeting of the Board
may be authorized. Nothing herein shall be construed to preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor.
ARTICLE V
OTHER COMMITTEES OF THE BOARD
Section 5.1. Appointing Other Committees of the Board. The Board of
Directors may from time to time by resolution adopted by affirmative vote of a
majority of the whole Board of Directors appoint other committees of the Board
of Directors and the members thereof which shall have such powers of the Board
of Directors and such duties as the Board of Directors may properly determine.
Such other committee of the Board of Directors shall consist of one or more
directors. By similar vote, the Board of Directors may designate one or more
directors as alternate members of any such committee who may replace any absent
or disqualified member at any meeting of any such committee. In the absence or
disqualification of any member of any such committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
Section 5.2. Place and Time of Meetings; Notice; Waiver of Notice; and
Records. Meetings of such committees of the Board of Directors may be held at
any place, within or without the State of Delaware, from time to time designated
by the Board of Directors or the committee. Regular meetings of any such
committee shall be held at such times as may be
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determined by resolution of the Board of Directors or the committee and no
notice shall be required for any regular meeting. A special meeting of any such
committee shall be called by resolution of the Board of Directors or by the
Secretary or an Assistant Secretary upon the request of any member of the
committee. The provisions of Section 4.3 hereof with respect to notice and
waiver of notice of special meetings of the Executive Committee shall also apply
to all special meetings of other committees of the Board of Directors. Any such
committee may make rules for holding and conducting its meetings and shall keep
minutes of all meetings.
ARTICLE VI
THE OFFICERS
Section 6.1. Officers. The officers of the Corporation shall be a Chief
Executive Officer, President, one or more Vice Presidents, a Secretary and a
Treasurer. The officers shall be elected by the Board of Directors. The Board of
Directors may also elect a Chairman of the Board, a Vice Chairman of the Board,
an Executive Vice President, one or more Senior Vice Presidents, a Chairman of
the Executive Committee, a Controller, one or more Second Vice Presidents,
Assistant Secretaries, Assistant Treasurers, Assistants Controllers and such
other officers and agents as in their judgment may be necessary or desirable.
The Chairman of the Board, the Vice Chairman of the Board, and the Chairman of
the Executive Committee shall be selected from the directors.
Section 6.2. Terms of Office and Vacancies. So far as is practicable,
all officers shall be appointed at the organizational meeting of the Board of
Directors in each year and, except as otherwise provided in Sections 6.1, 6.3
and 6.4 hereof, shall hold office until the organization meeting of the Board of
Directors in the next subsequent year and until their respective successors are
elected and qualify or until they sooner die, retire, resign or are
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removed. If any vacancy shall occur in any office, the Board of Directors may
elect a successor to fill such vacancy for the remainder of the term.
Section 6.3. Removal of Officers. Any officer may be removed at any
time, either with or without cause, by affirmative vote of a majority of the
whole Board of Directors at any regular meeting or at any special meeting called
for that purpose.
Section 6.4. Resignations. Any officer may resign at any time by giving
written notice thereof to the Corporation. Any resignation shall be effective
immediately unless some other date is specified for it to take effect.
Acceptance of any resignation shall not be necessary to make it effective unless
such resignation is tendered subject to such acceptance.
Section 6.5. Officers Holding More Than One Office. Any officer may
hold two or more offices so long as the duties of such offices can be
consistently performed by the same person.
Section 6.6. The Chairman of the Board. The Chairman of the Board shall
be a member of the Board of Directors and the Executive Committee, and he shall
be the Chief Executive Officer of the Corporation. As provided in Section 2.6
hereof, he shall act as chairman at all meetings of the stockholders at which he
is present; as provided in Section 3.7 hereof, he shall preside at all meetings
of the Board of Directors at which he is present; and as provided in Section 4.4
hereof, in the absence of the Chairman of the Executive Committee, he shall
preside at all meetings of the Executive Committee at which he is present. He
shall manage the business, property and affairs of the Corporation and shall see
that all of the orders and resolutions of the Board of Directors are carried
out. He shall also perform such other duties and shall have such other powers as
may form time to time be assigned to him by the Board of Directors. In the
absence or disability of the President, the duties of the President shall be
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performed and his powers may be exercised by the Chairman of the Board. In the
absence or disability of the Chairman of the Board and the President, the powers
of the Chairman of the Board may be exercised by such member of the Board of
Directors as may be designated by the Chairman of the Board and, failing such
designation or in the absence of the person so designated, by such member of the
Board of Directors as may be designated by the President.
Section 6.7. The President. The President shall be a member of the
Board of Directors and a member of the Executive Committee. He shall be subject
to the control of the Board of Directors and shall formulate recommendations to
the Board of Directors for its action and decision. As provided in Section 4.4
hereof, in the absence of the Chairman of the Executive Committee and the
Chairman of the Board, he shall preside at all meetings of the Executive
Committee at which he is present. In the absence or disability of the Chairman
of the Board, the duties of the Chairman of the Board, including those duties
set forth in Sections 2.6, 3.7 and 4.4 hereof, shall be performed and his powers
may be exercised by the President. If neither the President nor the Chairman of
the Board is available, the duties of the President shall be performed and his
powers may be exercised by such member of the Board of Directors as may be
designated by the President and, failing such designation or in the absence of
the person so designated, by such member of the Board of Directors as may be
designated by the Chairman of the Board.
Section 6.8. The Vice Chairman of the Board. The Vice Chairman of the
Board shall perform such duties and have such powers as may from time to time be
assigned to him by the Board of Directors, the Chairman of the Board or the
President.
Section 6.9. The Vice President. The Vice Presidents, including the
Executive Vice President and any Senior Vice Presidents, shall perform such
duties and have such powers
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as may from time to time be assigned to them by the Board of Directors, the
Chairman of the Board or the President.
Section 6.10. The Secretary. The Secretary shall attend to the giving
of notice of each meeting of stockholders, the Board of Directors and committees
thereof and, as provided in Sections 2.6, 3.7 and 4.4 hereof, shall act as
secretary at each meeting of stockholders, directors and the Executive
Committee. He shall keep minutes of all proceedings at such meetings as well as
of all proceedings at all meetings of such other committees of the Board of
Directors as any such committee shall direct him to so keep. The Secretary shall
have charge of the corporate seal and he or any officer of the Corporation shall
have authority to attest to any and all instruments or writings to which the
same may be affixed. He shall keep and account for all books, documents, papers
and records of the Corporation except those for which some other officer or
agent is properly accountable. He shall generally perform all the duties usually
appertaining to the office of secretary of a corporation. In the absence of the
Secretary, such person as shall be designated by the chairman of any meeting
shall perform his duties.
Section 6.11. The Treasurer. The Treasurer shall have the care and
custody of all the funds of the Corporation and shall deposit such funds in such
banks or other depositories as the Board of Directors or any officer or officers
thereunto duly authorized by the Board of Directors shall from time to time
direct or approve. In the absence of a Controller, he shall perform all duties
appertaining to the office of Controller of the Corporation. He shall generally
perform all the duties usually appertaining to the office of treasurer of a
corporation. When required by the Board of Directors, he shall give bonds for
the faithful discharge of his duties in such sums and with such sureties as the
Board of Directors shall approve. In the absence of the
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Treasurer, such person as shall be designated by the Chairman of the Board or
President shall perform his duties.
Section 6.12. The Controller. The Controller shall prepare and have the
care and custody of the books of account of the Corporation. He shall keep a
full and accurate account of all moneys received and paid on account of the
Corporation. He shall render a statement of his accounts whenever the Board of
Directors shall require. He shall generally perform all the duties usually
pertaining to the office of controller of a corporation. When required by the
Board of Directors, he shall give bonds for the faithful discharge of his duties
in such sums and with such sureties as the Board of Directors shall approve.
Section 6.13. Additional Powers and Duties. In addition to the
foregoing specifically enumerated duties and powers, the several officers of the
Corporation shall perform such other duties and exercise such further powers as
the Board of Directors may from time to time determine or as may be assigned to
them by any superior officer.
ARTICLE VII
STOCK AND TRANSFERS OF STOCK
Section 7.1. Stock Certificates. The Stock of the Corporation shall be
represented by certificates signed by two officers of the Corporation, one the
Chairman of the Board, the President or a Vice President and the other the
Secretary or an Assistant Secretary. Such certificates shall be sealed with the
seal of the Corporation. Such seal may be a facsimile, engraved or printed. In
case any officer who has signed any such certificate shall have ceased to be
such officer before such certificate is issued, it may nevertheless be issued by
the Corporation with the same effect an if he were such officer at the date of
issue Certificates representing the Stock of the Corporation shall be in such
form as shall be approved by the Board of Directors.
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Section 7.2. Registration of Transfers of Stock. Registration of a
transfer of Stock shall be made on the books of the Corporation only upon
presentation by the person named in the certificate evidencing such stock, or by
an attorney lawfully authorized in writing, upon surrender and cancellation of
such certificate, with duly executed assignment and power of transfer endorsed
thereon or attached thereto, and with such proof of the authenticity of the
signature thereon as the Corporation or its agents may reasonably require.
Section 7.3. Lost Certificates. In case any certificate representing
Stock shall be lost, stolen or destroyed, the Board of Directors in its
discretion or any officer or officers thereunto duly authorized by the Board of
Directors may authorize the issuance of a substitute certificate in the place of
the certificate so lost, stolen or destroyed; provided, however, in each such
case the Corporation may require the owner of the lost, stolen or destroyed
certificate or his legal representative to give the Corporation evidence which
the Corporation determines in its discretion satisfactory of the loss, theft or
destruction of such certificate and of the ownership thereof and may also
require a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 7.4. Determination of Stockholders of Record for Certain
Purposes. In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action the Board of
Directors may fix in advance a record date which shall not be more than sixty
(60) days prior to any such action.
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ARTICLE VIII
MISCELLANEOUS
Section 8.1. Seal. The seal of the Corporation shall have inscribed
thereon the name of the Corporation, the year of its organization and the state
of its incorporation.
Section 8.2. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 8.3. Signatures on Negotiable Instruments. All bills, notes,
checks or other instruments for the payment of money shall be signed or
countersigned by such officers or agents of Corporation and in such manner as
from time to time may be prescribed by resolution (whether general or special)
of the Board of Directors or as may be prescribed by any officer or officers or
any officer and agent jointly thereunto duly authorized by the Board of
Directors.
Section 8.4. Indemnification. The terms and conditions upon which the
Corporation is required or permitted to grant indemnification to individuals
connected with the Corporation and its business are set forth in the Certificate
of Incorporation of the Corporation.
Section 8.5. Books of the Corporation. Except as otherwise provided by
law, the books of the Corporation shall be kept at the principal place of
business of the Corporation and at such other locations an the Board of
Directors may from time to time determine.
Section 8.6. References to Gender. Whenever in the By-laws reference is
made to the masculine gender, such reference shall where the context so requires
be deemed to include the feminine gender, and the By-laws shall be read
accordingly.
Section 8.7. References to Article and Section Numbers and to the
By-Laws and the Certificate of Incorporation. Whenever in the By-Laws reference
in made to an Article or Section number, such reference is to the number of an
Article or Section of the By-Laws.
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Whenever in the By-Laws reference is made to the By-Laws, such reference is to
these By-Laws of the Corporation as the same may from time to time be amended.
Whenever reference in made to the Certificate of Incorporation, such reference
is to the Certificate of Incorporation of the Corporation as the same may from
time to time be amended.
ARTICLE IX
AMENDMENTS
Section 9.1. Shareholders. Except as provided in these By-Laws or in
the Certificate of Incorporation these By-Laws may be amended or repealed, or
new By-Laws may be adopted, at any annual or special meeting of the
shareholders, if holders of shares representing 80% of the shares of the
Corporation entitled to vote in the election of Directors, voting as a single
class, vote in the affirmative; provided, however, that the notice of such
meeting shall have been given as provided in these By-Laws, which notice shall
mention that amendment or repeal of these By-Laws, or the adoption of new
By-Laws, is one of the purposes of such meeting.
Section 9.2. Board of Directors. Except as provided in the Certificate
of Incorporation or these By-Laws, these By-Laws may also be amended or repealed
or new By-Laws may be adopted by the Board at any meeting thereof; provided,
however that notice of such meeting shall have been given as provided in these
By-Laws, which notice shall mention that amendment or repeal of the By-Laws, or
the adoption of new By-Laws, is one of the purposes of such meetings. By-Laws
adopted by the Board may be amended or repealed by the shareholders as provided
in Section 1 of this Article IX.
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EXHIBIT 10.1
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (the "AGREEMENT") is made as of the day of
March, 1999 between STAFF BUILDERS, INC., a Delaware corporation ("STAFF
BUILDERS"), and TENDER LOVING CARE HEALTH CARE SERVICES, INC., a Delaware
corporation ("TLC").
RECITALS
WHEREAS, the Board of Directors of Staff Builders has determined that
it is in the best interest of Staff Builders and its shareholders to separate
its home health care business (the "HOME HEALTH CARE BUSINESS") from the
remainder of its business;
WHEREAS, Staff Builders and TLC have determined that it is necessary
and desirable, on the terms and conditions contemplated hereby, for Staff
Builders to distribute to shareholders of Staff Builders all of the outstanding
shares of TLC Common Stock (as defined below) held by Staff Builders;
WHEREAS, the Distribution (as defined below) is intended to qualify as
a tax-free spin-off under Sections 355 and 368 of the Code (as defined below);
WHEREAS, Staff Builders and TLC have further determined that it is
necessary and desirable to set forth the principal corporate transactions
required to effect the Distribution and to set forth other agreements that will
govern certain other matters following the Distribution;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
made herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 General. As used in this Agreement and the Exhibits hereto, the
following terms shall have the following meanings:
AAA: The American Arbitration Association.
ACTION: Any action, suit, arbitration, inquiry, proceeding or
investigation by or before any court, governmental or other regulatory or
administrative agency or commission or arbitration tribunal.
AFFILIATE: An Affiliate of any Person means a Person that controls, is
controlled by, or is under common control with such Person. As used herein,
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management
<PAGE> 2
and polices of such entity, whether through ownership of voting securities or
other interests, by contract or otherwise.
AGENT: The distribution agent to be appointed by Staff Builders to
distribute to the shareholders of Staff Builders the shares of TLC Common Stock
held by Staff Builders pursuant to the Distribution.
ANCILLARY AGREEMENTS: All of the agreements, instruments,
understandings, assignments or other arrangements entered into in connection
with the transactions contemplated hereby, including, without limitation, the
Transitional Services Agreement, the Tax Allocation Agreement, the Employee
Benefits Agreement, the Sublease and the Trademark License Agreement.
CODE: The Internal Revenue Code of 1986, as amended.
COMMISSION: The Securities and Exchange Commission.
CONVEYANCE AND ASSUMPTION INSTRUMENTS: Collectively, the various
agreements, instruments and other documents entered into or to be entered into
to effect the transfer, prior to the Distribution Date and in the manner
contemplated by this Agreement or any other agreement or document contemplated
by this Agreement or otherwise, of TLC Assets to TLC (including, without
limitation, the intellectual property rights and other assets described in the
Information Statement) and the assumption of TLC Liabilities by TLC, in both
cases relating to the business of TLC as described in the Information Statement.
DISTRIBUTION: The distribution by Staff Builders on a pro rata basis to
holders of Staff Builders Common Stock of all of the outstanding shares of TLC
Common Stock owned by Staff Builders on the Distribution Date as set forth in
Article II.
DISTRIBUTION DATE: [ , 1999], or such other date as may be set by the
Board of Directors of Staff Builders in its sole discretion.
EMPLOYEE BENEFITS AGREEMENT: the Employee Benefits Agreement between
Staff Builders and TLC providing for, among other things, the employee benefit
plan arrangements that will apply to certain employees of Staff Builders who are
expected to become employees of TLC as of the Distribution Date.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXISTING STAFF BUILDERS OPTIONS: Options to acquire shares of Staff
Builders Common Stock held by employees of Staff Builders and/or its
Subsidiaries.
FORM 10: The General Form for Registration of Securities on Form 10,
including the Information Statement, pursuant to which all of the outstanding
TLC Common Stock will be registered under the Exchange Act, together with all
amendments thereto.
2
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GOVERNMENTAL APPROVALS: Any notices, reports or other filings to be
made, or any consents, registrations, approvals, permits or authorizations to be
obtained from any Governmental Authority.
GOVERNMENTAL AUTHORITY: Any federal, state, local, foreign or
international court, government, department, commission, board, bureau, agency,
official or other regulatory, administrative or governmental authority.
INFORMATION STATEMENT: The Information Statement portion of the Form 10
prepared in accordance with Regulation 14C under the Exchange Act.
LIABILITIES: Any and all debts, liabilities and obligations, absolute
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising (unless otherwise specified in
this Agreement), including all costs and expenses relating thereto, and those
debts, liabilities and obligations arising under any law, rule, regulation,
Action, threatened Action, order or consent decree of any Governmental Authority
or any award of any arbitrator of any kind, and those arising under any
contract, commitment or undertaking.
PERSON: An individual, a general or limited partnership, a corporation,
a trust, a joint venture, an unincorporated organization, a limited liability
entity, any other entity and any Governmental Authority.
RECORD DATE: The close of business on the date to be determined by the
Staff Builders Board of Directors as the record date for determining
shareholders of Staff Builders entitled to receive shares of TLC Common Stock.
REORGANIZATION AGREEMENT: The Reorganization Agreement between Staff
Builders and TLC providing for the transfer from Staff Builders to TLC of the
shares of all direct and indirect subsidiaries which engage in the Home Health
Care Business.
STAFF BUILDERS COMMON STOCK: the Class A Common Stock, par value $.01
per share, and the Class B Common Stock, par value $.01 per share, of Staff
Builders.
SUBLEASE: The Sublease Agreement between Staff Builders and TLC
pursuant to which TLC subleases to Staff Builders certain premises located at
1983 Marcus Avenue, Lake Success, New York.
SUBSIDIARY: A Subsidiary of any Person means any corporation or other
organization whether incorporated or unincorporated of which at least a majority
of the securities or interests having by their terms ordinary voting power to
elect at least a majority of the board of directors or other body or persons
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person or by
any one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries; provided, however, that no Person that is not directly or
indirectly wholly-owned by any other Person shall be a Subsidiary of such other
Person unless such other Person controls, or has the right, power or ability to
control, that Person.
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TAX ALLOCATION AGREEMENT: the Tax Allocation Agreement between Staff
Builders and TLC, providing for, among other things, the allocation of
liabilities with respect to federal, state and local income taxes and the
procedures for filing returns with respect to such taxes.
TLC ASSETS:
(a) any and all assets that are expressly contemplated by the TLC
Contracts or this Agreement or any other agreement or document contemplated by
this Agreement (or any Schedule hereto or thereto) as assets to be transferred
to TLC or a Subsidiary designated by TLC;
(b) any assets reflected in TLC's consolidated balance sheet
dated February 28, 1999 as assets of TLC or any of its Subsidiaries, subject to
any dispositions of such assets subsequent to the date of such balance sheet;
and
(c) any and all assets owned or held immediately prior to the
Distribution Date by Staff Builders or any of its Subsidiaries that are used
primarily in the Home Health Care Business. The intention of this clause (c) is
only to rectify any inadvertent omission of transfer or conveyance of any assets
that, had the parties given specific consideration to such asset as of the date
hereof, would have otherwise been classified as a TLC Asset. No asset shall be
deemed to be a TLC Asset solely as a result of this clause (c) if such asset is
within the category or type of asset expressly covered by the subject matter of
an Ancillary Agreement.
TLC COMMON STOCK: the Common Stock, par value $.01 per share, of TLC.
TLC CONTRACTS: the following contracts and agreements to which Staff
Builders is a party or by which its or any of its Subsidiaries' assets are
bound, whether or not in writing:
(a) any contract or agreement entered into by Staff Builders or
any of its Subsidiaries or TLC or any of its Subsidiaries that relates primarily
to the Home Health Care Business;
(b) any contract or agreement that is otherwise expressly
contemplated pursuant to this Agreement or any of the Ancillary Agreements to be
assigned to TLC; and
(c) any guarantee, indemnity, representation, warranty or other
Liability of Staff Builders or any of its Subsidiaries in respect of any other
TLC Contract, any TLC Liability or the Home Health Care Business;
TLC EMPLOYEES: TLC Employees include current employees of TLC or any
of its Subsidiaries and any other employees who are hired by TLC or any of its
subsidiaries prior to the Distribution Date.
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TLC LIABILITIES:
(a) any and all Liabilities that are expressly contemplated by
this Agreement or any other agreement or document contemplated by this Agreement
or otherwise (or the Schedules hereto or thereto) as Liabilities to be assumed
by TLC;
(b) all Liabilities (other than taxes based on, or measured by
reference to, net income), including any Liabilities related to TLC Employees
and Liabilities, primarily relating to, arising out of or resulting from:
(i) the operation of the Home Health Care Business, as
conducted at any time prior to, on or after the Distribution Date
(including any Liability relating to, arising out of or resulting from
any act or failure to act or any statement made by any director,
officer, employee, agent or representative (whether or not such act or
failure to act or statement is or was within such Person's authority);
(ii) any TLC Assets (including any TLC Contracts); in any
such case whether arising before, on or after the Distribution Date;
(iii) the offer or sale of franchises with respect to the
Home Health Care Business or
(c) all Liabilities, excluding any intercompany indebtedness
forgiven pursuant to Section 2.4 of this Agreement, reflected as liabilities or
obligations of TLC or any of its Subsidiaries in TLC's consolidated balance
sheet, subject to any discharge of such Liabilities subsequent to the date of
such balance sheet.
TRADEMARK LICENSE AGREEMENT: the Trademark License Agreement between
Staff Builders Intl., Inc. ("SB INTL."), a New York corporation and wholly-owned
subsidiary of TLC, and Staff Builders, providing for, among other things, the
licensing by SB Intl. to Staff Builders of certain trademarks and related
rights.
TRANSITIONAL SERVICES AGREEMENT: the Transitional Services Agreement
between Staff Builders and TLC providing for, among other things, the provision
by TLC to Staff Builders of certain administrative and other services on a
transitional basis.
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ARTICLE II
THE DISTRIBUTION
2.1 THE DISTRIBUTION.
(a) Following the completion of the actions and the occurrence of
the events set forth in Section 2.2 hereof, or the mutual agreement of Staff
Builders and TLC that one or more of such actions need not be completed or one
or more of such events need not occur prior to the Distribution, and provided
that this Agreement shall not have been terminated at Staff Builders' election
pursuant to Section 7.2, on or prior to the Distribution Date, Staff Builders
will deliver to the Agent for the benefit of holders of record of Staff Builders
Common Stock on the Record Date, a single stock certificate, endorsed by Staff
Builders in blank, representing all of the outstanding shares of TLC Common
Stock then owned by Staff Builders, and shall cause the transfer agent for the
shares of Staff Builders Common Stock to instruct the Agent to distribute (or if
the Agent and the transfer agent for the shares of Staff Builders Common Stock
are the same, the Agent shall distribute) on the Distribution Date the
appropriate number of such shares of TLC Common Stock to each such holder or
designated transferee or transferees of such holder.
(b) Subject to Section 2.6 hereof, each holder of Staff Builders
Common Stock on the Record Date (or such holder's designated transferee or
transferees) shall be entitled to receive, in the Distribution, a number of
shares of TLC Common Stock equal to the number of outstanding shares of TLC
Common Stock owned by Staff Builders on the Record Date multiplied by a
fraction, the numerator of which is the number of shares of Staff Builders
Common Stock held by such holder on the Record Date, and the denominator of
which is the number of shares of Staff Builders Common Stock outstanding on the
Record Date.
(c) TLC and Staff Builders, as the case may be, will provide to
the Agent all share certificates and any information required in order to
complete the Distribution on the basis specified above.
2.2 ACTIONS AND EVENTS PRIOR TO THE DISTRIBUTION.
(a) TLC shall prepare and file the Form 10, and such amendments
or supplements thereto, as may be necessary in order to cause the same to become
and remain effective as required by law, including, but not limited to, filing
such amendments to the Form 10 as may be required by the Commission or federal
or state securities laws. The Form 10 shall have become effective on or prior to
the Distribution Date, and there shall be no stop-order in effect with respect
thereto.
(b) Staff Builders and TLC shall cooperate in preparing and
filing with the appropriate Governmental Authority any documents or statements
which are required to reflect the establishment of, or amendments to, any
employee benefit and other plans necessary or appropriate in connection with the
Distribution or the other transactions contemplated by this Agreement or any
other agreement or document contemplated by this Agreement or otherwise.
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(c) Staff Builders and TLC shall prepare and mail, prior to the
Distribution Date, to the holders of Staff Builders Common Stock, the
Information Statement and such other information concerning TLC, its business,
operations and management, the Distribution and such other matters as Staff
Builders and TLC shall reasonably determine and as may be required by law.
(d) Staff Builders and TLC shall take all other actions as may be
necessary or appropriate under the securities or blue sky laws of the United
States in connection with the Distribution and such actions and filings, where
applicable, shall have become effective or been accepted.
(e) Staff Builders and TLC shall have executed the Reorganization
Agreement and shall have consummated the transactions contemplated thereby.
(f) With respect to the TLC Assets and TLC Liabilities not
reflected in TLC's consolidated balance sheet dated as of the Distribution Date,
Staff Builders shall take or cause to be taken all actions necessary to cause
the transfer, assignment, delivery and conveyance to TLC (or if directed by TLC,
to one or more Subsidiaries of TLC) of all of Staff Builders' right, title and
interest in any TLC Assets, and TLC shall take or cause to be taken all action
necessary to assume and agree faithfully to perform and fulfill all TLC
Liabilities, regardless of when or where such liabilities arose, in accordance
with their respective terms. Staff Builders and TLC shall execute and deliver
all necessary Conveyance and Assumption Instruments in order to comply with this
Section 2.2(f).
(g) TLC shall use its reasonable best efforts to have a Form 211
filed with NASD Regulation, Inc. by a market maker in TLC Common Stock such that
the TLC Common Stock to be distributed in the Distribution is quoted on the OTC
Bulletin Board.
(h) A written opinion from Richards & O'Neil, LLP shall have been
delivered to the effect that, among other things, it appears that there is
substantial authority for viewing the Distribution as a tax-free distribution
for federal income tax purposes under Sections 355 and 368 of the Code, and such
opinion shall be in form and substance satisfactory to Staff Builders in its
sole discretion.
(i) Any material Governmental Approvals and consents necessary to
consummate the Distribution shall have been obtained and shall be in full force
and effect.
(j) No order, injunction or decree issued by any court or agency
of competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Distribution shall be in effect and no other event outside
the control of Staff Builders shall have occurred or failed to occur that
prevents the consummation of the Distribution.
(k) The transactions contemplated hereby shall be in compliance
with applicable federal and state securities laws.
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(l) Each of TLC and Staff Builders shall have received such
consents, and shall have received executed copies of such agreements or
amendments of agreements, as they shall deem necessary in connection with the
completion of the transactions contemplated by this Agreement or any other
agreement or document contemplated by this Agreement or otherwise.
(m) All action and other documents and instruments deemed
necessary or advisable in connection with the transactions contemplated hereby
shall have been taken or executed, as the case may be, in form and substance
satisfactory to Staff Builders and TLC.
2.3 ANCILLARY AGREEMENTS. Each of Staff Builders and TLC will execute
and deliver (or cause SB Intl. to execute and deliver, in the case of the
Trademark License Agreement) all Ancillary Agreements to which it is a party,
including but not limited to, the Transitional Services Agreement, the Tax
Allocation Agreement, the Employee Benefits Agreement, the Trademark License
Agreement and the Sublease. All such Ancillary Documents shall become effective
on the Distribution Date.
2.4 FORGIVENESS OF INTERCOMPANY DEBT. Effective immediately prior to
the distribution date, staff builders hereby forgives all existing remaining
intercompany indebtedness owed by TLC to staff builders in order to provide an
appropriate level of working capital and equity at TLC as it is established as a
separate stand alone company. Each of staff builders and TLC shall execute any
documents and instruments necessary or appropriate to confirm such loan
forgiveness. Staff builders and TLC agree that staff builders shall treat the
loan forgiveness as a contribution to the capital of TLC in constructive
exchange for TLC common stock, provided that no additional shares of TLC common
stock shall be issued or issuable in connection with or as a result of such
contributions.
2.5 CONSENTS. Each party hereto understands and agrees that no party
hereto is, in this Agreement or in any other agreement or document contemplated
by this Agreement or otherwise, representing or warranting in any way that the
obtaining of any consents or approvals, the execution and delivery of any
agreements or the making of any filings or applications contemplated by this
Agreement will satisfy the provisions of any or all applicable agreements or the
requirements of any or all applicable laws or judgments, it being agreed and
understood that the party to which any assets were or are transferred shall bear
the economic and legal risk that any necessary consents or approvals are not
obtained or that any requirements of laws or judgments are not complied with.
Notwithstanding the foregoing, the parties shall use reasonable best efforts to
obtain all consents and approvals, to enter into all agreements and to make all
filings and applications which may be required for the consummation of the
transactions contemplated by this Agreement or any other agreement or document
contemplated by this Agreement or otherwise, including, without limitation, all
applicable regulatory filings or consents under federal or state laws and all
necessary consents, approvals, agreements, filings and applications.
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2.6 FRACTIONAL SHARES. As soon as practicable after the Distribution
Date, Staff Builders shall direct the Agent to determine the number of whole
shares and fractional shares of TLC Common Stock allocable to each holder of
record of Staff Builders Common Stock as of the Record Date, to aggregate all
such fractional shares and sell the whole shares obtained thereby in open-market
transactions in the Agent's sole discretion as to when, how, through which
broker-dealer and at what price to make such sales, and to cause to be
distributed to each such holder or for the benefit of each such holder, in lieu
of any fractional share, such holder's ratable share of the proceeds of such
sale, after making appropriate deductions of the amount required to be withheld
for federal income tax purposes and after deducting an amount equal to all
brokerage charges, commissions and transfer taxes attributed to such sale. Staff
Builders and the Agent shall use their reasonable best efforts to aggregate the
shares of Staff Builders Common Stock that may be held by any holder of record
thereof through more than one account in determining the fractional share
allocable to such holder.
ARTICLE III
ACKNOWLEDGEMENT OF MATERIAL FACTS
3.1 ORGANIZATION. Staff Builders and TLC acknowledge that each is duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with requisite corporate power to own their properties and assets and
to carry on their respective businesses as presently conducted or contemplated.
ARTICLE IV
MISCELLANEOUS LIABILITIES AND INDEMNIFICATION
4.1 TLC LIABILITIES; INDEMNIFICATION. TLC shall indemnify, defend and
hold harmless Staff Builders and its Subsidiaries from and against any and all
Liabilities arising out of or resulting from any of the following items (without
duplication):
(a) the employment of TLC Employees;
(b) the business of TLC and its Subsidiaries, including, without
limitation, the Home Health Care Business, and the TLC Assets;
(c) purchase orders, accounts payable, accrued compensation and
other accrued TLC Liabilities and other agreements which relate to the business
of TLC or any Subsidiary of TLC, including, without limitation, the Home Health
Care Business, or the TLC Assets; and
(d) any misstatement or omission of a material fact other than
misstatements or omissions with respect to Staff Builders or its Subsidiaries
based on information supplied in writing by Staff Builders in any documents or
filings prepared for purposes of compliance or qualification under applicable
securities laws in connection with the Distribution and related transactions,
including, without limitation, the Form 10.
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4.2 STAFF BUILDERS LIABILITIES; INDEMNIFICATION. Staff Builders shall
indemnify, defend and hold harmless TLC and its Subsidiaries from and against
any and all Liabilities arising out of or resulting from any of the following
items (without duplication):
(a) the business of Staff Builders and its Subsidiaries and the
Liabilities not assumed by TLC under the terms of this Agreement or any other
agreement or document contemplated by this Agreement; and
(b) any misstatement or omission of a material fact with respect
to Staff Builders or its Subsidiaries based on information supplied in writing
by Staff Builders in any documents or filings prepared for purposes of
compliance or qualification under applicable securities laws in connection with
the Distribution and related transactions, including, without limitation, the
Form 10.
4.3 PROCEDURES FOR INDEMNIFICATION OF THIRD PARTY CLAIMS.
(a) If any Person entitled to indemnification hereunder (an
"Indemnitee") shall receive notice or otherwise learn of the assertion by a
Person (including any Governmental Authority) of any claim or of the
commencement by any such Person of any Action (collectively, a "Third Party
Claim") with respect to which any party (an "Indemnifying Party") may be
obligated to provide indemnification to such Indemnitee pursuant to Section 4.1
or 4.2, or any other Section of this Agreement or any other agreement or
document contemplated by this Agreement or otherwise, such Indemnitee shall give
such Indemnifying Party written notice thereof within twenty (20) days after
becoming aware of such Third Party Claim. Any such notice shall describe the
Third Party Claim in reasonable detail. Notwithstanding the foregoing, the
failure of any Indemnitee or other Person to give notice as provided in this
Section 4.3(a) shall not relieve the Indemnifying Party of its obligations under
this Article IV, except to the extent that such Indemnifying Party is actually
prejudiced by such failure to give notice.
(b) An Indemnifying Party may elect to defend (and, unless the
Indemnifying Party has specified any reservations or exceptions, to seek to
settle or compromise), at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, any Third Party Claim. Within thirty (30) days
after the receipt of notice from an Indemnitee in accordance with Section 4.3(a)
(or sooner, if the nature of such Third Party Claim so requires), the
Indemnifying Party shall notify the Indemnitee of its election whether the
Indemnifying Party will assume responsibility for defending such Third Party
Claim, which election shall specify any reservations or exceptions. After notice
from an Indemnifying Party to an Indemnitee of its election to assume the
defense of a Third Party Claim, such Indemnitee shall have the right to employ
separate counsel and to participate in (but not control) the defense,
compromise, or settlement thereof, but the fees and expenses of such counsel
shall be the expense of such Indemnitee except as set forth in Section 4.3(c).
(c) If an Indemnifying Party elects not to assume responsibility
for defending a Third Party Claim, or fails to notify an Indemnitee of its
election as provided in Section 4.3(b), such Indemnitee may defend such Third
Party Claim at the cost and expense (including allocated costs of in-house
counsel and other personnel) of the Indemnifying Party.
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(d) Unless the Indemnifying Party has failed to assume the
defense of the Third Party Claim in accordance with the terms of this Agreement,
no Indemnitee may settle or compromise any Third Party Claim without the consent
of the Indemnifying Party.
(e) No Indemnifying Party shall consent to entry of any judgment
or enter into any settlement of the Third Party Claim without the consent of the
Indemnitee if the effect thereof is to permit any injunction, declaratory
judgment, other order or other nonmonetary relief to be entered, directly or
indirectly, against any Indemnitee.
4.4 TAX LIABILITIES. Notwithstanding the provisions of Sections 4.1 and
4.2, all tax Liabilities relating to the business of TLC and the TLC Assets
including, without limitation, income taxes, franchise taxes, sales taxes, use
taxes, payroll taxes and employment taxes, shall be assumed by the party to whom
the Liability has been allocated in the Tax Allocation Agreement.
4.5 ADDITIONAL MATTERS.
(a) Any claim on account of a Liability which does not result
from a Third Party Claim shall be asserted by written notice given by the
Indemnitee to the Indemnifying Party. Such Indemnifying Party shall have a
period of thirty (30) days after the receipt of such notice within which to
respond thereto. If such Indemnifying Party does not respond within such thirty
(30)-day period, such Indemnifying Party shall be deemed to have refused to
accept responsibility to make payment. If such Indemnifying Party does not
respond within such thirty (30)-day period or rejects such claim in whole or in
part, such Indemnitee shall be free to pursue such remedies as may be available
to such party as contemplated by this Agreement.
(b) In the event of payment by or on behalf of any Indemnifying
Party to any Indemnitee in connection with any Third Party Claim, such
Indemnifying Party shall be subrogated to and shall stand in the place of such
Indemnitee as to any events or circumstances in respect of which such Indemnitee
may have the right, defense or claim relating to such Third Party Claim against
any claimant or plaintiff asserting such Third Party Claim or against any other
person. Such Indemnitee shall cooperate with such Indemnifying Party in a
reasonable manner, and at the cost and expense (including allocated costs of
in-house counsel and other personnel) of such Indemnifying Party, in prosecuting
any subrogated right, defense or claim.
(c) In the event of an Action in which the Indemnifying Party is
not a named defendant, if either the Indemnitee or Indemnifying Party shall so
request, the parties shall endeavor to substitute the Indemnifying Party for the
named defendant. If such substitution or addition cannot be achieved for any
reason or is not requested, the named defendant shall allow the Indemnifying
Party to manage the Action as set forth in this Section and the Indemnifying
Party shall fully indemnify the named defendant against all costs of defending
the Action (including court costs, sanctions imposed by a court, attorneys'
fees, experts' fees and all other external expenses, and the allocated costs of
in-house counsel and other personnel), the costs of any judgment or settlement,
and the cost of any interest or penalties relating to any judgment or
settlement.
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(d) If for any reason, the indemnification provisions of Section
4.1 or 4.2 are unavailable to an Indemnified Party otherwise subject thereto,
the Indemnifying Party shall contribute to the amount paid by the Indemnified
Party as a result of such Liability in such proportion to reflect the relative
economic interests of the matter giving rise to the Liability.
4.6 REMEDIES CUMULATIVE. The remedies provided in this Article IV shall
be cumulative and shall not preclude assertion by an Indemnitee of any other
rights or the seeking of any and all other remedies against any Indemnifying
Party.
ARTICLE V
ACCESS TO INFORMATION AND SERVICES
5.1 PROVISION OF CORPORATE RECORDS. Upon TLC's request, Staff Builders
shall arrange as soon as practicable following the date hereof for the delivery
to TLC of existing corporate records in the possession of Staff Builders
relating to the business of TLC or TLC Assets, together with all active
agreements and active litigation files relating to the businesses of TLC and its
Subsidiaries, except to the extent such items are already in the possession of
TLC or its Subsidiaries. Such records shall be the property of TLC but shall be
available to Staff Builders for review and duplication until Staff Builders
shall notify TLC in writing that such records are no longer of use to Staff
Builders.
5.2 ACCESS TO INFORMATION. From and after the date hereof, Staff
Builders shall afford to TLC and its authorized accountants, counsel and other
designated representatives reasonable access (including using reasonable best
efforts to give access to persons or firms possessing information) and
duplicating rights during normal business hours to all records, books,
contracts, instruments, computer data and other data and information
(collectively, "Information") within Staff Builders' or its Subsidiaries'
possession relating to the businesses of TLC or its Subsidiaries, insofar as
such access is reasonably required by TLC. TLC shall afford to Staff Builders
and its authorized accountants, counsel and other designated representatives
reasonable access (including using reasonable best efforts to give access to
persons or firms possessing Information) and duplicating rights during normal
business hours to Information within TLC's or its Subsidiaries' possession
relating to the business of TLC or its Subsidiaries prior to the Distribution or
to the business of Staff Builders or its Subsidiaries, insofar as such access is
reasonably required by Staff Builders. Information may be requested under this
Article V for, without limitation, audit, accounting, claims, litigation and tax
purposes, as well as for purposes of fulfilling disclosure and reporting
obligations and for performing the transactions contemplated in this Agreement
or any other agreement or document contemplated by this Agreement or otherwise.
5.3 PRODUCTION OF WITNESSES. At all times from and after the date
hereof, each of Staff Builders and TLC shall use reasonable best efforts to make
available to the other, upon written request, its and its Subsidiaries'
officers, directors, employees and agents as witnesses to the extent that such
persons may reasonably be required, in connection with legal, administrative or
other proceedings in which the requesting party may from time to time be
involved.
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5.4 REIMBURSEMENT. Except to the extent otherwise contemplated by any
Ancillary Agreement, a party providing information to the other party under this
Article V shall be entitled to receive from the recipient, upon the presentation
of invoices therefor, payments for such amounts, relating to supplies,
disbursements and other out-of-pocket expenses, as may be reasonably incurred in
providing such information.
5.5 RETENTION OF RECORDS. For a period of six (6) years following the
date hereof, each of Staff Builders and TLC shall retain all Information
relating to the other and the other's Subsidiaries as of the Distribution Date,
except as otherwise required by law or set forth in an Ancillary Agreement or
except to the extent that such Information is in the public domain or in the
possession of the other party.
5.6 CONFIDENTIALITY. Subject to any contrary requirement of law and the
right of each party to enforce its rights hereunder in any legal action, each
party shall keep strictly confidential, and shall cause its employees and agents
to keep strictly confidential, any Information of or concerning the other party
or any of its Subsidiaries which it or any of its agents or employees may
acquire pursuant to, or in the course of performing its obligations under, any
provisions of this Agreement or any Ancillary Agreement; provided, however, that
such obligation to maintain confidentiality shall not apply to Information which
(i) at the time of disclosure was in the public domain or (ii) was received by
the receiving party from a third party who did not receive such Information from
the disclosing party under an obligation of confidentiality.
ARTICLE VI
COVENANTS
6.1 OTC BULLETIN BOARD. TLC hereby agrees to use its reasonable efforts
to cooperate with one or more market makers to effect and maintain the quotation
of the TLC Common Stock on the OTC Bulletin Board; provided, that nothing
contained herein shall restrict TLC from listing its shares on NASDAQ or a
national securities exchange instead of the OTC Bulletin Board.
6.2 ANCILLARY AGREEMENTS. The parties agree that they shall comply with
and provide all services and take any and all actions required to be provided or
taken by the terms of any and all of the Ancillary Agreements following the
effectiveness thereof.
6.3 MUTUAL ASSURANCES.
(a) In addition to the actions specifically provided for
elsewhere in this Agreement or any other agreement or document contemplated by
this Agreement or otherwise, Staff Builders and TLC agree to cooperate with
respect to the implementation of this Agreement or any other agreement or
document contemplated by this Agreement or otherwise, and to execute such
further documents and instruments as may be necessary to consummate and make
effective the transactions contemplated by this Agreement or any other agreement
or document contemplated by this Agreement or otherwise;
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(b) Staff Builders and TLC shall arrange, attend and participate
in joint meetings with corporate collaborators, suppliers, customers and others
to the extent necessary to assure the orderly transition of the business and
assets contemplated hereby, provided that nothing herein shall be deemed to
obligate either Staff Builders or TLC to take any action or reach any
understandings which may violate any applicable laws.
(c) Staff Builders and TLC agree to take any reasonable actions
necessary in order for the Distribution to qualify as a tax-free distribution
pursuant to Sections 355 and 368 of the Code.
ARTICLE VII
TERMINATION
7.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at
any time prior to the Distribution Date by the mutual consent of Staff Builders
and TLC.
7.2 TERMINATION BY STAFF BUILDERS. Prior to the Record Date, Staff
Builders may terminate this Agreement at its election if its Board of Directors
determines that the consummation of the Distribution would, in light of the
circumstances at the time, not be in the best interests of the shareholders of
Staff Builders.
7.3 OTHER TERMINATION. This Agreement shall terminate if the
Distribution Date shall not have occurred on or prior to September 30, 1999.
7.4 EFFECT OF TERMINATION. In the event of any termination of this
Agreement, no party to this Agreement (or any of its directors or officers)
shall have any Liability or further obligation to any other party.
ARTICLE VIII
MISCELLANEOUS
8.1 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of New York.
8.2 CONSTRUCTION. Each provision of this Agreement shall be interpreted
in a manner to be effective and valid to the fullest extent permissible under
applicable law. The invalidity or unenforceability of any particular provision
of this Agreement shall not affect the other provisions of this Agreement which
shall remain in full force and effect.
8.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement.
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8.4 EXHIBITS. Exhibits to this Agreement shall be deemed to be an
integral part hereof, and schedules or exhibits to such Exhibits shall be deemed
to be an integral part thereof.
8.5 AMENDMENTS; WAIVERS. This Agreement may be amended or modified only
in a writing executed on behalf of Staff Builders and TLC. No waiver shall
operate to waive any further or future act and no failure to object of
forbearance shall operate as a waiver.
8.6 NOTICES. Notices hereunder shall be effective if given in writing
and delivered or mailed, postage prepaid, by registered or certified mail to:
STAFF BUILDERS, INC.
1983 Marcus Avenue
Lake Success, NY 11042
Attention: David Savitsky, President
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
1983 Marcus Avenue
Lake Success, NY 11042
Attention: Dale R. Clift, President
8.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns, provided that this Agreement and the rights and obligations
contained herein or in any exhibit or schedule hereto shall not be assignable,
in whole or in part, without the prior written consent of the parties hereto and
any attempt to effect any such assignment without such consent shall be void.
8.8 PUBLICITY. Prior to the Distribution, each of TLC and Staff
Builders shall consult with each other prior to issuing any press releases or
otherwise making public statements with respect to the Distribution and prior to
making any filings with any Governmental Authority with respect thereto.
8.9 EXPENSES. Except as expressly set forth in this Agreement or in any
other agreement or document contemplated by this Agreement or otherwise, (i) if
the Distribution is not consummated, all third party fees, costs and expenses
paid or incurred in connection with the Distribution will be paid by Staff
Builders; and (ii) if the Distribution is consummated, all third party fees,
costs and expenses paid and incurred in connection with the Distribution will be
paid 50% by Staff Builders and 50% by TLC and to the extent a party has paid
more than its required share of expenses the other party shall promptly
reimburse it upon request therefor supported by appropriate documentation.
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8.10 HEADINGS. The article, section and paragraph headings contained in
this Agreement and in the Ancillary Agreements are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement
or any Ancillary Agreement.
8.11 ARBITRATION.
(a) All disputes or differences of any kind or nature between or
among the parties (such parties being referred to individually as a "DISPUTING
PARTY," and, together, as the "DISPUTING PARTIES") arising out of or in any way
relating to this Agreement or the transactions contemplated hereby, including
issues of arbitrability, and including, without limitation, any dispute between
the parties under Article IV, which the parties are unable to resolve themselves
shall be submitted to and resolved by arbitration before a single arbitrator in
accordance with the commercial arbitration rules of the AAA. Such arbitrator
shall have substantial professional experience with regard to corporate legal
matters.
(b) The arbitrator shall consider the dispute at issue in New
York, New York, at a mutually agreed upon time within sixty (60) days (or such
longer period as may be acceptable to the Disputing Parties or as directed by
the arbitrator) of the designation of the arbitrator. The arbitration proceeding
shall be held in accordance with the rules for commercial arbitration of the AAA
in effect on the date of the initial request by the Disputing Party, that gave
rise to the dispute to be arbitrated (as such rules are modified by the terms of
this Agreement or may be further modified by mutual agreement of the Disputing
Parties) and shall include an opportunity for the parties to conduct discovery
in advance of the proceeding. Notwithstanding the foregoing, the Disputing
Parties shall agree that they will attempt, and they intend that they and the
arbitrator should use their best efforts in that attempt, to conclude the
arbitration proceeding and have a final decision from the arbitrator within one
hundred twenty (120) days from the date of selection of the arbitrator;
provided, however, that the arbitrator shall be entitled to extend such one
hundred twenty (120) day period for a total of two one hundred twenty (120) day
periods. The arbitrator shall deliver a written award with respect to the
dispute to each of the parties, who shall promptly act in accordance therewith.
