U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] For the fiscal year ended: December 31, 1996
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[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from ______
Commission file number 0-9836
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EXTENDED FAMILY CARE CORPORATION
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Exact name of registrant as specified in its charter
New York 22-2210547
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(State or other jurisdiction of I.R.S. Employer Identification Number
incorporation or organization)
One Old Country Road, Suite 335, Carle Place, N.Y. 11514
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 516-248-2273
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $.01 per share
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such other shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part llI of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ]
State the registrant's revenues for its most recent fiscal year: $8,929,330
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The aggregate market value of the Company's voting common stock held by
non-affiliates computed by reference to the average bid and ask price on March
31, 1997 was $625,469.
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes ___ No X
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
32,000,226 common shares as of March 31, 1997.
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Transitional Small Business Disclosure Format (check one): Yes ___ No X
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PART I
Item 1. Description of Business
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Background
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Extended Family Care Corporation ("EFCC" or the "Company") is in the
business of providing home health care services, principally personal hygiene,
homemaking, general patient safety, and to a lesser extent nursing services
("Home Care"), primarily through contracts with government agencies under the
Medicaid program. The Company is a holding company which derives 100 percent of
its operating revenues from the operation of TPC Home Care Services, Inc.
("TPC"), an 83 percent owned subsidiary.
The Company was incorporated in New York on May 10, 1978 under the name
M.A.E. Enterprises, Inc. In 1980, the name of the Company was changed to
Cosmetic Sciences, Inc; which was changed again in 1996 to Extended Family Care
Corporation, its current name.
In 1980, the Company completed its initial public offering of 1.5 million
shares of common stock, raising gross proceeds of $1.5 million. Between 1980 and
1985, the Company engaged in research, development, marketing and distribution
of medical devices and cosmetics. These products never proved to be commercially
viable, and by the mid-1980's the development of these products was
discontinued and the subsidiaries through which these businesses were operated
were dissolved.
In August 1984, the Company entered the Home Care industry by acquiring
all of the outstanding shares of TPC, which at the time was providing Home Care
services in New York and New Jersey. In December 1984, the then shareholders of
the Company received as a dividend approximately 17 percent of the outstanding
common stock of TPC, leaving TPC as an approximately 83 percent owned subsidiary
of the Company.
On April 25, 1985, TPC entered into an agreement to acquire all of the
outstanding stock of A-Round the Clock Nursing Services, Inc. ("A-Round the
Clock"), a home health care company doing business in New Jersey. In December
1985, a Form S-1 Registration Statement was declared effective in anticipation
of an initial public offering by TPC. Proceeds from this offering were to
provide the funding for the acquisition of A-Round the Clock. However, the
underwriter terminated the offering and TPC was unable to find another
underwriter to complete the offering. TPC was forced to borrow the funds
required to consummate the acquisition of A-Round the Clock. The burden of the
additional debt service, coupled with the increased demand for working capital,
further reduced cash flow. Facing bank foreclosure of liens upon TPC's accounts
receivable, significant tax arrears and cash shortfalls, the Company and TPC
filed a petition under Chapter 11 of the U.S. Bankruptcy Code, in the U.S.
Bankruptcy Court, Southern District, New York, in August 1986.
Following the filing of the bankruptcy petition, TPC continued to operate
its Home Care business as a debtor in possession. In July 1987, a secured lender
foreclosed its liens on the common stock of A-Round the Clock, and took
possession and control of the business of A-Round the Clock. TPC continued to
provide Home Care services with operating branches in Hempstead, New York and
Hackensack, New Jersey.
In 1992, the Company's headquarters were moved from Hempstead, New York
to Carle Place, New York. In March 1994, TPC opened a branch office in
Irvington, New Jersey, which moved in March 1996 to East Orange, New Jersey.
In February
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1995, a satellite office of the Hackensack branch office was opened in Paterson,
New Jersey, which office was relocated to Clifton, New Jersey on or about April
15, 1996.In August 1995, a TPC satellite office was opened in Jersey City, New
Jersey, which office was sold in December, 1996. In March 1996, a satellite
office was opened in Elizabeth, New Jersey, which office was closed in
September, 1996. In May 1996, a branch office was opened in Allentown,
Pennsylvania. In the first quarter of 1997 (i) the East Orange office and
Hempstead office were closed and its staff and patients integrated into
existing facilities of Star (as defined below); and (ii) the Hackensack
office was closed and integrated into EFCC's Clifton office.