Each Disputing Party to such arbitration agrees that any award of the arbitrator
shall be final, conclusive and binding and that it will not contest any action
by any other party thereto in accordance with an award of the arbitrator. It is
specifically understood and agreed that any party may enforce any award rendered
pursuant to the arbitration provisions of this Section 8.11 by bringing suit in
any court of competent jurisdiction.
(c) All costs and expenses attributable to the arbitrator shall
be allocated among the parties to the arbitration in such manner as the
arbitrator shall determine to be appropriate under the circumstances.
(d) The parties hereto recognize and agree that in the event of a
breach by a party of this Section 8.11, money damages would not be an adequate
remedy to the injured party for such breach and it would be impossible to
ascertain or measure with any degree of accuracy the damages sustained by such
injured party therefrom. Accordingly, if there should be a breach or threatened
breach by a party of the provisions of this Section 8.11, the injured party
shall be entitled to an injunction restraining the breaching party from any
breach without showing or proving actual damage sustained by the injured party.
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8.12 ENTIRE AGREEMENT. This Agreement contains the full understanding
of the parties with respect to the subject matter hereof and supersedes all
prior understandings and writings relating thereto. No waiver, alteration or
modification of any of the provisions hereof shall be binding unless made in
writing and signed by the parties.
[Remainder of Page Intentionally Omitted]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
STAFF BUILDERS, INC.
By:
----------------------------------
Title:
-------------------------------
TENDER LOVING CARE HEALTH
CARE SERVICES, INC.
By:
----------------------------------
Title:
-------------------------------
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<PAGE> 1
EXHIBIT 10.2
TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT (the "AGREEMENT") is made on [________],
1999, by and among STAFF BUILDERS, INC., a Delaware corporation ("PARENT" and,
together with its subsidiaries existing immediately following the Distribution,
the "PARENT GROUP"), and TENDER LOVING CARE HEALTH CARE SERVICES, INC., a
Delaware corporation ("TLC" and, together with its subsidiaries existing
immediately following the Distribution, the "TLC GROUP").
WHEREAS, Parent and TLC have entered into the Distribution Agreement
(as defined below) providing for the distribution of all of the TLC stock owned
by Parent to Parent's shareholders in accordance with the Distribution
Agreement; and
WHEREAS, Parent and TLC desire to set forth their agreement regarding
the allocation between the Parent Group and the TLC Group of all
responsibilities, liabilities and benefits affecting Taxes (as defined below)
paid or payable by either of them for all taxable periods.
NOW, THEREFORE, in consideration of their mutual promises, the parties
hereby agree as follows:
1. DEFINITIONS. Capitalized terms used herein and not otherwise defined
shall have the meanings given them in the Distribution Agreement. As used in
this Agreement, the following terms shall have the following meanings:
(a) "Affiliate" of any person means any person, corporation,
partnership or other entity directly or indirectly controlling, controlled by or
under common control with such person.
(b) "Code" means the Internal Revenue Code of 1986, as amended or, as
the context may require, the Internal Revenue Code applicable to the taxable
year in question.
(c) "Distribution" has the meaning set forth in the Distribution
Agreement.
(d) "Distribution Agreement " means the Distribution Agreement dated
[____________], 1999 between Parent and TLC providing for the Distribution.
(e) "Distribution Date" has the meaning set forth in the Distribution
Agreement.
(f) "Final Determination" shall mean the final resolution of liability
for any Tax for a taxable period, (i) on Internal Revenue Service Form 870 or
870-AD (or any successor forms thereto), on the date of acceptance by or on
behalf of the taxpayer, or by comparable form
<PAGE> 2
under the laws of other jurisdictions; except that a Form 870 or 870-AD or
comparable form that reserves (whether by its terms or by operation of law) the
right of the taxpayer to file a claim for refund and/or the right of the taxing
authority to assert a further deficiency shall not constitute a Final
Determination; (ii) by a decision, judgment, decree, or other order by a court
of competent jurisdiction, which has become final and unappealable; (iii) by a
closing agreement or accepted offer in compromise under Section 7121 or 7122 of
the Code, or comparable agreements under the laws of other jurisdictions; (iv)
by any allowance of a refund or credit in respect of an overpayment of Tax, but
only after the expiration of all periods during which such refund may be
recovered (including by way of offset) by the Tax imposing jurisdiction; or (v)
by any other final disposition, including by reason of the expiration of the
applicable statute of limitations or by mutual agreement of the parties.
(g) "Post-Distribution Act" means any event or transaction (or the
execution of an agreement, letter of intent or option providing for a
transaction) in which TLC participates and in which any of the following occurs:
(i) TLC transfers (whether or not in liquidation) a material portion of
its assets (other than a transfer of assets in the ordinary course of business)
within one year following the Distribution Date;
(ii) TLC merges with another corporation within one year following the
Distribution Date;
(iii) Within two years of following the Distribution Date TLC
discontinues a material portion of its historic business activities; or
(iv) Within one year following the Distribution Date TLC Common Stock
distributed in the Distribution is converted into (or redeemed or exchanged for)
any other stock, any security, any property or cash.
(h) "Post-Distribution Taxes" means any and all liability for Taxes of
the TLC Group or the Parent Group, as appropriate, other than for
Pre-Distribution Taxes.
(i) "Pre-Distribution Taxes" means any and all Taxes of the Parent
Group or the TLC Group for all periods that ended on or prior to the
Distribution Date. For purposes of computing the amount of Pre-Distribution
Taxes in the case of a Tax period that begins before and ends after the
Distribution Date, the amount of Taxes considered to have accrued with respect
to the portion of the Tax period that ended on the Distribution Date shall be
determined as follows:
(i) In the case of any ad valorem, personal property and real property
Taxes, an amount of such Tax for the entire Tax period multiplied by a fraction
the numerator of which is the number of days in the portion of the Tax period
ended on the Distribution Date and the denominator of which is the number of
days in the entire Tax period;
(ii) In the case of any Tax other than ad valorem, personal property
and real property Taxes, the amount that would be payable if the relevant Tax
period ended on the Distribution Date; and
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(iii) In the case of any withholding Tax, the amount of Taxes required
to be held which relates to any payment by any member of the Parent Group or the
TLC Group on or before the Distribution Date.
Any credits relating to a Tax period that begins before and ends after
the Distribution Date shall be taken into account as though the relevant Tax
period ended on the Distribution Date.
(j) "Returns" means all returns, reports and information statements
(including all exhibits and schedules thereto) required to be filed with a
Taxing Authority with respect to any Taxes.
(k) "Taxes" means any income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, franchise, profits, license,
withholding, payroll, employment, environmental excise, severance, stamp,
transfer, recording occupation, premium, property, value added, windfall profit
tax, custom duty, or other tax of any kind whatsoever, together with any
interest and any penalty, addition to tax or additional amount imposed by any
governmental authority (a "Taxing Authority") responsible for the imposition of
any such tax (domestic or foreign).
(l) "TLC" has the meaning set forth in the preamble hereto.
(m) "TLC Group" has the meaning set forth in the preamble hereto.
2. OPERATIVE PROVISIONS.
(a) Parent shall indemnify TLC against and be responsible for all
Post-Distribution Taxes attributable to any member of the Parent Group and all
Pre-Distribution Taxes.
(b) TLC shall indemnify Parent against and shall be responsible for all
Post-Distribution Taxes attributable to any member of the TLC Group.
(c) With respect to the tax year of the Parent Consolidated Group that
includes the Distribution Date and the tax year of TLC that commences
immediately following the Distribution Date, the Parent Consolidated Group shall
claim on its federal income tax returns the benefit of (i) the graduated tax
rates of Code Section 11, (ii) the $25,000 bracket amount in Code Section 38,
(iii) the $40,000 exemption amount and the $150,000 bracket amount in Section
55, and (iv) the $2,000,000 bracket amount in Section 59A and TLC shall claim
none of such benefits.
3. RETURNS; REFUNDS; CONTEST PROVISIONS.
(a) Parent shall have the obligation and the sole right and full
discretion to control (i) the preparation of all Returns with respect to
Pre-Distribution Taxes and (ii) the defense, settlement or compromise of any
audit, examination, investigation suit, action or other proceeding relating to
Pre-Distribution Taxes. Parent shall not be entitled to all refunds of
Pre-Distribution Taxes. Notwithstanding the foregoing, in the event that Parent
decides to abandon
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the defense of, or settle or compromise any claim relating to any
Pre-Distribution Taxes and such claim may have an effect on Post-Distribution
Taxes, Parent shall notify TLC of such decision and TLC shall have ten days to
notify Parent that it assumes all liability with respect to the Pre-Distribution
Taxes under dispute and wishes to assume the defense of such audit or other
proceedings at its own expense. In the event that Parent timely receives such
notice from TLC, it shall use all reasonable efforts to cooperate so as to
facilitate TLC's handling of such proceedings.
(b) Except as otherwise provided for herein, TLC shall have the
obligation and the sole right and full discretion to control (i) the preparation
of all Returns with respect to Post-Distribution Taxes attributable to any
member of the TLC Group and (ii) the defense, settlement or compromise of any
audit, examination, investigation suit, action or other proceeding relating to
Post-Distribution Taxes attributable to any member of the TLC Group. TLC shall
have the right to all refunds of Pre-Distribution Taxes and Post-Distribution
Taxes attributable to any member of the TLC Group.
(c) Except as otherwise provided for herein, Parent shall have the
obligation and the sole right and full discretion to control (i) the preparation
of all Returns with respect to Post-Distribution Taxes attributable to any
member of the Parent Group and (ii) the defense, settlement or compromise of any
audit, examination, investigation suit, action or other proceeding relating to
Post-Distribution Taxes attributable to any member of the Parent Group. Parent
shall have the right to all refunds of Post-Distribution Taxes attributable to
any member of the Parent Group.
4. WINDFALLS.
(a) Parent shall promptly pay to TLC the amount of any incremental Tax
savings generated by (i) a deduction, credit or exclusion that (A) is actually
realized by the Parent Group with respect to Pre-Distribution Taxes and (B)
relates to or is based on an item that is the basis for a similar deduction,
credit or exclusion taken on a Return with respect to Post-Distribution Taxes of
the TLC Group that is denied, disallowed, forfeited, or accelerated until prior
to the Distribution Date or (ii) a reduction in the amount of any gross income
or revenue that (A) is actually realized by the Parent Group with respect to
Pre-Distribution Taxes and (B) relates to, or is based on, a similar item of
gross income or revenue that the TLC Group is required to include on a Return or
otherwise required to include in its computation of taxable income as a result
of an audit, other administrative proceeding or otherwise. Parent shall use
reasonable best efforts to realize any such incremental tax savings that may
potentially be available.
(b) TLC shall promptly pay to Parent the amount of any incremental Tax
savings generated by (i) a deduction, credit or exclusion that (A) is actually
realized by the TLC Group with respect to its Post-Distribution Taxes and (B)
relates to or is based on an item that is the basis for a similar deduction,
credit or exclusion taken on a Return with respect to Pre-Distribution Taxes
that is denied, disallowed, forfeited, or deferred until after the Distribution
Date or (ii) a reduction in the amount of any gross income or revenue that (A)
is actually realized by the TLC Group with respect to Post-Distribution Taxes
and (B) relates to, or is based on, a similar item of gross income or revenue
that the Parent Group is required to include on a Return
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<PAGE> 5
or otherwise required to include in its computation of taxable income as a
result of an audit, other administrative proceeding or otherwise. TLC shall use
reasonable best efforts to realize any such incremental tax savings that may
potentially be available.
5. AGENCY.
(a) TLC irrevocably designates Parent (and shall cause each member of
the TLC Group to irrevocably designate Parent) as its agent and attorney in fact
(and shall execute any necessary powers of attorney) for the purpose of taking
any and all actions necessary or incidental to the filing of federal income tax
Returns and state unitary or combined Returns for (i) any period during which
any member of the TLC Group or any predecessor qualified to file a consolidated,
combined, unitary or similar Return with any member of the Parent Group and (ii)
any period ending on or before the Distribution Date. Parent shall keep TLC
reasonably informed of, and shall reasonably consult with TLC with respect to,
all actions to be taken on behalf of any member of the TLC Group. Parent and TLC
will each furnish the other any and all information which the other may
reasonably request in order to carry out the provisions of this Agreement to
determine the amount of any Tax liability.
6. CONSISTENT REPORTING.
(a) With respect to all taxable periods ending on or prior to [INSERT
DATE], TLC, each member of the TLC Group and any future Affiliates thereof shall
file federal income tax and state income tax Returns in a manner consistent with
the Returns filed (or to be filed) in respect to Pre-Distribution Taxes and in a
manner consistent with the form of the transactions contemplated by the
Distribution Agreement (the "Form") including that the Distribution qualifies
under Section 355 of the Code.
(b) To the extent there is an inconsistency or an apparent
inconsistency amongst the Returns relating to Pre-Distribution Taxes (including
after taking into account Returns to be filed after the Distribution Date)
and/or the form, TLC shall file Returns with respect to Post-Distribution Taxes
in the manner directed by Parent. (c) Parent and TLC agree to contest any
proposed adjustment by any Taxing Authority that is, in the sole judgement of
Parent, inconsistent with the provisions of this Section 6.
7. COVENANTS OF TLC AND PARENT RELATING TO ACTIONS AFTER THE
DISTRIBUTION DATE.
(a) TLC shall, and shall cause each member of the TLC Group to refrain
from participating in any Post-Distribution Act without the prior written
consent of Parent.
(b) TLC and Parent shall cooperate (and shall cause each of their
Affiliates to cooperate) fully at such time and to the extent reasonably
requested by the other party in connection with the preparation and filing of
any Return or the conduct of any audit, dispute, proceeding, suit or action in
respect of Taxes or other Tax matters. Such cooperation shall include, without
limitation, (i) the retention and provision on demand of books, records,
documentation or other information relating to any Return until the expiration
of the applicable
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statute of limitation (giving effect to any extension, waiver, or mitigation
thereof) plus two years; (ii) the execution of any document that may be
necessary or reasonably helpful in connection with the filing of any Return by
any member of the Parent Group or the TLC Group or in connection with any audit,
examination, investigation, suit, action or other proceeding; and (iii) the use
of the parties' reasonable best efforts to obtain any documentation from a
governmental authority or a third party that may be necessary or helpful in
connection with the foregoing.
(c) TLC and Parent shall cooperate (and shall cause each of their
Affiliates to cooperate) in causing the tax year end of TLC to be February 28th,
effective for the year ended February 28, 2000 with respect to any jurisdiction
in which TLC is not included in a consolidated or combined group Tax Return for
a Tax period which will end on the Distribution Date.
8. TLC REPRESENTATIONS. TLC hereby represents and warrants to the
Parent and each member of the Parent Group that the statements contained in this
Section 8 are true and correct in all material respects on the date hereof:
(a) To the best of TLC's knowledge and belief, no part of its stock
being distributed in the Distribution will be received by a shareholder of
Parent in such shareholder's capacity as a creditor, employee or in any capacity
other than that of a shareholder of Parent.
(b) To the best of TLC's knowledge and belief, shareholders of Parent
owning stock two years prior to the Distribution Date will continue to hold at
least 50% of the stock of TLC two years after the Distribution Date.
(c) TLC has no plan or intention to liquidate, merge with another
corporation or to sell or otherwise dispose of its assets subsequent to the
Distribution except in the ordinary course of business.
(d) To the best of TLC's knowledge and belief, no plan or intention
exists by the shareholders of Parent to sell, exchange, transfer by gift, or
otherwise dispose of any of their stock in Parent or TLC subsequent to the
Distribution.
(e) Following the Distribution, each of Parent and TLC will operate as
independent corporations except that certain administrative and other common
activities of the two corporations will be undertaken by common personnel in
accordance with the Ancillary Agreements. Payments made in connection with all
continuing transactions between, and services provided for, each of Parent and
TLC will be for fair market value based on terms and conditions arrived at by
the parties bargaining at arm's length.
(f) TLC has no plan involving the issuance or transfer of equity
interests in TLC following the Distribution other than issuances to employees
and consultants of TLC upon the exercise of stock options or otherwise under its
[list Executive Compensation Plans].
(g) TLC has no plan or intention for the transfer or cessation of a
substantial portion of the business of TLC or other substantial change in the
business of TLC following the Distribution.
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9. PARENT REPRESENTATIONS. Parent hereby represents and warrants to TLC
and each member of the TLC Group that the statements contained in this Section 9
are true and correct in all material respects on the date hereof:
(a) No part of the TLC stock being distributed in the Distribution will
be received by a shareholder of Parent in such shareholder's capacity as a
creditor, employee or in any capacity other than that of a shareholder of
Parent.
(b) To the best of Parent's knowledge and belief, shareholders of
Parent owning stock two years prior to the Distribution Date will continue to
hold at least 50% of the stock of Parent two years after the Distribution Date.
(c) Parent has no plan or intention to liquidate, merge with another
corporation or to sell or otherwise dispose of its assets subsequent to the
Distribution except in the ordinary course of business.
(d) To the best of Parent's knowledge and belief, no plan or intention
exists by the shareholders of Parent to sell, exchange, transfer by gift, or
otherwise dispose of any of their stock in Parent or TLC subsequent to the
Distribution.
(e) Following the Distribution, each of Parent and TLC will operate as
independent corporations except that certain administrative and other common
activities of the two corporations will be undertaken by common personnel in
accordance with the Ancillary Agreements. Payments made in connection with all
continuing transactions between, and services provided for, each of Parent and
TLC will be for fair market value based on terms and conditions arrived at by
the parties bargaining at arm's length.
(f) Parent has no plan or intention for the transfer or cessation of a
substantial portion of the business of Parent or other substantial change in the
business of Parent following the Distribution.
10. PAYMENTS. All payments to be made hereunder shall be made in
immediately available funds. Unless otherwise provided herein, any payment not
made when due hereunder shall bear interest from the due date at an annual rate
equal to the lowest prime rate as reported in the Wall Street Journal plus 2%,
compounded and adjusted monthly. For purposes of this Agreement, the following
payments shall be due at the following times:
(a) Payments due under Section 2 hereof shall be paid within 10 days of
the receipt of notice from the party entitled to the payment indicating the
occurrence of the later of (i) a Final Determination relating to the item or
items giving rise to the Tax for which indemnification is made and (ii) actual
payment of the Tax giving rise to the claim for indemnification.
(b) In the case of any refunds of Taxes received by a party other than
the party entitled to such refunds pursuant to Section 3 hereof, the recipient
of the refund shall pay the amount of such refund to the other party within five
days of the receipt of such refund.
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(c) Amounts payable pursuant to Section 4 hereof shall be paid within
five days of the later to occur of (i) a Final Determination relating to the Tax
item that gave rise to the windfall benefit and (ii) the actual receipt of the
windfall benefit.
11. ARBITRATION. Any dispute, controversy or claim arising out of or in
connection with this Agreement (including any questions of fraud or questions
concerning the validity and enforceability of this Agreement or any of the
rights herein and therein conveyed), shall be determined and settled by
arbitration in New York, New York, pursuant to the rules then in effect of the
American Arbitration Association as modified by this paragraph. Any award
rendered shall be final and conclusive upon the parties and a judgment thereon
may be entered in any court having competent jurisdiction. The party submitting
such dispute shall give written notice to that effect to the other party,
stating the dispute to be arbitrated and the name and address of a person
designated to act as arbitrator on its behalf. Within fifteen (15) days after
such notice, the other party shall give written notice to the first party
stating the name and address of a person designated to act as an arbitrator on
its behalf. In the event that the second party shall fail to notify the first
party of its designation of an arbitrator within the time specified, then the
first party shall request the American Arbitration Association to appoint a
second arbitrator. The two arbitrators so chosen shall meet within fifteen (15)
days after the second arbitrator has been appointed to appoint a third
arbitrator. If the two arbitrators are unable to agree on the appointment of a
third arbitrator within such fifteen (15) day period, either party may request
the American Arbitration Association to appoint a third arbitrator. Each
arbitrator appointed hereunder shall be independent of the parties and either
party may disqualify an arbitrator who is or is affiliated with a supplier,
customer or competitor of either party without the consent of the other party.
Each arbitrator shall be reasonably knowledgeable regarding the area or areas in
dispute. The arbitrators shall follow substantive rules of law and the Federal
Rules of Evidence, require the parties to conduct discovery pursuant to the
rules then in effect under the Federal Rules of Civil Procedure in an
expeditious manner, cause testimony to be transcribed, and make an award
accompanied by findings of fact and a statement of reasons for the decision. All
costs and expenses, including attorney's fees, of all parties incurred in any
dispute which is determined and/or settled by arbitration pursuant to this
paragraph shall be borne by the party determined to be liable in respect of such
dispute; provided, however, that if complete liability is not assessed against
only one party, the parties shall share the total costs in proportion to their
respective amounts of liability so determined. Except where clearly prevented by
the area in dispute, both parties agree to continue performing their respective
obligations under this Agreement while the dispute is being resolved. Each
party, and the arbitrators, shall use their best efforts, subject to reasonable
prosecution of the arbitration, court order and disclosure required under
securities laws, to keep the subject matter of the arbitration and confidential
information of each party confidential, and the arbitrators are authorized to
impose such protective orders as they may deem appropriate for such purpose.
12. COSTS AND EXPENSES. Except as expressly set forth in this
Agreement, each party shall bear its own costs and expenses incurred pursuant to
this Agreement regardless of the beneficiary of the items or services relating
to such costs and expenses.
13. TERMINATION AND SURVIVAL. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall remain in effect and its
provisions shall survive
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for the full period of all applicable statutes of limitation relating to the
assessment of Taxes (giving effect to any extension, waiver or mitigation
thereof) plus two years.
14. AMENDMENTS; LIMITATION ON WAIVERS.
(a) Any provision of this Agreement may be amended if, and only if,
such amendment is in writing and signed by Parent and TLC.
(b) The provisions of this Agreement may be waived only if the waiver
is in writing and signed by the party making the waiver. No delay or omission in
exercising any right under this Agreement will operate as a waiver of the right
on any further occasion. No waiver of any particular provision of the Agreement
will be treated as a waiver of any other provision, and no waiver of any rights
will be deemed a continuing waiver of the same right with respect to subsequent
occurrences that give rise to it. All rights given by this Agreement are
cumulative to other rights provided for in this Agreement and to any other
rights available under applicable law.
15. GOVERNING LAW AND INTERPRETATION. This Agreement shall be governed
by, interpreted and enforced in accordance with the laws of the State of New
York (regardless of the laws that might be applicable under principles of
conflict of law).
16. CONFIDENTIALITY. Each party shall hold and shall cause its
consultants and advisors to hold in strict confidence, unless compelled to
disclose by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law, all information (other than any such
information relating solely to the business or affairs of such party) concerning
the other parties hereto furnished to it by such other party or its
representatives pursuant to this Agreement (except to the extent that such
information can be shown to have been (a) previously known by the party to which
it was furnished, (b) in the public domain through no fault of such party, or
(c) later lawfully acquired from other sources by the party to which it was
furnished), and each party shall not release or disclose such information to any
other person, except its auditors, attorneys, financial advisors, bankers and
other consultants and advisors who shall be advised of the provisions of this
Section 16. Each party shall be deemed to have satisfied its obligation to hold
confidential information concerning or supplied by the other party if it
exercises the same care as it takes to preserve confidentiality for its own
similar information.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
18. ASSIGNMENTS AND THIRD PARTY BENEFIT. This Agreement and the terms
and provisions hereof shall be binding upon and shall inure to the benefit of,
the parties and their respective successors and assigns.
19. SEVERABILITY. If any term, provision, condition or covenant of this
Agreement, or the application thereof to any party or circumstance shall be held
by a court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this instrument, or the application of such term, provision,
condition or covenant to persons or circumstances other
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than those as to whom or which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Agreement shall be valid
and enforceable to the fullest extent permitted by law.
20. MERGER OF PRIOR AGREEMENTS.
(a) This Agreement contains all of the terms and provisions and
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior written, oral or implied understandings,
representations and agreements of the parties relating to the subject matter of
this Agreement. Without limiting the foregoing, the parties acknowledge and
agree that in the event of any conflict or inconsistency between the provisions
of this Agreement and the provisions of the Distribution Agreement , the
provisions of this Agreement shall control and to such extent shall be deemed to
supersede such conflicting provisions under the Distribution Agreement .
(b) The parties acknowledge that pursuant hereto any and all existing
tax allocation agreements or arrangements binding or benefiting TLC shall be
terminated as of the close of business on the Distribution Date, and that after
the Distribution Date this Agreement shall constitute the sole tax allocation
agreement among Parent and TLC
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
STAFF BUILDERS, INC.
By:
-----------------------------------
Title:
TENDER LOVING CARE HEALTH
CARE SERVICES, INC.
By:
-----------------------------------
Title:
10
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EXHIBIT 10.3
TRANSITIONAL SERVICES AGREEMENT
THIS TRANSITIONAL SERVICES AGREEMENT (the "AGREEMENT") is
made as of ____ , 1999 between STAFF BUILDERS, INC., a Delaware corporation
("STAFF BUILDERS"), and TENDER LOVING CARE HEALTH CARE SERVICES, INC., a
Delaware corporation ("TLC").
RECITALS
WHEREAS, the Board of Directors of Staff Builders has
determined that it is in the best interest of Staff Builders and its
shareholders to separate its home health care business from the remainder of
its business;
WHEREAS, Staff Builders and TLC recognize that it is
advisable for TLC to continue providing certain administrative and other
services to Staff Builders until Staff Builders has had a reasonable
opportunity to evaluate its continued need for the services and to investigate
other sources of the services; and
WHEREAS, this Agreement is entered into pursuant to the
Distribution Agreement dated as of _____ , 1999 between Staff Builders and TLC
(the "DISTRIBUTION AGREEMENT") (All capitalized terms used and not otherwise
defined herein shall have the meanings set forth in the Distribution
Agreement);
NOW, THEREFORE, in consideration of the mutual covenants and
agreements made herein, the parties hereto agree as follows:
SECTION 1 - SERVICES
1.1 Services. Beginning on the Distribution Date (as defined
in the Distribution Agreement) TLC, through its corporate staff, will provide
or otherwise make available to Staff Builders, upon the reasonable request of
Staff Builders, certain general corporate services, including but not limited
to accounting and audit, tax, legal, financial and human resources, and arrange
for administration of insurance and employee benefit programs. The services may
include the following:
(a) ACCOUNTING RELATED SERVICES. Provision of general
financial advice and services including, without limitation, assistance with
respect to matters such as cash management and financial controls.
(b) TAX RELATED SERVICES. Preparation of Federal tax returns,
preparation of state and local tax returns (including income tax returns), tax
research and planning and assistance on tax audits (Federal, state and local)
in accordance with the terms of the Tax Allocation Agreement.
<PAGE> 2
(c) LEGAL RELATED SERVICES. Provision of certain legal
services, including without limitation, assistance in the preparation of
reports under the Securities Exchange Act of 1934, as amended, proxy statements
in connection with meetings of shareholders and offering documents used in
connection with the sale of franchises.
(d) INSURANCE AND EMPLOYEE BENEFIT RELATED SERVICES.
Assistance, if requested, with respect to the liability, property, casualty,
and other normal business insurance coverage. Administration of employee
benefit plans and insurance programs sponsored by Staff Builders. Filing of all
required reports under ERISA for employee benefit plans sponsored by Staff
Builders.
(e) ADDITIONAL SERVICES. Services in addition to those
enumerated in subsections 1.1(a) through 1.1(d) above as may be agreed upon by
Staff Builders and TLC from time to time.
SECTION 2 - CHARGES AND PAYMENTS
2.1 CHARGES FOR GENERAL SERVICES. For performing general
services of the types described above in Section 1 TLC will charge Staff
Builders 110% of the costs actually incurred (including overhead and general
administrative expenses). To the extent such direct costs cannot be separately
measured, TLC shall charge Staff Builders for a portion of the total cost
determined according to a method reasonably selected by TLC and approved by
Staff Builders.
The charges for services pursuant to subsection 2.1 above
will be determined and payable no less frequently than quarterly. The charges
will be due when billed and shall be paid no later than thirty (30) days from
the date of billing.
2.2 CHARGES FOR THIRD-PARTY SERVICES. When services of the
type described above in Section 1 are provided, upon the mutual agreement of
Staff Builders and TLC, by outside providers or, in connection with the
provision of such services out-of-pocket costs are incurred such as travel, the
cost thereof will be paid by Staff Builders. To the extent that Staff Builders
is billed by the provider directly, Staff Builders shall pay the bill directly.
If TLC is billed for such services, TLC may pay the bill and charge Staff
Builders the amount of the bill or forward the bill to Staff Builders for
payment by Staff Builders.
2.3 Staff Builders shall pay any sales, use or similar tax,
excluding any income tax or taxes levied with respect to gross receipts,
payable by Staff Builders or TLC with respect to amounts payable under this
Agreement.
SECTION 3 - GENERAL OBLIGATIONS
3.1 STAFF BUILDERS' DIRECTORS AND OFFICERS. Nothing contained
herein will be construed to relieve the directors or officers of Staff Builders
from the performance of their respective duties or to limit the exercise of
their powers in accordance with
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the Amended and Restated Articles of Incorporation or the Amended and Restated
Bylaws of Staff Builders or in accordance with any applicable statute or
regulation.
3.2 LIABILITIES. In furnishing Staff Builders with management
advice and other services as herein provided, neither TLC nor any of its
officers, directors, employees or agents shall be liable to Staff Builders or
its creditors or shareholders for errors of judgment or for anything except
willful malfeasance, bad faith or gross negligence in the performance of their
duties or reckless disregard of their obligations and duties under the terms of
this Agreement. The provisions of this Agreement are for the sole benefit of
Staff Builders and TLC and will not, except to the extent otherwise expressly
stated herein, inure to the benefits of any third party.
Staff Builders shall indemnify and hold harmless TLC and each
of its officers, directors, employees or agents against any claims of any kind
arising out of or relating to this Agreement or services provided hereunder,
except for claims caused by the willful malfeasance, bad faith or gross
negligence of the person seeking such indemnification.
3.3 TERM. The initial term of this Agreement shall begin on
the date of this Agreement and continue until the first anniversary date
hereof. This Agreement shall automatically renew at the end of the initial term
or any renewal term for successive three-month-terms until terminated by either
party upon written notice to the other party at least ninety (90) days prior to
the expiration of the initial term or any renewal terms of this Agreement.
3.4 STANDARD OF CARE. TLC will use (and will cause its
Subsidiaries to use) reasonable efforts in providing the scheduled services to
Staff Builders and will perform such services with the same degree of care,
skill and prudence customarily exercised for its own operations; provided,
however, that TLC shall not be required to devote 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 to perform
the services required hereunder. To the extent possible, such services will be
substantially identical in nature and quality to the services currently
available to Staff Builders. TLC has the right to reasonably supplement,
modify, substitute or otherwise alter such services from time to time in a
manner consistent with supplements, modifications, substitutions or alterations
made with respect to similar services provided or otherwise made available by
TLC to its wholly-owned subsidiaries. In providing such services, TLC will not
be responsible for the accuracy, completeness or timeliness of any advice or
service or any return, report, filing or other document which it provides,
prepares or assists in preparing, except to the extent that any inaccuracy,
incompleteness or untimeliness arises from TLC's gross negligence or willful
misconduct. Staff Builders and TLC will cooperate in planning the scope and
timing of services provided by TLC under this Agreement in order to minimize or
eliminate interference with the conduct of TLC's business activities. If such
interference is unavoidable, TLC will apportion, in its sole discretion, the
available services in a fair and reasonable manner. Notwithstanding anything
set forth in this Section 3.4 neither TLC nor any of its officers, directors,
employees or agents shall have any liability under this Agreement except to the
extent provided in Section 3.2.
3.5 INDEPENDENCE. Except for those individuals named on
Schedule A hereto, all employees and representatives of TLC providing the
scheduled services to Staff Builders will be deemed for purposes of all
compensation and employee benefits to be
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employees or representatives of TLC and not employees or representatives of
Staff Builders. In performing such services, such employees and representatives
will be under the direction, control and supervision of TLC (and not of Staff
Builders) and TLC will have the sole right to exercise all authority with
respect to the employment (including termination of employment), assignment and
compensation of such employees and representatives.
3.6 NON-EXCLUSIVITY. Nothing in this Agreement obligates
Staff Builders to use TLC to provide the specified services or precludes Staff
Builders from obtaining the identified services, in whole or in part, from its
own employees or from providers other than TLC.
3.7 CONFIDENTIALITY. TLC agrees to hold, and to use its best
efforts to cause its employees and representatives to hold, in confidence all
confidential information concerning Staff Builders, furnished to or obtained by
TLC after the Distribution Date in the course of providing the identified
services, in a manner consistent with TLC's standard policies with respect to
the preservation and disclosure of confidential information concerning TLC and
its subsidiaries.
SECTION 4 - MISCELLANEOUS
4.1 NOTICES. Notices hereunder shall be effective if given in
writing and delivered or mailed, postage prepaid, by registered or certified
mail to:
STAFF BUILDERS, INC.
1983 Marcus Avenue
Lake Success, NY 11042
Attention: David Savitsky, President
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
1983 Marcus Avenue
Lake Success, NY 11042
Attention: Dale R. Clift, President
4.2 APPLICABLE LAW. This Agreement shall be governed by and
construed under the laws of the State of New York applicable to contracts made
and to be performed therein.
4.3 PARAGRAPH TITLES. The paragraph titles used in this
Agreement are for convenience of reference and will not be considered in the
interpretation or construction of any of the provisions thereof.
4.4 AMENDMENTS; WAIVERS. This Agreement may be amended or
modified only in writing executed on behalf of Staff Builders and TLC. No
waiver shall operate to waive any further or future act and no failure to
object or forbearance shall operate as a waiver.
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4.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns, provided that this Agreement and the rights and
obligations contained herein or in any exhibit or schedule hereto shall not be
assignable, in whole or in part, without the prior written consent of the
parties hereto and any attempt to effect any such assignment without such
consent shall be void.
4.6 ARBITRATION.
(a) All disputes or differences of any kind or nature between
or among the parties (such parties being referred to individually as a
"DISPUTING PARTY," and _____, together, as the "DISPUTING PARTIES") arising out
of or in any way relating to this Agreement or the transactions contemplated
hereby, including issues of arbitrability, and including, without limitation,
any dispute between the parties under Section 3.2, which the parties are unable
to resolve themselves shall be submitted to and resolved by arbitration before
a single arbitrator in accordance with the commercial arbitration rules of the
American Arbitration Association (the "AAA"). Such arbitrator shall have
substantial professional experience with regard to corporate legal matters.
(b) The arbitrator shall consider the dispute at issue in New
York, New York, at a mutually agreed upon time within sixty (60) days (or such
longer period as may be acceptable to the Disputing Parties or as directed by
the arbitrator) of the designation of the arbitrator. The arbitration
proceeding shall be held in accordance with the rules for commercial
arbitration of the AAA in effect on the date of the initial request by the
Disputing Party, that gave rise to the dispute to be arbitrated (as such rules
are modified by the terms of this Agreement or may be further modified by
mutual agreement of the Disputing Parties) and shall include an opportunity for
the parties to conduct discovery in advance of the proceeding. Notwithstanding
the foregoing, the Disputing Parties shall agree that they will attempt, and
they intend that they and the arbitrator should use their best efforts in that
attempt, to conclude the arbitration proceeding and have a final decision from
the arbitrator within one hundred twenty (120) days from the date of selection
of the arbitrator; provided, however, that the arbitrator shall be entitled to
extend such one hundred twenty (120) day period for a total of two one hundred
twenty (120) day periods. The arbitrator shall deliver a written award with
respect to the dispute to each of the parties, who shall promptly act in
accordance therewith. Each Disputing Party to such arbitration agrees that any
award of the arbitrator shall be final, conclusive and binding and that it will
not contest any action by any other party thereto in accordance with an award
of the arbitrator. It is specifically understood and agreed that any party may
enforce any award rendered pursuant to the arbitration provisions of this
Section 4.6 by bringing suit in any court of competent jurisdiction.
(c) All costs and expenses attributable to the arbitrator
shall be allocated among the parties to the arbitration in such manner as the
arbitrator shall determine to be appropriate under the circumstances.
(d) The parties hereto recognize and agree that in the event
of a breach by a party of this Section 4.6, money damages would not be an
adequate remedy to the injured party for such breach and it would be impossible
to ascertain or measure with any degree of accuracy the damages sustained by
such injured party therefrom. Accordingly, if there should be a breach or
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threatened breach by a party of the provisions of this Section 4.6, the injured
party shall be entitled to an injunction restraining the breaching party from
any breach without showing or proving actual damage sustained by the injured
party.
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their fully authorized officers as of the Distribution Date.
STAFF BUILDERS, INC.
By:
-----------------------------------------------
Title:
--------------------------------------------
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
By:
-----------------------------------------------
Title:
--------------------------------------------
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EXHIBIT 10.4
TRADEMARK LICENSE AGREEMENT
This Trademark License Agreement (the "AGREEMENT") made and entered
into this [__] day of [_______], 199[_], by and between STAFF BUILDERS, INTL.,
INC., a New York corporation ("LICENSOR"), and STAFF BUILDERS, INC. a Delaware
corporation ("LICENSEE").
W I T N E S S E T H:
WHEREAS, Licensor is a wholly-owned subsidiary of Tender Loving Care
Health Care Services, Inc., a Delaware corporation ("TLC");
WHEREAS, Licensor is the owner of the registered trademarks set forth
on Schedule 1 hereto (collectively, the "REGISTERED TRADEMARKS") and is
registering those marks set forth on Schedule 2 hereto (the "PENDING
TRADEMARKS," and together with the Registered Trademarks, the "MARKS"); and
WHEREAS, pursuant to the terms of the Distribution Agreement, by and
between TLC and Licensee, dated [ ], 1999 (the "DISTRIBUTION AGREEMENT"), TLC
has agreed to cause Licensor to grant an exclusive license to Licensee to use
the Marks in connection with Licensee's supplemental staffing business (the
"SUPPLEMENTAL STAFFING BUSINESS"), subject to the terms and conditions below.
NOW, THEREFORE, in consideration of the premises and the mutual
promises set forth herein and in the Distribution Agreement, and other good and
valuable consideration, receipt of which the parties acknowledge, the parties
agree as follows:
1. License Grant. Subject to the terms and conditions of this
Agreement, Licensor hereby grants to Licensee an exclusive, royalty-free,
license to use the Marks worldwide solely in connection with Licensee's services
offered as part of its Supplemental Staffing Business, including related
advertising and promotion. All rights, licenses and privileges not specifically
granted herein are excluded from this Agreement and reserved by Licensor.
Licensor hereby represents and warrants to Licensee that, except as set forth on
Schedule 3 attached hereto, and with respect to the Pending Foreign Applications
listed on Schedule 2 attached hereto, Licensor owns or will own the Marks (with
respect to the Pending Trademarks, upon registration with the applicable
governmental authority) free and clear of any and all liens, licenses or other
encumbrances.
2. Sublicense. Licensee may sublicense its rights hereunder to
any of its subsidiaries in existence on the date hereof and, with the prior
written consent of Licensor, to any subsidiaries hereafter established or
acquired. No such sublicense shall relieve Licensee from any of its obligations
hereunder.
<PAGE> 2
3. Costs. Subject to Section 10 hereof, all registration and
maintenance costs of the Marks, insofar as such costs relate to the Supplemental
Staffing Business, shall be born by Licensee.
4. Quality Standards.
(a) Licensee shall take such action as is reasonably necessary
to maintain the high-quality, value and integrity of the Marks and to refrain
from taking any action likely to diminish or detract from any Mark's value.
Licensee shall insure that its use of the Marks does not tarnish or bring into
dispute the Marks.
(b) Without limiting the foregoing, Licensee represents,
warrants, and agrees that it will, at all times, operate its business and sell,
offer, advertise, distribute or otherwise exploit the Marks in compliance with
all laws, rules and regulations, including without limitation any decision,
order or administrative action or guidance of any governmental or regulatory
authority.
5. Display. Licensee shall be free to display the Marks in
such forms or manners as Licensee may choose, provided that any such use shall
be of a kind and quality which does not materially detract from the value of the
Marks. Licensee shall cause to appear on all written materials on or in
connection with which the Marks are used, such legends, markings and notices as
Licensor may reasonable prescribe in order to give appropriate notices of any
trademark usage, registration or ownership rights.
6. Ownership. As between the parties, Licensor, or its
successors or assigns, shall own all right, title and interest, including the
goodwill related thereto, in and to the Marks. Licensee shall not acquire any
ownership interest in the Marks whatsoever and Licensee's use of the Marks shall
inure to Licensor's benefit. Licensee shall fully cooperate with Licensor in
connection with any matters pertaining to the protection or enforcement of
Licensor's rights in the Marks, including, without limitation, providing access
to and copies of any records, files or other information pertaining to the
exploitation of the Marks. Licensee shall promptly execute any documents
reasonably requested by Licensor to confirm or establish Licensor's ownership of
all rights in the Marks, failing which Licensor is hereby appointed as
Licensee's attorney-in-fact to execute such documents. Licensee agrees that it
shall not, register or attempt to register the Marks (or a logo, mark or other
design confusingly similar to the Marks) without the prior written consent of
Licensor. Notwithstanding the foregoing, Licensee may take steps to facilitate
the registration of those Pending Foreign Applications listed on Schedule 2, to
the extent that Licensor has not taken reasonable steps to facilitate the
registration of such Pending Foreign Applications, to the extent registration is
necessary to facilitate and in connection with the Supplemental Staffing
Business. Licensor shall fully cooperate with Licensee in connection with any
such foreign registration. Licensee further agrees that it shall not contest or
assist any other party in contesting the validity of Licensor's ownership of the
Marks anywhere in the world.
7. Infringement Proceedings.
(a) Licensee shall promptly notify Licensor of any
infringement, imitation or unauthorized use of the Marks or any mark
substantially similar to a mark in connection with a
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business substantially similar to the Supplemental Staffing Business which comes
to its attention. Licensor shall take such action as it deems advisable, and
Licensee shall fully cooperate with Licensor.
(b) If Licensor does not take such action to stop an
infringement, imitation or unauthorized use within 30 days of receipt of a
Licensee's initial notice regarding the same, then Licensee may take such
action, in which case Licensor shall cooperate with Licensee, but all expenses
shall be born by Licensee. In the event Licensee takes any action, Licensor
shall have the right to take control of such action upon notice to Licensee.
(c) The party prosecuting the action shall be entitled to the
proceeds from any settlement or damages award. If both parties prosecute such
action, then such settlement or award shall be shared equally, after first
deducting both parties' legal expenses.
8. Term and Termination.
(a) This Agreement shall automatically terminate in the event
Licensee ceases using the Marks in connection with the Supplemental Staffing
Business for longer then one year. Without limiting the foregoing, this
Agreement shall be terminated as follows:
(i) upon 30 days' prior written notice to Licensee, if
Licensee commits a material breach of this Agreement which is not cured to the
reasonable satisfaction of Licensor within the 30-day period following delivery
of the notice. The notice must describe in reasonable detail the alleged breach;
or
(ii) upon 30 days' prior written notice to Licensor, if
Licensor commits a material breach of this Agreement which such breach is not
cured to the reasonable satisfaction of Licensee within the 30-day period
following delivery of the notice. The notice must describe in reasonable detail
the alleged breach.
(b) Upon termination of this Agreement, Licensee agrees to
cease any and all use of the Marks, and all rights granted to Licensee shall
revert to Licensor. Licensee shall cease exploiting, including without
limitation, printing, manufacturing, distributing or selling, any materials
bearing the Marks. Upon Licensor's request, Licensee shall destroy or efface any
materials bearing the Marks which are in the possession of Licensee. Licensee
shall provide Licensor with a certificate signed by an officer of Licensee
attesting to such destruction or effacement.
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9. Remedies. Licensee acknowledges that a breach of any of its
covenants, agreements or undertakings hereunder or its failure to cease all use
of the Marks upon the termination or expiration of this Agreement will cause
immediate and irreparable damage to Licensor and the rights of any subsequent
licensee of Licensor. Licensee acknowledges that no adequate remedy at law
exists for failure to cease such activities and Licensee agrees that in the
event of such failure, Licensor shall be entitled to injunctive relief and such
other relief as any court with jurisdiction may deem just and proper.
10. Indemnification.
(a) Licensee agrees to indemnify, hold harmless and defend
Licensor, its affiliates and its and their officers, directors and employees
from and against all suits, actions, claims, damages, liabilities, costs and
expenses (including but not limited to claims of infringement of any
intellectual property right, and including without limitation, settlement costs
and legal and accounting and other expenses incurred in connection therewith),
or other damages of any kind or nature arising out of or connected with (i) the
use of the Marks by Licensee or its sublicensees, (ii) the use of goods or
services bearing the Marks, including any advertising, promotion or distribution
of such goods or services, or (iii) any breach by Licensee of any covenant,
representation, warranty or other provision of this Agreement.
(b) Licensor agrees to indemnify, hold harmless and defend
Licensee, its affiliates and its and their officers, directors and employees
from and against all suits, actions, claims, damages, liabilities, costs and
expenses (including, without limitation, settlement costs and legal and
accounting and other expenses incurred in connection therewith), or other
damages of any kind or nature arising out of or connected with any breach by
Licensor of any covenant, representation, warranty or other provision of this
Agreement.
(c) If any party entitled to indemnification hereunder (an
"INDEMNITEE") shall receive notice or otherwise learn of the assertion of any
claim or of the commencement of any action (collectively, a "THIRD PARTY CLAIM")
with respect to which any party (an "INDEMNIFYING PARTY") may be obligated to
provide indemnification to such Indemnitee pursuant to Section 10(a) or 10(b),
the Indemnitee shall give such Indemnifying Party written notice thereof within
twenty (20) days after becoming aware of such Third Party Claim. Any such notice
shall describe the Third Party Claim in reasonable detail. Notwithstanding the
foregoing, the failure of any Indemnitee to give notice as provided in this
Section 10(c) shall not relieve the Indemnifying Party of its obligations under
this Section 10, except to the extent that such Indemnifying Party is actually
prejudiced by such failure to give notice.
(d) An Indemnifying Party may elect to defend (and, unless the
Indemnifying Party has specified any reservations or exceptions, to seek to
settle or compromise), at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, any Third Party Claim. Within thirty (30) days
after the receipt of notice from an Indemnitee in accordance with Section 10(c)
(or sooner, if the nature of such Third Party Claim so requires), the
Indemnifying Party shall notify the Indemnitee of its election whether or not to
defend such Third Party Claim, which election shall specify any reservations or
exceptions. After notice from
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an Indemnifying Party to an Indemnitee of its election to assume the defense of
a Third Party Claim, such Indemnitee shall have the right to employ separate
counsel and to participate in (but not control) the defense, compromise, or
settlement thereof, but the fees and expenses of such counsel shall be the
expense of such Indemnitee except as set forth in Section 10(e).
(e) If an Indemnifying Party elects not to assume
responsibility for defending a Third Party Claim, or fails to notify an
Indemnitee of its election as provided in Section 10(d), such Indemnitee may
defend such Third Party Claim at the cost and expense (including allocated costs
of in-house counsel and other personnel) of the Indemnifying Party.
(f) An Indemnitee may not settle or compromise any Third Party
Claim without the consent of the Indemnifying Party (not to be unreasonably
withheld if the settlement or compromise relates to money damages only). Without
limiting the forgoing, an Indemnifying Party shall not consent to entry of any
judgment or enter into any settlement of the Third Party Claim without the
consent of the Indemnitee if the effect thereof is to permit any injunction,
declaratory judgment, other order or other nonmonetary relief to be entered,
directly or indirectly, against any Indemnitee.
(g) This Section 10 shall survive any termination of this
Agreement.
11. Assignment. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their successors and permitted assigns.
Except as provided in Section 2 hereof, Licensee may not assign, transfer or
delegate any of its rights or obligations under this Agreement without the prior
written approval of Licensor. Any assignment, transfer or delegation, including
as a result of a change in control, stock transfer or merger, that occurs
without Licensor's prior written consent shall be void ab initio and deemed a
material breach of this Agreement.
12. Notices. Notices between the parties must be in writing. A
notice shall be deemed duly given upon receipt if it is sent by personal
delivery, prepaid certified or registered mail, by a nationally known overnight
courier service (e.g., Federal Express), or by facsimile with receipt confirmed
by written return facsimile to the parties at the following addresses (or at
such other address as shall be specified by like notice):
If to Licensor:
STAFF BUILDERS INTL, INC.
c/o Tender Loving Care Health Care Services, Inc.
1983 Marcus Avenue
Lake Success, NY 11042
Attention: Dale R. Clift, President
If to Licensee:
STAFF BUILDERS, INC.
1983 Marcus Avenue
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Lake Success, NY 11042
Attention: David Savitsky, President
13. Waiver. The failure of either party to insist upon strict
compliance with any provision hereof shall not constitute a waiver or
modification of such provision or any other provision.
14. Severability. If any provision, in part or in whole, of
this Agreement is held to be void or unenforceable by a court of competent
jurisdiction, the remaining provisions and the remaining portion of any
provision held void or unenforceable in part will continue in full force and
effect.
15. Governing Law. This Agreement is governed by New York law.
United States state or Federal courts situated in New York, New York shall have
sole jurisdiction and venue for the resolution of all disputes arising hereunder
and the parties hereto irrevocably submit to such jurisdiction and venue. Each
party irrevocably waives any objection it may have to the venue or any action,
suit or proceeding brought in such courts or to the convenience of the forum or
the right to proceed in any other jurisdiction.
16. Entire Agreement. This Agreement constitutes the entire
agreement, and supersede all prior agreements (oral or written), between the
parties with respect to the use of the Marks by Licensee. This Agreement may
only be amended or modified by a writing signed by the party against whom
enforcement of the amendment or modification is sought.
17. Counterparts. This Agreement may be executed in
counterparts, all of which, taken together shall constitute one agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
STAFF BUILDERS INTL., INC.
By:
-----------------------------------
Name:
Title:
STAFF BUILDERS, INC.
By:
-----------------------------------
Name:
Title:
.
<PAGE> 8
SCHEDULE 1
REGISTERED TRADEMARKS
TRADEMARKS
<TABLE>
<CAPTION>
REGISTRATION DATE OF EXPIRATION
TRADEMARK OWNERSHIP NUMBER REGISTRATION DATE
- --------- --------- ------------ ------------ -------
<S> <C> <C> <C> <C>
Staff Builders, Inc. Staff Builders Intl., Inc. #1,524,789 02/14/89 02/14/09
Outline of Human Figures Staff Builders Intl., Inc. #849,595 08/16/88 08/16/08
</TABLE>
INTERNATIONAL MARKS
<TABLE>
<CAPTION>
REGISTRATION DATE OF EXPIRATION
TRADEMARK OWNERSHIP NUMBER REGISTRATION DATE
- --------- --------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Staff Builders & Design Staff Builders Intl., Inc. #1501930 12/06/08
(France)
Staff Builders & Design Staff Builders Intl., Inc. #360512 09/07/95 03/07/05
(Indonesian)
Staff Builders & Design Staff Builders Intl., Inc. #78463/ 09/16/95 09/16/04
(Taiwanese) 78464
Staff Builders & Design Staff Builders Intl., Inc. #3352127/ 10/17/97 10/17/07
(Japan) 3352128
</TABLE>
S-1-1
<PAGE> 9
SCHEDULE 2
PENDING TRADEMARKS
APPLICATIONS
TRADEMARK OWNERSHIP
Staff Builders & Design Staff Builders Intl.,
(Brazil) Inc.
Staff Builders & Design Staff Builders Intl.,
(Spain) Inc.
European Community Single Staff Builders Intl.,
Trademark (CTM) Inc.
S-2-1
<PAGE> 10
SCHEDULE 3
LIENS
Pursuant to the terms of Licensee's current credit facility with Mellon
Bank, the bank holds a lien all assets of Licensee, including all rights and
interests in the Marks.
S-3-1
<PAGE> 1
EXHIBIT 10.7
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
EMPLOYMENT AGREEMENT
WITH
STEPHEN SAVITSKY
AGREEMENT as of the ____ day of ______, 1999, between Stephen
Savitsky, residing at 423 Daub Avenue, Hewlett, New York 11557 ("Executive"),
and TENDER LOVING CARE HEALTH CARE SERVICES, INC. ("Company" or "TLC"), a
Delaware corporation, having its principal place of business at 1983 Marcus
Avenue, Lake Success, New York 11042.
W I T N E S S E T H:
WHEREAS, the Company wishes to secure the services of
Executive on the terms and conditions set forth below; and
WHEREAS, the Executive is willing to accept employment with
TLC on such terms and conditions.
NOW, THEREFORE, in consideration of the premises and mutual
agreements hereinafter contained, the parties hereto do agree as follows:
1. Employment. The Company will employ the Executive as
Chairman of the Board and Chief Executive Officer in accordance with all of the
terms and conditions set forth in this Agreement.
2. Term. The term of Executive's employment under this
Agreement shall commence effective as of the date hereof and subject to the
terms and conditions of this
<PAGE> 2
Agreement, shall continue for a period of sixty (60) consecutive months. This
Agreement shall be automatically renewed for the sixty (60) month period
following each anniversary date hereof (an "Anniversary Date") unless Executive
or the Company shall have filed an election to terminate, as hereinafter
provided, in which event Employee's employment shall terminate sixty (60) months
after the filing of such election. Such election to terminate shall be made by
either Executive or the Company by notice in writing to the other, on or before
the Anniversary Date of any year of employment, and in such case the effective
date of such election shall be deemed to be the Anniversary Date of such year of
employment.
3. Compensation.
(a) The Company shall pay to Executive, for all services rendered
by Executive under this Agreement, a base salary at the rate of $295,374.00 per
year ("Base Salary") payable in equal installments (not less frequently than
monthly) in accordance with the Company's regular payroll practices. On each
Anniversary Date, during the term hereof, the Base Salary shall be automatically
increased by a cost-of-living adjustment of an amount equal to the percentage
increase, if any, of the Consumer Price Index as published by the Bureau of
Labor Statistics.
(b) Notwithstanding the amounts set forth above, Executive may be
entitled to additional compensation, in the discretion of the Board of Directors
of the Company, for serving as a director and acting as a member and attending
meetings of the Board.
4. Duties. Executive is engaged to serve as Chief Executive Officer
and Chairman of the Board of Directors of the Company and shall perform such
duties and functions as is compatible with that position as the Company from
time-to-time may determine. During the term of this Agreement, Executive shall
devote approximately one-half of his business time to the affairs of the
Company.
5. Expenses. Executive is authorized to incur expenses for promoting
the business of the Company which are reasonable and necessary in the exercise
of his duties,
2
<PAGE> 3
including reasonable expenses for entertainment, travel and similar items. The
Company shall reimburse Executive promptly for all such expenses upon
presentation by Executive, from time to time, of an itemized account of
expenditures.
6. Vacation. The Executive is entitled to five (5) weeks annual
vacation. If the vacation time is not used within the annual period the
Executive will not be entitled to carry over the unused vacation time.
7. Death or Disability. In the event Executive becomes disabled, the
Employer's obligations hereunder, including Section 3, shall not be affected
thereby, and Executive's duties under Section 4 may be reduced only if, and the
event that, his disability prevents him from fully or completely satisfying any
duty thereunder. In the event of the death of the Executive, the compensation at
date of death, without further adjustment, shall be paid monthly as a death
benefit (through the end of the then-current sixty (60) month term) to his
estate, or if he so designates, his beneficiary.
8. Welfare Benefits. To the extent not received in connection with
Executive's employment with Staff Builders, Inc., a Delaware corporation,
Executive shall be entitled to continue to receive or participate in all
benefits, such as life, health, medical and disability plans, profit sharing
plans, pension plans and the like ("Welfare Plans"), which the Company may make
generally available to its senior executive employees. Executive shall be
entitled to the above-described benefits so long as Executive serves as an
employee of the Company, or as otherwise provided by the terms and conditions of
the Welfare Plans.
9. Change of Control. In the event that at any time after a Change of
Control (as defined below) but prior to the end of twelve months after such
Change of Control Executive is discharged for any reason (other than the
conviction of a felony) or leaves for any reason Executive shall receive within
thirty (30) days after such discharge a lump sum severance payment equal to 2.99
times the "average annual base salary" paid to him. For the purposes of this
Section 9 "average annual base salary shall mean the average of Executive's
annual income in the nature of compensation payable by the Company and
includible in gross income over the five most recent taxable years ending before
the Change in Control.
3
<PAGE> 4
A "Change of Control" shall be deemed to occur when a person,
corporation, partnership, association or entity (x) acquires a majority of the
Company's outstanding voting securities, or (y) acquires securities of the
Company bearing a majority of voting power with respect to election of directors
of the Company, or (z) acquires all or substantially all of the Company's
assets.
10. Termination. It is specifically understood and acknowledged that
the only ground upon which the Company can terminate this Agreement, except
under paragraph 2 hereof, is if Executive is found guilty of a crime resulting
in his conviction as a felon in New York State. It is expressly agreed and
understood between the parties that in the event Executive shall violate any
provision of this Agreement, the sole remedy of the Company shall be to
institute and prosecute proceedings at law in accordance with Section 12, and
not termination of Executive's employment. Executive shall be under no
obligation to minimize or mitigate damages by seeking other employment or
otherwise in the event the Company breaches or does not fulfill its obligations
under this Agreement. It is further agreed that in the event of a default by the
Company of its obligations under this Agreement or of an unsuccessful action by
the Company against Executive for his alleged violation of this Agreement,
Executive shall be entitled to recover from the Company all his expenses of
enforcing or defending any action arising out of this Agreement, including his
reasonable legal fees and expenses.
11. Noncompetition by Executive.
(a) Upon termination of Executive's employment hereunder for any
reason, Executive agrees not to compete, in the manner described hereinafter,
with the business currently conducted by the Company in the United States, for a
period of six (6) months following such termination. Executive agrees that,
during such period, he will not be employed by, work for, advise, consult with,
serve or assist in any way, directly or indirectly, any party whose activities
or .business is similar to that of the Company. The foregoing restrictions on
competition by Executive shall be operative for the benefit of the Company and
of any business owned or controlled by the Company, or any successor or assign
of any of the foregoing.
4
<PAGE> 5
(b) If the period of time or geographical areas specified under
this section should be determined to be unreasonable in any judicial proceeding,
then the period of time and areas of the restriction shall be reduced so that
this Agreement may be enforced in such areas and during such period of time as
shall be determined to be reasonable.
12. Arbitration. The Executive and Company hereby agree that if any
dispute arises between them, such dispute shall be determined by arbitration in
the State of New York in accordance with the rules of the American Arbitration
Association then in effect. The award rendered by such arbitration shall be
final and binding upon the parties hereto, and a judgment upon the award so
rendered may be entered in any court of competent jurisdiction.
13. Waiver. Failure to insist upon compliance with any of the terms,
covenants, or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
14. Severability. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision. The parties to this Agreement agree and intend that this Agreement
shall be enforced as fully as it may be enforced consistent with applicable
statutes and rules of law.
15. Benefit. Except as otherwise herein expressly provided, this
Agreement shall inure to the benefit of and be binding upon the Company, its
successors and assigns, including, without limitation, any corporation which may
acquire all or substantially all of the Company's assets or business or with or
into which the Company may be consolidated or merged, and to the benefit of, and
be binding upon, Executive, his heirs, executors, administrators and legal
representatives.
5
<PAGE> 6
16. Entire Agreement. This Agreement constitutes the entire
understanding and agreement between the parties hereto, supersedes any and all
prior discussions, agreements and correspondence with regard to the subject
matter hereof, and may not be amended, modified or supplemented in any respect,
except by a subsequent writing executed by both parties hereto.
17. Applicable Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York, without
giving effect to principles of conflicts of law.
18. Remedy for Breach. Any action to enforce, arising out of, or
relating in any way to, any of the provisions of this Agreement shall be an
action at law pursuant to the provisions of Section 12 of this Agreement.
19. Notices. All notices required hereby or given under this Agreement
shall be in writing and shall be served either personally or by certified mail,
return receipt requested, at the following addresses, or at such other address
as the parties may designate to one another in writing:
To the Company: Tender Loving Care Health Care Services, Inc.
1983 Marcus Avenue
Lake Success, New York 11042
To Executive: Stephen Savitsky
423 Daub Avenue
Hewlett, New York 11557
6
<PAGE> 7
All notices shall be deemed given when so received. All change of address
notices shall be given in the same manner as provided above.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the ___day of ______, 1999.
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
By:
-----------------------------------------
Dale R. Clift, President
-----------------------------------------
Stephen Savitsky
7
<PAGE> 1
EXHIBIT 10.8
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
EMPLOYMENT AGREEMENT
WITH
DAVID SAVITSKY
AGREEMENT as of the ______ day of ____, 1999, between David
Savitsky, residing at 29 Oxford Road, New Rochelle, NY 10804 ("Executive"), and
TENDER LOVING CARE HEALTH CARE SERVICES, INC. ("Company" or "TLC"), a Delaware
corporation, having its principal place of business at 1983 Marcus Avenue, Lake
Success, New York 11042.
W I T N E S S E T H:
WHEREAS, the Company wishes to secure the services of
Executive on the terms and conditions set forth below; and
WHEREAS, the Executive is willing to accept employment with
TLC on such terms and conditions.
NOW, THEREFORE, in consideration of the premises and mutual
agreements hereinafter contained, the parties hereto do agree as follows:
1. Employment. The Company will employ the Executive as Vice
Chairman, Government Relations in accordance with all of the terms and
conditions set forth in this Agreement.
2. Term. The term of Executive's employment under this
Agreement shall commence effective as of the date hereof and subject to the
terms and conditions of this
<PAGE> 2
Agreement, shall continue for a period of sixty (60) consecutive months. This
Agreement shall be automatically renewed for the sixty (60) month period
following each anniversary date hereof (the "Anniversary Date") unless Executive
or the Company shall have filed an election to terminate, as hereinafter
provided, in which event Employee's employment shall terminate sixty (60) months
after the filing of such election. Such election to terminate shall be made by
either Executive or the Company by notice in writing to the other, on or before
the Anniversary Date of any year of employment, and in such case the effective
date of such election shall be deemed to be the Anniversary Date of such year of
employment.
3. Compensation.
(a) The Company shall pay to Executive, for all services
rendered by Executive under this Agreement, a base salary at the rate of
$110,000 per year ("Base Salary") payable in equal installments (not less
frequently than monthly) in accordance with the Company's regular payroll
practices. On each Anniversary Date, during the term hereof, the Base Salary
shall be automatically increased by a cost-of-living adjustment of an amount
equal to the percentage increase, if any, of the Consumer Price Index as
published by the Bureau of Labor Statistics.
(b) Notwithstanding the amounts set forth above, Executive
may be entitled to additional compensation, in the discretion of the Board of
Directors of the Company, for serving as a director and acting as a member and
attending meetings of the Board.
4. Duties. Executive is engaged to serve as Chief Executive
Officer and Chairman of the Board of Directors of the Company and shall perform
such duties and functions as is compatible with that position as the Company
from time-to-time may determine. During the term of this Agreement, Executive
shall devote approximately twenty percent (20%) of his business time to the
affairs of the Company.
5. Expenses. Executive is authorized to incur expenses for
promoting the business of the Company which are reasonable and necessary in the
exercise of his duties, including reasonable expenses for entertainment, travel
and similar items. The Company shall
2
<PAGE> 3
reimburse Executive promptly for all such expenses upon presentation by
Executive, from time to time, of an itemized account of expenditures.
6. Vacation. The Executive is entitled to five (5) weeks
annual vacation. If the vacation time is not used within the annual period the
Executive will not be entitled to carry over the unused vacation time.
7. Death or Disability. In the event Executive becomes
disabled, the Employer's obligations hereunder, including Section 3, shall not
be affected thereby, and Executive's duties under Section 4 may be reduced only
if, and the event that, his disability prevents him from fully or completely
satisfying any duty thereunder. In the event of the death of the Executive, the
compensation at date of death, without further adjustment, shall be paid monthly
as a death benefit (through the end of the then-current sixty (60) month term)
to his estate, or if he so designates, his beneficiary.
8. Welfare Benefits. To the extent not received in connection
with Executive's employment with Staff Builders, Inc., a Delaware corporation,
Executive shall be entitled to continue to receive or participate in all
benefits, such as life, health, medical and disability plans, profit sharing
plans, pension plans and the like ("Welfare Plans"), which the Company may make
generally available to its senior executive employees. Executive shall be
entitled to the above-described benefits so long as Executive serves as an
employee of the Company, or as otherwise provided by the terms and conditions of
the Welfare Plans.
9. Change of Control. In the event that at any time after a
Change of Control (as defined below) but prior to the end of twelve months after
such Change of Control Executive is discharged for any reason (other than the
conviction of a felony) or leaves for any reason Executive shall receive within
thirty (30) days after such discharge a lump sum severance payment equal to 2.99
times the "average annual base salary" paid to him. For the purposes of this
Section 9 "average annual base salary shall mean the average of Executive's
annual income in the nature of compensation payable by the Company and
includible in gross income over the five most recent taxable years ending before
the Change in Control.
3
<PAGE> 4
A "Change of Control" shall be deemed to occur when a person,
corporation, partnership, association or entity (x) acquires a majority of the
Company's outstanding voting securities, or (y) acquires securities of the
Company bearing a majority of voting power with respect to election of directors
of the Company, or (z) acquires all or substantially all of the Company's
assets.
10. Termination. It is specifically understood and
acknowledged that the only ground upon which the Company can terminate this
Agreement, except under paragraph 2 hereof, is if Executive is found guilty of a
crime resulting in his conviction as a felon in New York State. It is expressly
agreed and understood between the parties that in the event Executive shall
violate any provision of this Agreement, the sole remedy of the Company shall be
to institute and prosecute proceedings at law in accordance with Section 12, and
not termination of Executive's employment. Executive shall be under no
obligation to minimize or mitigate damages by seeking other employment or
otherwise in the event the Company breaches or does not fulfill its obligations
under this Agreement. It is further agreed that in the event of a default by the
Company of its obligations under this Agreement or of an unsuccessful action by
the Company against Executive for his alleged violation of this Agreement,
Executive shall be entitled to recover from the Company all his expenses of
enforcing or defending any action arising out of this Agreement, including his
reasonable legal fees and expenses.
11. Noncompetition by Executive.
(a) Upon termination of Executive's employment hereunder
for any reason, Executive agrees not to compete, in the manner described
hereinafter, with the business currently conducted by the Company in the United
States, for a period of six (6) months following such termination. Executive
agrees that, during such period, he will not be employed by, work for, advise,
consult with, serve or assist in any way, directly or indirectly, any party
whose activities or .business is similar to that of the Company. The foregoing
restrictions on competition by Executive shall be operative for the benefit of
the Company and of any business owned or controlled by the Company, or any
successor or assign of any of the foregoing.
4
<PAGE> 5
(b) If the period of time or geographical areas specified
under this section should be determined to be unreasonable in any judicial
proceeding, then the period of time and areas of the restriction shall be
reduced so that this Agreement may be enforced in such areas and during such
period of time as shall be determined to be reasonable.
12. Arbitration. The Executive and Company hereby agree that
if any dispute arises between them, such dispute shall be determined by
arbitration in the State of New York in accordance with the rules of the
American Arbitration Association then in effect. The award rendered by such
arbitration shall be final and binding upon the parties hereto, and a judgment
upon the award so rendered may be entered in any court of competent
jurisdiction.
13. Waiver. Failure to insist upon compliance with any of the
terms, covenants, or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
14. Severability. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision. The parties to this Agreement agree and intend that this
Agreement shall be enforced as fully as it may be enforced consistent with
applicable statutes and rules of law.
15. Benefit. Except as otherwise herein expressly provided,
this Agreement shall inure to the benefit of and be binding upon the Company,
its successors and assigns, including, without limitation, any corporation which
may acquire all or substantially all of the Company's assets or business or with
or into which the Company may be consolidated or merged, and to the benefit of,
and be binding upon, Executive, his heirs, executors, administrators and legal
representatives.
16. Entire Agreement. This Agreement constitutes the entire
understanding and agreement between the parties hereto, supersedes any and all
prior discussions, agreements
5
<PAGE> 6
and correspondence with regard to the subject matter hereof, and may not be
amended, modified or supplemented in any respect, except by a subsequent writing
executed by both parties hereto.
17. Applicable Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
without giving effect to principles of conflicts of law.
18. Remedy for Breach. Any action to enforce, arising out of,
or relating in any way to, any of the provisions of this Agreement shall be an
action at law pursuant to the provisions of Section 12 of this Agreement.
19. Notices. All notices required hereby or given under this
Agreement shall be in writing and shall be served either personally or by
certified mail, return receipt requested, at the following addresses, or at such
other address as the parties may designate to one another in writing:
To the Company: Tender Loving Care Health Care Services, Inc.
1983 Marcus Avenue
Lake Success, New York 11042
To Executive: David Savitsky
29 Oxford Road
New Rochelle, NY 10804
6
<PAGE> 7
All notices shall be deemed given when so received. All change of address
notices shall be given in the same manner as provided above.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the day of ______, 1999.
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
By:
-------------------------------------------
Dale R. Clift, President
-------------------------------------------
David Savitsky
7
<PAGE> 1
EXHIBIT 10.9
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
EMPLOYMENT AGREEMENT
WITH
DALE R. CLIFT
AGREEMENT as of the _____ day of ____, 1999, between Dale R.
Clift, residing at 38 The Hollows North, Muttontown, NY 11732 ("Executive"), and
TENDER LOVING CARE HEALTH CARE SERVICES, INC. ("Company"), a Delaware
corporation, having its principal place of business at 1983 Marcus Avenue, Lake
Success, New York 11042.
W I T N E S S E T H:
WHEREAS, the Company wishes to secure the services of
Executive on the terms and conditions set forth below; and
WHEREAS, the Executive is willing to accept employment with
TLC on such terms and conditions.
NOW, THEREFORE, in consideration of the premises and mutual
agreements hereinafter contained, the parties hereto do agree as follows:
1. Employment. The Company will employ the Executive as
President, Chief Operating Officer and Chief Financial Officer in accordance
with all of the terms and conditions set forth in this Agreement.
2. Term. The term of Executive's employment under this
Agreement shall commence effective as of the date hereof and subject to the
terms and conditions of this
<PAGE> 2
Agreement, shall continue for a period of sixty (60) consecutive months. This
Agreement shall be automatically renewed for the sixty (60) month period
following each anniversary date hereof (an "Anniversary Date") unless Executive
or the Company shall have filed an election to terminate, as hereinafter
provided, in which event Employee's employment shall terminate sixty (60) months
after the filing of such election. Such election to terminate shall be made by
either Executive or the Company by notice in writing to the other, on or before
the Anniversary Date of any year of employment, and in such case the effective
date of such election shall be deemed to be the Anniversary Date of such year of
employment.
3. Compensation.
(a) The Company shall pay to Executive, for all services
rendered by Executive under this Agreement, a base salary at the rate of
$400,000 per year ("Base Salary") payable in equal installments (not less
frequently than monthly) in accordance with the Company's regular payroll
practices.
(b) Notwithstanding the amounts set forth above, Executive may
be entitled to additional compensation, in the discretion of the Board of
Directors of the Company, for serving as a director and acting as a member and
attending meetings of the Board.
4. Duties. Executive is engaged to serve as Chief Executive
Officer and Chairman of the Board of Directors of the Company and shall perform
such duties and functions as is compatible with that position as the Company
from time-to-time may determine. During the term of this Agreement, Executive
shall devote all of his business time to the affairs of the Company, subject to
his limited duties as an employee of Staff Builders, Inc., a Delaware
corporation.
5. Expenses. Executive is authorized to incur expenses for
promoting the business of the Company which are reasonable and necessary in the
exercise of his duties, including reasonable expenses for entertainment, travel
and similar items. The Company shall
2
<PAGE> 3
reimburse Executive promptly for all such expenses upon presentation by
Executive, from time to time, of an itemized account of expenditures.
6. Vacation. The Executive is entitled to five (5) weeks
annual vacation. If the vacation time is not used within the annual period the
Executive will not be entitled to carry over the unused vacation time.
7. Death or Disability. In the event Executive becomes
disabled, the Employer's obligations hereunder, including Section 3, shall not
be affected thereby, and Executive's duties under Section 4 may be reduced only
if, and the event that, his disability prevents him from fully or completely
satisfying any duty thereunder. In the event of the death of the Executive, the
compensation at date of death, without further adjustment, shall be paid monthly
as a death benefit (through the end of the then-current sixty (60) month term)
to his estate, or if he so designates, his beneficiary.
8. Welfare Benefits. Executive shall be entitled to continue
to receive or participate in all benefits, such as life, health, medical and
disability plans, profit sharing plans, pension plans and the like ("Welfare
Plans"), which the Company may make generally available to its senior executive
employees. Executive shall be entitled to the above-described benefits so long
as Executive serves as an employee of the Company, or as otherwise provided by
the terms and conditions of the Welfare Plans.
9. Change of Control. In the event that at any time after a
Change of Control (as defined below) but prior to the end of twelve months after
such Change of Control Executive is discharged for any reason (other than the
conviction of a felony) or leaves for any reason Executive shall receive within
thirty (30) days after such discharge a lump sum severance payment equal to 2.99
times the "average annual base salary" paid to him. For the purposes of this
Section 9 "average annual base salary shall mean the average of Executive's
annual income in the nature of compensation payable by the Company and
includible in gross income over the five most recent taxable years ending before
the Change in Control.
3
<PAGE> 4
A "Change of Control" shall be deemed to occur when a person,
corporation, partnership, association or entity (x) acquires a majority of the
Company's outstanding voting securities, or (y) acquires securities of the
Company bearing a majority of voting power with respect to election of directors
of the Company, or (z) acquires all or substantially all of the Company's
assets.
10. Termination. It is specifically understood and
acknowledged that the only ground upon which the Company can terminate this
Agreement, except under paragraph 2 hereof, is if Executive is found guilty of a
crime resulting in his conviction as a felon in New York State. It is expressly
agreed and understood between the parties that in the event Executive shall
violate any provision of this Agreement, the sole remedy of the Company shall be
to institute and prosecute proceedings at law in accordance with Section 12, and
not termination of Executive's employment. Executive shall be under no
obligation to minimize or mitigate damages by seeking other employment or
otherwise in the event the Company breaches or does not fulfill its obligations
under this Agreement. It is further agreed that in the event of a default by the
Company of its obligations under this Agreement or of an unsuccessful action by
the Company against Executive for his alleged violation of this Agreement,
Executive shall be entitled to recover from the Company all his expenses of
enforcing or defending any action arising out of this Agreement, including his
reasonable legal fees and expenses.
11. Noncompetition by Executive.
(a) Upon termination of Executive's employment hereunder for
any reason, Executive agrees not to compete, in the manner described
hereinafter, with the business currently conducted by the Company in the United
States, for a period of six (6) months following such termination. Executive
agrees that, during such period, he will not be employed by, work for, advise,
consult with, serve or assist in any way, directly or indirectly, any party
whose activities or .business is similar to that of the Company. The foregoing
restrictions on competition by Executive shall be operative for the benefit of
the Company and of any business owned or controlled by the Company, or any
successor or assign of any of the foregoing.
4
<PAGE> 5
(b) If the period of time or geographical areas specified
under this section should be determined to be unreasonable in any judicial
proceeding, then the period of time and areas of the restriction shall be
reduced so that this Agreement may be enforced in such areas and during such
period of time as shall be determined to be reasonable.
12. Arbitration. The Executive and Company hereby agree that
if any dispute arises between them, such dispute shall be determined by
arbitration in the State of New York in accordance with the rules of the
American Arbitration Association then in effect. The award rendered by such
arbitration shall be final and binding upon the parties hereto, and a judgment
upon the award so rendered may be entered in any court of competent
jurisdiction.
13. Waiver. Failure to insist upon compliance with any of the
terms, covenants, or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
14. Severability. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision. The parties to this Agreement agree and intend that this
Agreement shall be enforced as fully as it may be enforced consistent with
applicable statutes and rules of law.
15. Benefit. Except as otherwise herein expressly provided,
this Agreement shall inure to the benefit of and be binding upon the Company,
its successors and assigns, including, without limitation, any corporation which
may acquire all or substantially all of the Company's assets or business or with
or into which the Company may be consolidated or merged, and to the benefit of,
and be binding upon, Executive, his heirs, executors, administrators and legal
representatives.
16. Entire Agreement. This Agreement constitutes the entire
understanding and agreement between the parties hereto, supersedes any and all
prior discussions, agreements
5
<PAGE> 6
and correspondence with regard to the subject matter hereof, and may not be
amended, modified or supplemented in any respect, except by a subsequent writing
executed by both parties hereto.
17. Applicable Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
without giving effect to principles of conflicts of law.
18. Remedy for Breach. Any action to enforce, arising out of,
or relating in any way to, any of the provisions of this Agreement shall be an
action at law pursuant to the provisions of Section 12 of this Agreement.
19. Notices. All notices required hereby or given under this
Agreement shall be in writing and shall be served either personally or by
certified mail, return receipt requested, at the following addresses, or at such
other address as the parties may designate to one another in writing:
To the Company: Tender Loving Care Health Care Services, Inc.
1983 Marcus Avenue
Lake Success, New York 11042
To Executive: Dale R. Clift
38 The Hollows North
Muttontown, NY 11732
6
<PAGE> 7
All notices shall be deemed given when so received. All change of address
notices shall be given in the same manner as provided above.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the ____ day of ______, 1999.
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
By:
---------------------------------------------
Stephen Savitsky
---------------------------------------------
Dale R. Clift
7
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") dated as of ______, 1999 by and
between STAFF BUILDERS, INC., a New York corporation (the "Company"), and Sandra
Parshall who resides at 728 West Jackson Blvd., Suite 307, Chicago, Illinois
60661 ("Executive").
WHEREAS, the Company wishes to secure the services of the Executive on
the terms and conditions set forth below; and
WHEREAS, the Executive is willing to accept employment with the Company
on such terms and conditions.
NOW, THEREFORE, in consideration of their mutual promises and other
adequate consideration, the Company and the Executive do hereby agree as
follows:
1. EMPLOYMENT. The Company will employ the Executive as Senior
Vice President-Operations, in accordance with the terms and
provisions of this Agreement.
2. DUTIES. The Executive shall report to the Chief Operating
Officer of the Company and shall be responsible for the
management of assigned aspects of the operations of the home
health care business of the Company. The Executive shall
perform such other duties as shall be assigned to the
Executive by the Chief Operating Officer or such officer of
the Company as the board of Directors may from time-to-time
designate. The Executive shall devote her full business time,
attention and skills to the performance of her duties
hereunder and to the advancement of the business and interests
of the Company. During the time of this Agreement, the
Executive shall be required to base her business office at the
Lake Success Corporate office location. The Executive's base
business office shall not be changed without her prior
consent.
3. TERM. This Agreement shall be effective upon execution by the
Company and the Executive, and shall remain in effect until
February 28, 2002, unless terminated earlier pursuant to the
terms hereof.
4. COMPENSATION.
(a) Salary. The Executive shall be paid a salary of $204,000 per
annum during the term hereof, payable in weekly installments.
The Executive's salary will be reviewed by the Company on June
1, 2000 and June 1, 2001.
<PAGE> 2
(b) Benefits. The Executive shall be eligible to receive and
participate in, in accordance with their terms, all health,
medical or other insurance benefits which the Company provides
or makes available to its employees.
(c) Expenses. The Company shall reimburse the Executive for all
reasonable and necessary expenses upon submission by the
Executive of receipts, accounts or such other documents
reasonably requested by the Company.
(d) Car Allowance. The Company will lease a Lexus ES300 for the
Executive.
(e) Vacation. The Executive shall be entitled to three (3) weeks
of paid vacation during each twelve (12) month period of
employment during the term.
(f) Nothing in this Agreement is intended to cause a reduction in
the Executive's benefits under the Company's policy or under
any benefit plan in which Executive is a participant at the
time of the execution of this Agreement.
5. TERMINATION: RIGHTS AND OBLIGATIONS UPON TERMINATION.
(a) If the Executive dies during the Term, then the Executive's
employment under this Agreement shall terminate. In such
event, the Executive's estate shall be entitled only to
compensation and expenses accrued and unpaid as at the date of
the Executive's death.
(b) If, as a result of the Executive's incapacity due to physical
or mental illness, whether or not job related, the Executive
is absent from her duties hereunder for 90 consecutive days,
or an aggregate of 120 days during the Term, the Executive's
employment hereunder and this Agreement shall terminate. In
such event, the Executive shall be entitled only to
compensation and expenses accrued and unpaid as at the date of
termination of the Executive's employment.
(c) The Company shall have the right to terminate the Executive's
employment under this Agreement for Cause. For purposes of the
Agreement, the Company shall have "Cause" to terminate the
Executive's employment if (i) the Executive assigns, pledges,
or otherwise disposes of her rights and obligations under this
Agreement, or attempts to do the same without the prior
written consent of the Company; or (ii) the Executive has been
insubordinate, has materially breached any of the terms or
conditions hereof, has engaged in willful misconduct or has
acted in bad faith; or (iii) the Executive has breached
Section 7 of this Agreement; or (iv) the Executive has
committed a felony or perpetrated a fraud against the Company.
If the Company terminates this Agreement for Cause, the
Company's obligations hereunder shall cease, except for the
Company's obligation to pay the
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<PAGE> 3
Executive the compensation and expenses accrued and unpaid as
of the date of termination in accordance with the provisions
hereof.
(d) In the event that at any time after a Change of Control (as
defined below) but prior to the end of twelve (12) months
after such Change of Control, the Executive is discharged for
any reason other than for Cause (as defined in (c) above) or
resigns for any reason (other than due to termination for
Cause), the Executive shall receive within thirty (30) days
after such discharge or resignation a lump-sum severance
payment equal to 2.99 times her average annual base salary.
For the purposes of this Section 5, "average annual base
salary" shall mean the average of Executive's annual income in
the nature of compensation payable by the Company and
includible in gross income over the five most recent taxable
years ending before the Change of Control. Anything contained
herein to the contrary notwithstanding, for a Change of
Control occurring before 2002, years considered in the base
period for calculating "average annual base salary" shall be
determined as follows:
<TABLE>
<CAPTION>
Years Considered in
Year of Change in Control Calculating Average Base Salary
------------------------- -------------------------------
<S> <C>
1999 1996-1998
2000 1996-1999
2001 1996-2000
</TABLE>
A "Change of Control" shall be deemed to occur when a person,
Company, partnership, association or entity (i) acquires a
majority of the outstanding voting securities of Tender Loving
Care Health Care Services, a Delaware corporation ("TLC") or
(ii) acquires securities bearing a majority of voting power
with respect to election of directors of TLC or (iii) acquires
all or substantially all of TLC's assets.
(e) Notwithstanding anything to the contrary contained herein, all
payments owed to the Executive upon termination of this
Agreement shall be subject to offset by the Company for
amounts owed to the Company by the Executive hereunder.
(f) The obligations of the Company and the Executive pursuant to
this Section 5 shall survive the termination of this
Agreement.
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<PAGE> 4
6. NOTICES. Any written notice permitted or required under this
Agreement shall be deemed sufficient when hand delivered or
posted by certified or registered mail, postage prepaid, and
addressed to:
if to Staff Builders, Inc.:
1983 Marcus Avenue
Lake Success, New York 11042
Attention:Dale R. Clift, COO
or
if to the Executive: Sandra Parshall
728 West Jackson Boulevard, Suite 307
Chicago, Illinois 60661
Either party may, in accordance with the provisions of this Section,
give written notice of a change of address, in which event all such notices and
requests shall thereafter be given as above provided at such changed address.
7. CONFIDENTIALITY OBLIGATIONS; NON-COMPETITION BY EXECUTIVE.
(a) The Executive acknowledges that in the course of performing
her duties hereunder, she will be made privy to confidential
and proprietary information. The Executive covenants and
agrees that during the term of this Agreement and at any time
after the termination of this Agreement, she will not directly
or indirectly, for her own account or as an employee, officer,
director, partner, joint venturer, shareholder, investor, or
otherwise, disclose to others or use for her own benefit or
cause or induce others to do the same, any proprietary or
confidential information or trade secrets of the Company.
(b) The Executive agrees that, while this Agreement is in effect,
and for six(6) months following termination of employment, she
will not, within the United States (A) compete, directly or
indirectly for her own account or as an employee, officer,
director, partner, joint venturer, shareholder, investor, or
otherwise, with the business conducted by the Company; or (B)
while this Agreement is in effect and for one (1) year
following termination of employment directly or indirectly
solicit or recruit any employee of the Company to leave the
employ of the Company, or solicit any client or customer of
the Company to terminate or modify its business relationship
with the Company.
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<PAGE> 5
(c) The foregoing restrictions on the Executive set forth in this
Section 7 shall be operative for the benefit of the Company
and of any business owned or controlled by the Company, or any
successor or assign of any of the foregoing.
(d) Notwithstanding anything herein to the contrary, if the period
of time or the geographical area specified in this Section 7
should be determined to be unreasonable in a judicial
proceeding, then the period of time and territory of the
restriction shall be reduced so that this Agreement may be
enforced in such area and during such period of time as shall
be determined to be reasonable.
(e) The parties acknowledge that any breach of this Section 7 will
cause the Company irreparable harm for which there is no
adequate remedy at law, and as a result of this, the Company
shall be entitled to the issuance of an injunction,
restraining order or other equitable relief in favor of the
Company restraining Executive from committing or continuing
any such violation. Any right to obtain an injunction,
restraining order or other equitable relief hereunder shall
not be deemed a waiver of any right to assert any other remedy
the Company may have at law or equity.
(f) For purposes of this Section 7, the term "the Company" shall
refer to the Company and all of its parents, subsidiaries and
affiliated Companies.
8. JURISDICTION. The Executive and the Company consent to the
jurisdiction of the New York Supreme Court for a determination
of any disputes as to any matters whatsoever arising out of or
in any way connected with this Agreement and authorize the
service of process on the Company or Executive by registered
mail sent to either party at the address set forth in Section
6 of this Agreement.
9. HANDBOOK GROUP INSURANCE PROGRAM BOOKLET. The Executive
acknowledges receipt of the Company's Employee Handbook and
Group Insurance Program Booklet (together, the "Handbook").
The terms of the Handbook are incorporated herein by
reference.
10. BINDING EFFECT. This Agreement shall bind and inure to the
benefit of the Company, its successors and assigns and shall
inure to the benefit of, and be binding upon, the Executive,
her heirs, executors and legal representatives.
11. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall in no way affect the
validity or enforceability of any other provision, or any part
thereof.
12. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New
York.
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<PAGE> 6
13. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject
matter hereof and supersedes all prior and contemporaneous
agreements, understandings, negotiations, and discussions,
whether oral or written. of the parties.
14. MODIFICATION, TERMINATION OR WAIVER. This Agreement may only
be amended or modified by a written instrument executed by the
parties hereto. The failure of any party at any time to
require performance of any provision of this Agreement shall
in no manner affect the right of such party at a later time to
enforce the same.
15. INDEMNIFICATION. The Company shall indemnify and hold
Executive harmless from any and all damages, costs, fees and
expenses, including but not limited to attorneys' fees, which
she may incur as a result of any claim against her arising out
of her performance of her duties under this Agreement provided
that she is not found to have committed intentional
misconduct.
IN WITNESS WHEREOF, the Company and the Executive have
executed this Employment Agreement as of the date first above written.
STAFF BUILDERS, INC.
By:
------------------------------------
Dale R. Clift, President
---------------------------------------
Sandra Parshall
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<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") dated as of ______, 1999 by and
between TENDER LOVING CARE HEALTH CARE SERVICES, INC., a Delaware Corporation
("TLC" or the "Corporation"), and Willard Derr who resides at 8 Shirley Court,
East Northport, NY 11731 ("Executive").
WHEREAS, TLC wishes to secure the services of the Executive on the
terms and conditions set forth below; and
WHEREAS, the Executive is willing to accept employment with TLC on such
terms and conditions.
NOW, THEREFORE, in consideration of their mutual promises and other
adequate consideration, TLC and the Executive do hereby agree as follows:
1. EMPLOYMENT. TLC will employ the Executive as Senior Vice
President and Corporate Controller, in accordance with the
terms and provisions of this Agreement.
2. DUTIES. The Executive shall report to the Chief Operating
Officer, CFO of TLC and shall be responsible to perform such
duties as shall be assigned to the Executive by the Chairman,
Chief Operating Officer or CFO of TLC or their designee. The
Executive shall devote his full business time, attention and
skill such as is required for the performance of his duties
hereunder and to the advancement of the business and interests
of TLC, subject to limited consulting duties to Staff
Builders, Inc.
3. TERM. This Agreement shall be effective upon execution by TLC
and the Executive, and shall remain in effect until the third
anniversary date hereof, unless terminated earlier pursuant to
the terms hereof.
4. COMPENSATION.
(a) Salary. The Executive shall be paid a salary of $160,000 per
annum during the term hereof, payable in weekly installments.
The Executive's salary will be reviewed by TLC on March 1,
2000.
(b) Benefits. The Executive shall be eligible to receive and
participate in, in accordance with their terms, all health,
medical or other insurance benefits which TLC provides or
makes available to its employees.
<PAGE> 2
(c) Expenses. TLC shall reimburse the Executive for all reasonable
and necessary expenses upon submission by the Executive of
receipts, accounts or such other documents reasonably
requested by TLC.
(d) Car Allowance. The Executive shall have the use of a 1997
Toyota Camry VIN# 4T1BF22K8VU003368 for the balance of the
lease which expires on October 1999. Thereafter for the
balance of the term of this Agreement, Executive shall receive
a car allowance of $300 per month.
(e) Vacation. The Executive shall be entitled to four (4) weeks of
paid vacation during each twelve (12) month period of
employment during the term.
(f) Nothing in this Agreement is intended to cause a reduction in
the Executive's benefits under any TLC's policy or under any
benefit plan in which Executive is a participant at the time
of the execution of this Agreement.
5. TERMINATION; RIGHTS AND OBLIGATIONS UPON TERMINATION.
(a) If the Executive dies during the Term, then the Executive's
employment under this Agreement shall terminate. In such
event, the Executive's estate shall be entitled only to
compensation and expenses accrued and unpaid as at the date of
the Executive's death.
(b) If, as a result of the Executive's incapacity due to physical
or mental illness, whether or not job related, the Executive
is absent from his duties hereunder for 90 consecutive days,
or an aggregate of 120 days during the Term, the Executive's
employment hereunder and this Agreement shall terminate. In
such event, the Executive shall be entitled only to
compensation and expenses accrued and unpaid as at the date of
termination of the Executive's employment.
(c) The Corporation shall have the right to terminate the
Executive's employment under this Agreement for Cause. For
purposes of the Agreement, the Corporation shall have "Cause"
to terminate the Executive's employment if (i) the Executive
assigns, pledges, or otherwise disposes of his rights and
obligations under this Agreement, or attempts to do the same
without the prior written consent of the Corporation; or (ii)
the Executive has been insubordinate, has materially, breached
any of the terms or conditions hereof, has engaged in willful
misconduct or has acted in bad faith; or (iii) the Executive
has breached Section 7 of this Agreement; or (iv) the
Executive has committed a felony or perpetrated a fraud
against the Corporation. If the Corporation terminates this
Agreement for Cause, the Corporation's obligations hereunder
shall cease, except for the Corporation's obligation to pay
the Executive the compensation and expenses accrued and unpaid
as of the date of termination in accordance with the
provisions hereof.
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<PAGE> 3
(d) In the event that at any time after a Change of Control (as
defined below) but prior to the end of twelve (12) months
after such Change of Control, the Executive is discharged for
any reason other than for Cause (as defined in (c) above) or
resigns for any reason (other than due to termination for
Cause), the Executive shall receive within thirty (30) days
after such discharge or resignation a lump-sum severance
payment equal to 2.99 times his average annual base salary.
For the purposes of this Section 5, "average annual base
salary" shall mean the average of Executive's annual income in
the nature of compensation payable by the Company and
includible in gross income over the five most recent taxable
years ending before the Change of Control. Anything contained
herein to the contrary notwithstanding, for a Change of
Control occurring before 2002, years considered in the base
period for calculating "average annual base salary" shall be
determined as follows:
<TABLE>
<CAPTION>
Years Considered in
Year of Change in Control Calculating Average Base Salary
------------------------- -------------------------------
<S> <C>
1999 1994-1998
2000 1995-1999
2001 1996-2000
</TABLE>
A "Change of Control" shall be deemed to occur when a person,
corporation, partnership, association or entity (i) acquires a
majority of the outstanding voting securities of TLC, Inc., a
Delaware corporation ("TLC") or (ii) acquires securities
bearing a majority of voting power with respect to election of
directors of TLC or (iii) acquires all or substantially all of
TLC's assets.
(e) Notwithstanding anything to the contrary contained herein, all
payments owed to the Executive upon termination of this
Agreement shall be subject to offset by the Corporation for
amounts owed to the corporation by the Executive hereunder.
(f) The obligations of the Corporation and the Executive pursuant
to this Section 5 shall survive the termination of this
Agreement.
6. NOTICES. Any written notice permitted or required under this
Agreement shall be deemed sufficient when hand delivered or
posted by certified or registered mail, postage prepaid, and
addressed to:
if to Tender Loving Care Health Care Services, Inc.:
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<PAGE> 4
1983 Marcus Avenue
Lake Success, New York 11042
Attention: Dale R. Clift, COO
or
if to the Executive: Willard T. Derr
8 Shirley Court
East Northport, NY 11721
Either party may, in accordance with the provisions of this Section,
give written notice of a change of address, in which event all such notices and
requests shall thereafter be given as above provided at such changed address.
7. CONFIDENTIALITY OBLIGATIONS; NON-COMPETITION BY EXECUTIVE.
(a) The Executive acknowledges that in the course of performing
his duties hereunder, he will be made privy to confidential
and proprietary information. The Executive covenants and
agrees that during the term of this Agreement and at any time
after the termination of this Agreement, he will not directly
or indirectly, for his own account or as an employee, officer,
director, partner, joint venturer, shareholder, investor, or
otherwise, disclose to others or use for his own benefit or
cause or induce others to do the same, any proprietary or
confidential information or trade secrets of TLC.