In October 1993, and in connection with the Company's Amended Plan of
Reorganization adopted in 1992, an investment group, COSS Holding Corp.
("Coss"), invested cash of $250,000 in the Company and thereby became the
holder of approximately 66 percent or 12,749,658 shares of the Company's
common stock. See "Bankruptcy Proceedings"
On October 31, 1995, the Company, TPC and Coss entered into an agreement
with Arbor Home Healthcare Holdings, LLC. ("Arbor") (in which Ivan Kaufman owns
a 99% interest), pursuant to which the Company granted Arbor the option to
purchase 13 million newly issued shares of its common stock for $1.3 million,
($.10 per share). Arbor exercised this option in two installments, on August 21,
1996 and October 31, 1996, thus becoming the owner of approximately 40% of the
Company's outstanding stock. In addition, in June of 1996, Coss placed its
holdings of the Company's common stock in a voting trust, providing Arbor the
right to direct the voting of such shares and to thus elect a majority of the
board of directors of the Company. The Company, Coss and Arbor have also entered
into various agreements with respect to certain actions that may be taken by the
Company, Coss and its shareholders, but these agreements, as well as the voting
trust arrangement as to Coss' shares of the Company, will terminate upon the
completion of a proposed merger with Star Multi Care Services, Inc. (the "Star
Merger"), as discussed below. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
On October 31, 1995, the Company entered into an agreement with Arbor
Management, LLC (in which Ivan Kaufman owns a 99% interest), for a two year
term, pursuant to which EFCC will pay $7,500 a month to Arbor Management, LLC
for management services, including accounting, finance, human resources and
marketing, rendered to the Company. This agreement will also terminate as of the
completion of the Star Merger.
On January 3, 1997, the Company, EFCC Acquisition Corp., a New York
corporation ("Merger Sub") and Star Multi Care Services, Inc., a New York
corporation ("Star"), entered into an Agreement and Plan of Merger (the "Star
Merger Agreement"), pursuant to which, among other things, (i) Star will acquire
100% of the outstanding common stock of the Company; and (ii) the Company will
be merged with and into Merger Sub and thereupon the separate existence of the
Company shall cease and Merger Sub, as the Surviving Corporation, shall continue
to exist (the "Star Merger"). Star is engaged in providing custodial and home
health care services, and staffing to hospitals and other medical facilities
throughout the New York City metropolitan area, Long Island, upstate New York,
New Jersey, southeastern Florida and Ohio.
Under the terms of the Star Merger Agreement, the holders of all of the
outstanding shares of the Company's common stock (after giving effect to the TPC
Merger, as discussed below) will receive consideration of $2.4 million in cash,
or approximately 6.4 cents per share, and $4.85 million in Star common stock, or
approximately 12.9 cents per share, for total consideration of $7.25 million, or
approximately 19.3 cents per share, or, at Star's option, all cash consideration
of 19.3 cents per share. Pursuant to the Star Merger
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Agreement, on January 21, 1997, the Company paid a special cash dividend of
$750,000, or 2.3 cents per share, to its shareholders of record on January 13,
1997. It is anticipated that the Star Merger will be treated as a tax-free
reorganization for federal income tax purposes to the extent of Star common
stock received by the Registrant's shareholders.
The Star Merger is expected to be completed by August of 1997, subject to
certain conditions set forth in the Merger Agreement, including, but not limited
to, approval by certain state regulatory boards and by the shareholders of each
of Star and the Company, and consummation of the TPC Merger, as described below.
In addition, either Star or the Company may terminate the Star Merger
Agreement under certain circumstances, as set forth in the Star
Merger Agreement. Coss and Arbor, which together will own 68% of the
outstanding shares of the Company after giving effect to the
TPC Merger (see below), have agreed with Star that they will vote
for the approval of the Star Merger. This percentage is sufficient under New
York law to approve the Star Merger on behalf of the Company's shareholders.