(b) The Executive agrees that, while this Agreement is in effect,
and for six (6) months following termination of employment, he
will not, within the United States (A) compete, directly or
indirectly for his own account or as an employee, officer,
director, partner, joint venturer, shareholder, investor, or
otherwise, with the business conducted by TLC; or (B) while
this Agreement is in effect and for one (1) year following
termination of employment directly or indirectly solicit or
recruit any employee of TLC to leave the employ of TLC, or
solicit any client or customer of TLC to terminate or modify
its business relationship with TLC.
(c) The foregoing restrictions on the Executive set forth in this
Section 7 shall be operative for the benefit of TLC and of any
business owned or controlled by TLC, or any successor or
assign of any of the foregoing.
(d) Executive acknowledges that the restricted period of time and
geographical area specified in this Section 7 is reasonable,
in view of the nature of the business in which TLC in engaged
and the Executive's knowledge of TLC's business.
Notwithstanding anything herein to the contrary, if the period
of time or the
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<PAGE> 5
geographical area specified in this Section 7 should be
determined to be unreasonable in a judicial proceeding, then
the period of time and territory of the restriction shall be
reduced so that this Agreement may be enforced in such area
and during such period of time as shall be determined to be
reasonable.
(e) The parties acknowledge that any breach of this Section 7 will
cause TLC irreparable harm for which there is no adequate
remedy at law, and as a result of this, TLC shall be entitled
to the issuance of an injunction, restraining order or other
equitable relief in favor of TLC restraining Executive from
committing or continuing any such violation. Any right to
obtain an injunction, restraining order or other equitable
relief hereunder shall not be deemed a waiver of any right to
assert any other remedy TLC may have at law or equity.
(f) For purposes of this Section 7, the term "TLC" shall refer to
the Corporation and all of its parents, subsidiaries and
affiliated corporations.
8. JURISDICTION. The Executive and TLC consent to the
jurisdiction of the New York Supreme Court for a determination
of any disputes as to any matters whatsoever arising out of or
in any way connected with this Agreement and authorize the
service of process on TLC or Executive by registered mail sent
to either party at the address set forth in Section 6 of this
Agreement.
9. HANDBOOK GROUP INSURANCE PROGRAM BOOKLET. The Executive
acknowledges receipt of the TLC Employee Handbook and Group
Insurance Program booklet (together, the "Handbook"). The
terms of the Handbook are incorporated herein by reference.
10. BINDING EFFECT. This Agreement shall bind and inure to the
benefit of TLC, its successors and assigns and shall inure to
the benefit of, and be binding upon, the Executive, his heirs,
executors and legal representatives.
11. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall in no way affect the
validity or enforceability of any other provision, or any part
thereof.
12. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New
York.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject
matter hereof and supersedes all prior and contemporaneous
agreements, understandings, negotiations, and discussions,
whether oral or written. of the parties.
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<PAGE> 6
14. MODIFICATION, TERMINATION OR WAIVER. This Agreement may only
be amended or modified by a written instrument executed by the
parties hereto. The failure of any party at any time to
require performance of any provision of this Agreement shall
in no manner affect the right of such party at a later time to
enforce the same.
15. INDEMNIFICATION. TLC shall indemnify and hold Executive
harmless from any and all damages, costs, fees and expenses,
including but not limited to attorneys' fees, which he may
incur as a result of any claim against his arising out of his
performance of his duties under this Agreement provided that
he is not found to have committed intentional misconduct.
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<PAGE> 7
IN WITNESS WHEREOF, TLC and the Executive have executed this Employment
Agreement as of the date first above written.
TENDER LOVING CARE HEALTH
CARE SERVICES, INC.
By:
------------------------------
Dale R. Clift, Chief Operating
Officer
---------------------------------
Willard T. Derr
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<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") dated as of ______, 1999 by and
between TENDER LOVING CARE HEALTH CARE SERVICES, INC., a Delaware Corporation
("TLC" or the "Corporation"), and Renee J. Silver, Esq. who resides at 11 Pine
Drive, Port Washington, NY 11050 ("Executive").
WHEREAS, TLC Builders wishes to secure the services of the Executive on
the terms and conditions set forth below; and
WHEREAS, the Executive is willing to accept employment with TLC on such
terms and conditions.
NOW, THEREFORE, in consideration of their mutual promises and other
adequate consideration, TLC and the Executive do hereby agree as follows:
1. EMPLOYMENT. TLC will employ the Executive as Vice President &
General Counsel, in accordance with the terms and provisions of
this Agreement.
2. DUTIES. The Executive shall be responsible for the day-to-day
legal affairs of the Corporation and its subsidiaries and shall
perform such duties as may from time-to-time be assigned by the
Chief Executive Officer of the Corporation or his designees. The
Executive shall report directly to the Chairman of the Board, CEO
of the Corporation or such other officer of the Corporation as the
Board of Directors may from time-to-time designate. The Executive
shall devote her full business time, attention and skill to the
performance of her duties hereunder and to the advancement of the
business and interests of TLC, subject to limited consulting
duties to Staff Builders, Inc.
3. TERM. This Agreement shall be effective upon execution by TLC and
the Executive, and shall remain in effect until the third
anniversary date hereof, unless terminated earlier pursuant to the
terms hereof.
4. COMPENSATION.
(a) Salary. The Executive shall be paid a salary of $170,000 per annum
during the term hereof, payable in weekly installments. The
Executive's salary will be reviewed by TLC on February 25, 2000
and on February 25, 2001.
<PAGE> 2
(b) Benefits. The Executive shall be eligible to receive and
participate in, in accordance with their terms, all health,
medical or other insurance benefits which TLC provides or makes
available to its employees.
(c) Expenses. TLC shall reimburse the Executive for all reasonable and
necessary expenses upon submission by the Executive of receipts,
accounts or such other documents reasonably requested by TLC.
(d) Vacation. The Executive shall be entitled to three (3) weeks of
paid vacation during each twelve (12) month period of employment
during the term. As of November 1, 1999, the Executive shall be
entitled to four (4) weeks of vacation during each twelve (12)
month period of employment during the term.
(e) Nothing in this Agreement is intended to cause a reduction in the
Executive's benefits under any TLC' policy or under any benefit
plan in which Executive is a participant at the time of the
execution of this Agreement.
5. TERMINATION; RIGHTS AND OBLIGATIONS UPON TERMINATION.
(a) If the Executive dies during the Term, then the Executive's
employment under this Agreement shall terminate. In such event,
the Executive's estate shall be entitled only to compensation and
expenses accrued and unpaid as at the date of the Executive's
death.
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, whether or not job related, the Executive is
absent from her duties hereunder for 90 consecutive days, or an
aggregate of 120 days during the Term, the Executive's employment
hereunder and this Agreement shall terminate. In such event, the
Executive shall be entitled only to compensation and expenses
accrued and unpaid as at the date of termination of the
Executive's employment.
(c) The Corporation shall have the right to terminate the Executive's
employment under this Agreement for Cause. For purposes of the
Agreement, the Corporation shall have "Cause" to terminate the
Executive's employment if (i) the Executive assigns, pledges, or
otherwise disposes of her rights and obligations under this
Agreement, or attempts to do the same without the prior written
consent of the Corporation; or (ii) the Executive has been
insubordinate, has materially breached any of the terms or
conditions hereof, has engaged in willful misconduct or has acted
in bad faith; or (iii) the Executive has breached Section 7 of
this Agreement; or (iv) the Executive has committed a felony or
perpetrated a fraud against the Corporation. If the Corporation
terminates this Agreement for Cause, the Corporation's obligations
hereunder shall cease, except for the Corporation's obligation to
pay the Executive the compensation and expenses accrued and unpaid
as of the date of termination in accordance with the provisions
hereof.
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<PAGE> 3
(d) In the event that at any time after a Change of Control (as
defined below) but prior to the end of twelve (12) months after
such Change of Control, the Executive is discharged for any reason
other than for Cause (as defined in (c) above) or resigns for any
reason (other than due to termination for Cause), the Executive
shall receive within thirty (30) days after such discharge or
resignation a lump-sum severance payment equal to 2.99 times her
average annual base salary. For the purposes of this Section 5,
"average annual base salary" shall mean the average of Executive's
annual income in the nature of compensation payable by the Company
and includible in gross income over the five most recent taxable
years ending before the Change of Control. Anything contained
herein to the contrary notwithstanding, for a Change of Control
occurring before 2002, years considered in the base period for
calculating "average annual base salary" shall be determined as
follows:
<TABLE>
<CAPTION>
Years Considered in
Year of Change in Control Calculating Average Base Salary
------------------------- -------------------------------
<S> <C>
1999 1994-1998
2000 1995-1999
2001 1996-2000
</TABLE>
A "Change of Control" shall be deemed to occur when a person,
corporation, partnership, association or entity (i) acquires a
majority of the outstanding voting securities of TLC or (ii)
acquires securities bearing a majority of voting power with
respect to election of directors of TLC or (iii) acquires all or
substantially all of TLC's assets.
(e) Notwithstanding anything to the contrary contained herein, all
payments owed to the Executive upon termination of this Agreement
shall be subject to offset by the Corporation for amounts owed to
the corporation by the Executive hereunder.
(f) The obligations of the Corporation and the Executive pursuant to
this Section 5 shall survive the termination of this Agreement.
-3-
<PAGE> 4
6. NOTICES. Any written notice permitted or required under this
Agreement shall be deemed sufficient when hand delivered or posted
by certified or registered mail, postage prepaid, and addressed
to:
if to Tender Loving Care Health Care Services, Inc.:
1983 Marcus Avenue
Lake Success, New York 11042
Attention: Stephen Savitsky, Chairman
or
if to the Executive: Renee J. Silver, Esq.
11 Pine Drive
Port Washington, NY 11050
Either party may, in accordance with the provisions of this Section,
give written notice of a change of address, in which event all such notices and
requests shall thereafter be given as above provided at such changed address.
7. CONFIDENTIALITY OBLIGATIONS; NON-COMPETITION BY EXECUTIVE.
(a) The Executive acknowledges that in the course of performing her
duties hereunder, she will be made privy to confidential and
proprietary information. The Executive covenants and agrees that
during the term of this Agreement and at any time after the
termination of this Agreement, she will not directly or
indirectly, for her own account or as an employee, officer,
director, partner, joint venturer, shareholder, investor, or
otherwise, disclose to others or use for her own benefit or cause
or induce others to do the same, any proprietary or confidential
information or trade secrets of TLC.
(b) The Executive agrees that, while this Agreement is in effect, and
for six(6) months following termination of employment, she will
not, within the United States (A) compete, directly or indirectly
for her own account or as an employee, officer, director, partner,
joint venturer, shareholder, investor, or otherwise, with the
business conducted by TLC; or (B) while this Agreement is in
effect and for one (1) year following termination of employment
directly or indirectly solicit or recruit any employee of TLC to
leave the employ of TLC, or solicit any client or customer of TLC
to terminate or modify its business relationship with TLC.
(c) The foregoing restrictions on the Executive set forth in this
Section 7 shall be operative for the benefit of TLC and of any
business owned or controlled by TLC, or any successor or assign of
any of the foregoing.
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(d) Notwithstanding anything herein to the contrary, if the period of
time or the geographical area specified in this Section 7 should
be determined to be unreasonable in a judicial proceeding, then
the period of time and territory of the restriction shall be
reduced so that this Agreement may be enforced in such area and
during such period of time as shall be determined to be
reasonable.
(e) The parties acknowledge that any breach of this Section 7 will
cause TLC irreparable harm for which there is no adequate remedy
at law, and as a result of this, TLC shall be entitled to the
issuance of an injunction, restraining order or other equitable
relief in favor of TLC restraining Executive from committing or
continuing any such violation. Any right to obtain an injunction,
restraining order or other equitable relief hereunder shall not be
deemed a waiver of any right to assert any other remedy TLC may
have at law or equity.
(f) For purposes of this Section 7, the term "TLC" shall refer to the
Corporation and all of its parents, subsidiaries and affiliated
corporations.
8. JURISDICTION. The Executive and TLC consent to the jurisdiction of
the New York Supreme Court for a determination of any disputes as
to any matters whatsoever arising out of or in any way connected
with this Agreement and authorize the service of process on TLC or
Executive by registered mail sent to either party at the address
set forth in Section 6 of this Agreement.
9. HANDBOOK GROUP INSURANCE PROGRAM BOOKLET. The Executive
acknowledges receipt of the TLC Employee Handbook and Group
Insurance Program booklet (together, the "Handbook"). The terms of
the Handbook are incorporated herein by reference.
10. BINDING EFFECT. This Agreement shall bind and inure to the benefit
of TLC, its successors and assigns and shall inure to the benefit
of, and be binding upon, the Executive, her heirs, executors and
legal representatives.
11. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall in no way affect the validity or
enforceability of any other provision, or any part thereof.
12. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof
and supersedes all prior and contemporaneous agreements,
understandings, negotiations, and discussions, whether oral or
written. of the parties.
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<PAGE> 6
14. MODIFICATION, TERMINATION OR WAIVER. This Agreement may only be
amended or modified by a written instrument executed by the
parties hereto. The failure of any party at any time to require
performance of any provision of this Agreement shall in no manner
affect the right of such party at a later time to enforce the
same.
15. INDEMNIFICATION. TLC shall indemnify and hold Executive harmless
from any and all damages, costs, fees and expenses, including but
not limited to attorneys' fees, which she may incur as a result of
any claim against her arising out of her performance of her duties
under this Agreement provided that she is not found to have
committed intentional misconduct.
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<PAGE> 7
IN WITNESS WHEREOF, TLC and the Executive have executed this Employment
Agreement as of the date first above written.
TENDER LOVING CARE HEALTH
CARE SERVICES, INC.
By:
-----------------------------------------
Dale R. Clift, Chief Operating Officer
-----------------------------------------
Renee J. Silver
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<PAGE> 1
EXHIBIT 10.13
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
INDEMNIFICATION AGREEMENT
with
STEPHEN SAVITSKY
THIS AGREEMENT, made and entered into as of [______________], 1999 (the
"AGREEMENT"), by and between TENDER LOVING CARE HEALTH CARE SERVICES, INC., a
Delaware corporation (the "COMPANY"), and STEPHEN SAVITSKY ("INDEMNITEE"):
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and
WHEREAS, the current impracticability of obtaining adequate insurance
and the uncertainties relating to indemnification have increased the difficulty
of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company (the "BOARD OF
DIRECTORS") has determined that the inability to attract and retain such persons
is detrimental to the best interests of the Company's stockholders and that the
Company should act to assure such persons that there will be increased certainty
of such protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Services by Indemnitee. Indemnitee agrees to continue to
serve as an employee of the Company, subject to the terms and conditions of his
employment agreement, dated the date hereof as such agreement may be amended,
renewed or extended from time to time.
<PAGE> 2
Section 2. Indemnification -- General. The Company shall indemnify, and
advance Expenses (as hereinafter defined) to Indemnitee as provided in this
Agreement and to the fullest extent permitted by applicable law in effect on the
date hereof and to such greater extent as applicable law may thereafter from
time to time permit. The rights of Indemnitee provided under the preceding
sentence shall include, but shall not be limited to, the rights set forth in the
other Sections of this Agreement.
Section 3. Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3 if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to any threatened,
pending, or completed Proceeding (as hereinafter defined), other than a
Proceeding by or in the right of the Company. Pursuant to this Section 3,
Indemnitee shall be indemnified against Expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 4
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to any threatened, pending or completed Proceeding brought by or in the
right of the Company to procure a judgment in its favor. Pursuant to this
Section, Indemnitee shall be indemnified against Expenses actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company if applicable law prohibits such
indemnification; provided, however, that if applicable law so permits,
indemnification against Expenses shall nevertheless be made by the Company in
such event if and only to the extent that the Court of Chancery of the State of
Delaware, or the Court in which such Proceeding shall have been brought or is
pending, shall determine.
Section 5. Indemnification for Expenses of a Party Who Is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section, and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
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<PAGE> 3
Section 6. Indemnification for Expenses of a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding, he shall be
indemnified against all expenses actually and reasonably incurred by him or on
his behalf in connection therewith.
Section 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within twenty days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
Section 8. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
the first sentence of Section 8(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case: (i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) (unless
Indemnitee shall request that such determination be made by the Board of
Directors or the stockholders, in which case by the person or persons or in the
manner provided for in clause (ii) or (iii) of this Section 8(b)) in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee; (ii) if a Change of Control shall not have occurred, (A) by the
Board of Directors by a majority vote of a quorum consisting of Disinterested
Directors (as hereinafter defined), or (B) if a quorum of the Board of Directors
consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee, or (C) by the stockholders of the Company; or (iii) as provided in
Section 9(b) of this Agreement; and, if it is so determined that Indemnitee is
entitled to indemnification, payment to Indemnitee shall be made within ten (10)
days after such determination. Indemnitee shall cooperate with the person,
persons or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such person, persons or
entity upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the
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<PAGE> 4
Company (irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b) hereof, Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred, Independent Counsel shall be selected by the
Board of Directors, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a Change
of Control shall have occurred, Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors, in which even the preceding sentence shall apply), and the
Indemnitee shall give written notice to the Company advising it of the identity
of Independent Counsel so selected. In either event, Indemnitee or the Company,
as the case may be, may, within 7 days after such written notice of selection
shall have been given, deliver to the Company or to Indemnitee, as the case may
be, a written objection to such selection. Such objection may be asserted only
on the ground that Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in Section 17 of this
Agreement, and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is made, Independent Counsel
so selected may not serve as Independent Counsel unless and until a court has
determined that such objection is without merit. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware or other court of competent jurisdiction for resolution
of any objection which shall have been made by the Company or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the Court or by such other person as
the Court shall designate, and the person with respect to whom an objection is
so resolved or the person so appointed shall act as Independent Counsel under
Section 8(b) hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 8(b) hereof and the Company shall pay
all reasonable fees and expenses incident to the procedures of this Section
8(c), regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
Section 9. Presumptions and Effect of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
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(b) If a person, persons or entity empowered or selected under Section
8 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination with 60 days after receipt
by the Company of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law; provided, however, that such 60-day period may be extended for a
reasonable time, not to exceed an additional 30 days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 9(b) shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 8(b) of this Agreement and if (A) within 15
days after receipt by the Company of the request for such determination the
Board of Directors has resolved to submit such determination to the stockholders
for their consideration at an annual meeting thereof to be held within 75 days
after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within 15 days after such receipt for the
purpose of making such determination, such meeting is held within 60 days after
having been so called and such determination is made thereat, or (ii) if the
determination to entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 8(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
Section 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section 8
of this Agreement that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 7
of this Agreement, (iii) the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b) of this Agreement and
such determination shall not have been made and delivered in a written opinion
within 90 days after receipt by the Company of the request for indemnification,
or (iv) payment of indemnification is not made pursuant to Section 6 of this
Agreement within ten (10) days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 8 or 9 of this Agreement, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of Delaware, or in any other
court of competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at
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his option, may seek an award in arbitration to be conducted by a single
arbitrator pursuant to the rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has the
right to commence such proceeding pursuant to this Section 10(a). The Company
shall not oppose Indemnitee's right to seek adjudication or award in
arbitration.
(b) In the event that a determination shall have been made pursuant to
Section 8 of this Agreement that Indemnitee is not entitled to indemnification,
any judicial proceeding or arbitration commenced pursuant to this Section 10
shall be conducted in all respects as a de novo trial, or arbitration, on the
merits and Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any judicial
proceeding or arbitration commenced pursuant to this Section 10 the Company
shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been made
pursuant to Section 8 or 9 of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 10, absent
(i) a misstatement by Indemnitee or a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 10 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section 10, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in such judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification,
or advancement of Expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
Section 11. Non-Exclusivity: Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or termination of this Agreement or any provision hereof shall bep
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effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
termination.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the Company shall
be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indefinable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
Section 12. Duration of Agreement. This Agreement shall continue until
and terminate upon the later of: (a) 10 years after the date that Indemnitee
shall have ceased to serve as director, or (b) the final termination of all
pending Proceedings in respect of which Indemnitee is granted rights of
indemnification or advancement of Expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Section 10 of this Agreement relating
thereto. This Agreement shall be binding upon the Company and its successors and
assigns and shall inure to the benefit of Indemnitee and his heirs, executors
and administrators.
Section 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement contain any such provision held to be invalid, illegal
or unenforceable, that is not itself invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (b) the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
Section 14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision of this Agreement, Indemnitee
shall not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any proceeding, or any claim therein, brought or made
by him against the Company.
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Section 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 16. Headings. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 17. Definitions. For purposes of this Agreement:
(a) "Change of Control" means a change in control of the Company
occurring after the date hereof of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is
then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the date hereof (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board of Directors in office immediately prior to such person
attaining such percentage interest; (ii) the Company is a party to a merger
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholder was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.
(b) "Corporate Status" describes the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of the Company who is not
or was not a party to the Proceeding in respect of which indemnification is
sought by the Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending,
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preparing to prosecute or defend, investigating, or being or preparing to be a
witness in a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct than
prevailing, would have a conflict or interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement.
(f) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative, except one
initiated by Indemnitee pursuant to Section 10 of this Agreement to enforce his
rights under this Agreement.
Section 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 19. Notice by Indemnitee. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
Section 20. Notices. All notices requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
his address indicated on
the signature page hereof
(b) If to the Company, to:
Tender Loving Care Health Care Services, Inc.
1983 Marcus Avenue
Lake Success, New York 11042
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<PAGE> 10
or such other address as may have been furnished to Indemnitee by the Company or
to the Company by Indemnitee, as the case may be.
Section 21. Governing Law. The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
Section 22. Miscellaneous. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
TENDER LOVING CARE HEALTH
CARE SERVICES, INC.
By:
-----------------------------------
Name: Dale R. Clift
Title: President
INDEMNITEE
---------------------------------------
Stephen Savitsky
Address: 423 Daub Avenue
Hewlett, New York 11557
11
<PAGE> 1
EXHIBIT 10.14
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
INDEMNIFICATION AGREEMENT
with
DAVID SAVITSKY
THIS AGREEMENT, made and entered into as of [______________], 1999 (the
"AGREEMENT"), by and between TENDER LOVING CARE HEALTH CARE SERVICES, INC., a
Delaware corporation (the "COMPANY"), and DAVID SAVITSKY ("INDEMNITEE"):
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and
WHEREAS, the current impracticability of obtaining adequate insurance
and the uncertainties relating to indemnification have increased the difficulty
of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company (the "BOARD OF
DIRECTORS") has determined that the inability to attract and retain such persons
is detrimental to the best interests of the Company's stockholders and that the
Company should act to assure such persons that there will be increased certainty
of such protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Services by Indemnitee. Indemnitee agrees to continue to
serve as an employee of the Company, subject to the terms and conditions of his
employment agreement, dated the date hereof as such agreement may be amended,
renewed or extended from time to time.
<PAGE> 2
Section 2. Indemnification -- General. The Company shall indemnify, and
advance Expenses (as hereinafter defined) to Indemnitee as provided in this
Agreement and to the fullest extent permitted by applicable law in effect on the
date hereof and to such greater extent as applicable law may thereafter from
time to time permit. The rights of Indemnitee provided under the preceding
sentence shall include, but shall not be limited to, the rights set forth in the
other Sections of this Agreement.
Section 3. Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3 if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to any threatened,
pending, or completed Proceeding (as hereinafter defined), other than a
Proceeding by or in the right of the Company. Pursuant to this Section 3,
Indemnitee shall be indemnified against Expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 4
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to any threatened, pending or completed Proceeding brought by or in the
right of the Company to procure a judgment in its favor. Pursuant to this
Section, Indemnitee shall be indemnified against Expenses actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company if applicable law prohibits such
indemnification; provided, however, that if applicable law so permits,
indemnification against Expenses shall nevertheless be made by the Company in
such event if and only to the extent that the Court of Chancery of the State of
Delaware, or the Court in which such Proceeding shall have been brought or is
pending, shall determine.
Section 5. Indemnification for Expenses of a Party Who Is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section, and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
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<PAGE> 3
Section 6. Indemnification for Expenses of a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding, he shall be
indemnified against all expenses actually and reasonably incurred by him or on
his behalf in connection therewith.
Section 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within twenty days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
Section 8. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
the first sentence of Section 8(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case: (i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) (unless
Indemnitee shall request that such determination be made by the Board of
Directors or the stockholders, in which case by the person or persons or in the
manner provided for in clause (ii) or (iii) of this Section 8(b)) in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee; (ii) if a Change of Control shall not have occurred, (A) by the
Board of Directors by a majority vote of a quorum consisting of Disinterested
Directors (as hereinafter defined), or (B) if a quorum of the Board of Directors
consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee, or (C) by the stockholders of the Company; or (iii) as provided in
Section 9(b) of this Agreement; and, if it is so determined that Indemnitee is
entitled to indemnification, payment to Indemnitee shall be made within ten (10)
days after such determination. Indemnitee shall cooperate with the person,
persons or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such person, persons or
entity upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the
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<PAGE> 4
Company (irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b) hereof, Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred, Independent Counsel shall be selected by the
Board of Directors, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a Change
of Control shall have occurred, Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors, in which even the preceding sentence shall apply), and the
Indemnitee shall give written notice to the Company advising it of the identity
of Independent Counsel so selected. In either event, Indemnitee or the Company,
as the case may be, may, within 7 days after such written notice of selection
shall have been given, deliver to the Company or to Indemnitee, as the case may
be, a written objection to such selection. Such objection may be asserted only
on the ground that Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in Section 17 of this
Agreement, and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is made, Independent Counsel
so selected may not serve as Independent Counsel unless and until a court has
determined that such objection is without merit. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware or other court of competent jurisdiction for resolution
of any objection which shall have been made by the Company or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the Court or by such other person as
the Court shall designate, and the person with respect to whom an objection is
so resolved or the person so appointed shall act as Independent Counsel under
Section 8(b) hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 8(b) hereof and the Company shall pay
all reasonable fees and expenses incident to the procedures of this Section
8(c), regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
Section 9. Presumptions and Effect of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
4
<PAGE> 5
(b) If a person, persons or entity empowered or selected under Section
8 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination with 60 days after receipt
by the Company of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law; provided, however, that such 60-day period may be extended for a
reasonable time, not to exceed an additional 30 days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 9(b) shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 8(b) of this Agreement and if (A) within 15
days after receipt by the Company of the request for such determination the
Board of Directors has resolved to submit such determination to the stockholders
for their consideration at an annual meeting thereof to be held within 75 days
after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within 15 days after such receipt for the
purpose of making such determination, such meeting is held within 60 days after
having been so called and such determination is made thereat, or (ii) if the
determination to entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 8(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
Section 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section 8
of this Agreement that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 7
of this Agreement, (iii) the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b) of this Agreement and
such determination shall not have been made and delivered in a written opinion
within 90 days after receipt by the Company of the request for indemnification,
or (iv) payment of indemnification is not made pursuant to Section 6 of this
Agreement within ten (10) days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 8 or 9 of this Agreement, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of Delaware, or in any other
court of competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at
5
<PAGE> 6
his option, may seek an award in arbitration to be conducted by a single
arbitrator pursuant to the rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has the
right to commence such proceeding pursuant to this Section 10(a). The Company
shall not oppose Indemnitee's right to seek adjudication or award in
arbitration.
(b) In the event that a determination shall have been made pursuant to
Section 8 of this Agreement that Indemnitee is not entitled to indemnification,
any judicial proceeding or arbitration commenced pursuant to this Section 10
shall be conducted in all respects as a de novo trial, or arbitration, on the
merits and Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any judicial
proceeding or arbitration commenced pursuant to this Section 10 the Company
shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been made
pursuant to Section 8 or 9 of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 10, absent
(i) a misstatement by Indemnitee or a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 10 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section 10, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in such judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification,
or advancement of Expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
Section 11. Non-Exclusivity: Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or termination of this Agreement or any provision hereof shall be
6
<PAGE> 7
effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
termination.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the Company shall
be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indefinable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
Section 12. Duration of Agreement. This Agreement shall continue until
and terminate upon the later of: (a) 10 years after the date that Indemnitee
shall have ceased to serve as director, or (b) the final termination of all
pending Proceedings in respect of which Indemnitee is granted rights of
indemnification or advancement of Expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Section 10 of this Agreement relating
thereto. This Agreement shall be binding upon the Company and its successors and
assigns and shall inure to the benefit of Indemnitee and his heirs, executors
and administrators.
Section 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement contain any such provision held to be invalid, illegal
or unenforceable, that is not itself invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (b) the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
Section 14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision of this Agreement, Indemnitee
shall not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any proceeding, or any claim therein, brought or made
by him against the Company.
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<PAGE> 8
Section 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 16. Headings. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 17. Definitions. For purposes of this Agreement:
(a) "Change of Control" means a change in control of the Company
occurring after the date hereof of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is
then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the date hereof (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board of Directors in office immediately prior to such person
attaining such percentage interest; (ii) the Company is a party to a merger
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholder was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.
(b) "Corporate Status" describes the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of the Company who is not
or was not a party to the Proceeding in respect of which indemnification is
sought by the Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending,
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<PAGE> 9
preparing to prosecute or defend, investigating, or being or preparing to be a
witness in a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct than
prevailing, would have a conflict or interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement.
(f) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative, except one
initiated by Indemnitee pursuant to Section 10 of this Agreement to enforce his
rights under this Agreement.
Section 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 19. Notice by Indemnitee. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
Section 20. Notices. All notices requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
his address indicated on
the signature page hereof
(b) If to the Company, to:
Tender Loving Care Health Care Services, Inc.
1983 Marcus Avenue
Lake Success, New York 11042
9
<PAGE> 10
or such other address as may have been furnished to Indemnitee by the Company or
to the Company by Indemnitee, as the case may be.
Section 21. Governing Law. The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
Section 22. Miscellaneous. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
TENDER LOVING CARE HEALTH
CARE SERVICES, INC.
By:
----------------------------
Name: Dale R. Clift
Title: President
INDEMNITEE
--------------------------------
David Savitsky
Address: 29 Oxford Road
New Rochelle, New York 10804
11
<PAGE> 1
EXHIBIT 10.15
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
INDEMNIFICATION AGREEMENT
with
BERNARD J. FIRESTONE
THIS AGREEMENT, made and entered into as of [______________], 1999 (the
"AGREEMENT"), by and between TENDER LOVING CARE HEALTH CARE SERVICES, INC., a
Delaware corporation (the "COMPANY"), and BERNARD J. FIRESTONE ("INDEMNITEE"):
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and
WHEREAS, the current impracticability of obtaining adequate insurance
and the uncertainties relating to indemnification have increased the difficulty
of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company (the "BOARD OF
DIRECTORS") has determined that the inability to attract and retain such persons
is detrimental to the best interests of the Company's stockholders and that the
Company should act to assure such persons that there will be increased certainty
of such protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Services by Indemnitee. Indemnitee agrees to continue to
serve as a director of the Company. Indemnitee may at any time and for any
reason resign from such position (subject to any other contractual obligation or
any obligation imposed by operation of law), in which event the Company shall
have no obligation under this Agreement to continue Indemnitee in any such
position.
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Section 2. Indemnification -- General. The Company shall indemnify, and
advance Expenses (as hereinafter defined) to Indemnitee as provided in this
Agreement and to the fullest extent permitted by applicable law in effect on the
date hereof and to such greater extent as applicable law may thereafter from
time to time permit. The rights of Indemnitee provided under the preceding
sentence shall include, but shall not be limited to, the rights set forth in the
other Sections of this Agreement.
Section 3. Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3 if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to any threatened,
pending, or completed Proceeding (as hereinafter defined), other than a
Proceeding by or in the right of the Company. Pursuant to this Section 3,
Indemnitee shall be indemnified against Expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 4
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to any threatened, pending or completed Proceeding brought by or in the
right of the Company to procure a judgment in its favor. Pursuant to this
Section, Indemnitee shall be indemnified against Expenses actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company if applicable law prohibits such
indemnification; provided, however, that if applicable law so permits,
indemnification against Expenses shall nevertheless be made by the Company in
such event if and only to the extent that the Court of Chancery of the State of
Delaware, or the Court in which such Proceeding shall have been brought or is
pending, shall determine.
Section 5. Indemnification for Expenses of a Party Who Is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section, and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
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Section 6. Indemnification for Expenses of a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding, he shall be
indemnified against all expenses actually and reasonably incurred by him or on
his behalf in connection therewith.
Section 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within twenty days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
Section 8. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
the first sentence of Section 8(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case: (i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) (unless
Indemnitee shall request that such determination be made by the Board of
Directors or the stockholders, in which case by the person or persons or in the
manner provided for in clause (ii) or (iii) of this Section 8(b)) in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee; (ii) if a Change of Control shall not have occurred, (A) by the
Board of Directors by a majority vote of a quorum consisting of Disinterested
Directors (as hereinafter defined), or (B) if a quorum of the Board of Directors
consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee, or (C) by the stockholders of the Company; or (iii) as provided in
Section 9(b) of this Agreement; and, if it is so determined that Indemnitee is
entitled to indemnification, payment to Indemnitee shall be made within ten (10)
days after such determination. Indemnitee shall cooperate with the person,
persons or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such person, persons or
entity upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the
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Company (irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b) hereof, Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred, Independent Counsel shall be selected by the
Board of Directors, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a Change
of Control shall have occurred, Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors, in which even the preceding sentence shall apply), and the
Indemnitee shall give written notice to the Company advising it of the identity
of Independent Counsel so selected. In either event, Indemnitee or the Company,
as the case may be, may, within 7 days after such written notice of selection
shall have been given, deliver to the Company or to Indemnitee, as the case may
be, a written objection to such selection. Such objection may be asserted only
on the ground that Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in Section 17 of this
Agreement, and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is made, Independent Counsel
so selected may not serve as Independent Counsel unless and until a court has
determined that such objection is without merit. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware or other court of competent jurisdiction for resolution
of any objection which shall have been made by the Company or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the Court or by such other person as
the Court shall designate, and the person with respect to whom an objection is
so resolved or the person so appointed shall act as Independent Counsel under
Section 8(b) hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 8(b) hereof and the Company shall pay
all reasonable fees and expenses incident to the procedures of this Section
8(c), regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
Section 9. Presumptions and Effect of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
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(b) If a person, persons or entity empowered or selected under Section
8 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination with 60 days after receipt
by the Company of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law; provided, however, that such 60-day period may be extended for a
reasonable time, not to exceed an additional 30 days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 9(b) shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 8(b) of this Agreement and if (A) within 15
days after receipt by the Company of the request for such determination the
Board of Directors has resolved to submit such determination to the stockholders
for their consideration at an annual meeting thereof to be held within 75 days
after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within 15 days after such receipt for the
purpose of making such determination, such meeting is held within 60 days after
having been so called and such determination is made thereat, or (ii) if the
determination to entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 8(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
Section 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section 8
of this Agreement that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 7
of this Agreement, (iii) the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b) of this Agreement and
such determination shall not have been made and delivered in a written opinion
within 90 days after receipt by the Company of the request for indemnification,
or (iv) payment of indemnification is not made pursuant to Section 6 of this
Agreement within ten (10) days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 8 or 9 of this Agreement, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of Delaware, or in any other
court of competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at
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his option, may seek an award in arbitration to be conducted by a single
arbitrator pursuant to the rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has the
right to commence such proceeding pursuant to this Section 10(a). The Company
shall not oppose Indemnitee's right to seek adjudication or award in
arbitration.
(b) In the event that a determination shall have been made pursuant to
Section 8 of this Agreement that Indemnitee is not entitled to indemnification,
any judicial proceeding or arbitration commenced pursuant to this Section 10
shall be conducted in all respects as a de novo trial, or arbitration, on the
merits and Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any judicial
proceeding or arbitration commenced pursuant to this Section 10 the Company
shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been made
pursuant to Section 8 or 9 of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 10, absent
(i) a misstatement by Indemnitee or a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 10 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section 10, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in such judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification,
or advancement of Expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
Section 11. Non-Exclusivity: Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or termination of this Agreement or any provision hereof shall be
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effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
termination.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the Company shall
be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indefinable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
Section 12. Duration of Agreement. This Agreement shall continue until
and terminate upon the later of: (a) 10 years after the date that Indemnitee
shall have ceased to serve as director, or (b) the final termination of all
pending Proceedings in respect of which Indemnitee is granted rights of
indemnification or advancement of Expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Section 10 of this Agreement relating
thereto. This Agreement shall be binding upon the Company and its successors and
assigns and shall inure to the benefit of Indemnitee and his heirs, executors
and administrators.
Section 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement contain any such provision held to be invalid, illegal
or unenforceable, that is not itself invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (b) the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
Section 14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision of this Agreement, Indemnitee
shall not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any proceeding, or any claim therein, brought or made
by him against the Company.
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Section 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 16. Headings. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 17. Definitions. For purposes of this Agreement:
(a) "Change of Control" means a change in control of the Company
occurring after the date hereof of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is
then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the date hereof (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board of Directors in office immediately prior to such person
attaining such percentage interest; (ii) the Company is a party to a merger
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholder was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.
(b) "Corporate Status" describes the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of the Company who is not
or was not a party to the Proceeding in respect of which indemnification is
sought by the Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending,
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preparing to prosecute or defend, investigating, or being or preparing to be a
witness in a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct than
prevailing, would have a conflict or interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement.
(f) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative, except one
initiated by Indemnitee pursuant to Section 10 of this Agreement to enforce his
rights under this Agreement.
Section 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 19. Notice by Indemnitee. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
Section 20. Notices. All notices requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
his address indicated
on the signature page
hereof
(b) If to the Company, to:
Tender Loving Care Health Care Services, Inc.
1983 Marcus Avenue
Lake Success, New York 11042
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or such other address as may have been furnished to Indemnitee by the Company or
to the Company by Indemnitee, as the case may be.
Section 21. Governing Law. The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
Section 22. Miscellaneous. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
TENDER LOVING CARE HEALTH
CARE SERVICES, INC.
By:
----------------------------------
Name: Dale R. Clift
Title: President
INDEMNITEE
-------------------------------------
Bernard J. Firestone
Address: 631 Evergreen Drive
West Hempstead, New York 11552
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EXHIBIT 10.16
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
INDEMNIFICATION AGREEMENT
with
JONATHAN J. HALPERT
THIS AGREEMENT, made and entered into as of [______________], 1999 (the
"AGREEMENT"), by and between TENDER LOVING CARE HEALTH CARE SERVICES, INC., a
Delaware corporation (the "COMPANY"), and JONATHAN J. HALPERT ("INDEMNITEE"):
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and
WHEREAS, the current impracticability of obtaining adequate insurance
and the uncertainties relating to indemnification have increased the difficulty
of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company (the "BOARD OF
DIRECTORS") has determined that the inability to attract and retain such persons
is detrimental to the best interests of the Company's stockholders and that the
Company should act to assure such persons that there will be increased certainty
of such protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Services by Indemnitee. Indemnitee agrees to continue to
serve as a director of the Company. Indemnitee may at any time and for any
reason resign from such position (subject to any other contractual obligation or
any obligation imposed by operation of law), in which event the Company shall
have no obligation under this Agreement to continue Indemnitee in any such
position.
<PAGE> 2
Section 2. Indemnification -- General. The Company shall indemnify, and
advance Expenses (as hereinafter defined) to Indemnitee as provided in this
Agreement and to the fullest extent permitted by applicable law in effect on the
date hereof and to such greater extent as applicable law may thereafter from
time to time permit. The rights of Indemnitee provided under the preceding
sentence shall include, but shall not be limited to, the rights set forth in the
other Sections of this Agreement.
Section 3. Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3 if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to any threatened,
pending, or completed Proceeding (as hereinafter defined), other than a
Proceeding by or in the right of the Company. Pursuant to this Section 3,
Indemnitee shall be indemnified against Expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 4
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to any threatened, pending or completed Proceeding brought by or in the
right of the Company to procure a judgment in its favor. Pursuant to this
Section, Indemnitee shall be indemnified against Expenses actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company if applicable law prohibits such
indemnification; provided, however, that if applicable law so permits,
indemnification against Expenses shall nevertheless be made by the Company in
such event if and only to the extent that the Court of Chancery of the State of
Delaware, or the Court in which such Proceeding shall have been brought or is
pending, shall determine.
Section 5. Indemnification for Expenses of a Party Who Is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section, and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
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Section 6. Indemnification for Expenses of a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding, he shall be
indemnified against all expenses actually and reasonably incurred by him or on
his behalf in connection therewith.
Section 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within twenty days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
Section 8. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
the first sentence of Section 8(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case: (i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) (unless
Indemnitee shall request that such determination be made by the Board of
Directors or the stockholders, in which case by the person or persons or in the
manner provided for in clause (ii) or (iii) of this Section 8(b)) in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee; (ii) if a Change of Control shall not have occurred, (A) by the
Board of Directors by a majority vote of a quorum consisting of Disinterested
Directors (as hereinafter defined), or (B) if a quorum of the Board of Directors
consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee, or (C) by the stockholders of the Company; or (iii) as provided in
Section 9(b) of this Agreement; and, if it is so determined that Indemnitee is
entitled to indemnification, payment to Indemnitee shall be made within ten (10)
days after such determination. Indemnitee shall cooperate with the person,
persons or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such person, persons or
entity upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the
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Company (irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b) hereof, Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred, Independent Counsel shall be selected by the
Board of Directors, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a Change
of Control shall have occurred, Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors, in which even the preceding sentence shall apply), and the
Indemnitee shall give written notice to the Company advising it of the identity
of Independent Counsel so selected. In either event, Indemnitee or the Company,
as the case may be, may, within 7 days after such written notice of selection
shall have been given, deliver to the Company or to Indemnitee, as the case may
be, a written objection to such selection. Such objection may be asserted only
on the ground that Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in Section 17 of this
Agreement, and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is made, Independent Counsel
so selected may not serve as Independent Counsel unless and until a court has
determined that such objection is without merit. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware or other court of competent jurisdiction for resolution
of any objection which shall have been made by the Company or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the Court or by such other person as
the Court shall designate, and the person with respect to whom an objection is
so resolved or the person so appointed shall act as Independent Counsel under
Section 8(b) hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 8(b) hereof and the Company shall pay
all reasonable fees and expenses incident to the procedures of this Section
8(c), regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
Section 9. Presumptions and Effect of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
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<PAGE> 5
(b) If a person, persons or entity empowered or selected under Section
8 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination with 60 days after receipt
by the Company of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law; provided, however, that such 60-day period may be extended for a
reasonable time, not to exceed an additional 30 days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 9(b) shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 8(b) of this Agreement and if (A) within 15
days after receipt by the Company of the request for such determination the
Board of Directors has resolved to submit such determination to the stockholders
for their consideration at an annual meeting thereof to be held within 75 days
after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within 15 days after such receipt for the
purpose of making such determination, such meeting is held within 60 days after
having been so called and such determination is made thereat, or (ii) if the
determination to entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 8(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
Section 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section 8
of this Agreement that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 7
of this Agreement, (iii) the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b) of this Agreement and
such determination shall not have been made and delivered in a written opinion
within 90 days after receipt by the Company of the request for indemnification,
or (iv) payment of indemnification is not made pursuant to Section 6 of this
Agreement within ten (10) days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 8 or 9 of this Agreement, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of Delaware, or in any other
court of competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at
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<PAGE> 6
his option, may seek an award in arbitration to be conducted by a single
arbitrator pursuant to the rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has the
right to commence such proceeding pursuant to this Section 10(a). The Company
shall not oppose Indemnitee's right to seek adjudication or award in
arbitration.
(b) In the event that a determination shall have been made pursuant to
Section 8 of this Agreement that Indemnitee is not entitled to indemnification,
any judicial proceeding or arbitration commenced pursuant to this Section 10
shall be conducted in all respects as a de novo trial, or arbitration, on the
merits and Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any judicial
proceeding or arbitration commenced pursuant to this Section 10 the Company
shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been made
pursuant to Section 8 or 9 of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 10, absent
(i) a misstatement by Indemnitee or a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 10 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section 10, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in such judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification,
or advancement of Expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
Section 11. Non-Exclusivity: Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or termination of this Agreement or any provision hereof shall be
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effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
termination.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the Company shall
be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indefinable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
Section 12. Duration of Agreement. This Agreement shall continue until
and terminate upon the later of: (a) 10 years after the date that Indemnitee
shall have ceased to serve as director, or (b) the final termination of all
pending Proceedings in respect of which Indemnitee is granted rights of
indemnification or advancement of Expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Section 10 of this Agreement relating
thereto. This Agreement shall be binding upon the Company and its successors and
assigns and shall inure to the benefit of Indemnitee and his heirs, executors
and administrators.
Section 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement contain any such provision held to be invalid, illegal
or unenforceable, that is not itself invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (b) the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
Section 14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision of this Agreement, Indemnitee
shall not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any proceeding, or any claim therein, brought or made
by him against the Company.
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Section 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 16. Headings. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 17. Definitions. For purposes of this Agreement:
(a) "Change of Control" means a change in control of the Company
occurring after the date hereof of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is
then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the date hereof (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board of Directors in office immediately prior to such person
attaining such percentage interest; (ii) the Company is a party to a merger
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholder was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.
(b) "Corporate Status" describes the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of the Company who is not
or was not a party to the Proceeding in respect of which indemnification is
sought by the Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending,
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<PAGE> 9
preparing to prosecute or defend, investigating, or being or preparing to be a
witness in a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct than
prevailing, would have a conflict or interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement.
(f) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative, except one
initiated by Indemnitee pursuant to Section 10 of this Agreement to enforce his
rights under this Agreement.
Section 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 19. Notice by Indemnitee. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
Section 20. Notices. All notices requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
his address indicated
on the signature page
hereof
(b) If to the Company, to:
Tender Loving Care Health Care Services, Inc.
1983 Marcus Avenue
Lake Success, New York 11042
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or such other address as may have been furnished to Indemnitee by the Company or
to the Company by Indemnitee, as the case may be.
Section 21. Governing Law. The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
Section 22. Miscellaneous. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
TENDER LOVING CARE HEALTH
CARE SERVICES, INC.
By:
----------------------------------
Name: Dale R. Clift
Title: President
INDEMNITEE
-------------------------------------
Jonathan J. Halpert
Address: 166-07 69th Avenue
Flushing, New York 11365
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<PAGE> 1
EXHIBIT 10.17
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
INDEMNIFICATION AGREEMENT
with
DALE R. CLIFT
THIS AGREEMENT, made and entered into as of [______________], 1999 (the
"Agreement"), by and between TENDER LOVING CARE HEALTH CARE SERVICES, INC., a
Delaware corporation (the "Company"), and DALE R. CLIFT ("Indemnitee"):
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and
WHEREAS, the current impracticability of obtaining adequate insurance
and the uncertainties relating to indemnification have increased the difficulty
of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company (the "Board of
Directors") has determined that the inability to attract and retain such persons
is detrimental to the best interests of the Company's stockholders and that the
Company should act to assure such persons that there will be increased certainty
of such protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Services by Indemnitee. Indemnitee agrees to continue to
serve as an employee of the Company, subject to the terms and conditions of his
employment agreement, dated the date hereof as such agreement may be amended,
renewed or extended from time to time.
Section 2. Indemnification -- General. The Company shall indemnify, and
advance Expenses (as hereinafter defined) to Indemnitee as provided in this
Agreement and to
<PAGE> 2
the fullest extent permitted by applicable law in effect on the date hereof and
to such greater extent as applicable law may thereafter from time to time
permit. The rights of Indemnitee provided under the preceding sentence shall
include, but shall not be limited to, the rights set forth in the other Sections
of this Agreement.
Section 3. Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3 if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to any threatened,
pending, or completed Proceeding (as hereinafter defined), other than a
Proceeding by or in the right of the Company. Pursuant to this Section 3,
Indemnitee shall be indemnified against Expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 4
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to any threatened, pending or completed Proceeding brought by or in the
right of the Company to procure a judgment in its favor. Pursuant to this
Section, Indemnitee shall be indemnified against Expenses actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company if applicable law prohibits such
indemnification; provided, however, that if applicable law so permits,
indemnification against Expenses shall nevertheless be made by the Company in
such event if and only to the extent that the Court of Chancery of the State of
Delaware, or the Court in which such Proceeding shall have been brought or is
pending, shall determine.
Section 5. Indemnification for Expenses of a Party Who Is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section, and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
Section 6. Indemnification for Expenses of a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate
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Status, a witness in any Proceeding, he shall be indemnified against all
expenses actually and reasonably incurred by him or on his behalf in connection
therewith.
Section 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within twenty days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
Section 8. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
the first sentence of Section 8(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case: (i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) (unless
Indemnitee shall request that such determination be made by the Board of
Directors or the stockholders, in which case by the person or persons or in the
manner provided for in clause (ii) or (iii) of this Section 8(b)) in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee; (ii) if a Change of Control shall not have occurred, (A) by the
Board of Directors by a majority vote of a quorum consisting of Disinterested
Directors (as hereinafter defined), or (B) if a quorum of the Board of Directors
consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee, or (C) by the stockholders of the Company; or (iii) as provided in
Section 9(b) of this Agreement; and, if it is so determined that Indemnitee is
entitled to indemnification, payment to Indemnitee shall be made within ten (10)
days after such determination. Indemnitee shall cooperate with the person,
persons or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such person, persons or
entity upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
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(c) In the event the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b) hereof, Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred, Independent Counsel shall be selected by the
Board of Directors, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a Change
of Control shall have occurred, Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors, in which even the preceding sentence shall apply), and the
Indemnitee shall give written notice to the Company advising it of the identity
of Independent Counsel so selected. In either event, Indemnitee or the Company,
as the case may be, may, within 7 days after such written notice of selection
shall have been given, deliver to the Company or to Indemnitee, as the case may
be, a written objection to such selection. Such objection may be asserted only
on the ground that Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in Section 17 of this
Agreement, and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is made, Independent Counsel
so selected may not serve as Independent Counsel unless and until a court has
determined that such objection is without merit. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware or other court of competent jurisdiction for resolution
of any objection which shall have been made by the Company or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the Court or by such other person as
the Court shall designate, and the person with respect to whom an objection is
so resolved or the person so appointed shall act as Independent Counsel under
Section 8(b) hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 8(b) hereof and the Company shall pay
all reasonable fees and expenses incident to the procedures of this Section
8(c), regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
Section 9. Presumptions and Effect of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
(b) If a person, persons or entity empowered or selected under Section
8 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination with 60 days after receipt
by the Company of the request therefor, the
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requisite determination of entitlement to indemnification shall be deemed to
have been made and Indemnitee shall be entitled to such indemnification, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law; provided, however,
that such 60-day period may be extended for a reasonable time, not to exceed an
additional 30 days, if the person, persons or entity making the determination
with respect to entitlement to indemnification in good faith requires such
additional time for the obtaining or evaluating of documentation and/or
information relating thereto; and provided, further, that the foregoing
provisions of this Section 9(b) shall not apply (i) if the determination of
entitlement to indemnification is to be made by the stockholders pursuant to
Section 8(b) of this Agreement and if (A) within 15 days after receipt by the
Company of the request for such determination the Board of Directors has
resolved to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within 75 days after such
receipt and such determination is made thereat, or (B) a special meeting of
stockholders is called within 15 days after such receipt for the purpose of
making such determination, such meeting is held within 60 days after having been
so called and such determination is made thereat, or (ii) if the determination
to entitlement to indemnification is to be made by Independent Counsel pursuant
to Section 8(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
Section 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section 8
of this Agreement that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 7
of this Agreement, (iii) the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b) of this Agreement and
such determination shall not have been made and delivered in a written opinion
within 90 days after receipt by the Company of the request for indemnification,
or (iv) payment of indemnification is not made pursuant to Section 6 of this
Agreement within ten (10) days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 8 or 9 of this Agreement, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of Delaware, or in any other
court of competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
rules of the American Arbitration Association. Indemnitee shall commence such
proceeding seeking an adjudication or an award in arbitration within 180 days
following the date on which
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<PAGE> 6
Indemnitee first has the right to commence such proceeding pursuant to this
Section 10(a). The Company shall not oppose Indemnitee's right to seek
adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to
Section 8 of this Agreement that Indemnitee is not entitled to indemnification,
any judicial proceeding or arbitration commenced pursuant to this Section 10
shall be conducted in all respects as a de novo trial, or arbitration, on the
merits and Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any judicial
proceeding or arbitration commenced pursuant to this Section 10 the Company
shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been made
pursuant to Section 8 or 9 of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 10, absent
(i) a misstatement by Indemnitee or a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 10 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section 10, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in such judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification,
or advancement of Expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
Section 11. Non-Exclusivity: Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or termination of this Agreement or any provision hereof shall be
effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
termination.
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(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the Company shall
be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indefinable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
Section 12. Duration of Agreement. This Agreement shall continue until
and terminate upon the later of: (a) 10 years after the date that Indemnitee
shall have ceased to serve as director, or (b) the final termination of all
pending Proceedings in respect of which Indemnitee is granted rights of
indemnification or advancement of Expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Section 10 of this Agreement relating
thereto. This Agreement shall be binding upon the Company and its successors and
assigns and shall inure to the benefit of Indemnitee and his heirs, executors
and administrators.
Section 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement contain any such provision held to be invalid, illegal
or unenforceable, that is not itself invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (b) the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
Section 14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision of this Agreement, Indemnitee
shall not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any proceeding, or any claim therein, brought or made
by him against the Company.
Section 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed
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by the party against whom enforceability is sought needs to be produced to
evidence the existence of this Agreement.
Section 16. Headings. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 17. Definitions. For purposes of this Agreement:
(a) "Change of Control" means a change in control of the Company
occurring after the date hereof of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is
then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the date hereof (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board of Directors in office immediately prior to such person
attaining such percentage interest; (ii) the Company is a party to a merger
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholder was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.
(b) "Corporate Status" describes the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of the Company who is not
or was not a party to the Proceeding in respect of which indemnification is
sought by the Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
Proceeding.
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(e) "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct than
prevailing, would have a conflict or interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement.
(f) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative, except one
initiated by Indemnitee pursuant to Section 10 of this Agreement to enforce his
rights under this Agreement.
Section 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 19. Notice by Indemnitee. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
Section 20. Notices. All notices requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
his address indicated
on the signature page
hereof
(b) If to the Company, to:
Tender Loving Care Health Care Services, Inc.
1983 Marcus Avenue
Lake Success, New York 11042
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or such other address as may have been furnished to Indemnitee by the Company or
to the Company by Indemnitee, as the case may be.
Section 21. Governing Law. The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
Section 22. Miscellaneous. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
TENDER LOVING CARE HEALTH
CARE SERVICES, INC.
By:
----------------------------------
Name: Dale R. Clift
Title: President
INDEMNITEE
-------------------------------------
Dale R. Clift
Address: 38 The Hollows North
Muttontown, New York 11732
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<PAGE> 1
EXHIBIT 10.18
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
INDEMNIFICATION AGREEMENT
with
WILLARD T. DERR
THIS AGREEMENT, made and entered into as of [______________], 1999 (the
"AGREEMENT"), by and between TENDER LOVING CARE HEALTH CARE SERVICES, INC., a
Delaware corporation (the "COMPANY"), and WILLARD T. DERR ("INDEMNITEE"):
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and
WHEREAS, the current impracticability of obtaining adequate insurance
and the uncertainties relating to indemnification have increased the difficulty
of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company (the "BOARD OF
DIRECTORS") has determined that the inability to attract and retain such persons
is detrimental to the best interests of the Company's stockholders and that the
Company should act to assure such persons that there will be increased certainty
of such protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Services by Indemnitee. Indemnitee agrees to continue to
serve as an employee of the Company, subject to the terms and conditions of his
employment agreement, dated the date hereof as such agreement may be amended,
renewed or extended from time to time.
Section 2. Indemnification -- General. The Company shall indemnify, and
advance Expenses (as hereinafter defined) to Indemnitee as provided in this
Agreement and to
<PAGE> 2
the fullest extent permitted by applicable law in effect on the date hereof and
to such greater extent as applicable law may thereafter from time to time
permit. The rights of Indemnitee provided under the preceding sentence shall
include, but shall not be limited to, the rights set forth in the other Sections
of this Agreement.
Section 3. Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3 if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to any threatened,
pending, or completed Proceeding (as hereinafter defined), other than a
Proceeding by or in the right of the Company. Pursuant to this Section 3,
Indemnitee shall be indemnified against Expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 4
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to any threatened, pending or completed Proceeding brought by or in the
right of the Company to procure a judgment in its favor. Pursuant to this
Section, Indemnitee shall be indemnified against Expenses actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company if applicable law prohibits such
indemnification; provided, however, that if applicable law so permits,
indemnification against Expenses shall nevertheless be made by the Company in
such event if and only to the extent that the Court of Chancery of the State of
Delaware, or the Court in which such Proceeding shall have been brought or is
pending, shall determine.
Section 5. Indemnification for Expenses of a Party Who Is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section, and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
Section 6. Indemnification for Expenses of a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate
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Status, a witness in any Proceeding, he shall be indemnified against all
expenses actually and reasonably incurred by him or on his behalf in connection
therewith.
Section 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within twenty days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
Section 8. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
the first sentence of Section 8(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case: (i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) (unless
Indemnitee shall request that such determination be made by the Board of
Directors or the stockholders, in which case by the person or persons or in the
manner provided for in clause (ii) or (iii) of this Section 8(b)) in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee; (ii) if a Change of Control shall not have occurred, (A) by the
Board of Directors by a majority vote of a quorum consisting of Disinterested
Directors (as hereinafter defined), or (B) if a quorum of the Board of Directors
consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee, or (C) by the stockholders of the Company; or (iii) as provided in
Section 9(b) of this Agreement; and, if it is so determined that Indemnitee is
entitled to indemnification, payment to Indemnitee shall be made within ten (10)
days after such determination. Indemnitee shall cooperate with the person,
persons or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such person, persons or
entity upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
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(c) In the event the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b) hereof, Independent
Counsel shall be selected as provided in this Section 8(c). If a Change of
Control shall not have occurred, Independent Counsel shall be selected by the
Board of Directors, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a Change
of Control shall have occurred, Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors, in which even the preceding sentence shall apply), and the
Indemnitee shall give written notice to the Company advising it of the identity
of Independent Counsel so selected. In either event, Indemnitee or the Company,
as the case may be, may, within 7 days after such written notice of selection
shall have been given, deliver to the Company or to Indemnitee, as the case may
be, a written objection to such selection. Such objection may be asserted only
on the ground that Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in Section 17 of this
Agreement, and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is made, Independent Counsel
so selected may not serve as Independent Counsel unless and until a court has
determined that such objection is without merit. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware or other court of competent jurisdiction for resolution
of any objection which shall have been made by the Company or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the Court or by such other person as
the Court shall designate, and the person with respect to whom an objection is
so resolved or the person so appointed shall act as Independent Counsel under
Section 8(b) hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 8(b) hereof and the Company shall pay
all reasonable fees and expenses incident to the procedures of this Section
8(c), regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
Section 9. Presumptions and Effect of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
(b) If a person, persons or entity empowered or selected under Section
8 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination with 60 days after receipt
by the Company of the request therefor, the
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<PAGE> 5
requisite determination of entitlement to indemnification shall be deemed to
have been made and Indemnitee shall be entitled to such indemnification, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law; provided, however,
that such 60-day period may be extended for a reasonable time, not to exceed an
additional 30 days, if the person, persons or entity making the determination
with respect to entitlement to indemnification in good faith requires such
additional time for the obtaining or evaluating of documentation and/or
information relating thereto; and provided, further, that the foregoing
provisions of this Section 9(b) shall not apply (i) if the determination of
entitlement to indemnification is to be made by the stockholders pursuant to
Section 8(b) of this Agreement and if (A) within 15 days after receipt by the
Company of the request for such determination the Board of Directors has
resolved to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within 75 days after such
receipt and such determination is made thereat, or (B) a special meeting of
stockholders is called within 15 days after such receipt for the purpose of
making such determination, such meeting is held within 60 days after having been
so called and such determination is made thereat, or (ii) if the determination
to entitlement to indemnification is to be made by Independent Counsel pursuant
to Section 8(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
Section 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section 8
of this Agreement that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 7
of this Agreement, (iii) the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b) of this Agreement and
such determination shall not have been made and delivered in a written opinion
within 90 days after receipt by the Company of the request for indemnification,
or (iv) payment of indemnification is not made pursuant to Section 6 of this
Agreement within ten (10) days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 8 or 9 of this Agreement, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of Delaware, or in any other
court of competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
rules of the American Arbitration Association. Indemnitee shall commence such
proceeding seeking an adjudication or an award in arbitration within 180 days
following the date on which
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<PAGE> 6
Indemnitee first has the right to commence such proceeding pursuant to this
Section 10(a). The Company shall not oppose Indemnitee's right to seek
adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to
Section 8 of this Agreement that Indemnitee is not entitled to indemnification,
any judicial proceeding or arbitration commenced pursuant to this Section 10
shall be conducted in all respects as a de novo trial, or arbitration, on the
merits and Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change of Control shall have occurred, in any judicial
proceeding or arbitration commenced pursuant to this Section 10 the Company
shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been made
pursuant to Section 8 or 9 of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 10, absent
(i) a misstatement by Indemnitee or a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 10 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section 10, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 17 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in such judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification,
or advancement of Expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
Section 11. Non-Exclusivity: Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or termination of this Agreement or any provision hereof shall be
effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
termination.
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(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the Company shall
be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indefinable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
Section 12. Duration of Agreement. This Agreement shall continue until
and terminate upon the later of: (a) 10 years after the date that Indemnitee
shall have ceased to serve as director, or (b) the final termination of all
pending Proceedings in respect of which Indemnitee is granted rights of
indemnification or advancement of Expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Section 10 of this Agreement relating
thereto. This Agreement shall be binding upon the Company and its successors and
assigns and shall inure to the benefit of Indemnitee and his heirs, executors
and administrators.
Section 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement contain any such provision held to be invalid, illegal
or unenforceable, that is not itself invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (b) the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
Section 14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision of this Agreement, Indemnitee
shall not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any proceeding, or any claim therein, brought or made
by him against the Company.
Section 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed
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<PAGE> 8
by the party against whom enforceability is sought needs to be produced to
evidence the existence of this Agreement.
Section 16. Headings. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 17. Definitions. For purposes of this Agreement:
(a) "Change of Control" means a change in control of the Company
occurring after the date hereof of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is
then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the date hereof (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board of Directors in office immediately prior to such person
attaining such percentage interest; (ii) the Company is a party to a merger
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholder was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.
(b) "Corporate Status" describes the status of a person who is or was a
director, officer, employee, agent or fiduciary of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of the Company who is not
or was not a party to the Proceeding in respect of which indemnification is
sought by the Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
Proceeding.
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<PAGE> 9
(e) "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct than
prevailing, would have a conflict or interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement.
(f) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative, except one
initiated by Indemnitee pursuant to Section 10 of this Agreement to enforce his
rights under this Agreement.
Section 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 19. Notice by Indemnitee. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
Section 20. Notices. All notices requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
his address indicated on
the signature page hereof
(b) If to the Company, to:
Tender Loving Care Health Care Services, Inc.
1983 Marcus Avenue
Lake Success, New York 11042
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<PAGE> 10
or such other address as may have been furnished to Indemnitee by the Company or
to the Company by Indemnitee, as the case may be.
Section 21. Governing Law. The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
Section 22. Miscellaneous. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
TENDER LOVING CARE HEALTH
CARE SERVICES, INC.
By:
---------------------------
Name: Dale R. Clift
Title: President
INDEMNITEE
------------------------------
Willard T. Derr
Address: 8 Shirley Ct.
East Northport, New York 11731
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<PAGE> 1
EXHIBIT 10.19
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
INDEMNIFICATION AGREEMENT
with
RENEE J. SILVER
THIS AGREEMENT, made and entered into as of [______________],
1999 (the "AGREEMENT"), by and between TENDER LOVING CARE HEALTH CARE SERVICES,
INC., a Delaware corporation (the "COMPANY"), and RENEE J.
SILVER ("INDEMNITEE"):
WHEREAS, highly competent persons are becoming more reluctant
to serve publicly-held corporations as directors or in other capacities unless
they are provided with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation; and
WHEREAS, the current impracticability of obtaining adequate
insurance and the uncertainties relating to indemnification have increased the
difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company (the "BOARD OF
DIRECTORS") has determined that the inability to attract and retain such persons
is detrimental to the best interests of the Company's stockholders and that the
Company should act to assure such persons that there will be increased certainty
of such protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the
Company contractually to obligate itself to indemnify such persons to the
fullest extent permitted by applicable law so that they will serve or continue
to serve the Company free from undue concern that they will not be so
indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and
to take on additional service for or on behalf of the Company on the condition
that shebe so indemnified;
NOW, THEREFORE, in consideration of the premises and the
covenants contained herein, the Company and Indemnitee do hereby covenant and
agree as follows:
Section 1. Services by Indemnitee. Indemnitee agrees to
continue to serve as an employee of the Company, subject to the terms and
conditions of her employment agreement, dated the date hereof as such agreement
may be amended, renewed or extended from time to time.
Section 2. Indemnification -- General. The Company shall
indemnify, and advance Expenses (as hereinafter defined) to Indemnitee as
provided in this Agreement and to
<PAGE> 2
the fullest extent permitted by applicable law in effect on the date hereof and
to such greater extent as applicable law may thereafter from time to time
permit. The rights of Indemnitee provided under the preceding sentence shall
include, but shall not be limited to, the rights set forth in the other Sections
of this Agreement.
Section 3. Proceedings Other Than Proceedings by or in the
Right of the Company. Indemnitee shall be entitled to the rights of
indemnification provided in this Section 3 if, by reason of her Corporate Status
(as hereinafter defined), she is, or is threatened to be made, a party to any
threatened, pending, or completed Proceeding (as hereinafter defined), other
than a Proceeding by or in the right of the Company. Pursuant to this Section 3,
Indemnitee shall be indemnified against Expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by her or on her
behalf in connection with such Proceeding or any claim, issue or matter therein,
if she acted in good faith and in a manner she reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal Proceeding, had no reasonable cause to believe her conduct was
unlawful.
Section 4. Proceedings by or in the Right of the Company.
Indemnitee shall be entitled to the rights of indemnification provided in this
Section 4 if, by reason of her Corporate Status, she is, or is threatened to be
made, a party to any threatened, pending or completed Proceeding brought by or
in the right of the Company to procure a judgment in its favor. Pursuant to this
Section, Indemnitee shall be indemnified against Expenses actually and
reasonably incurred by her or on her behalf in connection with such Proceeding
if she acted in good faith and in a manner she reasonably believed to be in or
not opposed to the best interests of the Company. Notwithstanding the foregoing,
no indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company if applicable law prohibits such
indemnification; provided, however, that if applicable law so permits,
indemnification against Expenses shall nevertheless be made by the Company in
such event if and only to the extent that the Court of Chancery of the State of
Delaware, or the Court in which such Proceeding shall have been brought or is
pending, shall determine.
Section 5. Indemnification for Expenses of a Party Who Is
Wholly or Partly Successful. Notwithstanding any other provision of this
Agreement, to the extent that Indemnitee is, by reason of her Corporate Status,
a party to and is successful, on the merits or otherwise, in any Proceeding, she
shall be indemnified against all Expenses actually and reasonably incurred by
her or on her behalf in connection therewith. If Indemnitee is not wholly
successful in such Proceeding but is successful, on the merits or otherwise, as
to one or more but less than all claims, issues or matters in such Proceeding,
the Company shall indemnify Indemnitee against all Expenses actually and
reasonably incurred by her or on her behalf in connection with each successfully
resolved claim, issue or matter. For purposes of this Section, and without
limitation, the termination of any claim, issue or matter in such a Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
Section 6. Indemnification for Expenses of a Witness.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is, by reason of her Corporate
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Status, a witness in any Proceeding, she shall be indemnified against all
expenses actually and reasonably incurred by her or on her behalf in connection
therewith.
Section 7. Advancement of Expenses. The Company shall advance
all reasonable Expenses incurred by or on behalf of Indemnitee in connection
with any Proceeding within twenty days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
Section 8. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
is reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 8(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case: (i) if a Change in Control (as hereinafter
defined) shall have occurred, by Independent Counsel (as hereinafter defined)
(unless Indemnitee shall request that such determination be made by the Board of
Directors or the stockholders, in which case by the person or persons or in the
manner provided for in clause (ii) or (iii) of this Section 8(b)) in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee; (ii) if a Change of Control shall not have occurred, (A) by the
Board of Directors by a majority vote of a quorum consisting of Disinterested
Directors (as hereinafter defined), or (B) if a quorum of the Board of Directors
consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee, or (C) by the stockholders of the Company; or (iii) as provided in
Section 9(b) of this Agreement; and, if it is so determined that Indemnitee is
entitled to indemnification, payment to Indemnitee shall be made within ten (10)
days after such determination. Indemnitee shall cooperate with the person,
persons or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such person, persons or
entity upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
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<PAGE> 4
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b)
hereof, Independent Counsel shall be selected as provided in this Section 8(c).
If a Change of Control shall not have occurred, Independent Counsel shall be
selected by the Board of Directors, and the Company shall give written notice to
Indemnitee advising her of the identity of the Independent Counsel so selected.
If a Change of Control shall have occurred, Independent Counsel shall be
selected by Indemnitee (unless Indemnitee shall request that such selection be
made by the Board of Directors, in which even the preceding sentence shall
apply), and the Indemnitee shall give written notice to the Company advising it
of the identity of Independent Counsel so selected. In either event, Indemnitee
or the Company, as the case may be, may, within 7 days after such written notice
of selection shall have been given, deliver to the Company or to Indemnitee, as
the case may be, a written objection to such selection. Such objection may be
asserted only on the ground that Independent Counsel so selected does not meet
the requirements of "Independent Counsel" as defined in Section 17 of this
Agreement, and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is made, Independent Counsel
so selected may not serve as Independent Counsel unless and until a court has
determined that such objection is without merit. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 8(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware or other court of competent jurisdiction for resolution
of any objection which shall have been made by the Company or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the Court or by such other person as
the Court shall designate, and the person with respect to whom an objection is
so resolved or the person so appointed shall act as Independent Counsel under
Section 8(b) hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 8(b) hereof and the Company shall pay
all reasonable fees and expenses incident to the procedures of this Section
8(c), regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
Section 9. Presumptions and Effect of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
(b) If a person, persons or entity empowered or selected under
Section 8 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination with 60 days after receipt
by the Company of the request therefor, the
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<PAGE> 5
requisite determination of entitlement to indemnification shall be deemed to
have been made and Indemnitee shall be entitled to such indemnification, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law; provided, however,
that such 60-day period may be extended for a reasonable time, not to exceed an
additional 30 days, if the person, persons or entity making the determination
with respect to entitlement to indemnification in good faith requires such
additional time for the obtaining or evaluating of documentation and/or
information relating thereto; and provided, further, that the foregoing
provisions of this Section 9(b) shall not apply (i) if the determination of
entitlement to indemnification is to be made by the stockholders pursuant to
Section 8(b) of this Agreement and if (A) within 15 days after receipt by the
Company of the request for such determination the Board of Directors has
resolved to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within 75 days after such
receipt and such determination is made thereat, or (B) a special meeting of
stockholders is called within 15 days after such receipt for the purpose of
making such determination, such meeting is held within 60 days after having been
so called and such determination is made thereat, or (ii) if the determination
to entitlement to indemnification is to be made by Independent Counsel pursuant
to Section 8(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue
or matter therein, by judgment, order, settlement or conviction, or upon a plea
of nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which she reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that her conduct was unlawful.
Section 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to
Section 8 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 7 of this Agreement, (iii) the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b) of
this Agreement and such determination shall not have been made and delivered in
a written opinion within 90 days after receipt by the Company of the request for
indemnification, or (iv) payment of indemnification is not made pursuant to
Section 6 of this Agreement within ten (10) days after receipt by the Company of
a written request therefor, or (v) payment of indemnification is not made within
ten (10) days after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 8 or 9 of this Agreement, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of Delaware, or in any other
court of competent jurisdiction, of her entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at her option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
rules of the American Arbitration Association. Indemnitee shall commence such
proceeding seeking an adjudication or an award in arbitration within 180 days
following the date on which
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<PAGE> 6
Indemnitee first has the right to commence such proceeding pursuant to this
Section 10(a). The Company shall not oppose Indemnitee's right to seek
adjudication or award in arbitration.
(b) In the event that a determination shall have been made
pursuant to Section 8 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 10 the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have
been made pursuant to Section 8 or 9 of this Agreement that Indemnitee is
entitled to indemnification, the Company shall be bound by such determination in
any judicial proceeding or arbitration commenced pursuant to this Section 10,
absent (i) a misstatement by Indemnitee or a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 10 that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section 10,
seeks a judicial adjudication of or an award in arbitration to enforce her
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 17 of this Agreement) actually and reasonably incurred by
her in such judicial adjudication or arbitration, but only if she prevails
therein. If it shall be determined in such judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification,
or advancement of Expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
Section 11. Non-Exclusivity: Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement
of Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or termination of this Agreement or any provision hereof shall be
effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in her Corporate Status prior to such amendment, alteration or
termination.
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(b) To the extent that the Company maintains an insurance
policy or policies providing liability insurance for directors, officers,
employees, agents or fiduciaries of the Company or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person serves at the request of the Company Indemnitee shall be
covered by such policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any such director, officer,
employee or agent under such policy or policies.
(c) In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to
make any payment of amounts otherwise indefinable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
Section 12. Duration of Agreement. This Agreement shall
continue until and terminate upon the later of: (a) 10 years after the date that
Indemnitee shall have ceased to serve as director, or (b) the final termination
of all pending Proceedings in respect of which Indemnitee is granted rights of
indemnification or advancement of Expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Section 10 of this Agreement relating
thereto. This Agreement shall be binding upon the Company and its successors and
assigns and shall inure to the benefit of Indemnitee and her heirs, executors
and administrators.
Section 13. Severability. If any provision or provisions of
this Agreement shall be held to be invalid, illegal or unenforceable for any
reason whatsoever: (a) the validity, legality and enforceability of the
remaining provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement contain any such provision held to be
invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b) the
fullest extent possible, the provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
Section 14. Exception to Right of Indemnification or
Advancement of Expenses. Notwithstanding any other provision of this Agreement,
Indemnitee shall not be entitled to indemnification or advancement of Expenses
under this Agreement with respect to any proceeding, or any claim therein,
brought or made by her against the Company.
Section 15. Identical Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall for all purposes be
deemed to be an original but all of which together shall constitute one and the
same Agreement. Only one such counterpart signed
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by the party against whom enforceability is sought needs to be produced to
evidence the existence of this Agreement.
Section 16. Headings. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
Section 17. Definitions. For purposes of this Agreement:
(a) "Change of Control" means a change in control of the
Company occurring after the date hereof of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is
then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the date hereof (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board of Directors in office immediately prior to such person
attaining such percentage interest; (ii) the Company is a party to a merger
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholder was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.
(b) "Corporate Status" describes the status of a person who is
or was a director, officer, employee, agent or fiduciary of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such person is or was serving at the request of the
Company.
(c) "Disinterested Director" means a director of the Company
who is not or was not a party to the Proceeding in respect of which
indemnification is sought by the Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a witness in
a Proceeding.
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<PAGE> 9
(e) "Independent Counsel" means a law firm, or a member of a
law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent: (i)
the Company or Indemnitee in any matter material to either such party, or (ii)
any other party to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall
not include any person who, under the applicable standards of professional
conduct than prevailing, would have a conflict or interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's rights
under this Agreement.
(f) "Proceeding" includes any action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing or
any other proceeding whether civil, criminal, administrative or investigative,
except one initiated by Indemnitee pursuant to Section 10 of this Agreement to
enforce her rights under this Agreement.
Section 18. Modification and Waiver. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
Section 19. Notice by Indemnitee. Indemnitee agrees promptly
to notify the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement of
Expenses covered hereunder.
Section 20. Notices. All notices requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
her address indicated on
the signature page hereof
(b) If to the Company, to:
Tender Loving Care Health Care Services, Inc.
1983 Marcus Avenue
Lake Success, New York 11042
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or such other address as may have been furnished to Indemnitee by the Company or
to the Company by Indemnitee, as the case may be.
Section 21. Governing Law. The parties agree that this
Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the State of Delaware.
Section 22. Miscellaneous. Use of the masculine pronoun shall
be deemed to include usage of the feminine pronoun where appropriate.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
TENDER LOVING CARE HEALTH
CARE SERVICES, INC.
By:
---------------------------------
Name: Dale R. Clift
Title: President
INDEMNITEE
------------------------------------
Renee J. Silver
Address: 11 Pine Drive
Port Washington, New York 11050-3424
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<PAGE> 1
EXHIBIT 10.20
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
1999 STOCK OPTION PLAN
1. Purpose. Tender Loving Care Health Care Services, Inc., a
Delaware corporation (the "Company"), intends that this 1999 Stock Option Plan
(the "Plan") will provide incentive to key employees, directors and consultants
of the Company or its Subsidiaries to continue and increase their efforts to
improve operating results, to remain in the employ or service of the Company or
its Subsidiaries, and to have a greater financial interest in the Company
through ownership of its Common Stock.
2. Administration. The Compensation and Stock Option Committee
of the Company appointed by the Board of Directors of the Company (the
"Committee"), and consisting of no fewer than two directors, shall administer
the Plan. Each member of the Committee must be a "non-employee director" as
defined by Rule 16b-3 of the Securities Exchange Act of 1934 and an "outside
director" for purposes of Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"). The Committee shall have full power to construe and
interpret the Plan, to establish and amend rules and regulations for its
administration and to determine those persons to whom options shall be granted,
subject to the limitations set forth in the Plan. All actions taken and
decisions made by the Committee pursuant to the Plan shall be final and
conclusive.
3. Eligibility. Persons eligible to receive options shall be
key employees and non-employee directors of and consultants regularly providing
services to the Company or any Subsidiary of the Company; provided, however,
members of the Committee shall not be eligible to receive options under the Plan
and, provided, further, that non-employee directors and consultants shall not be
eligible to receive incentive stock options hereunder. Nothing contained in the
Plan shall be deemed to require the Company to continue the employment of, or
any other contractual arrangement with, any optionee. For purposes of the Plan,
the term "Subsidiary" shall mean any subsidiary corporation as defined in
Section 424 of the Code.
4. Stock Subject to the Plan.
(a) Stock to be offered under the Plan shall be shares of the
Company's Common Stock, par value $.01 per share, which may be authorized but
unissued shares or shares acquired by the Company and held in its treasury, as
the Board of Directors may determine. Subject to Section 6 of the Plan, not more
than 2,750,000 shares of Common Stock shall be sold on exercise of options
granted under the Plan. If the Board of Directors determines that it is in the
best interest of the Company to do so, an optionee may surrender all or part of
his options and be granted in lieu thereof new options for the purchase of a
greater or lesser number of shares, whether or not the option price is lower or
higher than the option price applicable to the options surrendered.
<PAGE> 2
For purposes of the Plan, the term "Common Stock" includes any
stock into which such Common Stock shall have been changed or any stock
resulting from any reclassification of such Common Stock.
(b) The maximum number of shares which may be subject to
options granted under the Plan to any individual in any fiscal year of the
Company shall not exceed 250,000. To the extent required by Section 162(m) of
the Code, shares subject to options which are canceled continue to be counted
against the maximum number of shares an individual may receive and if, after
grant of an option, the price of shares subject to such option is reduced, the
transaction is treated as a cancellation of the option and a grant of a new
option and both the option deemed to be canceled and the option deemed to be
granted are counted against the maximum number of shares an individual may
receive.
5. Award of Options. The Committee may, in its discretion,
grant options under the Plan from time to time prior to the expiration of ten
years from the date on which the Company's Board of Directors adopts the Plan.
The Committee may grant options effective as of any date within such ten-year
period as is specified by the Committee in the Stock Option Agreement (defined
in Section 7(k)) relating to such options. However, the Committee may not grant
an incentive stock option, as described in Section 8, if the grant of such
option would violate the requirement of Section 8(a). The shares covered by the
unexercised portion of any terminated or expired options shall become available
again for the grant of options under the Plan, subject to the limitations of
Section 4(b).
6. Adjustments.
(a) Subject to any required action by the stockholders of the
Company, in the event of any change in the Company or that the outstanding
shares of Common Stock are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company or of another corporation by reason of reorganization, merger,
consolidation, spin-off, recapitalization, reclassification, stock split,
combination of shares or share dividends, the Committee shall adjust the number
and kind of shares for the purchase of which options may be granted under the
Plan and the number and kind of shares as to which outstanding options, or
portions thereof then unexercised shall be exercisable. In any such case, the
Committee shall make such adjustment in outstanding options without change in
the total price applicable to the unexercised portion of the option and with a
corresponding adjustment in the option price per share. In the event that the
number of shares of Common Stock is increased by sale of additional shares or
conversion of securities convertible into such shares or any other similar event
not referred to in the first sentence of this Section, the Committee may in its
discretion, but shall not be obligated to, adjust the number or kind of shares
for the purchase of which options have been granted under the Plan.
(b) Should the Company sell all or substantially all of its
assets and discontinue its business, or merge or consolidate with another
entity, or liquidate or dissolve in
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<PAGE> 3
connection with those events, then, in lieu of its obligation under Section
6(a), the Company's Board of Directors may amend or adjust both the Plan and
outstanding options so as to terminate the Plan completely, or to continue the
Plan with respect to the exercise of options which were exercisable at the date
the Board of Directors adopted the plan of sale, merger, consolidation, or
liquidation, or may take other actions as it deems desirable and appropriate. In
any such case, however, each optionee will be given either (i) a reasonable time
in which to exercise his options (to the extent possible under the options'
terms as set forth in Section 7(c)) before the effectiveness of the sale and
discontinuation, merger, consolidation or liquidation, or (ii) the right to
obtain, for his payment of the option price, an equivalent amount of any
securities such optionee would have been entitled to obtain in consequence of
that event, had he exercised his options (to the extent possible under the
options' terms as set forth in Section 7(c)) immediately before the plan of sale
and discontinuation, merger, consolidation, or liquidation was adopted.
(c) Should the Company be recapitalized in a transaction not
covered by Section 6(a) by the issuance of any class or classes of securities in
exchange for Common Stock, the Board of Directors shall amend the Plan and
outstanding options to reflect an equivalent number of such securities as being
subject to the Plan and such options and to reflect an adjusted option price per
unit of such securities as would equitably be obtained in accordance with the
terms otherwise applicable to the actual exchange.
(d) Neither Section 6(b) nor 6(c) will require the Company to
issue any fractional share under the Plan or upon exercise of outstanding
options; and any amount payable for option exercise will be appropriately
reduced in respect of any such fractional shares otherwise required by operation
of those Sections, but not issued by reason of this Section 6(d).
7. Terms of Option. Except to the extent Section 8(b) hereof
may otherwise require with respect to incentive stock options to be granted to
any person who immediately before the grant of such option owns shares
representing more than 10% of the total combined voting power of all classes of
shares of the Company or of any parent corporation or Subsidiary, all options
under the Plan shall be subject to the following conditions and to such other
conditions as the Committee and the optionee may agree:
(a) Option Term. No option granted under the Plan will be
exercisable earlier than the date six months following the date on which the
option is granted or after the expiration of ten years from the date on which
the option is granted.
(b) Option Price. The Committee shall determine the option
price per share, which shall not be less than the Fair Market Value of such
share with respect to incentive stock options or nonstatutory stock options
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code and which shall not be less than the par value of such
share with respect to nonstatutory stock options, and shall be set forth in the
Stock Option Agreement. For the purposes of the Plan, "Fair Market Value" means,
on a per share basis, the closing price reported on the Nasdaq Stock Market's
National Market for
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Common Stock on the date of grant, or if the date of grant is not a trading day,
on the trading day immediately preceding the date on which the Committee granted
the options (or if no sale was quoted on the Nasdaq Stock Market's National
Market on such date, on the next preceding day on which there was such a sale).
(c) Vesting Schedule. Options granted on a given date shall
become exercisable at such times and in such amounts as the Committee shall
determine.
Notwithstanding the preceding sentence, no incentive stock
option may be granted that would cause the limits of Section 8(a) to be exceeded
with respect to an optionee. The Committee, in its sole discretion, may
prescribe a different vesting schedule for any incentive stock option granted
under the Plan if necessary to prevent the option from violating the
requirements of Section 8(a). However, in no event shall any option become
exercisable earlier than the date six months following the date on which the
option is granted.
When an installment of options has become exercisable, the
optionee may exercise that installment, in whole or in part, at any time prior
to the expiration or termination of the options. Subject to Section 7(a) of the
Plan, and, in the case of incentive stock options, subject to Section 8(a), the
Committee may accelerate the time at which outstanding options may be exercised.
Notwithstanding any schedule for vesting stated above or other
exercise schedule or entitlement which effectively precludes full and immediate
exercise of the related option, any option will become immediately exercisable
in full upon the occurrence of particular events or as the Board of Directors
may thereafter determine to be advisable, provided that, (i) at the time of such
occurrence or determination, the optionee has remained continuously employed by
the Company or any Subsidiary for at least six months from the date of grant of
such option, and (ii) in the case of an incentive stock option, such
acceleration would not cause the limits of Section 8(a) to be violated. Without
limitation, those particular events include the following: (i) a change in
control of the Company in a transaction or occurrence, or a related series of
transactions or occurrences, resulting from a material change in ownership of
Common Stock and evidenced by cessation in service as directors of a majority of
those persons theretofore serving as members of the Board; (ii) the sale by the
Company of all or substantially all of its assets and the discontinuance of its
business, or the merger or consolidation of the Company with another entity, or
the liquidation of the Company in connection with those events, any of which
results in a change in control described in (i); or (iii) a determination by the
Board of Directors that immediate exercisability would be in the best interests
of the Company and advisable for protection of the rights intended to be granted
under the option.
(d) Exercise of Options. Only the optionee to whom the Company
has granted such rights or his guardian or legal representative may exercise
options. Shares may be purchased from time to time on the exercise of stock
options only by sending a written notice of election to exercise in the form
attached to the Stock Option Agreement, together with full
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payment of the option price therefor, to the Secretary of the Company (i) in
cash (or an equivalent check or other form of payment acceptable to the
Company), or (ii) if the Committee shall approve in its sole discretion, other
Common Stock of the Company currently registered in the name of, or beneficially
owned by, the holder and surrendered in due form for transfer to the Company. In
the case of payment in the Company's Common Stock, such stock shall be valued at
its Fair Market Value (as defined in Section 7(b) of the Plan) as of the date of
surrender of the Common Stock.
(e) Termination of Options. If an optionee ceases to be
employed by or to provide services to the Company or a Subsidiary for any
reason, such optionee may exercise the options theretofore granted to him within
a period of three months after his employment or service terminates, for not
more than the number of shares as to which options were exercisable by him on
the date he ceased to be employed or to serve, except that:
(i) if the Company has terminated his employment or
service for cause, all options granted to him and theretofore unexercised shall
terminate automatically on notice of termination; and
(ii) if the optionee's employment or service shall have
terminated because of his death; or if the optionee shall have died during three
months immediately following termination of his employment or service (other
than because of an event referred to in clause (i) above), the options
theretofore granted to him may be exercised by the estate of the decedent, or by
a person who acquired the right to exercise such options by bequest or
inheritance, or by reason of the death of the decedent, at any time within nine
months after the optionee's death, for up to the number of shares as to which
options were exercisable by the optionee on the date he ceased to be employed or
to provide services.
Notwithstanding the provisions of this Section 7(e), nothing
herein will extend the terms of the options specified in Section 7(a) of the
Plan.
(f) Payment of Taxes. Upon settlement of any options, it shall
be a condition to the obligation of the Company that the optionee pay to the
Company such amount as the Company may request for the purpose of satisfying its
liability to withhold federal, state or local income or other taxes.
(g) Applicable Regulations. The Company shall not be obligated
to sell or issue any shares upon exercise of any option if the exercise thereof
or the delivery of shares thereunder would constitute a violation of any federal
or state securities law or listing requirements of any national securities
exchange or automated quotation system of a registered securities association on
which the Common Stock may be listed or quoted.
(h) Purchase for Investment. In the event that the Company has
not registered the shares with respect to which options are being exercised
under the Securities Act of 1933, as amended, each optionee electing to purchase
such shares will be required to represent
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<PAGE> 6
that he is acquiring such shares for investment purposes only and not with a
view to the sale or distribution thereof, and to make such other representations
as are deemed necessary by counsel to the Company. Stock certificates evidencing
such unregistered shares acquired upon exercise of options shall bear a
restrictive legend stating as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE PLEDGED OR HYPOTHECATED AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES
UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT, UNLESS IN THE OPINION
OF COUNSEL FOR THE COMPANY SUCH A LEGEND IS NOT NECESSARY.
(i) Rights as a Stockholder. The optionee shall have no rights
as a stockholder with respect to any shares covered by an option until the date
of issuance of a stock certificate for such shares. Without limiting the
foregoing, the Company shall make no adjustment for dividends or other rights
for which the record date is prior to the date such stock certificate is issued.
(j) Transfer of Option. A stock option shall not be
transferrable, otherwise than by will or by the laws of descent and
distribution.
(k) Form of Option. Options shall be evidenced by Stock Option
Agreements ("Stock Option Agreements") in such form as shall not be inconsistent
with the Plan. Any Stock Option Agreement entered into pursuant thereto may
contain such other terms, provisions and conditions not inconsistent herewith as
shall be determined by the Committee; provided, however, the terms, provisions
and conditions of Stock Option Agreements evidencing options intended to qualify
as performance-based compensation under Section 162(m)(4)(C) of the Code shall
include, but not be limited to, such terms, provisions and conditions as may be
necessary to meet the applicable provisions of Section 162(m)(4)(C) of the Code.
8. Incentive Stock Options. Options granted under the Plan to
an employee of the Company, its parent or any Subsidiary may be incentive stock
options (as defined under Section 422 of the Code) or nonstatutory stock
options, as determined by the Committee at the time of grant of an option and
subject to the applicable provisions of Section 422 of the Code and the
regulations promulgated thereunder.
(a) Limit. No incentive stock option may be granted to an
optionee if the Fair Market Value at the date of grant of shares with respect to
which such option would first become exercisable in any calendar year, when
added to the Fair Market Value at the date of grant of any other shares with
respect to which an incentive stock option granted to such optionee under this
plan (or any other incentive stock option plan maintained by the Company,
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<PAGE> 7
its parent or any Subsidiary) first becomes exercisable in such calendar year,
would exceed $100,000.
(b) 10% Stockholder. In the case of an incentive stock option
granted to an optionee who, immediately before the grant of such option, owns
shares representing more than 10% of the total combined voting power of all
classes of the shares of the Company, in no event shall the per share option
price be less than 110% of the Fair Market Value (as defined in Section 7(b) of
the Plan) per share of Common Stock on the date of grant, nor shall the option
by it terms be exercisable more than 5 years after the date such option is
granted.
9. Use of Proceeds. Proceeds from the sale of Common Stock
under the Plan shall be added to the general funds of the Company.
10. Indemnification of Committee. In addition to such other
rights of indemnification as they may have as members of the Board of Directors
or as members of the Committee, the Company shall indemnify the members of the
Committee against all costs and expenses reasonably incurred by them in
connection with any action, suit or proceeding to which they or any of them may
be party by reason of any action taken or failure to act under or in connection
with the Plan or any award made under the Plan, and against all amounts paid by
them in satisfaction of a judgment in any such action, suit or proceeding,
except a judgment based upon a finding of bad faith. Upon the institution of any
such action, suit or proceeding, a Committee member shall notify the Company in
writing, giving the Company an opportunity, at its own expense, to handle and
defend the same before such Committee member undertakes to handle it on his own
behalf.
11. Successors in Interest. The Plan may be adopted and
continued by any successor or successors of the Company, whether by merger,
consolidation, sales of assets or otherwise. Whether or not the Plan is so
adopted and continued, the obligations of the Company under the Plan shall be
binding upon any such successor or successors, and for this purpose reference in
the Plan to the Company shall be deemed to include any such successors.
12. Amendment or Termination of the Plan. The Board of
Directors may in its discretion terminate the Plan with respect to any shares
for which options have not theretofore been granted. The Board of Directors and
the Committee shall have the right to alter or amend the Plan or any part
thereof from time to time; provided, however, no change which would impair the
right of an optionee may be made in any options theretofore granted, without
consent of such optionee; and provided, further, that the Board of Directors or
the Committee may not, without appropriate approval of not less than a majority
of the shares of Common Stock (or other voting stock entitled to vote thereon at
the time outstanding) present in person or by proxy at a meeting of holders of
such shares, alter or modify the Plan so as to increase the maximum amount of
Common Stock which may be issued under the Plan, extend the term of the Plan or
of options granted thereunder, reduce the price at which options may be granted
or exercised,
7
<PAGE> 8
change the eligibility requirements for participation in the Plan, or change the
eligibility requirements for, or permit the granting of options to, members of
the Committee.
13. Expenses. The Company shall bear the expenses of
administering the Plan, other than taxes or similar charges payable by any
optionee.
14. Effective Date. Options may be granted under the Plan
after the Plan has been adopted by the Board of Directors. However, the Plan
shall be effective only if approved by the stockholders of the Company within 12
months of the date the Plan is adopted by the Board of Directors, and options
granted prior to the date of such stockholder approval shall lapse, and be of no
further force or effect, if such approval is not obtained.
15. Funding. Anything herein contained to the contrary
notwithstanding, the Company shall not be required to set aside any amount at
any time to fund any obligations of the Company to make any payments to any
optionee.
16. Right to Discharge Reserved. Nothing in the Plan shall
confer upon an optionee or any other person the right to continue in the
employment of the Company or any Subsidiary or affect any right which the
Company or such Subsidiary may have to terminate the employment of the optionee
or any other person.