Star shareholders must also vote to approve the Star Merger. A majority of Star
Common Stock at a duly convened meeting voting in favor of the Star Merger is
required to approve the Star Merger on behalf of the Star stockholders pursuant
to NASDAQ rules. To the Company's knowledge, sufficient votes to approve the
Star Merger on behalf of the Star shareholders have not yet committed to such
approval, although the Company has received the proxy of Stephen Sternbach,
President and Chairman of Star, to vote all of the shares beneficially owned by
him, currently constituting 20.77% of Star's outstanding shares, in favor of
the Star Merger.
The above figures give effect to a merger of TPC into the Company, which
is expected to occur, subject to approval of the shareholders of the Company and
TPC, prior to the Star Merger. The merger of TPC into the Company
(the "TPC Merger") will not be conditioned upon the completion of the Star
Merger. The Star Merger is conditioned upon, among other things, the completion
of the TPC Merger. The Company and TPC signed a Merger Agreement (the "TPC
Merger Agreement") on March 18, 1997 to effect the TPC Merger.
Pursuant to the TPC Merger Agreement, all shareholders of TPC, other than
the Company, will receive 18.745545 shares of the Company's Common Stock in
exchange for each share of TPC they own. Stock certificates previously issued to
TPC shareholders do not give effect to a 1:4 reverse stock split which occurred
in 1985. Thus, shareholders of TPC actually own only one share of TPC Common
Stock for every four shares for which they possess a share certificate for TPC
Common Stock. TPC shares owned by the Company will be cancelled as a result of
the TPC Merger and no shares of the Company will be issued in respect thereof. A
proxy statement/prospectus relating to a proposed meeting of stockholders of the
Company and TPC is expected to be furnished to the shareholders of the Company
and TPC in June, 1997. This proxy statement/prospectus is expected to solicit
the votes of the stockholders of the Company and TPC to approve the TPC Merger.
Coss and Arbor, which together own 80.47% of the Company's outstanding Common
Stock, intend to vote for the approval of the TPC Merger. In addition, the
Company, as the owner of 83% of the outstanding Common Stock of TPC, intends to
vote for the approval of the TPC Merger. These votes constitute a sufficient
percentage under New York law to approve the TPC Merger on behalf of the
shareholders of the Company and TPC.
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Consulting Agreement
On January 3, 1997, Star and the Company entered into a consulting
agreement (the "Consulting Agreement") pursuant to which Star agreed that, upon
the Company's request, it will render to the Company, by and through such of its
officers, employees and agents as Star, in its sole discretion, designates from
time to time, consulting services with respect to the management and operation
of EFCC. The consulting services to be rendered by Star under the Consulting
Agreement consist of those consulting services relating to the management and
operation of the Company's Home Care business reasonably requested by the
Company. The Company and Star have agreed that Star's role is that of a
consultant and advisor to, and not that of a manager of, the Company. Under the
Consulting Agreement, Star has no duty or responsibility to manage the affairs
of the Company which duty and responsibility remains at all times with the Board
of Directors and management of the Company.
For the consulting services to be rendered by Star, the Company has agreed
to pay Star fees in the amount of Twenty-five Thousand Dollars ($25,000) per
month, payable (a) $15,000 in arrears on the last day of each month, pro rated
for any partial month, and (b) the remaining $10,000 on the earlier to occur of
the consummation of the Star Merger or the termination of the Star Merger
Agreement.
The Consulting Agreement will terminate on the earlier of (i) the date on
which the Star Merger Agreement shall have been terminated pursuant to the terms
thereof other than by reason of the default of the Company thereunder, (ii) the
Effective Date of the Management Agreement (as described below) or
(iii) the consummation of the Star Merger; provided, that Star has the right to
terminate its obligation to render services under the Consulting Agreement at
any time upon forty-five (45) days prior notice to the Company.
Management Agreement
On January 3, 1997, Star and the Company also entered into a management
agreement (the "Management Agreement") pursuant to which Star agreed to act as
manager of the Company. The Management Agreement is subject to approval of the
Commissioner of the New York State Department of Health (the "Commissioner").