17. Governing Law. All questions pertaining to the
construction, validity and effect of the Plan, or to the rights of any person
under the Plan, shall be determined in accordance with the laws of the State of
New York.
18. Code Section 162(m) Limitations. Notwithstanding any other
provision of this Plan, any option which is intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code
shall be subject to any additional limitations set forth in Section 162(m) of
the Code (including any amendment to Section 162(m) of the Code) or any
regulations or rulings issued thereunder that are requirements for qualification
as performance-based compensation as described in Section 162(m)(4)(C) of the
Code, and this Plan shall be deemed amended to the extent necessary to conform
to such requirements.
8
<PAGE> 1
EXHIBIT 10.21
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
1999 STOCK OPTION PLAN
Date
Name
Re: Grant of Stock Options to Purchase Shares of the common
stock of Tender Loving Care Health Care Services, Inc.
Dear Optionee:
You and Tender Loving Care Health Care Services, Inc., a Delaware
corporation (the "Corporation"), hereby agree as follows:
1. Reference. This is the Stock Option Agreement referred to in Section
7(k) of the Corporation's 1999 Stock Option Plan (the "Plan"). The stock option
this Agreement grants is an Incentive/Nonqualifying Stock Option. This Agreement
incorporates all terms, conditions and provisions of the Plan.
2. Stock Option. The Corporation hereby grants to the Optionee the
option (the "Stock Option") to purchase that number of shares of common stock of
the Corporation, par value $.01 per share, set forth on Schedule A. The
Corporation will issue these shares as fully paid and nonassessable shares upon
the Optionee's exercise of the Stock Option. The Optionee may exercise the Stock
Option in accordance with this Agreement any time prior to the tenth anniversary
of the date of grant of the Stock Option evidenced by this Agreement, unless
earlier terminated according to the terms of this Agreement. Schedule A sets
forth the date or dates after which the Optionee may exercise all or part of the
Stock Option, subject to the provisions of the Plan.
3. Exercise of Stock Option. The Optionee may exercise the Stock
Options in whole or in part by written notice delivered to the Corporation in
the form of Schedule B to this Agreement. If exercisable Stock Options as to 100
or more shares are held by an Optionee, then such Stock Options may not be
exercised for fewer than 100 shares at any one time, and if exercisable Stock
Options for fewer than 100 shares are held by an Optionee, then Stock Options
for all such shares must be exercised at one time. The Optionee shall enclose
with each such
<PAGE> 2
notice payment by cash or by valid check in an amount equal to the number of
shares as to which his exercise is made, multiplied by the option price
therefor; provided, however, that if the Committee appointed by the Board of
Directors pursuant to Section 2 of the Plan shall, in its sole discretion,
approve, payment upon exercise of the Stock Option in whole or in part may be
made by surrender to the Corporation in due form for transfer of shares of
common stock of the Corporation. In the case of payment in the Corporation's
common stock, such stock shall be valued at its Fair Market Value (as defined in
Section 7 (b) of the Plan) as of the date of surrender of the stock.
4. Purchase Price. The option price per share shall be that set forth
on Schedule A.
5. No Rights in Option Stock. Optionee shall have no rights as a
stockholder in respect of any shares subject to the Stock Option unless and
until Optionee has exercised the Stock Option in complete accordance with the
terms hereof. and shall have no rights with respect to shares not expressly
conferred by this Agreement
6. Shares Reserved. The Corporation shall at all times during the term
of this Agreement reserve and keep available such number of shares of common
stock as will be sufficient to satisfy the requirements of this Agreement, and
shall pay all original issue taxes on the exercise of the Stock Option, and all
other fees and expenses necessarily incurred by the Corporation in connection
therewith.
7. Nonassignability. The Stock Option and this Agreement shall not be
encumbered, disposed of, assigned or transferred in whole or in part, except by
will or by the laws of descent and distribution. Except as described in the
Plan, the Optionee alone may exercise the Stock Option. All shares purchased
pursuant to this Agreement shall be purchased for investment by the Optionee.
8. Effect Upon Employment. Nothing in this Agreement shall confer on
the Optionee any right to continue in the employment of the Corporation or shall
interfere in any way with the right of the Corporation to terminate Optionee's
employment at any time.
9. Successors. This Agreement shall be binding upon any successor of
the Corporation.
<PAGE> 3
In order to indicate your acceptance of the Stock Option on the above
terms and conditions, kindly sign the enclosed copy of this letter agreement and
return it to the Corporation.
TENDER LOVING CARE HEALTH CARE
SERVICES, INC.
By:
-----------------------------
Accepted and Agreed to:
- --------------------------------
<PAGE> 4
Schedule A
Stock Option
Date of Grant:
Name of Optionee:
Number of Shares as to
which the Option is Granted:
Option Price per Share:
Exercisability of Options:
<PAGE> 5
Schedule B
NOTICE OF ELECTION TO EXERCISE
Attention:
Gentlemen:
I hereby irrevocably elect to exercise the Stock Option held by me
under the 1999 Stock Option Plan of Tender Loving Care Health Care Services,
Inc. (the "Corporation") to purchase shares of the common stock, par value $.01
per share, of the Corporation at an option price of $_____ per share.
Enclosed is a check, payable to the order of the Corporation, in the
amount of $_______.
A completed Exercise of Stock Option Payment Remittance Form is
attached.
Please instruct [ ], Transfer Agent, to issue ______
certificate(s) for shares each and, if applicable, a separate certificate for
the remaining ______ shares in my name as shown below. The following address is
for the records of the Transfer Agent for mailing stockholder communications.
-----------------------------------------------------
Name
-----------------------------------------------------
Taxpayer I.D. Number
(i.e. Social Security/Insurance Number)
-----------------------------------------------------
Number and Street
-----------------------------------------------------
City State Zip Code
<PAGE> 6
Please forward the certificate(s) to me at the following address:
-----------------------------------------------------
Number and Street
-----------------------------------------------------
City State Zip Code
This election incorporates, and is subject to, all terms and conditions
of the Plan and my Stock Option Agreement with the Corporation. The Stock Option
I am exercising is stated to be:
[Check one] ( ) Incentive Stock Option
( ) Nonqualifying Stock Option
I am acquiring the foregoing shares for investment purposes only, and
not with a view to their sale or distribution.
Dated:
------------------
--------------------------------
Signature
--------------------------------
Printed Name
<PAGE> 7
Schedule B-1
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
1999
STOCK OPTION PLAN
Exercise of Stock Option Payment Remittance Form
In fulfillment of the accompanying Notice of Election to Exercise,
which advises you of my intention to exercise options to purchase _______ shares
of Tender Loving Care Health Care Services, Inc. common stock at an option price
of $ per share, for a total purchase price of $ , I enclose in full
payment of the purchase price:
bank check in the amount of ............ $
--------------
made payable to Tender Loving Care Health Care Services, Inc.
Dated:
------------------
--------------------------------
Signature
( ) Incentive Stock Option
( ) Nonqualifying Stock Option
--------------------------------
Type Name
<PAGE> 1
EXHIBIT 10.23
STAFF BUILDERS, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
<PAGE> 2
STAFF BUILDERS, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
WHEREAS, Staff Builders, Inc. (the "Company") desires to
establish a deferred compensation plan to provide supplemental retirement
income benefits for a select group of management and highly compensated
employees through deferrals of salary and bonuses, effective March 1, 1994; and
WHEREAS, it is believed that the adoption of this plan
providing for deferred compensation at the election of each executive will be
in the best interests of the Company;
NOW, THEREFORE, it is hereby declared as follows:
ARTICLE I
TITLE AND DEFINITIONS
1.1 Title. This Plan shall be known as the Staff Builders,
Inc. Executive Deferred Compensation Plan.
1.2 Definitions. Whenever the following words and phrases are
used in this Plan, with the first letter capitalized, they shall have the
meanings specified below.
"Account" shall mean a Participant's Deferral Account.
"Beneficiary" or "Beneficiaries" shall mean the person or
persons, including a trustee, personal representative or other fiduciary, last
designated in writing by a Participant in accordance with procedures
established by the Committee to receive the benefits specified hereunder in the
event of the Participant's death. If there is no valid Beneficiary designation
in effect, or if there is no surviving designated Beneficiary, then the
Participant's surviving spouse shall be the Beneficiary. If there is no
surviving spouse to receive any benefits payable in accordance with the
preceding sentence, the duly appointed and currently acting personal
representative of the participant's estate (which shall include either the
Participant's probate estate or living trust) shall be the Beneficiary. In any
case where there is no such personal representative of the Participant's estate
duly appointed and acting in that capacity within 90 days after the
Participant's death (or such extended period as the Committee determines is
reasonably necessary to allow such personal representative to be appointed, but
not to exceed 180 days after the Participant's death), then Beneficiary shall
mean the person or persons who can verify by affidavit or court order to the
satisfaction of the Committee that they are legally entitled to receive the
benefits specified hereunder. In the event any amount is payable under the Plan
to a minor, payment shall not be made to the minor, but instead by paid (a) to
that person's living parent(s) to act as custodian, (b) if that person's
parents are then divorced, and one parent is the sole custodial parent, to such
custodial parent, or (c) if no parent of that person is then living, to a
custodian selected by the Committee to hold the funds for the minor under the
<PAGE> 3
Uniform Transfers or Gifts to Minors Act in effect in the jurisdiction in which
the minor resides. If no parent is living and the Committee decides not to
select another custodian to hold the funds for the minor, then payment shall be
made to the duly appointed and currently acting guardian of the estate for the
minor or, if no guardian of the estate for the minor is duly appointed and
currently acting within 60 days after the date the amount becomes payable,
payment shall be deposited with the court having jurisdiction over the estate
of the minor.
"Board of Directors" or "Board" shall mean the Board of
Directors of the Company.
"Bonus" shall mean any incentive compensation payable to a
Participant in addition to the Participant's Salary after reduction for any
salary deferral contributions to a plan qualified under Section 125 or Section
401(k) of the Code.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Committee" shall mean the Committee appointed by the Board
to administer the Plan in accordance with Article VIII.
"Company" shall mean Staff Builders, Inc., a Delaware
corporation, any successor corporation and each corporation which is a member
of a controlled group of corporations (within the meaning of Section 1563(a) of
the Code, determined without regard to Section 1563(a)(4) and (e)(3)(C) thereof
and by substituting the phrase "at least 50 percent" for the phrase "at least
80 percent" each time it appears in Section 1563(a)(1)) of which Staff
Builders, Inc. is a component member.
"Compensation" shall mean the Salary and Bonus that the
Participant is entitled to for services rendered to the Company.
"Deferral Account" shall mean the bookkeeping account
maintained by the Committee for each Participant that is credited with amounts
equal to (1) the portion of the Participant's Salary that he or she elects to
defer, (2) the portion of the Participant's Bonus that he or she elects to
defer, and (3) interest pursuant to Section 4.1.
"Effective Date" shall mean March 1, 1994.
"Eligible Employee" shall mean each member of a group of
select management or highly compensated employees of the Company designated by
the Board to participate in the Plan.
"Fiscal Year" shall mean the 12 consecutive month period
beginning on March 1 and ending on February 28 or February 29, as the case may
be.
"Fund" or "Funds" shall mean one or more of the mutual funds
or contracts selected by the Company pursuant to Section 3.2(b).
2
<PAGE> 4
"Initial Election Period" for an Eligible Employee shall mean
the 24-day period following the later of March 1, 1994 or the Eligible
Employee's date of hire.
"Interest Rate" shall mean, for each Fund, an amount equal to
the gross rate of gain or loss on the assets of such Fund during each month (1)
reduced by administrative and investment fees charged to investors in such Fund
and (2) further reduced by one-twelfth of one and one-half percentage points.
"Loan Account" shall mean the bookkeeping account maintained
by the Committee for each Participant who obtains a hardship loan from the
Company in accordance with Article VII that is credited with (1) an amount
equal to the amount of the loan and (2) interest pursuant to Section 7.1(d).
"Participant" shall mean any Eligible Employee who elects to
defer Compensation in accordance with Section 3.1.
"Payment Eligibility Date" shall mean the first day of the
month following the end of the quarter following the quarter in which a
Participant terminates employment or dies.
"Plan" shall mean the Staff Builders, Inc. Executive Deferred
Compensation Plan set forth herein, now in effect, or as amended from time to
time.
"Plan Year" shall mean the 12 consecutive month period
beginning on January 1.
"Salary" shall mean the Participant's base pay after
reduction for any salary deferral contributions to a plan qualified under
Section 125 or Section 401(k) of the Code.
"Tax Adjustment Factor" shall mean a number, determined by
the Committee, which is equal to one minus the sum of (1) the highest marginal
federal personal income tax rate then in effect and (2) the effective highest
marginal state income tax rate in the state in which the Participant resides,
net after the effect of the deduction for such state income tax for federal
income tax purposes.
ARTICLE II
PARTICIPATION
2.1 Participation. An Eligible Employee shall become a
Participant in the Plan by electing to defer all or a portion of his or her
Compensation in accordance with Section 3.1.
3
<PAGE> 5
ARTICLE III
DEFERRAL ELECTIONS
3.1 Elections to Defer Compensation.
(a) Initial Election Period. Each Eligible Employee may
elect to defer Compensation by filing with the Committee an election that
conforms to the requirements of this Section 3.1, on a form provided by the
Committee, no later than the last day of his or her Initial Election Period.
(b) General Rule. Subject to the limitations set forth
in paragraph (c) below, the
amount of Compensation which an Eligible Employee may elect
to defer is as follows:
(1) Any percentage of Salary up to 50%; and/or
(2) Any percentage or dollar amount of Bonus up to
100%; provided, however, that no election shall be effective to reduce the
Compensation payable to an Eligible Employee for a calendar year to an amount
which is less than the amount that the company is required to withhold from
such Eligible Employee for such calendar year for purposes of income tax and
employment tax (including Federal Insurance Contributions Act (FICA) tax)
withholding.
(c) Minimum Deferrals. For each of the first four Plan
Years during which the Eligible Employee is a Participant, the minimum
percentage which may be elected under paragraph (b)(1) of this Section 3.1 is
5%. This 5% minimum deferral for any Plan Year may be reduced to a lesser
percentage (but not below zero percent) if the Participant deferred any portion
of his or her Bonus paid in the preceding Plan Year. The amount of such
reduction shall be the number of percentage points determined by (1) dividing
the amount of the Bonus deferred in such preceding Plan. Year by the amount of
the Participant's annual Salary at the beginning of the Plan Year to which the
minimum deferral applies and (2) multiplying by 100.
(d) Effect of Initial Election. An election to defer
Compensation during an Initial Election period shall be effective with respect
to Salary earned during the first pay period beginning after the election is
made and to the Bonus payable for the first Fiscal Year beginning after the
election is made.
(e) Duration of Salary Deferral Election. Any Salary
deferral election made under paragraph (a) or paragraph (g) of this Section 3.1
shall remain in effect, notwithstanding any change in the Participant's Salary,
until changed or terminated in accordance with the terms of this paragraph (e);
provided, however, that such election shall terminate for any Plan Year for
which the Participant is not an Eligible Employee. Subject to the minimum
deferral requirement of Section 3.1(c) and the limitations of Section 3.1(b), a
Participant may increase, decrease or
4
<PAGE> 6
terminate his or her Salary deferral election, effective for Salary earned
during pay periods beginning after any January 1, by filing a new election, in
accordance with the terms of this Section 3.1, with the Committee on or before
the preceding December 15.
(f) Duration of Bonus Deferral Election. Any Bonus
deferral election made under paragraph (a) or paragraph (g) of this Section 3.1
shall be irrevocable and shall apply only to the Bonus payable with respect to
services performed during the Fiscal Year for which the election is made. For
each subsequent Fiscal Year, an Eligible Employee may make a new election,
subject to the limitations set forth in this Section 3.1, to defer a percentage
of his or her Bonus. Such election shall be on forms provided by the Committee
and shall be made on or before the February 28 immediately preceding the Fiscal
Year for which the election is to apply.
(g) Elections other-than Elections during the Initial
Election Period. Subject to the limitations of paragraph (c) above, any
Eligible Employee who fails to elect to defer Compensation during his or her
Initial Election period may subsequently become a participant, and any Eligible
Employee who has terminated a prior Salary deferral election may elect to again
defer Salary, by filing an election, on a form provided by the Committee, to
defer Compensation as described in paragraph (b) above. An election to defer
Salary must be filed on or before December 15 and will be effective for Salary
earned during pay periods beginning after the following January 1. An election
to defer Bonus for a Fiscal Year must be filed on or before the February 28
immediately preceding such Fiscal Year.
3.2 Investment Elections.
(a) At the time of making the deferral elections
described in Section 3.1, the Participant shall designate, on a form provided
by the Committee, which of the following types of mutual funds or contracts the
Participant's Account will be deemed to be invested in for purposes of
determining the amount of earnings to be credited to that Account:
1) High Yield Fund;
2) Balanced Assets Fund;
3) Common Stock Fund;
4) Government Securities Fund;
5) Growth Fund; or
6) Money Market Fund.
In making the designation pursuant to this Section 3.2, the
Participant may specify that all or any 10% multiple of his Deferral Account be
deemed to be invested in one or more of the types of mutual funds or contracts
listed above. Effective as of the end of any calendar quarter, a Participant
may change the designation made under this Section 3.2 by filing an election,
on a form provided by the Committee, at least 30 days prior to the end of such
quarter. If a Participant fails to elect a type of fund under this Section 3.2,
he or she shall be deemed to have elected the Money Market Fund.
6
<PAGE> 7
(b) Although the Participant may designate the type of
mutual funds or contacts in paragraph (a) above, the Company shall select from
time to time, in its sole discretion, a commercially available fund or contract
of each of the types described in paragraph (a) above to be the Funds. The
Interest Rate of each such commercially available fund or contract shall be
used to determine the amount of earnings to be credited to Participants'
Accounts under Article IV.
ARTICLE IV
DEFERRAL ACCOUNT
4.1 Deferral Account. The Committee shall establish and
maintain a Deferral Account for each Participant under the Plan. Each
Participant's Deferral Account shall be further divided into separate
subaccounts ("mutual fund subaccounts"), each of which corresponds to a mutual
fund or contract elected by the Participant pursuant to Section 3.2(a). A
Participant's Deferral Account shall be credited as follows:
(a) As of the last day of each month, the Committee
shall credit the mutual fund subaccounts of the Participant's Deferral Account
with an amount equal to Salary deferred by the Participant during each pay
period ending in that month in accordance with the Participant's election under
Section 3.2(a); that is, the portion of the Participant's deferred Salary that
the Participant has elected to be deemed to be invested in a certain type of
mutual fund shall be credited to the mutual fund subaccount corresponding to
that mutual fund;
(b) As of the last day of the month in which the Bonus
or partial Bonus would otherwise have been paid, the Committee shall credit the
mutual fund subaccounts of the Participant's Deferral Account with an amount
equal to the portion of the Bonus deferred by the Participant's election under
Section 3.2(a); that is, the portion of the Participant's deferred Bonus that
the Participant has elected to be deemed to be invested in a particular type of
mutual fund shall be credited to the mutual fund subaccount corresponding to
that mutual fund; and
(c) As of the last day of each month, each mutual fund
subaccount of a Participant's Deferral Account shall be credited with earnings
in an amount equal to that determined by multiplying the balance credited to
such mutual fund subaccount as of the last day of the preceding month by the
Interest Rate for the corresponding Fund selected by the Company pursuant to
Section 3.2(b).
6
<PAGE> 8
ARTICLE V
VESTING
5.1 Deferral Account. A Participant's Deferral Account shall
be 100% vested at all times.
ARTICLE VI
DISTRIBUTIONS
6.1 Amount and Time of Distribution. Each Participant (or, in
the case of his or her death, Beneficiary) shall be entitled to receive a
distribution of benefits under this Plan as soon as practicable following his
or her Payment Eligibility Date. The amount payable to the Participant shall be
the amount credited to his or her Deferral Account as of his or her Payment
Eligibility Date. No amount credited to a Participant's Loan Account
established under Article VII shall be distributed to the Participant, but such
amount shall instead be forfeited as provided in Section 7.1(f).
6.2 Form of Distribution. The form of the distribution of
benefits to a Participant (or his or her Beneficiary) shall be a cash lump sum
payment.
ARTICLE VII
PARTICIPATION LOANS
7.1 Hardship Loans to Participants.
(a) Subject to the approval of the Committee, each
Participant may borrow from the Company in order to meet (1) a financial
hardship to the Participant resulting from an illness or accident of the
Participant or a dependent of the Participant, (2) loss of the Participants
property due to casualty, or (3) other similar circumstances arising as a
result of events beyond the control of the Participant. Each loan made pursuant
to this Section 7.1 shall be evidenced by a note from the Participant on a form
provided by the Committee. Such note shall bear interest at a rate equal to
that necessary to avoid imputed interest under sections 7872 and 1274(d) of the
Code and have such other terms as the Committee shall determine.
(b) The Committee may make a loan under this Section 7.1
only if the amount of the loan does not exceed the amount required to meet the
immediate financial need created by such hardship and the loan or loans
outstanding immediately after the making of the loan would not exceed 65% of
the sum of the balances credited to the Participant's Deferral Account and Loan
Account as of the first day of the month next following the Committee's
acceptance of the Participant's written application for a hardship loan.
7
<PAGE> 9
(c) The Committee shall, upon making a loan to a
Participant, establish and maintain a Loan Account for the Participant. The
Committee shall debit the mutual fund subaccounts, maintained under the
Participant's Deferral Account on a pro-rata basis or on such other basis as
the Committee deems appropriate or desirable and shall credit the Participant's
Loan Account in an amount equal to the amount of the loan. The amount credited
to a Participants Loan Account shall not be deemed to be invested as directed
by the Participant under Section 3.2(a) but shall be deemed to be invested in
the note given to the Company by the Participant under this Section 7.1.
(d) As of the last day of each month, the Participant's
Loan Account will be credited with interest for the period since the last day
of the preceding month, calculated on the balance of the Loan Account as of
such date, at the rate of interest on the note as specified in paragraph (a)
above.
(e) Upon any payment of principal and/or interest on a
loan made pursuant to this Section 7.1, the Committee shall debit the
Participant's Loan Account and shall credit the mutual fund subaccounts
maintained under the Participant's Deferral Account with the amount of such
payment on a pro-rata basis or on such other basis as the Committee deems
appropriate or desirable.
(f) If any amount is credited to a Participant's Loan
Account on the Participant's Payment Eligibility Date, such amount shall be
forfeited, and the obligation to repay the hardship loan shall be canceled.
ARTICLE VIII
ADMINISTRATION
8.1 Committee Members. A committee consisting of one or more
members shall be appointed by, and serve at the pleasure of, the Board of
Directors. The number of members comprising the Committee shall be determined
by the Board which may from time to time vary the number of members. A member
of the Committee may resign by delivering a written notice of resignation to
the Board. The Board may remove any member at any time. Vacancies in the
membership of the Committee shall be filled promptly by the Board.
8.2 Committee Action. The Committee shall act at meetings by
affirmative vote of a majority of the members of the Committee. Any action
permitted to be taken at a meeting may be taken without a meeting if, prior to
such action, a written consent to the action is signed by all members of the
Committee and such written consent is filed with the minutes of the proceedings
of the Committee. A member of the Committee shall not vote or act upon any
matter which relates solely to himself or herself as a Participant. The
Chairman or any other member or members of the Committee designated by the
Chairman may execute any certificate or other written direction on behalf of
the Committee.
8
<PAGE> 10
8.3 Powers and Duties of the Committee.
(a) The Committee, on behalf of the Participants and
their Beneficiaries, shall enforce the Plan in accordance with its terms, shall
be charged with the general administration of the Plan, and shall have all
powers necessary to accomplish its purposes, including, but not by way of
limitation, the following:
(1) To construe and interpret the terms and
provisions of this Plan;
(2) To compute and certify to the amount and kind of
benefits payable to Participants and their Beneficiaries;
(3) To maintain all records that may be necessary
for the administration of the Plan;
(4) To make and publish such rules for the
regulation of the Plan and procedures for the administration of the Plan as are
not inconsistent with the terms hereof, and
(5) To appoint a plan administrator or any other
agent, and to delegate to them such powers and duties in connection with the
administration of the Plan as the Committee may from time to time prescribe.
8.4 Construction and Interpretation. The Committee shall have
full discretion to construe and interpret the terms and provisions of this
Plan, which interpretation or construction shall be final and binding on all
parties, including but not limited to the Company and any Participant or
Beneficiary.
8.5 Compensation, Expenses and Indemnity.
(a) The members of the Committee shall serve without
compensation for their services hereunder.
(b) The Committee is authorized at the expense of the
Company to employ such legal counsel as it may deem advisable to assist in the
performance of its duties hereunder. Expenses and fees in connection with the
administration of the Plan shall be paid by the Company.
(c) To the extent permitted by applicable state law, the
Company shall indemnify and save harmless the Committee and each member
thereof, the Board of Directors and any delegate of the Committee who is an
employee of the Company against any and all expenses, liabilities and claims,
including legal fees to defend against such liabilities and claims arising out
of their discharge of their responsibilities under or incident to the Plan,
other than expenses and liabilities arising out of willful misconduct. This
indemnity shall not preclude such further indemnities as may be available under
insurance purchased by the Company or provided
9
<PAGE> 11
by the Company under any bylaw, agreement or otherwise, as such indemnities are
permitted under state law.
8.6 Quarterly Statements. A Participant shall receive
quarterly statements with respect to such Participant's Account as of the last
day of each calendar quarter.
ARTICLE IX
MISCELLANEOUS
9.1 Unsecured General Creditor. Participants and their
Beneficiaries, heirs, successors, and assigns shall have no legal or equitable
rights, claims, or interest in any specific property or assets of the Company.
No assets of the Company shall be held under any trust, or held in any way as
collateral security for the fulfilling of the obligations of the Company under
this Plan. Any and all of the Company's assets shall be, and remain, the
general unpledged, unrestricted assets of the Company. The Company's obligation
under the Plan shall be merely that of an unfunded and unsecured promise of the
Company to pay money in the future, and the rights of the Participants and
Beneficiaries shall be no greater than those of unsecured general creditors.
9.2 Restriction Against Assignment. The company shall pay all
amounts payable hereunder only to the person or persons designated by the Plan
and not to any other person or corporation. No part of a Participant's Account
shall be liable for the debts, contracts, or engagements of any Participant,
his or her Beneficiary, or successors in interest, nor shall a Participant's
Account be subject to execution by levy, attachment or garnishment or by any
other legal or equitable proceeding, nor shall any such person have any right
to alienate, anticipate, commute, pledge, encumber, or assign any benefits or
payments hereunder in any manner whatsoever. If any Participant, Beneficiary or
successor in interest is adjudicated bankrupt or purports to anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge any distribution
or payment from the Plan, voluntarily or involuntarily, the Committee, in its
discretion, may cancel such distribution or payment (or any part thereof) to or
for the benefit of such Participant, Beneficiary or successor in interest in
such manner as the Committee shall direct
9.3 Witholding. There shall be deducted from each payment
made under the Plan all taxes which are required to be withheld by the Company
in respect to such payment. The Company shall have the right to reduce any
payment by the amount of cash sufficient to provide the amount of said taxes.
9.4 Amendment, Modification, Suspension or Termination. The
Board of Directors may amend, modify, suspend or terminate the Plan in whole or
in part, except that no amendment, modification, suspension or termination
shall have any retroactive effect to reduce any amounts allocated to a
Participant's Account. In the event that this Plan is terminated, the amounts
credited to a Participant's Deferral Account shall be distributed to the
Participant or, in the event of his or her death, his or her Beneficiary in a
lump sum within thirty (30) days following the date of termination.
10
<PAGE> 12
9.5 Governing Law. This Plan shall be construed, governed and
administered in accordance with the laws of the State of New York.
9.6 Receipt or Release. Any payment to a Participant or the
Participant's Beneficiary in accordance with the provisions of the Plan shall,
to the extent thereof, be in full satisfaction of all claims against the
Committee and the Company. The Committee may require such Participant or
Beneficiary, as a condition precedent to such payment, to execute a receipt and
release to such effect.
9.7 Payments on Behalf of Persons Under Incapacity. In the
event that any amount becomes payable under the Plan to a person who, in the
sole judgment of the Committee, is considered by reason of physical or mental
condition to be unable to give a valid receipt therefore, the Committee may
direct that such payment be made to any person found by the Committee, in its
sole judgment, to have assumed the care of such person. Any payment made
pursuant to such determination shall constitute a full release and discharge of
the Committee and the Company.
9.8 Headings, etc. Not Part of Agreement. Headings and
subheadings in this Plan are inserted for convenience of reference only and are
not to be considered in the construction of the provisions hereof.
ARTICLE X
BENEFIT OFFSET
10.1 Offset for Certain Benefits Payable Under Split-Dollar
Life Insurance Policies.
(a) Notwithstanding anything contained herein to the
contrary, any benefits payable under this Plan shall be offset by the value of
benefits received by the Participants under certain life insurance policies as
set forth in this Section. Participants in this Plan may own life insurance
policies (the "Policies") purchased on their behalf by the Company. The
exercise of ownership rights under these Policies by each Participant is,
however, subject to certain conditions (set forth in a 'Split-Dollar Life
Insurance Agreement' between each Participant and the Company, pursuant to
which the Company holds a security interest on the Policy) and, if the
Participant fails to meet the conditions set forth in the Split-Dollar Life
Insurance Agreement, the Company may exercise its security interest in the
Policy and cause the Participant to lose certain benefits under the Policy. In
the event that a Participant satisfies the conditions specified in Section 4 or
5 of the Split-Dollar Life Insurance Agreement, so that the Participant or his
or her beneficiary under the Policy becomes entitled to exercise rights free
from the Company's security interest under one of those sections, the value of
those benefits shall constitute an offset to any benefits otherwise payable
under this Plan. As the case may be, this offset (the "Offset Value") shall be
equal to the value of benefits payable under the Split-Dollar Life Insurance
Agreement, that is, the cash surrender value of the Policy or, in the case of
Participant's death, the death benefit payable to the beneficiary under the
Policy. The Offset
11
<PAGE> 13
Value shall then be compared to the Participant's Account, and the amounts
credited to the Account shall be reduced, but not to less than zero, by the
Offset Value.
(b) If the Policy in subsection (a) is not on the life
of the Participant and the insured dies prior to distribution of benefits under
this Plan, then the value of the benefits received by the participant under the
Policy will offset the Participant's Account under this Plan. This offset
('Offset Value') shall be equal to the amount of death benefit payable to the
Participant divided by the Tax Adjustment Factor. This Offset Value shall then
be compared to the Participant's Account, and the amounts credited to the
Account shall be reduced, but not to be less than zero, by the Offset Value.
12
<PAGE> 1
EXHIBIT 10.24
[For use without
spousal consent]
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
This Agreement is entered into as of ___________19___ by and between
Staff Builders, Inc., a Delaware corporation, (the "Company") and _____________
("Employee") in reference to the following facts:
1. Employee is a key employee of the Company or a subsidiary of the
Company.
2. The Company has simultaneously with the execution of this Agreement
caused the Equitable Variable Life Insurance Company (the "Insurance Company")
to issue policy number _____________ (the "Policy") on the life of Employee and
delivered the Policy to Employee. A portion of the first annual premium has
been paid by the Company as of the date of this Agreement.
3. For purposes of this Agreement, the Company and its subsidiaries
shall constitute the "Employer". For this purpose, a subsidiary is a
corporation which is a member of a controlled group of corporations (within the
meaning of Section 1563(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), determined without regard to Section 1563(a)(4) and (e)(3)(C)
thereof and by substituting the phrase "at least 50 percent" for the phrase "at
least 80 percent" each time it appears in Section 1563(a)(1)) of which the
Company is a member. If Employee is employed by a corporation which, as a
result of a sale or other corporate reorganization, ceases to be a member of
such controlled group, such sale or other corporate reorganization shall be
treated as a termination of Employee by Employer without Cause (as defined in
Section 8) unless immediately following the event and without any break in
employment the Employee remains employed by the Company or another corporation
which is a member of the controlled group of corporations.
NOW THEREFORE, in consideration of the facts set forth above and the
various promises and covenants set forth below, the parties to this Agreement
agree as follows:
1. Ownership of Policy.
The Company acknowledges that Employee is the owner of the Policy and
that Employee is entitled to exercise all of his or her ownership rights
granted by the terms of the Policy, except to the extent that the power of the
Employee to exercise those rights is specifically limited by this Agreement.
Except as so limited, it is the expressed intention of the parties to reserve
to Employee all rights in and to the Policy granted to its owner by the terms
thereof, including, but not limited to, the right to change the beneficiary and
the right to exercise settlement options.
2. The Company's Security Interest.
The Company's security interest in the Policy is conditioned upon its
satisfactorily performing all of the covenants under this Agreement. Each
period covered by any individual
<PAGE> 2
premium payment described in Section 3 shall be considered a discrete extension
of the Company's security interest in the Policy. The Company shall not have
nor exercise any right in and to the Policy which could, in any way, endanger,
defeat, or impair any of the rights of Employee in the Policy, including by way
of illustration any right to collect the proceeds of the Policy in excess of
the amount due the Company as provided in this Agreement and in the Policy. The
only rights in and to the Policy granted to the Company in this Agreement shall
be limited to the Company's security interest in and to the cash value of the
Policy, as defined herein, (the "Security Interest"). The Company shall not
assign any of its Security Interest in the Policy to anyone other than
Employee.
3. Premium payments.
For so long as Employee is employed by the Employer and the Company's
Security Interest has not been released, the Company agrees to pay an annual
premium (which may be pre-paid in installments) on the Policy on or before the
last day of each "policy year" (as such term is used in the Policy) in an
amount equal to the sum of (a) the compensation deferred by Employee under the
Staff Builders, Inc. Executive Deferred Compensation Plan (the "Plan") during
the pay periods ending during such policy year plus (b) the "cost of insurance"
(as defined in the Policy) for the excess, if any, of (i) the minimum death
benefit required under Section 4 hereof (determined in compliance with the
7-pay test set forth in Section 7702A of the Code) over (ii) the minimum death
benefit (determined in compliance with such 7-pay test) which could be provided
by that portion of the accumulated ( premiums actually paid under the Policy
which were paid pursuant to clause (a) of this sentence. The premium payment
shall be transmitted directly by the Company to the Insurance Company.
Consistent with the preceding sentences, prior to the release of the Company's
Security Interest in the Policy, Employee and the Company agree that the
Company shall from time to time designate one or more individuals (the
"Designee"), who may be officers of the Company, who shall be entitled to
adjust the death benefit under the Policy and to direct the investments under
the Policy; provided, however, that the Designee may only increase, but not
decrease, the death benefit in effect on the date that the Policy is issued;
provided further, that the Designee may only direct the investments under the
Policies in funds offered by the Insurance Company under the Policy. During the
period of time that this Agreement is in effect, Employee irrevocably agrees
that all dividends paid on the Policy shall be applied to purchase from the
Insurance Company additional paid-up life insurance on the life of Employee.
4. Death of Employee while employed by Employer.
If Employee dies prior to termination of employment with Employer and
prior to his or her Security Release Date (as defined in Section 10 below),
Employee's designated beneficiary shall be entitled to receive the entire death
benefit under the Policy, which shall be at least equal to the greater of (1)
50% of Employee's annual base salary at the time of death, up to a maximum of
$100,000 (adjusted as described herein), or (2) the following multiple of the
sum of the amounts credited to Employee's Deferred Account under the Plan
depending on the Employee's insurance age at death: (A) if under 60, 2.0 or (B)
if 60 or older, 1.75. The $100,000 death benefit described in the preceding
sentence shall be adjusted for changes in the cost of living commencing on
January 1, 1995 on the basis of the relationship between the U.S. Consumer
Price Index for Urban Wage Earners and Clerical Workers, as published by the
U.S. Department
-2-
<PAGE> 3
of Labor (or, if there is no such index, then a comparable substitute selected
by the Committee) for the preceding calendar year and the same index for the
calendar year 1993.
5. Employee's attaining his or her Security Release Date or termination
of Employee's employment on account of a Qualifying Termination.
(a) By timely payment of the premiums described in Section 3, the
Company may renew its Security Interest in the Policy for the period commencing
with the due date of such payment until the later of (1) the due date of the
next annual premium described in Section 3, or (2) the date that Employee
attains his or her Security Release Date or terminates employment with the
Employer on account of a Qualifying Termination (either of which events
described in this clause 2 is referred to herein as a "Qualifying Event"). The
Company may not extend its Security Interest in the Policy under the Collateral
Security Assignment Agreement attached as Exhibit A after the occurrence of a
Qualifying Event. After such Qualifying Event, Employee shall be entitled to
exercise all of his or her ownership rights in the Policy without any
limitation, and this Agreement and its accompanying Collateral Security
Assignment Agreement shall no longer constitute a restriction on Employee's
rights.
(b) Notwithstanding paragraph (a), the Company shall continue to have
its Security Interest in the Policy to the extent required to satisfy its
withholding obligations as described in Section 12 and to recover any amounts
owed by Employee as described in paragraph (c) below.
(c) Employee agrees that if at the time of the occurrence of a
Qualifying Event, Employee has any outstanding balances on any loans made by
the Company to Employee, then, unless Employee otherwise repays such
outstanding balances, Employee shall cause, either by withdrawing from or
borrowing on a nonrecourse basis against the Policy, to be transferred to the
Company that portion of the cash value of the Policy which is equal to the sum
of the outstanding balances on all such loans.
6. Termination of an Employee for a reason other than a Qualifying
Termination.
If the employment of Employee with Employer is terminated prior to his
or her Security Release Date for a reason other than a Qualifying Termination
(as described below), Employee shall cause, either by withdrawing from or
borrowing against the Policy, on a nonrecourse basis, to be transferred to the
Company an amount equal to the maximum amount that may then be obtained under
the Policy; provided that, the amount to be transferred to the Company shall be
reduced to the extent the Employee has previously transferred to the Company an
amount equal to any difference that then exists between the cash value of the
Policy and the amount that may be borrowed against the Policy. In no event
shall Employee's voluntary resignation prior to attaining his or her Security
Release Date (as such concept is further defined below) ever constitute a
Qualifying Termination, except in certain situations following a Change in
Control (see Section 9).
7. Definition of a Qualifying Termination.
A Qualifying Termination is either of the following events: the
termination of Employee by Employer for any reason other than "Cause," as
described in Section 8; or the termination of
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<PAGE> 4
Employee after a Change in Control under the circumstances described in Section
9(a). Both of these concepts are further defined below.
8. Qualifying Termination because Employee is terminated for a reason
other than "Cause".
For purposes of this Section, "Cause" shall mean (1) Employee's
material breach of his or her employment agreement (if any), (2) Employee's
willful and continued failure to substantially perform assigned duties with the
Employer, (3) Employee's commission of an act of fraud or embezzlement against
the Employer, or (4) Employee's conviction of a felony or other crime involving
moral turpitude.
9. Qualifying Termination on account of termination after a Change in
Control.
(a) A Qualifying Termination shall be treated as occurring after a
"Change in Control" (as defined below) if there is first a "Change in Control"
and then, within three years following such Change in Control, either (1)
Employee's employment with the Employer is terminated by the Employer without
"Cause" (as defined in Section 8) or (2) Employee terminates his or her
employment with the Employer for "Good Reason" (as defined in subsection (c)
below).
(b) For purposes of this Section, a "Change in Control" shall be
deemed to have occurred if a person, corporation, partnership, association or
entity (1) acquires a majority of the Company's outstanding voting securities,
(2) acquires securities of the Company bearing a majority of voting power with
respect to the election of directors of the Company or (3) acquires all or
substantially all of the Company's assets.
(c) For purposes of this Section, "Good Reason" shall mean the
occurrence of one of the following events without Employee's consent:
(1) An adverse and significant change in the Employee's position,
duties, responsibilities, or status with the Employer, or a
change in business location to a point which is more than 50
miles from his or her location prior to the Change in
Control, except for required travel on Employer business to
an extent substantially consistent with his or her business
travel obligations prior to the Change in Control.
(2) A reduction by the Employer in Employee's base salary; and
(3) The taking of any action by the Employer to eliminate benefit
plans without providing substitutes therefor, to reduce
benefits thereunder or to substantially diminish the
aggregate value of incentive awards or other fringe benefits
including insurance and vacation days.
(d) A termination of employment by Employee within the 36-month period
following a Change in Control shall be for Good Reason if one of the
occurrences specified in paragraph (c) shall have occurred, notwithstanding
that Employee may have other reasons for terminating employment including
employment by another employer which Employee desires to accept.
-4-
<PAGE> 5
10. Employee's attaining his or her Security Release Date.
(a) Employee's "Security Release Date" shall mean the date which is
two years following the date on which the Company receives from Employee a
completed notice in the form attached hereto as Exhibit B, provided that
Employee continues to be employed by Employer until such date. Employee's
election of a Security Release Date shall be irrevocable.
(b) Employee shall attain his or her Security Release Date upon
becoming disabled while employed by the Employer. Employee shall be considered
"disabled" at the time that the Administrator (as defined in Section 13(a)
below) determines, based upon competent medical advice, that an Employee is
incapable of rendering substantial services to the Employer by reason of mental
or physical disability.
(c) The Company's Security Interest in the Policy is contingent upon
the timely payment of premiums under Section 3 of this Agreement. Each period
covered by any individual premium payment shall be considered an independent
extension of the Company's Security Interest in the Policy. In the event that
the Company waives its rights by reason of failure to make payments under
Section 3 of this Agreement, Employee shall immediately attain his or her
Security Release Date. The Company's failure to extend its rights in no way
affects the Company's duties and obligations under this Agreement.
11. Limitation on Employee's rights prior to a Qualifying Event.
In order to protect the Company's Security Interest and
notwithstanding any other provisions in this Agreement, prior to a Qualifying
Event, Employee agrees that he or she will not modify the death benefit under
the Policy, direct the investment of the cash surrender value of the Policy,
borrow against the Policy, assign the Policy, or obtain any portion of the cash
value of the Policy. Notwithstanding the preceding sentence, if Section 6
applies to a termination, Employee may borrow or withdraw from the Policy, so
long as the borrowing or withdrawal request is submitted to the Insurance
Company along with a directive that the borrowed or withdrawn amount be
transferred directly to the Company.
12. Tax Withholding.
It is recognized by the parties that the rights of Employee in the
Policy (as modified by the Agreement) may cause Employee to be treated under
certain circumstances as in receipt of gross income. These circumstances may
also impose upon the Company an obligation to deduct and withhold federal,
state or local taxes. Unless Employee otherwise provides the Company the
amounts it is required to withhold, Employee shall cause, either by withdrawing
from or borrowing on a nonrecourse basis against the Policy, to be transferred
to the Company that portion of the cash value of the Policy which is equal to
the amount of any federal, state or local taxes required to be withheld.
13. Administration.
(a) The Compensation and Stock Option Committee of the Board of
Directors (the "Administrator") shall administer this Agreement. The
Administrator (either directly or through
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<PAGE> 6
its designees) will have power and authority to interpret, construe, and
administer this Agreement (for the purpose of this section, the Agreement shall
include the Collateral Security Assignment Agreement).
(b) Neither the Administrator, its designee nor its advisors, shall be
liable to any person for any action taken or omitted in connection with the
interpretation and administration of this Agreement.
14. Collateral Security Assignment of Policy to the Company.
In consideration of the promises contained herein, the Employee has
contemporaneously herewith granted the Security Interest in the Policy to the
Company as collateral under the form of Collateral Security Assignment attached
hereto as Exhibit A, which Collateral Security Assignment gives the Company the
limited power to enforce its rights to recover the cash value of the Policy
under the circumstances defined herein. The Company's Security Interest in the
Policy shall be specifically limited to the rights set forth above in this
Agreement, notwithstanding the provisions of any other documents including the
Policy. Employee agrees to execute any notice prepared by the Company
requesting a withdrawal or non-recourse loan in an amount equal to the amount
to which the Company is entitled under Sections 5, 6 or 12 of this Agreement.
15. Employee's beneficiary rights and security interest.
(a) The Company and Employee intend that in no event shall the Company
have any power or interest related to the Policy or its proceeds, except as
provided herein and in the Collateral Security Assignment. In the event that
the Company ever receives or may be deemed to have received any right or
interest in the Policy or its proceeds beyond the limited rights described
herein and in the Collateral Security Assignment, such right or interest shall
be held in trust for the benefit of Employee and be held separate from the
property of the Company.
(b) In order to further protect the rights of the Employee, the
Company agrees that its rights to the Policy and proceeds thereof shall serve
as security for the Company's obligations as provided in this Agreement to
Employee. The Company grants to Employee a security interest in and
collaterally assigns to Employee any and all rights the Company has in the
Policy, and products and proceeds thereof whether now existing or hereafter
arising pursuant to the provisions of the Policy, this Agreement, the
Collateral Security Assignment or otherwise, to secure any and all obligations
owed by the Company to Employee under this Agreement. In no event shall this
provision be interpreted to reduce Employee's rights to the Policy or expand in
any way the rights or benefits of the Company under this Agreement, the Policy
or the Collateral Security Assignment. This security interest granted to
Employee from the Company shall automatically expire and be deemed waived if
Employee terminates employment with Employer prior to a Qualifying Event.
16. Amendment of Agreement.
Except as provided in a written instrument signed by the company and
Employee, this Agreement may not be cancelled, amended, altered, or modified.
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<PAGE> 7
17. Notice under Agreement.
Any notice, consent, or demand required or permitted to be given under
the provisions of this Agreement by one party to another shall, be in writing
signed by the party giving or making it, and may be given either by delivering
it to such other party personally or by mailing it, by United States Certified
mail postage prepaid, to such party, addressed to its last known address as
shown on the records of the Company. The date of such mailing shall be deemed
the date of such mailed notice, consent, or demand.
18. Binding Agreement.
This Agreement shall bind the parties hereto and their respective
successors, heirs, executor, administrators, and transferees, and any Policy
beneficiary.
19. Controlling law and characterization of Agreement.
(a) To the extent not governed by federal law, this Agreement and the
right to the parties hereunder shall be controlled by the laws of the State of
New York.
(b) If this Agreement is considered a "plan" under the Employee
Retirement Income Security Act of 1974 (ERISA), both the Company and Employee
acknowledge and agree that for all purposes the Agreement shall be treated as a
"welfare plan" within the meaning of section 3(1) of ERISA. Consistent with the
preceding sentence, Employee further acknowledges that his or her rights to the
Policy and the release of the Company's Security Interest are strictly limited
to those rights set forth in this Agreement. In furtherance of this
acknowledgment and in consideration of the Company's payment of the initial
premiums for this Policy, Employee voluntarily and irrevocably relinquishes and
waives any additional rights in the Policy or any different restrictions on the
release of the Company's Security Interest that he or she might otherwise argue
to exist under either state, federal, or other law. Employee further agrees
that he or she will not argue that any such additional rights or different
restrictions exist in any judicial or arbitration proceeding. Similarly, the
Company acknowledges that its Security Interest is strictly limited as set
forth in this Agreement and voluntarily and irrevocably relinquishes and waives
any additional interests or different interests or advantages that the Company
would have or enjoy if the Agreement were not treated as a "welfare plan"
within the meaning of section 3(1) of ERISA.
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<PAGE> 8
20. Execution of Documents.
The Company and Employee agree to execute any and all documents necessary to
effectuate the terms of this Agreement.
STAFF BUILDERS, INC.
By:
------------------------------
Its:
-----------------------------
EMPLOYEE
---------------------------------
<PAGE> 9
EXHIBIT A
COLLATERAL SECURITY ASSIGNMENT AGREEMENT
This Collateral Security Assignment is made and entered into effective
as of __________, 19______, by the undersigned as the owner (the "Owner") of
Life Insurance Policy Number___________ (the "Policy") issued by the Equitable
Variable Life Insurance Company (the "Insurer") upon the life of Owner and by
Staff Builders, Inc., a Delaware corporation (the "Assignee").
WHEREAS, the Owner is a key employee of Assignee or a subsidiary of
Assignee, and the Assignee wishes to retain him or her in its or its
subsidiary's employ; and
WHEREAS, as an inducement to the Owner's continued employment the
Assignee wishes to pay premiums on the Policy, as more specifically provided
for in that certain Split-Dollar Life Insurance Agreement dated as of
__________, 19___, and entered into between the Owner and the Assignee as such
agreement may be hereafter amended or modified (the "Agreement") (unless
otherwise indicated the terms herein shall, have the definitions ascribed
thereto in the Agreement);
WHEREAS, in consideration of the Assignee agreeing to make the premium
payments, the Owner agrees to grant the Assignee a security interest in the
Policy as collateral security; and
WHEREAS, the Owner and Assignee intend that the Assignee have no
greater interest in the Policy than that prescribed herein and in the Agreement
and that if the Assignee ever obtains any right or interest in the Policy or
the proceeds thereof, except as provided herein and in the Agreement, such
right or interest shall be held in trust for the Owner to satisfy the
obligations of Assignee to Owner under the Agreement and the Assignee
additionally agrees that its rights to the Policy shall serve as security for
its obligations to the Owner under the Agreement;
NOW, THEREFORE, the Owner hereby assigns, transfers and sets over to
the Assignee for security the following specific rights in the Policy, subject
to the following terms, agreements and conditions:
1. This Collateral Security Assignment is made, and the Policy is to
be held, as collateral security for all liabilities of the Owner to the
Assignee pursuant to the terms of the Agreement, whether now existing or
hereafter arising (the "Secured Obligations"). The Secured Obligations include:
(i) the obligation of the Owner to transfer an amount equal to the entire cash
value in the event that the Owner terminates employment with Employer for a
reason other than a Qualifying Termination and before attaining his or her
Security Release Date; (ii) the obligation of the Owner to pay an amount of
cash to the Assignee or transfer to the Assignee that portion of the cash
surrender value of the Policy which is equal to the sum of the outstanding
balances on any loans made by Assignee to the Owner in the event of a
Qualifying Event (as set forth in section 5(a) of the Agreement); and (iii) the
obligation of the Owner to pay an amount of cash to the Assignee or transfer to
the Assignee that portion of the cash value which is equal to
Ex. A-1
<PAGE> 10
any federal, state or local taxes that Assignee may be required to withhold and
collect (as set forth in Section 12 of the Agreement).
2. The Owner hereby grants to Assignee a security interest in and
collaterally assigns to Assignee the Policy and the cash value to secure the
Secured Obligations. However, the Assignee's interest in the Policy shall be
strictly limited to:
(a) The right to receive an amount equal to the entire cash value of
the Policy (which right may be realized by Owner's causing such amount to be
transferred to Assignee (through withdrawing from or borrowing against the
Policy), in accordance with the terms of the Agreement) if the Owner terminates
employment with Employer for a reason other than a Qualifying Termination
(unless he or she has previously attained his or her Security Release Date);
(b) The right to receive an amount equal to the sum of the outstanding
balances on any loans made by Assignee to the Owner in the event of a
Qualifying Event (as set forth in section 5(a) of the Agreement); and
(c) The right to receive an amount equal to any federal, state or
local taxes that Assignee may be required to withhold and collect (as set forth
in Section 12 of the Agreement).
3. (a) Owner shall retain all incidents of ownership in the Policy,
and may exercise such incidents of ownership except as otherwise limited by the
Agreement and hereunder. The Insurer is only authorized to recognize (and is
fully protected in recognizing) the exercise of any ownership rights by Owner
if the Insurer determines that the Assignee has been given notice of Owner's
purported exercise of ownership rights in compliance with the provisions of
Section 3(b) hereof and, as of the date thirty days after such notice is given,
the Insurer has not received written notification from the Assignee of
Assignee's objection to such exercise; provided that, the designation of the
beneficiary to receive the death benefits pursuant to Section 4 of the
Agreement may be changed by the Owner without prior notification of Assignee.
The Insurer shall not be responsible to ensure that the actions of the Owner
conform to the Agreement.
(b) Assignee hereby acknowledges that for purposes of this Collateral
Security Assignment, Assignee shall be conclusively deemed to have been
properly notified of Owner's purported exercise of his or her ownership rights
as of the third business day following either of the following events: (1)
Owner mails written notice of such exercise to Assignee by United States
certified mail, postage paid, at the address below and provides the Insurer
with a copy of such notice and a copy of the certified mail receipt or (2) the
Insurer mails written notice of such exercise to Assignee by regular United
States mail, postage paid, at the address set forth below:
Staff Builders, Inc.
1981 Marcus Avenue, Suite C115
Lake Success, New York 11042
ATTN: Corporate Secretary
Ex. A-2
<PAGE> 11
The foregoing address shall be the appropriate address for such notices to be
sent unless and until the receipt by both Owner and the Insured of a written
notice from Assignee of a change in such address.
(c) Notwithstanding the foregoing, Owner and Assignee hereby agree
that, until Assignee's security interest in the Policy is released, Assignee
shall from time to time designate one or more individuals (the "Designee"), who
may be officers of Assignee, who shall be entitled to adjust the death benefit
under the Policy and to direct the investments under the Policy; provided,
however, that the Designee may only increase, but not decrease, the death
benefit in effect on the date that the Policy is issued; provided, further,
that the Designee may only direct the investments under the Policy in funds
offered by the Insurer under the Policy. Assignee shall notify the Insurer in
writing of the identity of the Designee and any changes in the identity of the
Designee. Until Assignee's security interest in the Policy is released, no
other party may direct the investments under the Policy without the consent of
the Assignee and Owner.
4. If the Policy is in the possession of the Assignee, the Assignee
shall, upon request, forward the Policy to the Insurer without unreasonable
delay for endorsement of any designation or change of beneficiary or the
exercise of any other right reserved by the Owner.
5. (a) Assignee shall be entitled to exercise its rights under the
Agreement by delivering a written notice to Insurer, executed by the Assignee
and the Owner or the Owner's beneficiary, requesting a withdrawal or
nonrecourse policy loan equal to the amount to which Assignee is entitled under
Sections 5, 6 or 12 of the Agreement and transfer of such withdrawn or borrowed
amount to Assignee. So long as the notice is also signed by Owner or his or her
beneficiary, Insurer shall pay or loan the specified amounts to Assignee
without the need for any additional documentation.
(b) Upon receipt of a properly executed notice complying with the
requirements of subsection (a) above, the Insurer is hereby authorized to
recognize the Assignee's claims to rights hereunder without the need for any
additional documentation and without investigating (1) the reason for such
action taken by the Assignee; (2) the validity or the amount of any of the
liabilities of the Owner to the Assignee under the Agreement; (3) the existence
of any default therein; (4) the giving of any notice required herein; or (5)
the application to be made by the Assignee of any amounts to be paid to the
Assignee. The A-3 receipt of the Assignee for any sums received by it shall be
a full discharge and release therefor to the Insurer.
6. Upon the full payment of the liabilities of the Owner to the
Assignee pursuant to the Agreement, the Assignee shall execute an appropriate
release of this Collateral Security Assignment.
7. The Assignee shall have the right to request of the Insurer and/or
the Owner notice of any action taken with respect to the Policy by the Owner.
Ex. A-3
<PAGE> 12
8. (a) The Assignee and the Owner intend that in no event shall the
Assignee have any power or interest related to the Policy or its proceeds,
except as provided herein and in the Agreement, notwithstanding the provisions
of any other documents including the Policy. In the event that the Assignee
ever receives or may be deemed to have received any right or interest beyond
the limited rights described herein and in the Agreement, such right or
interest shall be held in trust for the benefit of the Owner and be held
separate from the property of the Assignee.
(b) In order to further protect the rights of the Owner, the Assignee
agrees that its rights to the Policy and proceeds thereof shall serve as
security for the Assignee's obligations to the Owner as provided in the
Agreement. Assignee hereby grants to Owner a security interest in and
collaterally assigns to Owner any and all rights it has in the Policy, and
products and proceeds thereof whether now existing or hereafter arising
pursuant to the provisions of the Policy, the Agreement, this Collateral
Security Assignment or otherwise, to secure Assignee's obligations ("Assignee
Obligations") to Owner under the Agreement, whether now existing or hereafter
arising. The Assignee Obligations include all obligations owed by the Assignee
to Owner under the Agreement, including without limitation: (i) the obligation
to transfer ownership of the Policy to Owner and to make the premium payments
required under Section 3 of the Agreement and (ii) the obligation to do nothing
which may, in any way, endanger, defeat or impair any of the rights of Owner in
the Policy as provided in the Agreement. In no event shall this provision be
interpreted to reduce Owner's rights in the Policy or expand in any way the
rights or benefits of the Assignee under the Agreement. In the event that Owner
terminates employment with Employer for any reason prior to a Qualifying Event,
this security interest and collateral assignment granted by Assignee to Owner
shall automatically expire and be deemed waived.
9. Assignee and Owner agree to execute any documents necessary to
effectuate this Collateral Security Assignment pursuant to the provisions of
the Agreement. The rights under this Collateral Security Assignment may be
enforced pursuant to the terms of the Agreement.
IN WITNESS WHEREOF, the Owner and Assignee have executed this
Collateral Security Assignment effective the day and year first above written.
------------------------------
, Owner
STAFF BUILDERS, INC.
By:
---------------------------
Title:
------------------------
Ex. A-4
<PAGE> 13
EXHIBIT B
SPLIT DOLLAR LIFE INSURANCE
TWO YEAR SECURITY RELEASE NOTICE
Pursuant to the Split Dollar Life Insurance Agreement entered into
between Staff Builders, Inc. (the "Company") and me on _____________ (the
"Agreement"), I hereby notify the Company that I request to be released on
___________, ___________ ("Security Release Date") from the Company's
collateral security in Policy Number____________ issued by the [Manufacturers
Life Insurance Company of America]. I understand that my Security Release Date
must be at least two years from the date on which the Company receives this
Notice. I further understand that in order for the Company's collateral
security interest to be released on my Security Release Date, I must continue
to be employed by the Company or one of its subsidiaries until such date.
------------------------------
Participant
------------------------------
Date
Received by Staff Builders Inc.
on
------------------------------
By:
---------------------------
Ex. B-1
<PAGE> 14
[For use with
spousal consent]
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
This Agreement is entered into as of ______________ 19 _______ by and
between Staff Builders, Inc., a Delaware corporation, (the "Company") and
_____________________ ("Employee") in reference to the following facts:
10. Employee is a key employee of the Company or a subsidiary of the
Company.
11. The Company has simultaneously with the execution of this
Agreement caused the Equitable Variable Life Insurance Company (the "Insurance
Company") to issue policy number __________ (the "Policy") on the life of
Employee and delivered the Policy to Employee. A portion of the first annual
premium has been paid by the Company as of the date of this Agreement.
12. For purposes of this Agreement, the Company and its subsidiaries
shall constitute the "Employer". For this purpose, a subsidiary is a
corporation which is a member of a controlled group of corporations (within the
meaning of Section 1563(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), determined without regard to Section 1563(a)(4) and (e)(3)(C)
thereof and by substituting the phrase "at least 50 percent" for the phrase "at
least 80 percent" each time it appears in Section 1563(a)(1)) of which the
Company is a member. If Employee is employed by a corporation which, as a
result of a sale or other corporate reorganization, ceases to be a member of
such controlled group, such sale or other corporate reorganization shall be
treated as a termination of Employee by Employer without Cause (as defined in
Section 8) unless immediately following the event and without any break in
employment the Employee remains employed by the Company or another corporation
which is a member of the controlled group of corporations.
NOW THEREFORE, in consideration of the facts set forth above and the
various promises and covenants set forth below, the parties to this Agreement
agree as follows:
1. Ownership of Policy.
The Company acknowledges that Employee is the owner of the Policy and
that Employee is entitled to exercise all of his or her ownership rights
granted by the terms of the Policy, except to the extent that the power of the
Employee to exercise those rights is specifically limited by this Agreement.
Except as so limited, it is the expressed intention of the parties to reserve
to Employee all rights in and to the Policy granted to its owner by the terms
thereof, including, but not limited to, the right to change the beneficiary and
the right to exercise settlement options.
2. The Company's Security Interest.
The Company's security interest in the Policy is conditioned upon its
satisfactorily performing all of the covenants under this Agreement. Each
period covered by any individual premium payment described in Section 3 shall
be considered a discrete extension of the Company's security interest in the
Policy. The Company shall not have nor exercise any right in and to the Policy
which could, in any way, endanger, defeat, or impair any of the rights of
Employee in the
<PAGE> 15
Policy, including by way of illustration any right to collect the proceeds of
the Policy in excess of the amount due the Company as provided in this
Agreement and in the Policy. The only rights in and to the Policy granted to
the Company in this Agreement shall be limited to the Company's security
interest in and to the cash value of the Policy, as defined herein, (the
"Security Interest"). The Company shall not assign any of its Security Interest
in the Policy to anyone other than Employee.
3. Premium payments.
For so long as Employee is employed by the Employer and the Company's
Security Interest has not been released, the Company agrees to pay an annual
premium (which may be pre-paid in installments) on the Policy on or before the
last day of each "policy year" (as such term is used in the Policy) in an
amount equal to the sum of (a) the compensation deferred by Employee under the
Staff Builders, Inc. Executive Deferred Compensation Plan (the "Plan") during
the pay periods ending during such policy year plus (b) the "cost of insurance"
(as defined in the Policy) for the excess, if any, of (i) the minimum death
benefit required under Section 4 hereof (determined in compliance with the
7-pay test set forth in Section 7702A of the Code) over (ii) the minimum death
benefit (determined in compliance with such 7-pay test) which could be provided
by that portion of the accumulated premiums actually paid under the Policy
which were paid pursuant to clause (a) of this sentence. The premium payment
shall be transmitted directly by the Company to the Insurance Company.
Consistent with the preceding sentences, prior to the release of the Company's
Security Interest in the Policy, Employee and the Company agree that the
Company shall from time to time designate one or more individuals (the
"Designee"), who may be officers of the Company, who shall be entitled to
adjust the death benefit under the Policy and to direct the investments under
the Policy; provided, however, that the Designee may only increase, but not
decrease, the death benefit in effect on the date that the Policy is issued;
provided further, that the Designee may only direct the investments under the
Policies in funds offered by the Insurance Company under the Policy. During the
period of time that this Agreement is in effect, Employee irrevocably agrees
that all dividends paid on the Policy shall be applied to purchase from the
Insurance Company additional paid-up life insurance on the life of Employee.
4. Death of Employee while employed by Employer.
(a) If Employee dies prior to termination of employment with Employer
and prior to his or her Security Release Date (as defined in Section 10 below),
Employee's designated beneficiary shall be entitled to receive the entire death
benefit under the Policy, which shall be at least equal to the greater of (1)
50% of Employee's annual base salary at the time of death, up to a maximum of
$100,000 (adjusted as described herein), or (2) the following multiple of the
sum of the amounts credited to Employee's Deferred Account under the Plan
depending on the Employee's insurance age at death: (A) if under 60, 2.0 or (B)
if 60 or older, 1.75. The $100,000 death benefit described in the preceding
sentence shall be adjusted for changes in the cost of living commencing on
January 1, 1995 on the basis of the relationship between the U.S. Consumer
Price Index for Urban Wage Earners and Clerical Workers, as published by the
U.S. Department of Labor (or, if there is no such index, then a comparable
substitute selected by the Committee) for the preceding calendar year and the
same index for the calendar year 1993.
-2-
<PAGE> 16
(b) Employee agrees that, during the period of this Agreement,
Employee will obtain and provide to Employer and/or the Insurance Company the
written consent of the spouse of the Employee, in the form attached hereto as
Exhibit C, to any designation by Employee of anyone other than the Employee's
spouse as the beneficiary to receive the benefits under this Section 4.
5. Employee's attaining his or her Security Release Date or termination
of Employee's employment on account of a Qualifying Termination.
(a) By making timely payment of the premiums described in Section 3,
the Company may renew its Security Interest in the Policy for the period
commencing with the due date of such payment until the later of (1) the due
date of the next annual premium described in Section 3, or (2) the date that
Employee attains his or her Security Release Date or terminates employment with
the Employer on account of a Qualifying Termination (either of which events
described in this clause 2 is referred to herein as a "Qualifying Event"). The
Company may not extend its Security Interest in the Policy under the Collateral
Security Assignment Agreement attached as Exhibit A after the occurrence of a
Qualifying Event. After such Qualifying Event, Employee shall be entitled to
exercise all of his or her ownership rights in the Policy without any
limitation, and this Agreement and its accompanying Collateral Security
Assignment Agreement shall no longer constitute a restriction on Employee's
rights.
(b) Notwithstanding paragraph (a), the Company shall continue to have
its Security Interest in the Policy to the extent required to satisfy its
withholding obligations as described in Section 12 and to recover any amounts
owed by Employee as described in paragraph (c) below.
(c) Employee agrees that if, at the time of the occurrence of a
Qualifying Event, Employee has any outstanding balances on any loans made by
the Company to Employee, then, unless Employee otherwise repays such
outstanding balances, Employee shall cause, either by withdrawing from or
borrowing on a nonrecourse basis against the Policy, to be transferred to the
Company that portion of the cash value of the Policy which is equal to the sum
of the outstanding balances on all such loans.
6. Termination of an Employee for a reason other than a Qualifying
Termination.
If the employment of Employee with Employer is terminated prior to his
or her Security Release Date for a reason other than a Qualifying Termination
(as described below), Employee shall cause, either by withdrawing from or
borrowing against the Policy, on a nonrecourse basis, to be transferred to the
Company an amount equal to the amount that may then be obtained under the
Policy; provided that, the amount to be transferred to the Company shall be
reduced to the extent the Employee has previously transferred to the Company an
amount equal to any difference that then exists between the cash value of the
Policy and the amount that may be borrowed against the Policy. In no event
shall Employee's voluntary resignation prior to attaining his or her Security
Release Date (as such concept is further defined below) ever constitute a
Qualifying Termination, except in certain situations following a Change in
Control (see Section 9).
-3-
<PAGE> 17
7. Definition of a Qualifying Termination.
A Qualifying Termination is either of the following events: the
termination of Employee by Employer for any reason other than "Cause," as
described in Section 8; or the termination of Employee after a Change in
Control under the circumstances described in Section 9(a). Both of these
concepts are further defined below.
8. Qualifying Termination because Employee is terminated for a reason
other than "Cause".
For purposes of this Section, "Cause" shall mean (1) Employee's
material breach of his or her employment agreement (if any), (2) Employee's
willful and continued failure to substantially perform assigned duties with the
Employer, (3) Employee's commission of an act of fraud or embezzlement against
the Employer, or (4) Employee's conviction of a felony or other crime involving
moral turpitude.
9. Qualifying Termination on account of termination after a Change in
Control.
(a) A Qualifying Termination shall be treated as occurring after a
"Change in Control" (as defined below) if there is first a "Change in Control"
and then, within three years following such Change in Control, either (1)
Employee's employment with the Employer is terminated by the Employer without
"Cause" (as defined in Section 8) or (2) Employee terminates his or her
employment with the Employer for "Good Reason" (as defined in subsection (c)
below).
(b) For purposes of this Section, a "Change in Control" shall be
deemed to have occurred if a person, corporation, partnership, association or
entity (1) acquires a majority of the Company's outstanding voting securities,
(2) acquires securities of the Company bearing a majority of voting power with
respect to the election of directors of the Company or (3) acquires all or
substantially all of the Company's assets.
(c) For purposes of this Section, "Good Reason" shall mean the
occurrence of one of the following events without Employee's consent:
(1) An adverse and significant change in the Employee's position,
duties, responsibilities, or status with the Employer, or a
change in business location to a point which is more than 50
miles from his or her location prior to the Change in
Control, except for required travel on Employer business to
an extent substantially consistent with his or her business
travel obligations prior to the Change in Control.
(2) A reduction by the Employer in Employee's base salary; and
(3) The taking of any action by the Employer to eliminate benefit
plans without providing substitutes therefor, to reduce
benefits thereunder or to substantially diminish the
aggregate value of incentive awards or other fringe benefits
including insurance and vacation days.
-4-
<PAGE> 18
(d) A termination of employment by Employee within the 36-month period
following a Change in Control shall be for Good Reason if one of the
occurrences specified in paragraph (c) shall have occurred, notwithstanding
that Employee may have other reasons for terminating employment including
employment by another employer which Employee desires to accept.
10. Employee's attaining his or her Security Release Date.
(a) Employee's "Security Release Date" shall mean the date which is
two years following the date on which the Company receives from Employee a
completed notice in the form attached hereto as Exhibit B, provided that
Employee continues to be employed by Employer until such date. Employee's
election of a Security Release Date shall be irrevocable.
(b) Employee shall attain his or her Security Release Date upon
becoming disabled while employed by the Employer. Employee shall be considered
"disabled" at the time that the Administrator (as defined in Section 13(a)
below) determines, based upon competent medical advice, that an Employee is
incapable of rendering substantial services to the Employer by reason of mental
or physical disability.
(c) The Company's Security Interest in the Policy is contingent upon
the timely payment of premiums under Section 3 of this Agreement. Each period
covered by any individual premium payment shall be considered an independent
extension of the Company's Security Interest in the Policy. In the event that
the Company waives its rights by reason of failure to make payments under
Section 3 of this Agreement, Employee shall immediately attain his or her
Security Release Date. The Company's failure to extend its rights in no way
affects the Company's duties and obligations under this Agreement.
11. Limitation on Employee's rights prior to a Qualifying Event.
In order to protect the Company's Security Interest and
notwithstanding any other provisions in this Agreement, prior to a Qualifying
Event, Employee agrees that he or she will not modify the death benefit under
the Policy, direct the investment of the cash surrender value of the Policy,
borrow against the Policy, assign the Policy, or obtain any portion of the cash
value of the Policy. Notwithstanding the preceding sentence, if Section 6
applies to a termination, Employee may borrow or withdraw from the Policy, so
long as the borrowing or withdrawal request is submitted to the Insurance
Company along with a directive that the borrowed or withdrawn amount be
transferred directly to the Company.
12. Tax Withholding.
It is recognized by the parties that the rights of Employee in the
Policy (as modified by the Agreement) may cause Employee to be treated under
certain circumstances as in receipt of gross income. These circumstances may
also impose upon the Company an obligation to deduct and withhold federal,
state or local taxes. Unless Employee otherwise provides the Company the
amounts it is required to withhold, Employee shall cause, either by withdrawing
from or borrowing on a nonrecourse basis against the Policy, to be transferred
to the Company that portion of the cash value of the Policy which is equal to
the amount of any federal, state or local taxes required to be withheld.
-5-
<PAGE> 19
13. Administration.
(a) The Compensation and Stock Option Committee of the Board of
Directors (the "Administrator") shall administer this Agreement. The
Administrator (either directly or through its designees) will have power and
authority to interpret, construe, and administer this Agreement (for the
purpose of this section, the Agreement shall include the Collateral Security
Assignment Agreement).
(b) Neither the Administrator, its designee nor its advisors, shall be
liable to any person for any action taken or omitted in connection with the
interpretation and administration of this Agreement.
14. Collateral Security Assignment of Policy to the Company.
In consideration of the promises contained herein, the Employee has
contemporaneously herewith granted the Security Interest in the Policy to the
Company as collateral under the form of Collateral Security Assignment attached
hereto as Exhibit A, which Collateral Security Assignment gives the Company the
limited power to enforce its rights to recover the cash value of the Policy
under the circumstances defined herein. The Company's Security Interest in the
Policy shall be specifically limited to the rights set forth above in this
Agreement, notwithstanding the provisions of any other documents including the
Policy. Employee agrees to execute any notice prepared by the Company
requesting a withdrawal or non-recourse loan in an amount equal to the amount
to which the Company is entitled under Sections 5, 6 or 12 of this Agreement.
15. Employee's beneficiary rights and security interest.
(a) The Company and Employee intend that in no event shall the Company
have any power or interest related to the Policy or its proceeds, except as
provided herein and in the Collateral Security Assignment. In the event that
the Company ever receives or may be deemed to have received any right or
interest in the Policy or its proceeds beyond the limited rights described
herein and in the Collateral Security Assignment, such right or interest shall
be held in trust for the benefit of Employee and be held separate from the
property of the Company.
(b) In order to further protect the rights of the Employee, the
Company agrees that its rights to the Policy and proceeds thereof shall serve
as security for the Company's obligations as provided in this Agreement to
Employee. The Company grants to Employee a security interest in and
collaterally assigns to Employee any and all rights the Company has in the
Policy, and products and proceeds thereof whether now existing or hereafter
arising pursuant to the provisions of the Policy, this Agreement, the
Collateral Security Assignment or otherwise, to secure any and all obligations
owed by the Company to Employee under this Agreement. In no event shall this
provision be interpreted to reduce Employee's rights to the Policy or expand in
any way the rights or benefits of the Company under this Agreement, the Policy
or the Collateral Security Assignment. This security interest granted to
Employee from the Company shall automatically expire and be deemed waived if
Employee terminates employment with Employer prior to a Qualifying Event.
-6-
<PAGE> 20
16. Amendment of Agreement.
Except as provided in a written instrument signed by the Company and
Employee, this Agreement may not be canceled, amended, altered, or modified.
17. Notice under Agreement.
Any notice, consent, or demand required or permitted to be given under
the provisions of this Agreement by one party to another shall, be in writing,
signed by the party giving or making it, and may be given either by delivering
it to such other party personally or by mailing it, by United States Certified
mail, postage prepaid, to such party, addressed to its last known address as
shown on the records of the Company. The date of such mailing shall be deemed
the date of such mailed notice, consent, or demand.
18. Binding Agreement.
This Agreement shall bind the parties hereto and their respective
successors, heirs, executor, administrators, and transferees, and any Policy
beneficiary.
19. Controlling law and characterization of Agreement.
(a) To the extent not governed by federal law, this Agreement and the
right to the parties hereunder shall be controlled by the laws of the State of
New York.
(b) If this Agreement is considered a "plan" under the Employee
Retirement Income Security Act of 1974 (ERISA), both the Company and Employee
acknowledge and agree that for all purposes the Agreement shall be treated as a
"welfare plan" within the meaning of section 3(1) of ERISA. Consistent with the
preceding sentence, Employee further acknowledges that his or her rights to the
Policy and the release of the Company's Security Interest are strictly limited
to those rights set forth in this Agreement. In furtherance of this
acknowledgment and in consideration of the Company's payment of the initial
premiums for this Policy, Employee voluntarily and irrevocably relinquishes and
waives any additional rights in the Policy or any different restrictions on the
release of the Company's Security Interest that he or she might otherwise argue
to exist under either state, federal, or other law. Employee further agrees
that he or she will not argue that any such additional rights or different
restrictions exist in any judicial or arbitration proceeding. Similarly, the
Company acknowledges that its Security Interest is strictly limited as set
forth in this Agreement and voluntarily and irrevocably relinquishes and waives
any additional interests or different interests or advantages that the Company
would have or enjoy if the Agreement were not treated as a "welfare plan"
within the meaning of section 3(1) of ERISA.
-7-
<PAGE> 21
20. Execution of Documents.
The Company and Employee agree to execute any and all documents necessary to
effectuate the terms of this Agreement.
STAFF BUILDERS, INC.
By:
------------------------------
Its:
-----------------------------
EMPLOYEE
---------------------------------
<PAGE> 22
EXHIBIT A
COLLATERAL SECURITY ASSIGNMENT AGREEMENT
This Collateral Security Assignment is made and entered into effective
as of _____________, 19____, by the undersigned as the owner (the "Owner") of
Life Insurance Policy Number ______________ (the "Policy") issued by the
Equitable Variable Life Insurance Company (the "Insurer") upon the life of
Owner and by Staff Builders, Inc., a Delaware corporation (the "Assignee").
WHEREAS, the Owner is a key employee of Assignee or a subsidiary of
Assignee, and the Assignee wishes to retain him or her in its or its
subsidiary's employ; and
WHEREAS, as an inducement to the Owner's continued employment, the
Assignee wishes to pay premiums on the Policy, as more specifically provided
for in that certain Split-Dollar Life Insurance Agreement dated as of
____________19__, and entered into between the Owner and the Assignee as such
agreement may be hereafter amended or modified (the "Agreement") (unless
otherwise indicated, the terms herein shall have the definitions ascribed
thereto in the Agreement);
WHEREAS, in consideration of the Assignee agreeing to make the premium
payments, the Owner agrees to grant the Assignee a security interest in the
Policy as collateral security; and
WHEREAS, the Owner and Assignee intend that the Assignee have no
greater interest in the Policy than that prescribed herein and in the Agreement
and that if the Assignee ever obtains any right or interest in the Policy or
the proceeds thereof, except as provided herein and in the Agreement, such
right or interest shall be held in trust for the Owner to satisfy the
obligations of Assignee to Owner under the Agreement and the Assignee
additionally agrees that its rights to the Policy shall serve as security for
its obligations to the Owner under the Agreement;
NOW, THEREFORE, the Owner hereby assigns, transfers and sets over to
the Assignee for security the following specific rights in the Policy, subject
to the following terms, agreements and conditions:
1. This Collateral Security Assignment is made, and the Policy is to
be held, as collateral security for all liabilities of the Owner to the
Assignee pursuant to the terms of the Agreement, whether now existing or
hereafter arising (the "Secured Obligations"). The Secured Obligations include:
(i) the obligation of the Owner to transfer an amount equal to the entire cash
value in the event that the Owner terminates employment with Employer for a
reason other than a Qualifying Termination and before attaining his or her
Security Release Date; (ii) the obligation of the Owner to pay an amount of
cash to the Assignee or transfer to the Assignee that portion of the cash
surrender value of the Policy which is equal to the sum of the outstanding
balances on any loans made by Assignee to the Owner in the event of a
Qualifying Event (as set forth in section 5(a) of the Agreement); and (iii) the
obligation of the Owner to pay an amount of cash to the Assignee or transfer to
the Assignee that portion of the cash value which is equal to any federal,
state or local taxes that Assignee may be required to withhold and collect (as
set forth in Section 12 of the Agreement).
Ex. A-1
<PAGE> 23
2. The Owner hereby grants to Assignee a security interest in and
collaterally assigns to Assignee the Policy and the cash value to secure the
Secured Obligations. However, the Assignee's interest in the Policy shall be
strictly limited to:
(a) The right to receive an amount equal to the entire cash value of
the Policy (which right may be realized by Owner's causing such amount to be
transferred to Assignee (through withdrawing from or borrowing against the
Policy), in accordance with the terms of the Agreement) if the Owner terminates
employment with Employer for a reason other than a Qualifying Termination
(unless he or she has previously attained his or her Security Release Date);
(b) The right to receive an amount equal to the sum of the outstanding
balances on any loans made by Assignee to the Owner in the event of a
Qualifying Event (as set forth in section 5(a) of the Agreement); and
(c) The right to receive an amount equal to any federal, state or
local taxes that Assignee may be required to withhold and collect (as set forth
in Section 12 of the Agreement)
3. (a) Owner shall retain all incidents of ownership in the Policy,
and may exercise such incidents of ownership except as otherwise limited by the
Agreement and hereunder. The Insurer is only authorized to recognize (and is
fully protected in recognizing) the exercise of any ownership rights by Owner
if the Insurer determines that the Assignee has been given notice of Owner's
purported exercise of ownership rights in compliance with the provisions of
Section 3(b) hereof and, as of the date thirty days after such notice is given,
the Insurer has not received written notification from the Assignee of
Assignee's objection to such exercise; provided that, the designation of the
beneficiary to receive the death benefits pursuant to Section 4 of the
Agreement may be changed by the Owner without prior notification of Assignee.
The Insurer shall not be responsible to ensure that the actions of the Owner
conform to the Agreement.
(b) Assignee hereby acknowledges that for purposes of this Collateral
Security Assignment, Assignee shall be conclusively deemed to have been
properly notified of Owner's purported exercise of his or her ownership rights
as of the third business day following either of the following events: (1)
Owner mails written notice of such exercise to Assignee by United States
certified mail, postage paid, at the address below and provides the Insurer
with a copy of such notice and a copy of the certified mail receipt or (2) the
Insurer mails written notice of such exercise to Assignee by regular United
States mail, postage paid, at the address set forth below:
Staff Builders, Inc.
1981 Marcus Avenue, Suite C115
Lake Success, New York 11042
ATTN: Corporate Secretary
The foregoing address shall be the appropriate address for such notices to be
sent unless and until the receipt by both Owner and the Insured of a written
notice from Assignee of a change in such address.
(c) Notwithstanding the foregoing, Owner and Assignee hereby agree
that, until Assignee's security interest in the Policy is released, Assignee
shall from time to time designate
Ex. A-2
<PAGE> 24
one or more individuals (the "Designee"), who may be officers of Assignee, who
shall be entitled to adjust the death benefit under the Policy and to direct
the investments under the Policy; provided, however, that the Designee may only
increase, but not decrease, the death benefit in effect on the date that the
Policy is issued; provided, further, that the Designee may only direct the
investments under the Policy in funds offered by the Insurer under the Policy.
Assignee shall notify the Insurer in writing of the identity of the Designee
and any changes in the identity of the Designee. Until Assignee's security
interest in the Policy is released, no other party may direct the investments
under the Policy without the consent of the Assignee and Owner.
4. If the Policy is in the possession of the Assignee, the Assignee
shall, upon request, forward the Policy to the Insurer without unreasonable
delay for endorsement of any designation or change of beneficiary or the
exercise of any other right reserved by the Owner.
5. (a) Assignee shall be entitled to exercise its rights under the
Agreement by delivering a written notice to Insurer, executed by the Assignee
and the Owner or the Owner's beneficiary, requesting a withdrawal or
nonrecourse policy loan equal to the amount to which Assignee is entitled under
Sections 5, 6 or 12 of the Agreement and transfer of such withdrawn or borrowed
amount to Assignee. So long as the notice is also signed by Owner or his or her
beneficiary, Insurer shall pay or loan the specified amounts to Assignee
without the need for any additional documentation.
(b) Upon receipt of a properly executed notice complying with the
requirements of subsection (a) above, the Insurer is hereby authorized to
recognize the Assignee's claims to rights hereunder without the need for any
additional documentation and without investigating (1) the reason for such
action taken by the Assignee; (2) the validity or the amount of any of the
liabilities of the Owner to the Assignee under the Agreement; (3) the existence
of any default therein; (4) the giving of any notice required herein; or (5)
the application to be made by the Assignee of any amounts to be paid to the
Assignee. The A-3 receipt of the Assignee for any sums received by it shall be
a full discharge and release therefor to the Insurer.
6. Upon the full payment of the liabilities of the Owner to the
Assignee pursuant to the Agreement, the Assignee shall execute an appropriate
release of this Collateral Security Assignment.
7. The Assignee shall have the right to request of the Insurer and/or
the Owner notice of any action taken with respect to the Policy by the Owner.
8. (a) The Assignee and the Owner intend that in no event shall the
Assignee have any power or interest related to the Policy or its proceeds,
except as provided herein and in the Agreement, notwithstanding the provisions
of any other documents including the Policy. In the event that the Assignee
ever receives or may be deemed to have received any right or interest beyond
the limited rights described herein and in the Agreement, such right or
interest shall be held in trust for the benefit of the Owner and be held
separate from the property of the Assignee.
(b) In order to further protect the rights of the Owner, the Assignee
agrees that its rights to the Policy and proceeds thereof shall serve as
security for the Assignee's obligations to the Owner as provided in the
Agreement. Assignee hereby grants to Owner a security interest in
Ex. A-3
<PAGE> 25
and collaterally assigns to Owner any and all rights it has in the Policy, and
products and proceeds thereof whether now existing or hereafter arising
pursuant to the provisions of the Policy, the Agreement, this Collateral
Security Assignment or otherwise, to secure Assignee's obligations ("Assignee
Obligations") to Owner under the Agreement, whether now existing or hereafter
arising. The Assignee Obligations include all obligations owed by the Assignee
to Owner under the Agreement, including without limitations (i) the obligation
to transfer ownership of the Policy to Owner and to make the premium payments
required under Section 3 of the Agreement and (ii) the obligation to do nothing
which may, in any way, endanger, defeat or impair any of the rights of Owner in
the Policy as provided in the Agreement. In no event shall this provision be
interpreted to reduce Owner's rights in the Policy or expand in any way the
rights or benefits of the Assignee under the Agreement. In the event that Owner
terminates employment with Employer for any reason prior to a Qualifying Event,
this security interest and collateral assignment granted by Assignee to Owner
shall automatically expire and be deemed waived.
9. Assignee and Owner agree to execute any documents necessary to
effectuate this Collateral Security Assignment pursuant to the provisions of
the Agreement. The rights under this Collateral Security Assignment may be
enforced pursuant to the terms of the Agreement.
Ex. A-4
<PAGE> 26
IN WITNESS WHEREOF, the Owner and Assignee have executed this
Collateral Security Assignment effective the day and year first above written.
------------------------------
, Owner
STAFF BUILDERS, INC.
By:
---------------------------
Title:
------------------------
<PAGE> 27
EXHIBIT B
SPLIT DOLLAR LIFE INSURANCE
TWO YEAR SECURITY RELEASE NOTICE
Pursuant to the Split Dollar Life Insurance Agreement entered into
between Staff Builders, Inc. (the "Company") and me on _________________ (the
"Agreement"), I hereby notify the Company that I request to be released on
___________, ____________ ("Security Release Date") from the Company's
collateral security in Policy Number ________________ issued by the
[Manufacturers Life Insurance Company of America]. I understand that my
Security Release Date must be at least two years from the date on which the
Company receives this Notice. I further understand that in order for the
Company's collateral security interest to be released on my Security Release
Date, I must continue to be employed by the Company or one of its subsidiaries
until such date.
------------------------------
Participant
------------------------------
Date
Received by Staff Builders, Inc.
on
------------------------------------
By:
---------------------------
Ex. B-1
<PAGE> 28
EXHIBIT C
Spousal Consent
to Designation of
Nonspousal Beneficiary
My spouse is ____________________. I hereby consent to the designation made by
my spouse of ______________________________ as the beneficiary under Life
Insurance Policy No. __________________________, which Staff Builders, Inc. has
purchased from the Equitable Variable Life Insurance Company and transferred to
him/her.
This consent is being voluntarily given, and no undue influence or coercion has
been exercised in connection with my consent to the designation made by my
spouse of the beneficiary named above rather than myself as the beneficiary
under the Split Dollar life Insurance Policy.
------------------------------
Spouse's Signature
------------------------------
Print Spouse's Name
------------------------------
Date
Ex. C-1
<PAGE> 1
EXHIBIT 10.29
FIRST LEASE AMENDMENT
AGREEMENT, made this 28th day of October, 1998 between MATTERHORN USA,
INC., having an address at c/o BDG Management, Inc., 6800 Jericho Turnpike,
Syosset, New York 11791 (the "Landlord") and STAFF BUILDERS, INC. having an
address at 1983 Marcus Avenue, Lake Success, New York 11042 (the "Tenant").
W I T N E S S E T H
WHEREAS, Landlord's predecessor in interest and Tenant entered into (i)
a lease agreement, dated October 1, 1993 (the "Lease") for the rental of
approximately 48,000 rentable square feet of office space (the "Original Office
Space") plus 5,000 square feet of storage space at 1983 Marcus Avenue, Lake
Success, New York (the "Building"), (ii) a lease agreement dated June 19, 1995
for the rental of 1,014 rentable square feet of office space (the "1014 Lease"),
(iii) a License Agreement dated January 3, 1996 (the "9816 License") for the use
of approximately 9,816 rentable square feet on the entry level of the Building,
(iv) a License Agreement dated January 16, 1997 (the "3100 License") for the use
of approximately 3,100 rentable square feet of storage space on the Concourse
Level of the Building, (v) a License Agreement dated August 15, 1997 (the "989
License") for the use of approximately 989 rentable square feet on the second
floor of the Building (the 9816 License, 3100 License, and 989 License are
hereinafter collectively referred to as the "License Agreements"); and
WHEREAS, the parties are desirous of amending the Lease so as to (i)
surrender certain space presently leased by Tenant from Landlord, (ii)
consolidate into the Lease certain space presently leased by Tenant from
Landlord under the 1014 Lease and License Agreements, (iii) lease 14,132
rentable square feet on the Second Floor not previously considered herein (the
space referred to in (iii) above and the License Agreements space is sometimes
hereinafter referred to as the "Expansion Space"), and (iv) extend the term of
the Lease to end the 30th day of September, two thousand and five upon the terms
and conditions provided herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed as follows:
1. The total rentable square foot area as indicated in the Lease is
hereby amended and increased to (i) 62,635 rentable square feet of office space,
and (ii) 8,100 rentable square feet of storage space, which premises consists of
the areas shown on Exhibit "A" annexed hereto and made a part hereof.
<PAGE> 2
2. The basic rent through the end of the term of this Lease shall be as
follows:
Office Space
<TABLE>
<CAPTION>
Dates Annual Rent Monthly Rent
----- ----------- ------------
<S> <C> <C>
Effective Date-11/30/98 $1,368,574.75 $114,047.90
12/1/1998-11/30/1999 $1,409,631.99 $117,469.33
12/1/1999-11/30/2000 $1,451,920.95 $120,993.41
12/1/2000-11/30/2001 $1,495,478.58 $124,623.22
12/1/2001-11/30/2002 $1,540,342.94 $128,361.91
12/1/2002-11/30/2003 $1,586,553.23 $132,212.77
12/1/2003-11/30/2004 $1,634,149.82 $136,179.15
12/1/2004-9/30/2005 $1,683,174.32 $140,264.53
</TABLE>
Storage Space
<TABLE>
<CAPTION>
Dates Annual Rent Monthly Rent
----- ----------- ------------
<S> <C> <C>
Effective Date-11/30/98 $70,965.24 $5,913.77
12/1/1998-11/30/1999 $73,094.20 $6,091.18
12/1/1999-11/30/2000 $75,287.02 $6,273.92
12/1/2000-11/30/2001 $77,545.63 $6,462.14
12/1/2001-11/30/2002 $79,872.00 $6,656.00
12/1/2002-11/30/2003 $82,268.16 $6,855.68
12/1/2003-11/30/2004 $84,736.23 $7,061.35
12/1/2004-9/30/2005 $87,278.32 $7,273.19
</TABLE>
<PAGE> 3
3. Tenant's Proportionate Share set forth in Article 6 of the Lease
shall be increased to 20.8682%.
4. The Work Letter set forth in Article 34 of the Lease shall be
amended as follows:
Landlord shall have no obligation to alter, improve, decorate, or
otherwise prepare the Demised Premises for Tenant's occupancy of the
Expansion Space except that Landlord shall perform such items of work, so
as to perform new building standard installation in accordance with the
construction drawings attached hereto (hereinafter, "Landlord's First
Amendment Work"). Landlord shall proceed with Landlord's First Amendment
Work with due diligence, subject to delays by causes beyond its reasonable
control and to the vacating and surrendering of all or part of the
Expansion Space by any present occupant thereof. This First Amendment to
Lease is subject to and contingent upon Landlord obtaining vacant
possession of the Expansion Space. If Landlord is required by the terms
hereof to do any such work without expense to Tenant and the cost of such
work is increased due to any delay resulting from any act or omission of
Tenant, it agents or employees, Tenant shall forthwith pay the Landlord as
additional rent an amount equal to such increase in cost. For the purposes
of this First Lease Amendment, the Landlord's First Amendment Work shall
be deemed "substantially ready for occupancy" when the major construction
aspects of Landlord's First Amendment Work are substantially completed,
although minor items are not completed. Such minor uncompleted items may
include touch-up plastering or painting, so called "punch list" items or
any other uncompleted construction or improvement which does not
unreasonably interfere with Tenant's ability to carry on its business in
the Expansion Space. Tenant shall periodically inspect Landlord's First
Amendment Work, as hereinafter provided, and make any objections thereto
without delay so as to mitigate changes, delays and costs. Notwithstanding
anything to the contrary herein, Landlord shall perform such items of work
pursuant to the construction drawings previously approved by Landlord and
Tenant, a copy of which is attached hereto.
5. The following paragraph shall replace Paragraph 37 of the Lease:
Provided that Tenant (a) has given Landlord seven (7) months prior written
notice that it will exercise this right of cancellation and (b) is not in
default under the terms, conditions or covenants of this Lease beyond
applicable notice and grace periods on the date when notice is given or on
the date when this right of cancellation is exercised, Tenant may exercise
this right of cancellation on May 31, 2002 by paying to Landlord, in seven
(7) equal monthly installments, commencing upon notifying Landlord that it
will exercise this right of
<PAGE> 4
cancellation, a total sum computed as follows: (a) total cost of initial
tenant installation divided by 105 months and multiplied by the number of
months from the date the cancellation becomes effective to September 30,
2003 (i.e., $1,254,000 / 105 = $11,942.86 x 16 = $191,085.76) plus (b) the
total cost of the 1014 Lease Work letter divided by 105 months and
multiplied by the number of months from the date the cancellation becomes
effective to September 30, 2003 (i.e. $25,992.97 / 105 = $247.55 x 16 =
$3,960.83) plus (c) total cost of Landlord's First Amendment Work divided
by 82 months and multiplied by the number of months from the date the
cancellation becomes effective to the end of the lease term (i.e.,
$440,830 / 82 = $5,375.98 x 40 = $215,039.02). If the Lease is terminated
during said seven (7) month period, all payments due under this Article
shall thereafter cease provided that Tenant is not in default under the
terms, conditions and covenants of the Lease beyond applicable notice and
grace periods. If Tenant does not elect to cancel on May 31, 2002, then
Landlord, at its sole cost and expense, shall repaint and replace any
carpeting having a useful life of less than three (3) years in the
original Office Space using similar paint and/or carpeting as used for the
initial tenant installation, with the work to be done during regular
business hours. Tenant agrees to cooperate in a commercially reasonable
manner and Landlord agrees to have the work performed in a commercially
reasonable manner.
6. For purposes of the calculation of additional rent due hereunder,
the area demised to Tenant shall be based on the total rentable square feet of
65,735, commencing as of the Effective Date hereinafter defined.