Pursuant to the Management Agreement, Star will have the authority and
responsibility to conduct, supervise and effectively manage the day-to-day
operation of the Company. In the absence of oral or written direction or written
policies of the Board of Directors of the Company, Star will be expected to
exercise the reasonable judgment of a management company in its management
activities. Star will specifically have responsibility and commensurate
authority, subject among other things to the direction of the Board of the
Company, to act on its behalf for the following activities: (i) the
establishment, maintenance, revision and administration of the overall "charge"
structure of the Company pursuant to pertinent regulations, including, but not
limited to, patient charges, charges for ancillary services, charges for
supplies and special services; (ii) (A) the hiring, discharge, supervision and
management of all employees of the Company, including the determination, from
time to time, of the numbers and qualifications of employees needed in the
various departments and services of the Company, (B) the establishment, revision
and administration of wage scales, rates of compensation, employee benefits,
rates and conditions of employment, in-service training, attendance at seminars
or conferences, staffing schedules, and job and position descriptions with
respect to all employees of the Company; (iii) the issuance of bills for
services and materials furnished by the Company, and the collection of accounts
and monies
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owed to the Company, including the responsibility to enforce the rights of the
Company as creditor under any contract or in connection with the rendering of
any service; (iv) the payment of payroll, trade accounts, amounts due on short
and long-term indebtedness, taxes and all other obligations of the Company;
provided, however, that the responsibility will be limited to the exercise of
reasonable diligence and care to apply the funds collected in the operation of
the Company to its obligations in a timely and prudent manner, and Star will not
become personally liable or act in a guarantor capacity with respect to any
obligation of the Company; (v) the establishment and administration of
accounting procedures and controls, in accordance with generally accepted
accounting principles and the establishment and administration of systems for
the development, preparation and safekeeping of records and books of account
relating to the business and financial affairs of the Company; (vi) the
maintenance of accounts in such banks, savings and loan associations, and other
financial institutions as the Board of the Company may, from time to time,
select (including certificates of deposit) with such balances therein (which may
be interest bearing or non-interest bearing) as Star shall, from time to time,
deem appropriate, taking into account the operating needs of the Company and the
disbursements from such accounts of such amounts of the Company's funds as Star
shall, from time to time, determine is appropriate in the discharge of its
responsibilities under the Management Agreement; provided, however, that Star
will not, in any case, have any obligation to supply, out of its own funds,
working capital for the Company; (vii) the management of all purchases and
leases of real property, equipment, supplies and all materials and services
which Star deems to be necessary in the operation of the Company; (viii) the
evaluation of all quality control aspects of the Company's operation, and the
implementation, with approval of the Board of the Company, of quality control
programs designed to meet standards imposed by appropriate certifying agencies
and to bring about a high standard of health care in accordance with the
Company's policies and resources available to the Company.
Under the Management Agreement, Star will be empowered to negotiate, enter
into, terminate and administer on behalf of the Company, contracts for services
by medical, paramedical and other persons and organizations.
Notwithstanding any other provision of the Management Agreement, the Board
of the Company retains and Star is prohibited from exercising: (i) direct
independent authority to hire or fire Star or a qualified agency administrator
of the Company; (ii) independent control of the Company's books and records;
(iii) authority over the disposition of assets and the authority to incur on
behalf of the Company liabilities not normally associated with the day-to-day
operation of the Company; and (iv) authority for the independent adoption and
enforcement of policies affecting the delivery of health care services.
The Management Agreement will become effective upon the date it is
approved by the Commissioner (the "Effective Date"). The Management Agreement
may be terminated by the Commissioner, without financial penalty to the Board,
not more than sixty (60) days after notification to the parties of a
determination that the management of the Company is so deficient that the health
and safety of patients would be threatened by continuation of the Management
Agreement. The Management Agreement can be terminated by the Company without
cause on 60 days' notice and with cause on 14 day's notice. Unless sooner
terminated in accordance with the terms of the Management Agreement, or extended
or renewed by mutual agreement of the parties thereto, the Management Agreement
will remain in effect until the consummation of the Star Merger or December 31,
1998, whichever is sooner.
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Home Care Services
According to published industry data, the home care industry in 1994
constituted a $23 billion market with an annual growth rate exceeding 20
percent. Primary reasons cited for such rapid growth include: (1) the general
aging of the United States' population; (2) the cost savings achievable through
at-home treatment as an alternative to hospital care; (3) medical and
technological advances which enable a growing number of treatments to be
administered at home rather than in a medical facility; and (4) insurance (both
government regulated and private) reimbursement policies which provide certain
incentives to minimize the length of in-patient hospital care.
TPC provides its patients the services of certified home health aides,
personal care aides, homemakers and to a lesser extent registered and licensed
practical nurses. These individuals are part-time employees of TPC who work for
TPC as needed. TPC's roster of active Home Care personnel includes approximately
487 paraprofessionals and 30 nurses.
TPC requires its paraprofessionals and nurses to meet certain licensing,
certification, and/or other requirements. TPC conducts mandatory in-service
classes for its nurses and paraprofessionals both to meet New York and New
Jersey continuing education requirements and to fulfill TPC's own quality
assurance standards. These in-service classes typically last between three and
six hours and are offered periodically. They are taught by health care
professionals selected by TPC for their expertise in their fields, including
nurses, physical therapists, social workers and occasionally physicians. All
field staff employees are subject to an internal review not less than every 60
days.
TPC was recently surveyed by the Joint Commission on Accreditation of
Healthcare Organizations (JCAHO) and, in February 1996, was found to meet the
requirements for accreditation. JCAHO is the accrediting body for hospitals; its
accreditation enhances TPC's contractual business. TPC's accreditation will
expire in October 1998, at which time TPC must be resurveyed for the following
three-year term.
Procedure for a Typical Home Care Placement
When TPC accepts a new patient for service, TPC's Director of Nursing or
nursing supervisor confers with the patient's physician and other medical and
health care professionals (collectively, the patient's "Health Care Team") to
(1) obtain the physician's orders; (2) acquire a detailed description of the
patient's medical problem; (3) determine the patient's specific home care
requirements (the "Protocol"), including the plan of treatment and
pharmaceutical services, products and equipment which will be needed; and (4)
determine the type of personnel and the number of hours and shifts required. The
Director of Nursing and/or a nursing supervisor seeks to verify all initial
information received and selects the appropriate Home Care personnel to care for
the patient.
In a typical Home Care case, TPC's personnel assigned to the case visit
the patient on a prescribed schedule to administer the Protocol and to provide
other general care to the patient. All Home Care cases are supervised by a
nursing supervisor to ascertain whether any problems have arisen in connection
with the services. Occasionally the Company acts as a subcontractor for other
home care companies, implementing the patient Protocol under the direct
supervision of the primary contractor. TPC's nurses and paraprofessionals are in
frequent contact with the patient's Health Care Team.
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Care Givers
TPC employs a variety of clinical and ancillary personnel as follows:
1. Certified Home Health Aides ("CHHA") provide assistance as prescribed by the
physician in accordance with the Protocol and assist with personal hygiene,
housekeeping, general patient safety and other supportive tasks. CHHAs hold a
higher level of education, classroom training and field supervision than
Personal Care Aides.
2. Personal Care Aides ("PCA") assist the patient with personal hygiene,
dressing, bathing, meal preparation/feeding, housekeeping, general patient
safety and other activities of daily living.
3. Homemakers assist with light housekeeping, meal preparation and shopping.
4. Registered Nurses ("RN") supervise and implement plans of treatment as
mandated by a physician, administer medication, maintain required documentation
and supervise all other non-RN health care employees.
5. Licensed Practical Nurses ("LPN") can administer certain medications and
assist the RN's in performing certain procedures.
ORGANIZATIONAL STRUCTURE
Branch Description
TPC presently has two operating branches, utilizes space in two of Star's
facilities and has a corporate headquarters. The branches are located in New
York, New Jersey and Pennsylvania with corporate headquarters located in New
York. Each operating branch is licensed by the appropriate state agency for its
location. Each operating branch is staffed by a director of nursing, nursing
supervisors, a branch director, a personnel manager, staffing coordinator(s) and
clerical personnel. TPC conducts its own in house state approved training
courses to prepare qualified employees for employment. In addition, TPC
maintains a recruiting program to attract qualified personnel to its staff.
Customers
TPC has four types of customers: public assistance agencies, other third
party payers, insurance companies and private pay customers.