7. The effective date (the "Effective Date") of this First Lease
Amendment shall be the date that Landlord gives notice to Tenant that the
Expansion Space is substantially ready for occupancy or upon the day that Tenant
is actually occupying the Expansion Space, whichever is earlier. Landlord shall
use reasonable efforts to give to Tenant no less than ten (10) business days
prior notice of the date on which the Expansion Space shall be substantially
ready for occupancy. Notwithstanding anything to the contrary herein, if
Landlord shall be delayed in substantially completing Landlord's First Amendment
Work due to any acts and/or omissions of Tenant, including but not limited to
(i) Tenant's request for materials, finishes or installations other than
Landlord's standard, (ii) Tenant's changes in any plans, (iii) the performance
of work by a person, firm or corporation employed by Tenant and delays in the
completion of said work by said person, firm or corporation, (iv) Tenant's
delays in submitting any plans or specifications, and approving plans or
specifications or estimates, or in supplying information, (v) by reason of any
additional non-standard work requested by Tenant, then the Effective Date shall
be accelerated by the number of days of such delay. Notwithstanding anything to
the contrary herein, Tenant shall continue to pay all rent and comply with all
other terms and conditions of the Lease, the 1014 Lease and License Agreements
upon the execution of this First Lease Amendment until the Effective Date, at
which time said terms and conditions shall be amended as expressly provided
herein and the License Agreements, 1014 Lease and 1500 rentable square feet
known as the Concession Premises and shown on Exhibit B to the Lease shall
automatically
<PAGE> 5
be terminated in their entirety upon the Effective Date. Tenant shall vacate the
Concession Premises and all space under the 9816 License no later than the
Effective Date, with delivery of such premises to Landlord to be made in
accordance with all of the terms of the respective lease or license
agreement--Tenant's failure to vacate such premises as contemplated herein shall
be deemed to be a default under the terms of this Lease and Landlord shall
maintain all rights and remedies provided in the Lease or otherwise by law. The
parties acknowledge that approximately 936 rentable square feet of the 14,132
rentable square feet of space being added to the Premises now leased or licensed
by Tenant, is currently occupied by another tenant (the "936 Space").
Notwithstanding anything to the contrary herein, the Effective Date shall be the
date that Landlord gives notice to Tenant that the Expansion Space (other than
the 936 Space) is substantially ready for occupancy or upon the date Tenant is
actually occupying the aforementioned space, whichever is earlier and the rent
and all other charges shall be adjusted accordingly until the earlier of
substantial completion of the 936 Space or the date Tenant occupies said space.
If the 936 Space is not vacated by any existing occupants by November 1, 1998,
Landlord may elect to remove said premises from the terms of this First Lease
Amendment and all other terms and conditions of this First Lease Amendment shall
remain in full force and effect.
8. Tenant represents that it has dealt with no broker other than Sutton
& Edwards (hereinafter the "Broker") in connection with this First Lease
Amendment and Tenant hereby agrees to indemnify and hold Landlord harmless of
and from any and all losses, costs, damages or expense (including, without
limitation attorneys' fees and disbursements) incurred by Landlord by reason of
any claim of or liability to any other broker who claims to have dealt with
Tenant in connection with this First Lease Amendment. Landlord shall pay the
Broker such brokerage fee as may be due it pursuant to and in accordance with
Landlord's separate agreement with the Broker.
9. It is expressly understood and agreed that submission by Landlord of
the within First Lease Amendment is for review and execution by Tenant and shall
confer no rights nor impose any obligation on either party unless or until both
Landlord and Tenant shall have executed this First Lease Amendment and
duplicates and originals thereof shall have been delivered to the respective
parties hereto.
10. The following Article shall replace Article 39 of the Lease:
Storage Space
Landlord will provide Tenant with +5,000 and +3,100 square feet of
"dead storage space" on the Concourse Level of the Building as more particularly
shown on Exhibit A attached hereto. Tenant may use said space solely for the
purposes of storage. There will be no personnel located in said space and
Tenant's use shall be limited to the maintenance of files plus such use of the
premises by Tenant's employees as reasonably necessary to file or retrieve files
located in said space. Landlord will provide Tenant with such space in an "as
is" condition. The Base Rent for this
<PAGE> 6
space is incorporated in the rent schedule set forth in paragraph 2 of this
First Lease Amendment. Late payments are subject to interest and other charges
as provided in this Lease with regard to the Base Rent and Additional Rent.
Landlord shall have no responsibility for the security of the contents of such
storage space and all risks are expressly assumed by the Tenant.
11. The car spaces set forth in Article 4 of the Lease shall be
increased to 292 car spaces (267 spaces in the underground garage and 25 spaces
on the deck).
12. Articles 39, 44 and 45 of the Lease shall be deleted in their
entirety.
13. Except as otherwise set forth herein, all other terms and
conditions of the Lease are ratified, confirmed and remain in full force and
effect.
IN WITNESS WHEREOF, the parties have signed and delivered this First
Lease Amendment as of the date first above written.
MATTERHORN, USA, INC.
BY: Michael J. Jaynes, VP
STAFF BUILDERS, INC.
BY: David Savitsky, EVP
<PAGE> 1
EXHIBIT 10.31
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("License") is made as of the 16th of December,
1998, between MATTERHORN USA, INC., having an address at c/o BDG Management,
Inc., 6800 Jericho Turnpike, Syosset, New York 11791 ("Owner"), and STAFF
BUILDERS, INC., a New York Corporation, having an address at 1983 Marcus Avenue,
Lake Success, New York 11042 ("User").
W I T N E S S E T H:
WHEREAS, Owner is the owner of the office building located at and known
as Gateway South, 1981 Marcus Avenue, Lake Success, New York 11042 (the
"Building"); and
WHEREAS, User currently occupies certain premises in the adjoining
building owned by Owner and known as Gateway North, 1983 Marcus Avenue, Lake
Success, New York 11042; and
WHEREAS, User has requested the right to use and occupy approximately
1,396 square feet of space in the Building for storage purposes; and
WHEREAS, Owner is willing to grant User the right to use and occupy
space in the Building on the terms and conditions set forth in this License;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, Owner and User hereby agree as follows:
1. User's Possession of Premises and Permitted Uses. Owner hereby
grants to User a license to use and occupy the space substantially as shown on
the diagram attached hereto and made a part hereof as Exhibit A on the concourse
level of the Building (the "Premises") for the period from the date hereof (the
"License Commencement Date") through September 30, 2005. This License shall be
limited to the use and occupancy of the Premises solely for storage of computer
equipment and only through the period contemplated herein or upon the earlier
termination of this Agreement.
2. Charges. In consideration of Owner's granting to User the right to
use and occupy the Premises, User hereby agrees to pay owner a license fee (the
"License Fee") payable monthly without setoff or deduction, on the first day of
each calendar month during the term of this License as follows:
<PAGE> 2
<TABLE>
<CAPTION>
MONTHLY ANNUAL
FROM TO PAYMENT PAYMENT
<S> <C> <C> <C>
License Execution 9/30/99 $1,396.00 $16,752.00
10/01/99 9/30/00 $1,437.88 $17,254.50
10/01/00 9/30/01 $1,481.02 $17,772.20
10/01/01 9/30/02 $1,525.45 $18,305.30
10/01/02 9/30/03 $1,571.21 $18,854.62
10/01/03 9/30/04 $1,618.35 $19,420.16
10/01/04 9/30/05 $1,666.90 $20,002.76
</TABLE>
User shall also pay Owner all other sums of money as shall become due
and payable by User under this License (hereinafter, "Additional Fees") , all of
which sums shall be payable as hereinafter provided, all to be paid to Landlord,
as specified on the first page of this License. In the event any installment of
the License Fees or Additional Fees required pursuant to the provisions of this
License to be paid by User is not paid when due, such installment shall bear
interest at the rate of twelve (12%) percent per annum from the date said
installment was due and payable, said interest to be deemed Additional Fee. In
addition, User shall pay upon demand by Owner any attorney's fees incurred by
Owner in connection with the imposition, collection or payment of any License
Fees, Additional Fees and/or said interest, said attorney's fees to be deemed
Additional Fees.
3. Condition of Premises. User represents and warrants that it has
inspected the Premises and accepts the Premises "as is". User acknowledges that
Owner has made no claim or promise about the condition of the Premises. User
shall not make any alterations, addition, changes, or improvements to the
Premises without the prior written consent of Owner.
4. Services. As long as User is not in default under this License,
Owner, during the hours of 8:00 a.m. to 6:00 p.m. on weekdays and on Saturdays
from 9:00 a.m. to 1:00 p.m., excluding legal holidays, shall furnish the
Premises with heat [and air conditioning in the respective seasons], and provide
the Premises with electricity for lighting and [usual office equipment.]
5. Release From Liability. User agrees that Owner shall not be
responsible or liable for any damage or injury to any property or to any person
or persons at any time on or about the Premises arising from any cause
whatsoever except owner's negligence. User shall not hold owner in any way
responsible or liable therefor and will indemnify and hold owner harmless from
and against any and all claims, liabilities, penalties, damages, judgments and
expenses (including, without limitation, reasonable attorney fees and
disbursements) arising from injury to person or property of any nature arising
out of User's use or occupancy of the Premises
<PAGE> 3
and also for any other matter arising out of User's use or occupancy of the
Premises, or of the street or sidewalks adjacent thereto.
6. Insurance. During the term of User's use and occupancy of the
Premises, User, at its sole cost and expense, and for the mutual benefit of
Owner and User, shall carry and maintain comprehensive fire protection and
extended coverage and liability insurance, including property damage and
replacement value, insuring the Owner and the User against liability for injury
to persons or property occurring on or about the Premises arising out of the
ownership, maintenance, use or occupancy thereof, in amounts and with insurance
companies acceptable to Landlord, in its reasonable discretion. User shall
deliver to Owner a certificate evidencing such insurance on or before the
License Commencement Date. Such certificate shall provide that the insurer shall
not cancel, reduce or otherwise modify such coverage without giving Owner at
least thirty (30) days prior written notice of such change.
7. No Assignment. No assignment of this License or sublicensing or
subleasing of the Premises or any part thereof shall be made by User. Neither
all nor any part of User's interest in the Premises granted hereunder may be
encumbered, assigned, or transferred in whole or in part either by the act of
User or by operation of law. User shall not permit or suffer the Premises to be
used by anyone other than the employees of User.
8. Subordination. This License shall be subject and subordinate to any
and all mortgages and ground leases of the Building and all extensions,
consolidations, amendments or replacements thereof.
9. Default. In the event User shall be in default of any monetary
provision of this License for more than five (5) days after the sending by Owner
to User of written notice of such monetary default, or in the event User shall
be in default of any non-monetary provision of this License for more than ten
(10) days after the sending by Owner to User of written notice of such
non-monetary default, Owner shall have the right, to the extent permitted by
law, to (i) re-enter the Premises and withdraw the permission hereby granted to
User to use the Premises; and (ii) remove all persons and property therefrom,
without being deemed to have committed any manner of trespass. Such remedies
shall be in addition to any other rights or remedies owner may have hereunder or
at law or equity. Any default under any lease agreement now or hereafter entered
into between owner and User shall be deemed to be a default under this License
entitling Owner to all of the remedies provided herein or otherwise permitted by
law.
10. Notices. Any notices required or permitted to be given under this
License shall be given to the respective parties at the addresses set forth at
the head of this License by hand, by overnight courier or by certified mail,
return receipt requested. Such notices shall be deemed given upon delivery, in
the case of hand delivery, one day after mailing, in the case of overnight
courier and three business days after mailing, in the case of mailing. Such
notices can be given or received by the respective attorneys for the parties.
<PAGE> 4
11. Reimbursement of Fees. In the event that Owner is required to take
any legal action to enforce the terms of this License, including any action
against User for possession, owner shall be entitled, in addition to any other
rights and remedies hereunder or at law or equity, to the reimbursement by User
of all reasonable costs incurred by owner in the exercise of its rights and
remedies, including, but not limited to, reasonable attorneys' fees and
disbursements. In any legal action brought in connection with this License, both
Owner and User waive a jury trial.
12. Surrender of Premises. Upon the termination of this License, User
shall deliver the Premises in a "broom clean" condition free from all debris,
and User agrees to remove all of its possessions and property from the Premises.
User agrees that between the date hereof and the termination of this License,
User will maintain the Premises in the same condition and repair as it was at
the commencement of this License, reasonable wear and tear excepted and will
cause the grounds to be maintained and well kept.
13. Owner Access to the Premises. During the term of this License, User
agrees to allow Owner, its employers, agents or servants to enter upon the
Premises and to inspect same and make any necessary repairs. owner is also
granted the right during User's normal business hours to enter the Premises and
exhibit the same for the purpose of showing the Premises to prospective tenants,
purchasers or mortgagees.
14. Real Estate Tax Escalation (a) User shall pay to owner as
Additional Fees, real estate tax escalations pursuant to the further provisions
of this Paragraph 14.
(b) For the purposes of this Paragraph 14, the term "Taxes" shall
include all real estate taxes and assessments, special assessments, water and
sewer rents and each and every installment thereof which shall or may during the
Term of this License be levied, assessed, imposed, become due and payable, or
liens upon or arising in connection with the use, occupancy or possession of or
grow out of, or for the Building and/or the Land, or any part thereof as if the
Building and Land were the sole asset of Owner. If at any time during the Term
of this License the methods of taxation prevailing at the execution of this
License shall be altered so that in lieu of or as a substitute for the whole or
any part of the taxes, assessments, levies, impositions or charges now levied,
assessed or imposed on real estate or the improvements thereon there shall be
levied, assessed or imposed (i) a tax, assessment, levy, imposition or charge
wholly or partially payable as a capital levy or otherwise on the rents received
therefrom, or (ii) a tax, assessment, levy, imposition or charge measured by or
based in whole or in part upon the Demised Premises and imposed upon Owner, or
(iii) a license fee or charge measured by the rents payable by User to owner, or
(iv) a license fee or charge measured by the rent receivable by owner for the
Building or any portion thereof and/or the Land or any other building or other
improvements constructed on the Land, or (v) a tax, license fee or charge
imposed on Owner which is otherwise measured by or based in whole or in part,
upon the Building or any portion thereof and/or the Land or any other building
or other improvements constructed on the Land, or (vi) any other tax or levy
imposed in lieu of or as a substitute for Taxes which are levied, assessed or
imposed as of the date of this License, then in any such event, the same shall
<PAGE> 5
be included in the computation of Taxes hereunder. A tax bill or copy thereof
shall be conclusive evidence of the amount of Taxes or installments thereof.
(c) If, at any time subsequent to the License Commencement Date, the
Taxes for any General Tax Year and/or School Tax Year shall be more than the
Base General Tax Year and/or Base School Tax Year, then, in such event, User
shall pay to owner, as Additional Fees, User's Pro Rata share of such excess
(the "Excess Taxes"), in the manner provided in this paragraph.
(i) Base General Tax Year shall mean the taxes, as finally
determined, for the General Tax Year fiscal period commencing January 1, 1999,
and ending on December 31, 1999.
(ii) Base School Tax Year shall mean the taxes, as finally
determined, for the School Tax Year fiscal period commencing July 1, 1998, and
ending on June 30, 1999.
(iii) General Tax Year shall mean each period of 12 months,
commencing on January 1 of each such period, in which occurs any part of the
term of this License, or such other period as hereafter may be duly adopted by
the County of Nassau as its fiscal year for real estate tax purposes.
(iv) School Tax Year shall mean each period of 12 months,
commencing on July 1 of each such period, in which occurs any part of the term
of this License, or such other period of 12 months occurring during the term of
this License as hereafter may be duly adopted as the fiscal year for real estate
tax purposes of the school taxing authority.
(d) owner shall render to User a statement of the Excess Taxes,
including a statement of the Base General and/or School Tax Year amount, as
applicable, and the Additional Fee increase computed as set forth in Paragraph
14(c) hereof, and such increase shall be paid within twenty (20) days after
rendition thereof. A tax bill or copy thereof submitted by Owner to User shall
be conclusive evidence of the amount of Taxes. Owner shall have the right to
establish an escrow to cover the escalations for Taxes contemplated by this
Paragraph 15 and User shall pay one-twelfth of such estimate each month on the
date in which payments of License Fees are due, subject to adjustment at the end
of each calendar year. Such escrow payments shall commence on the first day of
the month after receipt of notice from owner of the calculation of the estimate.
(e) only owner shall be eligible to institute proceedings to reduce the
assessed valuation of the Land or the Building. In the event Owner shall obtain
a tax refund as a result of any such reduction proceedings, then, provided User
is not then in default under the terms of this License, and after all applicable
grace periods have expired, and after the final conclusion of all appeals or
other remedies, User shall be entitled to User's Pro Rata Share of the net
refund obtained. As used herein, the term "net refund" means the refund plus
interest, if any, thereon, paid by the governmental authority less appraisal,
engineering, expert testimony, attorney, printing and filing fees and all other
Owner costs and expenses of the proceeding. User shall pay to Owner User's Pro
Rata Share of all appraisal, engineering, expert testimony, attorney,
<PAGE> 6
printing and filing fees and all other reasonable costs and expenses of the
proceeding incurred by Owner in the event said proceeding does not result in any
net refund. Notwithstanding anything contained to the contrary herein, User
shall not be entitled to any refund in excess of monies paid by User hereunder.
(f) Owner's failure during the Term of this License to submit tax bills
or copies thereof to User, or Owner's failure to make demand under this
Paragraph 14 or under any other provision of this License shall not in any way
be deemed a waiver of, or cause owner to forfeit or surrender its rights to
collect any items of Additional Fees which may have become due pursuant to this
Paragraph 14 during the term of this License. User's liability for the
Additional Fees due under this Paragraph 14 shall survive the expiration or
sooner termination of this License.
(g) In no event shall any adjustment of User's Pro Rata Share of the
Taxes payable hereunder result in a decrease in License Fees or Additional Fees
payable pursuant to any other provision of this License, it being agreed that
the payment of Additional Fees under this Paragraph 14 is an obligation
supplemental and in addition to User's obligation to pay License Fees.
(h) If any User's Changes result in an increased real estate tax
assessment, User shall pay to Owner, as Additional Fees, the amount of such
increased assessment.
15. Electricity. User covenants and agrees that at all times it use of
electric current shall not exceed the capacity of existing feeders to the
Building or the risers or wiring installations servicing the Premises. User may
not use any electrical equipment which will overload installations or materially
interfere with the use thereof by other tenants of the Building. User's use of
electricity from the Premises shall be measured by the direct meter already
installed in other premises of User. [User shall be billed directly by the Long
Island Power Authority and shall pay LIPA directly.]
16. User's Right to Cancel the License. Provided that User is not in
default of the terms of this License, User shall have the right to cancel this
License effective as of May 31, 2002, provided that User provides written notice
to Owner of its election to cancel this License no later than November 30, 2001,
and provided that User shall deliver to Owner, on or before may 31, 2002, the
amount which equals four (4) months' License Fees for the four-month period
immediately following the effective date of cancellation of this License. In the
event of the aforementioned termination, the terms of this License shall be
deemed to have expired with the same force and effect as if such termination
date were the date set forth herein as the expiration date of the term thereof.
17. Compliance With Laws (a) User shall give prompt notice to Owner of
any notice it receives of the violation of any law or requirements of any public
authority with respect
<PAGE> 7
to the Demised Premises or the use or occupation thereof. Prior to the License
Commencement Date, if User is then in possession of the Premises, and at all
times thereafter, User shall promptly comply with all present and future laws,
orders and regulations of all state, federal, town, municipal and local
governments, departments, commissions and boards or any direction of any public
officer pursuant to law, and all orders, rules and regulations of the New York
Board of Fire Underwriters or any similar body which shall impose any violation,
order or duty upon Owner or User with respect to the Premises (in which event
User shall effect such compliance at its sole cost and expense) or the Building
(in which event, notwithstanding anything herein to the contrary, User shall
promptly pay User's Pro Rata Share of the cost to Owner of complying therewith).
User shall pay all costs, expenses, fines, penalties or damages, which may be
imposed upon Owner by reason of User'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 License or at any time thereafter, be higher than it
otherwise would be, then User shall reimburse Owner, as Additional Fees
hereunder, for that portion of all fire insurance premiums thereafter paid by
Owner which shall have been charged because of such failure by User, and shall
make such reimbursement upon the first day of the month following such outlay by
owner. Notwithstanding the foregoing, Tenant shall have no obligation to make
any alterations or improvements if same are structural in nature unless due to
the negligent act or omission of Tenant, its agent, servant, employee or
contractors.
(b) User shall not place a load upon any floor of the Premises
exceeding the floor load per square foot area which said floor was designed to
carry and which is allowed BY law.
18. Bankruptcy. (a) If at any time prior to the License Commencement
Date there shall be filed by or against User in any court pursuant to any
statute either of the United States or of any State a petition in bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or trustee
of all or a portion of User's property, or if User makes an assignment for the
benefit of creditors, or petitions for or enters into an arrangement with
creditors, this License shall ipso facto be canceled and terminated and in which
event neither User nor any person claiming through or under User or by virtue of
any statute or of any order of any court shall be entitled to possession or to
remain in possession of the Premises but shall forthwith quit and surrender the
Premises and Owner, in addition to the other rights and remedies it has by
virtue of any other provisions herein or elsewhere in this License contained or
by virtue of any statute or rule or law, may retain as liquidated damages any
rent or any deposit or monies received by it from User or others on behalf of
User.
(b) If at the License Commencement Date or if at any time during the
Term of this License there shall be filed by or against User in any court
pursuant to any statute either of the United States or of any State a petition
in bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee of all or a portion of User's property or if User makes an
assignment for the benefit of creditors or petitions for or enters into an
arrangement with creditors, this License, at the option of Owner exercised
within a reasonable time after notice of the happening of any one or more of
such events, may be canceled and terminated by written
<PAGE> 8
notice by Owner to User and in which event neither User nor any person claiming
through or under User by virtue of any statute or of any order of any court
shall be entitled to possession or to remain in possession of the Premises but
shall forthwith quit and surrender the Premises and owner, in addition to the
other rights and remedies it has by virtue of any other provisions herein or
elsewhere in this License contained or by virtue of any statute or rule of law,
may retain as liquidated damages any rent, security, deposit or monies received
by Owner from User or others on behalf of User.
(c) At any of the times mentioned in either sub-paragraphs (a) or (b)
hereof, if an involuntary insolvency, bankruptcy or reorganization proceeding
shall be instituted against User as provided in said subparagraphs, User shall
have sixty (60) days in which to vacate the same before Owner shall have any
right to terminate this License.
(d) It is stipulated and agreed that in the event of the termination of
this License pursuant to subparagraphs (a) or (b) hereof, Owner shall forthwith,
notwithstanding any other provisions of this License to the contrary, be
entitled to recover from User as and for liquidated damages an amount equal to
the difference between the rent reserved hereunder for the unexpired portion of
the Term of this License and the fair market rental value of the Premises, if
lower than the rent reserved, at the time of termination, for the unexpired
portion of the Term of this License, both discounted at the rate of four (4-.)
percent per annum to present worth thereof. Nothing contained herein shall limit
or prejudice the right of 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 he greater,
equal to, or less than the amount of the difference referred to above. In
determining the fair market rental value of the Premises the rent realized by
any arms-length re-letting, if such re-letting be accomplished by Owner within a
reasonable time after termination of this License, shall be deemed prima facie
evidence of the fair market rental value. Any disputes with respect to the fair
market rental value shall be resolved pursuant to the arbitration provisions of
this License.
19. Damage by Fire or Other Cause. (a) User shall give prompt notice to
owner in case of fire or other damage to the Premises or the Building.
(b) If the Premises or the Building shall be damaged by fire or other
casualty, Owner, at Owner's expense, shall repair such damage. However, Owner
shall have no obligation to repair any damage to, or to replace, User's personal
property or any other property or effects of User. If the Premises shall be
rendered untenantable by reason of any such damage, the License Fee only shall
abate for the period from the date of such damage to the date when such damage
shall have been substantially repaired, and if only a part of the Premises shall
be so rendered untenantable, the License Fee shall abate for such period in the
proportion which the Rentable Area of the Premises so rendered untenantable
bears to the total Rentable Area of the Premises. However, if, prior to the date
when all of such damage shall have been repaired, any part of the Premises so
damaged shall be rendered tenantable and shall be used or occupied by User or
other persons claiming through or under User, then the amount by which the
License Fee shall abate
<PAGE> 9
shall be equitably apportioned for the period from the date of any such use or
occupancy to the date when all such damage shall have been repaired. User hereby
expressly waives the provisions of Paragraph 227 of the New York Real Property
Law, and of any successor law of like import then in force, and User agrees that
the provisions of this Paragraph shall govern and control in lieu thereof.
(c) Notwithstanding the foregoing provisions of this Paragraph, if
prior to or during the term of this License, (i) the Premises shall be totally
damaged or rendered wholly untenantable by fire or other casualty, and if Owner
shall decide not to restore the Premises, or (ii) the Building shall be so
damaged by fire or other casualty that, in Owner's opinion, substantial
alteration, demolition, or reconstruction of the Building shall be required
(whether or not the Demised Premises shall have been damaged or rendered
untenantable), then, in any of such events, Owner at Owner's option, may give to
User, within ninety (90) days after such fire or other casualty, a five (5)
days' written notice of termination of this License and, in the event such
notice is given, this License and the Term shall come to an end and expire
(whether or not said Term shall have commenced) upon the expiration of said five
(5) days with the same effect as if the date of expiration of said five (5) days
were the expiration date, and the License Fee and Additional Fees shall be
apportioned as of such date and any prepaid portion for any period after such
date shall be refunded by Owner to User.
(d) If this License shall not be terminated as provided in subparagraph
(c) hereof, Owner shall, at its expense, to the extent of the net insurance
recovery, repair or restore the Demised Premises with reasonable diligence and
dispatch, substantially to the condition immediately prior to the casualty
except that Owner shall not be required to repair or restore any of User's
leasehold improvements or betterments, furniture, furnishings, decorations or
any other installations made at User's expense. All insurance proceeds payable
to User for such items shall be held in trust by User and upon the completion by
Owner of repair or restoration, User shall prepare the Premises for occupancy by
User in the manner obtaining immediately prior to the damage or destruction in
accordance with plans and specifications approved by Owner.
(e) In no event shall owner be liable to User for any consequential
damages to or loss of business suffered by User by reason of any damages or
casualty, regardless of fault, and apart from the apportionment of rent required
under subparagraph (b) in the event a portion of the Premises is rendered
untenantable, User's sole recourse for any damages shall be against User's
insurance company, regardless of fault, and User waives on its own behalf and on
behalf of any insurer, any claim therefor against Owner.
20. Rules and Regulations. User shall observe strictly with the rules
and regulations as Owner or Owner's agents may from time to time adopt (such
rules and regulations as have been or may hereafter be adopted or amended are
hereinafter the "Rules and Regulations").
21. Liability of Landlord. Owner or its employees, agents or managing
agents shall not be liable for any damages or injury to property of User or of
any other person, including
<PAGE> 10
property entrusted to employees of Owner nor loss of or damage to any property
of User by theft or otherwise, nor for any injury or damage to persons or
property resulting from any cause whatsoever arising from the acts or neglect of
any User occupant, invitee or licensee of the Building, nor for any
consequential damages or loss of business suffered by User or from any other
cause whatsoever, unless caused by the gross negligence or willful misconduct of
Owner nor shall Owner or its agents, employees, or managing agents be liable for
any such damage caused by other tenants or persons in, upon or about the
Building, or caused by operations in construction of any private, public or
quasi-public work; nor shall Owner be liable for any latent defect in the
Premises or in the Building. Notwithstanding the foregoing, in no event shall
Owner be liable for any loss or damage for which User has, or is required
hereunder to carry, insurance.
22. Right to Perform. If User shall default in the observance or
performance of any obligation of User under this License, then, unless otherwise
provided elsewhere hereunder, Owner may immediately or at any time thereafter
without notice perform such obligation of User without thereby waiving such
default. If Owner, in connection therewith incurs any costs including, but not
limited to, attorneys fees in instituting, prosecuting or defending any action
or proceeding, such costs with interest at the rate of twelve (12%) percent per
annum, shall be deemed to be Additional Rent hereunder and shall be paid by User
to owner within five (5) days of rendition of any bill or statement to User
therefor.
23. Brokerage. User represents that it has dealt with no broker other
than Sutton & Edwards Inc. (the "Broker") in connection with this License and
User hereby agrees to indemnify and hold owner harmless of and from any and all
losses, costs, damages or expense (including, without limitation, attorneys'
fees and disbursements) incurred by reason of any claim of or liability to any
other broker who claims to have dealt with User in connection with this License.
Owner shall pay Sutton & Edwards, Inc., such brokerage fee as may be due it
pursuant to and in accordance with Owner's separate agreement with Sutton
Edwards, Inc.
24. Estoppel Certificate. (a) Each party shall, at any time and from
time to time, without cost or charge, at the request of the other party, upon
not less than five (5) days' notice, if given in person, or ten (10) days
notice, if given by mail, execute and deliver to the other a certificate
evidencing whether or not this License is in full force and effect (or if there
have been any modifications or amendments hereof, that the same is in full force
and effect as modified or amended, as the case may be, and submitting copies of
such modifications or amendments, if any);
(ii) there are any existing defaults hereunder to the knowledge of the
party executing the certificate, and specifying the nature of such defaults, if
any;
(iii) the dates to which the License Fees and any Additional Fees and
all other charges payable hereunder have been paid;
<PAGE> 11
(iv) whether or not, to the best knowledge of the signer, the other
party is in default in the performance of any of its obligations under the
License, and, if so, specifying each such default of which the signer may have
knowledge; and
(v) any improvements required to be made by Owner have been completed
in accordance with the terms of this License.
(b) [User shall, upon the License Commencement Date of this License,
execute and deliver to owner a User Estoppel Certificate in substantially the
form attached hereto as Exhibit E.]
(c) It is agreed by the parties hereto that the certificate referenced
in herein hereof may be relied upon by anyone with whom the party requesting
such certificate may be dealing.
(d) In the event that User shall fail to comply with the provisions
hereunder, User appoints Owner its attorney-in-fact to execute any such
certificate on Users, behalf.
25. Surrender of Premises. (a) Upon expiration or other termination of
the Term of this License, User shall (i) quit and surrender to Owner the
Premises vacant, broom clean, in good order and condition, normal wear and tear
excepted, and (ii) remove all its property therefrom, except as otherwise
expressly provided in this License. User's obligation to observe or perform this
covenant shall survive the expiration or other termination of the Term of this
License. If the last day of the Term of this License falls on a Sunday, this
License shall expire at noon on the preceding Saturday, unless it be a legal
holiday, in which case it shall expire at noon on the previous business day.
(b) User acknowledges that possession of the Premises must be
surrendered to Owner at the expiration or sooner termination of the Term of this
License. User agrees to indemnify and save Owner harmless against all costs,
claims, loss or liability resulting from delay by User in so surrendering the
Premises, including, without limitation, any claims made by any succeeding
tenant founded on such delay. The parties recognize and agree that the damage to
Owner resulting from any failure by User to timely surrender possession of the
Premises as aforesaid will be extremely substantial, will exceed the amount of
the License Fee and Additional Fees theretofore payable hereunder, and will be
impossible to accurately measure. User therefore agrees that if possession of
the Premises is not surrendered to owner within 24 hours after the date of the
expiration or sooner termination of the Term of this License, then User shall
pay to Owner for each month and for each portion of any month during which User
holds over in the Premises after the expiration or sooner termination of the
Term of this License, a sum equal to two (2) times the aggregate of that portion
of the License Fee and Additional Fees which was payable under this License
during the last month of the term hereof. Nothing contained herein shall be
deemed to permit User to retain possession of the Premises after expiration of
the Term of this License and the provisions of this Article shall survive the
expiration or sooner termination of the Term of this License.
<PAGE> 12
26. Exculpation. Notwithstanding anything to the contrary contained
herein, User shall look solely to the interest of owner in the Building for the
satisfaction of any of User's remedies with regard to the payment of money or
otherwise, and no other property or assets of owner shall be subject to levy,
execution or other enforcement procedures for the satisfaction of User's
remedies or with respect to this License, the relationship of Owner and User
hereunder or User's use or occupancy of the Premises, such exculpation of
personal liability to be absolute.
27. Effect of Conveyance By Landlord. User agrees that from and
following a transfer by Owner of its interest in the Building, by sale, lease or
otherwise, User shall look solely to Owner's successor (and such successor's
interest in this Building) for satisfaction of owner's liabilities hereunder.
28. Successors and Assigns. The covenants, conditions and agreements
contained in this License shall bind and inure to the benefit of the parties
hereto and their respective heirs, distributees, executors, administrators,
successors and, except as provided herein, their assigns.
29. Entire Agreement; Modification. This License Agreement contains the
entire agreement between the parties hereto with respect to the transactions
contemplated herein, and no representation, promise, inducement OR statement of
intention relating to the transactions contemplated by this License Agreement
has been made by any party which is not set forth in this License Agreement.
This License Agreement shall not be modified or amended except by an instrument
in writing signed by or on behalf of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have hereunder set their hands
and seals the day and year first above written.
OWNER: MATTERHORN USA, INC.
By: G.E. Capital Realty Corp.,
Inc., Its Servicing Agent
By: /s/ Michael Jaynes
-------------------------------
USER: STAFF BUILDERS, INC.
By: /s/ David Savitsky
-------------------------------
<PAGE> 1
EXHIBIT 10.38
AGREEMENT AND RELEASE
WHEREAS, the parties to this Agreement and Release, STAFF
BUILDERS, INC., a New York Corporation ("STAFF BUILDERS" or the "CORPORATION")
and CYNTHIA NYE, an individual who resides at 1 Prospect Rd., Centerport, New
York 11721 ("NYE") wish to terminate the Employment Agreement between the
parties, annexed hereto as Exhibit A; and
WHEREAS, for good and valuable consideration and other
adequate considerations between the parties; and
WHEREAS, each party to this Agreement and Release, Staff
Builders and NYE have consulted with legal counsel;
NOW THEREFORE, the parties hereby agree as follows:
1. Termination.
NYE's employment with Staff Builders as Sr. Vice President -
Corporate Support Services is terminated effective December 31, 1998, and except
as provided herein and except for the terms of the Employment Agreement that
survive its termination, the Employment Agreement executed as of October 1, 1997
shall be terminated.
2. Salary.
a. Staff Builders will pay to NYE 14 months salary in weekly
increments at the rate required by her Employment Agreement for said period. See
Exhibit A, paragraph 4:
<PAGE> 2
January 1, 1999 - February 28, 2000 NYE will receive Thirteen
Thousand Two Hundred Eighty Four Dollars and Sixty Eight Cents ($13,284.68) per
month on the first day of each month. [To be paid in weekly increments.]
b. If NYE has not received any income from any other source,
including any consulting revenue, or otherwise secured alternative employment by
February 28, 2000, Staff Builders will pay to NYE an additional two months
salary at the following rate:
March 1, 2000 - April 30, 2000 NYE will receive Thirteen
Thousand Two Hundred Eighty Four Dollars and Sixty Eight Cents ($13,284.68) per
month, paid in weekly increments.
2(c) NYE agrees that during the term hereof, she will provide
consulting services as requested by Staff Builders representatives.
3. Medical Benefits.
Staff Builders will continue to provide medical benefits to
NYE during the entire duration of this Agreement as provided for in her
Employment Agreement on the terms and conditions as such benefits are offered
presently.
4. Paid Vacation.
NYE shall be paid all accrued vacation through December 31,
1998 in one lump sum at the time this Agreement is executed.
2
<PAGE> 3
5. Non-Discrimination.
NYE understands that there are various state and federal laws
that prohibit employment discrimination on the basis of age, race, sex,
religion, national origin, marital status and disability and that these laws are
enforced by the courts and various government agencies. By signing this
Agreement and Release, NYE intends to give up any rights she may have under
these laws or any other laws with respect to her employment or the termination
of her employment with or by STAFF BUILDERS and acknowledges that STAFF BUILDERS
has not (a) discriminated against her; (b) breached any express or implied
contract with her; or (c) otherwise acted unlawfully towards her.
6. Release.
a. As a material inducement to the parties to enter into this
Agreement and Release, NYE covenants not to sue and hereby irrevocably and
unconditionally releases, acquits and forever discharges STAFF BUILDERS, and all
other affiliated, subsidiary or related organizations, parents, companies or
divisions, and their respective present, former or future officers, directors,
shareholders, agents, employees, representatives, consultants, attorneys,
successors, and assigns, and all STAFF BUILDERS' employee benefit plans and the
current and former Trustees of all of them (collectively the "Releasees"), of
and from any claim, right, demand, charge, complaint, action, cause of action,
obligation, or liability of any and every kind based on any federal, state, or
local law, statute or regulation, whether known or unknown, suspected or
unsuspected, fixed or contingent, whether in tort or in contract or by statute,
which arises or results from any event, action or inaction occurring prior to
the execution of this
3
<PAGE> 4
Agreement and Release, as well as any and all claims arising out of or relating
to any alleged tortious, wrongful, discriminatory, defamatory, improper or
unlawful act or omission of STAFF BUILDERS, including without limitation, claims
alleging a violation of the Age Discrimination In Employment Action of 1967, as
amended 29 U.S.C. Section 621 et seq. The Americans with Disabilities Act of
1990, 42 U.S.C. Section 12101 et seq., which arose prior to the execution of
this Agreement and Release, or which might exist under the qui tam provisions of
the False Claims Act, 31 U.S.C. Section 3730. NYE represents that she has
received complete satisfaction of any and all claims, whether known, suspected
or unknown, that she may have or have had against any of the Releasees as of the
date of this Agreement and Release, and she hereby waives any and all relief for
such claims not explicitly provided for herein.
b. NYE affirms that she is not aware of any outstanding
administrative or judicial claims, charges, lawsuits or proceedings of any kind
against any of the Releasees to which she is a party or which were filed on her
behalf, and promises not to commence any proceeding or action against STAFF
BUILDERS except to enforce this Agreement and Release. NYE further agrees not
only to release and discharge the Releasees of and from any and all claims which
she could make on her own behalf, but also those which may have been or may be
made by any other person or organization on her behalf as of the date of this
Agreement and Release.
4
<PAGE> 5
7. Surrender of Stock Options.
a. NYE hereby agrees to surrender any and all Stock Options of
STAFF BUILDERS, Inc. (Delaware) ("SBD") granted to her pursuant to the 1983
Incentive Stock Option Plan, the 1986 Non-Qualified Stock Option Plan, the 1993
Stock Option Plan and the 1994 Performance-Based Stock Option Plan (as more
particularly described in Exhibit B), or otherwise, including any options which
are vested as of the date hereof, within 90 days of this Agreement. Within the
90 day period, NYE may exercise any such options.
8. Confidentiality.
a. NYE acknowledges that as a result of her employment by
STAFF BUILDERS, she has had access to confidential, proprietary business
information belonging to STAFF BUILDERS, as those terms are defined in paragraph
7 of the Employment Agreement, and hereby agrees not us use or disclose of any
such information personally or for the benefit of Others. NYE also agrees (1)
not to disclose to anyone any such confidential and proprietary information; and
(2) to comply with any and all provisions of her Employment Agreement that, by
their terms, survive the termination of her employment. On the date she signs
this agreement and Release, NYE further promises and agrees to return to STAFF
BUILDERS any and all documents or diskettes now in her possession which she
received, sent, generated or had access to in the course of her employment by
STAFF BUILDERS, together with any and all property of STAFF BUILDERS she has in
her possession.
5
<PAGE> 6
b. She will not disclose, either directly or indirectly, in
any manner whatsoever, any specific information, fact or opinion of any kind
regarding the terms of this Agreement and Release, to any person or
organization, including, but not limited to, members of the press and media,
present and former officers, employees (except with respect to certain
restrictions upon her concerning future solicitation of Staff Builders'
employees) and agents of the Releasees, and other members of the public, except
to her husband, accountants, lawyers or as otherwise directed by law, whom shall
be bound by this paragraph to the same extent as NYE and whose violation of this
paragraph shall be deemed to constitute a violation by NYE as if she, herself
had personally violated this paragraph. NYE shall specifically advise her
husband, that he must comply with this paragraph and shall specifically advise
him that a violation by her or him of this paragraph shall be deemed to be a
violation by NYE.
9. Forfeiture.
If in violation of paragraphs 5, 6 or 7 above, NYE files or
causes to be filed a claim, charge or lawsuit against any of the Releasees with
any governmental agency, court or other forum concerning, in whole or in part,
any event occurring as of or prior to the date of this Agreement and Release or
any claim that has been released herein, or in the event NYE violates the
provisions contained in paragraphs 9 or 10 herein, NYE agrees to forego any
claim to any additional monies or benefits she might otherwise have a claim to
receive pursuant to this Agreement and Release or otherwise. NYE further agrees
that the release set forth in paragraphs 5, 6 and 7 remains in full force and
effect, and that the balance of this Agreement and Release provides adequate
consideration for such Release.
6
<PAGE> 7
10. Professional References and Non-Disparagement.
a. Staff Builders will provide positive professional
references for NYE including her dates of service, position held and duties and
responsibilities. Staff Builders will not provide any negative references to any
inquiries by NYE's potential employers nor will Staff Builders fail to respond
to inquiries by NYE's potential employers; and
b. NYE agrees that subsequent to the date of this Agreement
and Release she shall make no verbal or written statements of any kind regarding
Staff Builders or the Releasees to any person or organization, including, but
not limited to, members of the press and media, present and former officers,
employees and agents of Staff Builders, and other members of the public, which
denigrate, disparage or defame any of the Releasees, their services,
capabilities or reputations.
11. Removal of Non-Compete Clause.
By mutual consent paragraph 7(b) of Exhibit A entitled
"Confidentiality Obligations: Non-Competition by Executive" is null and void and
without legal effect. All remaining subsections of said paragraph 7 shall remain
in full force and effect.
12. Non-Waiver.
The waiver by any party of a breach of any provision hereof
shall not operate or be construed as a waiver of any subsequent breach by any
Party.
7
<PAGE> 8
13. Entire Agreement.
This Agreement and Release and the exhibits attached hereto
contain the full agreement between NYE and STAFF BUILDERS, and may not be
modified, altered or changed except upon the express prior written consent of
both NYE and STAFF BUILDERS.
14. Consultation with Legal Counsel.
NYE affirms that she has been given at least 21 days to
consider this Agreement and Release and that she has voluntarily chosen not to
wait 21 days to execute this Agreement and Release. Her choice to execute this
Agreement and Release was knowing and voluntary and made after consultation with
her counsel. NYE understands that she may revoke her agreement hereto by so
notifying STAFF BUILDERS' General Counsel in writing within seven (7) days after
she signs this Agreement and Release.
15. New York Law/Jurisdiction.
This Agreement and Release shall be construed in accordance
with the laws of the State of New York. Any action or proceeding relating to or
arising from this Agreement and Release or any other dispute between the parties
hereto shall be brought solely in the Supreme Court of the State of New York,
Nassau County. NYE hereby consents to personal jurisdiction and venue in New
York State Supreme Court, County of Nassau any such action or proceeding. The
parties expressly waive their right to trial by jury in any action or proceeding
against the other and consent to trial before a judge.
8
<PAGE> 9
16. Construction.
This Agreement and Release is the product of negotiation and
mutual discussion. The rule of construction that an agreement may be construed
against its drafter shall not apply in any action or proceeding arising from or
based, in whole or in part, on this Agreement and Release.
17. Severability.
The invalidity or unenforceability of any provision of this
Agreement and Release shall in no way affect the validity or enforceability of
any other provision, or any part thereof.
IN WITNESS WHEREOF, Staff Builders and NYE have executed this
Agreement and Release as of this 24th day of December, 1998.
Cynthia Nye David Savitsky
- ------------------ ---------------------
CYNTHIA NYE STAFF BUILDERS
By: David Savitsky
Title: Executive Vice President
9
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
TENDER LOVING CARE HEALTH CARE SERVICES, INC. (DE)
Staff Builders International, Inc. (NY)
Albert Gallatin Home Care, Inc. (DE)
Careco, Inc. (MA)
T.L.C. Midwest, Inc. (DE)
Tender Loving Care Health Care Services, Inc. (CT)
Home Health Care, Inc. (MD)
Personnel Industries, Inc. (MD)
T.L.C. Home Health Care, Inc. (FL)
T.L.C. Medicare Services of Dade, Inc. (FL)
T.L.C. Medicare Services of Broward, Inc. (FL)
Tender Loving Care Private Patient Company, Inc. (FL)
Tender Loving Care Home Care Services, Inc. (NY)
U.S. Ethicare Corporation (DE)
U.S. Ethicare Albany Corporation (NY)
U.S. Ethicare Chautauqua Corporation (NY)
U.S. Ethicare Erie Corporation (NY)
U.S. Ethicare Niagara Corporation (NY)
U.S. Ethicare Onondaga Corporation (NY)
Ethicare Certified Services, Inc. (NY)
Staff Builders, Inc. (NY)
SBPP, INC. (DE)
Albert Gallatin Services Corporation (PA)
S.B.H.F., Inc. (NY)
Staff Builders Services, Inc. (NY)
MedVisit, Inc. (NC)
Staff Builders Home Health Care, Inc. (DE)
Staff Builders Prescription Services, Inc. (FL)
Staff Builders Prescription Services, Inc. (CO)
Professional Detail Services, Inc. (NY)
A Reliable Homemaker of Martin-St. Lucie County, Inc.(FL)
St. Lucie Home Health Agency, Inc. (FL)
S.B. Assured Home Care, Inc. (DE)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS YEAR YEAR YEAR
<FISCAL-YEAR-END> FEB-28-1999 FEB-28-1998 FEB-28-1998 FEB-28-1997 FEB-29-1996
<PERIOD-START> MAR-01-1998 MAR-01-1997 MAR-01-1997 MAR-01-1996 MAR-01-1995
<PERIOD-END> NOV-30-1998 NOV-30-1997 FEB-28-1998 FEB-28-1997 FEB-29-1996
<CASH> 1,573 0 1,931 2,006 0
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 52,116 0 76,668 77,103 0
<ALLOWANCES> 7,100 0 3,600 2,800 0
<INVENTORY> 0 0 0 0 0
<CURRENT-ASSETS> 59,607 0 86,051 85,953 0
<PP&E> 20,718 0 19,735 18,206 0
<DEPRECIATION> 10,137 0 8,187 6,124 0
<TOTAL-ASSETS> 124,253 0 150,401 156,172 0
<CURRENT-LIABILITIES> 112,653 0 71,739 58,708 0
<BONDS> 0 0 0 0 0
0 0 0 0 0
0 0 1 1 0
<COMMON> 235 0 240 238 0
<OTHER-SE> (11,695) 0 38,128 59,227 0
<TOTAL-LIABILITY-AND-EQUITY> 124,253 0 150,401 156,172 0
<SALES> 0 0 0 0 0
<TOTAL-REVENUES> 307,408 393,380 519,704 480,355 410,160
<CGS> 0 0 0 0 0
<TOTAL-COSTS> 205,152 252,313 332,739 301,508 256,719
<OTHER-EXPENSES> 31,981 663 631 240 2,638
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 2,481 2,579 3,600 1,601 948
<INCOME-PRETAX> (38,093) 5,118 (27,496) 6,716 3,473
<INCOME-TAX> 7,241 2,305 (5,864) 2,955 1,459
<INCOME-CONTINUING> (45,334) 2,813 (21,632) 3,761 2,014
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> (45,334) 2,813 (21,632) 3,761 2,014
<EPS-PRIMARY> (1.97) .12 (.90) .16 .09
<EPS-DILUTED> (1.97) .12 (.90) .15 .08
</TABLE>