Public assistance agencies, which provided approximately 80 percent, 81
percent and 71 percent of total TPC's revenues in 1996, 1995 and 1994,
respectively, are billed directly for Home Care services provided to individuals
who have qualified for Medicaid benefits. TPC's business in Nassau County, New
York is primarily tied to a single contract between TPC and the Department of
Social Services in Nassau County. A substantial portion of TPC's business would
be lost should this single contract be terminated. The contract with Nassau
County is renewable on an annual basis and has been in existence in excess of
ten years. TPC has no reason to believe that this contract will not be renewed
in the future, however, there is no assurance that the contract will be renewed;
however, if the Star Merger is consummated, TPC's contract with Nassau County
will not be renewed because Star already has a contract with the Department of
Social Services providing Home Care services in Nassau County. Additional
disclosure with regard to the effects of the Star Merger will be forthcoming in
the proxy\prospectus
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relating to the Star Merger, which is expected to be furnished to the Company's
and TPC's stockholders in June, 1997.
In New Jersey, unlike New York, the New Jersey Department of Medicaid will
grant a Medicaid contract to any accredited home health care agency. New
business is obtained through referrals from physicians, county medical services,
community organizations, hospital social service workers, nurses, insurance
companies and the patient's family.
Other third party payers, such as hospitals and other health care
institutions, provided 14 percent, 11 percent and 12 percent of TPC's total
revenues, in 1996, 1995 and 1994, respectively. The third party payer
subcontracts with TPC for Home Care services. These contracts are generally
non-exclusive.
The insurance segment of TPC's business represented approximately 1
percent, 2 percent and 7 percent of TPC's total revenues in 1996, 1995 and 1994,
respectively. This business is dependent upon the insurer's decision to enter
into various preferred provider networks ("PPO") and health maintenance
organization networks ("HMO"). The insurance segment has become more closely
linked to associations with various PPOs and HMOs. Therefore, TPC will have to
develop alliances with such networks or risk the loss of business.
Private pay customers represented approximately 5 percent, 6 percent and
10 percent of TPC's revenues in 1996, 1995 and 1994, respectively. These
customers have determined, for a variety of reasons, including ineligibility of
public assistance, or insurance benefits, to personally pay for the Home Care
services provided by TPC. These customers are referred to TPC from a variety of
sources.
The charts below sets forth: (a) the percent of total TPC's revenues by
type of customer; (b) percent of total TPC's revenues by state; and (c) TPC
Medicaid revenues as percentages of total state revenues.
Percent of Total TPC Revenues by Type of Customer
1996 1995 1994
--- --- ---
Medicaid (through public assistance agencies) 80 81% 71%
Other third party payers 14 11 12
Insurance 1 2 7
Private pay 5 6 10
---- --- ----
100% 100% 100%
Percent of Total TPC Revenues by State
1996 1995 1994
--- --- ---
New York 15 25% 36%
New Jersey 84 75 64
Pennsylvania 1 NA NA
--- --- ----
100% 100% 100%
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TPC Medicaid Revenues as Percentages of
Total State Revenues
1996 1995 1994
---- ---- ----
New York 74 82% 84%
New Jersey 81 80 63
Pennsylvania 65 NA NA
Governmental Regulation and Licensing
The Company's business is subject to substantial regulation by state and
local authorities. These regulations can cause significant time delays, as well
as additional costs, as TPC must comply with state eligibility standards for
licensing and/or accreditation as a Home Care provider. The imposition of more
stringent regulatory requirements or the denial, revocation, or suspension of
any license or accreditation necessary for TPC to operate in a particular market
could have a material adverse effect on TPC's operations.
Medicaid reimbursement rates in New York and New Jersey are not negotiated
by TPC, but are established by the respective states. Recent budgetary pressures
at the federal and state governmental level may in the future reduce the
allocation of federal and state budgetary dollars appropriated for the Medicaid
program. Reductions may have a negative impact on TPC's revenues and
profitability. Federal and state budgetary pressures may adversely impact TPC
by: (1) reducing the Medicaid reimbursement rates paid by the state; (2)
reducing the number of hours that will be reimbursed per case; and (3) reducing
the funding of one or more public assistance agencies with which TPC presently
does business. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -
Industry Information" and "DESCRIPTION OF BUSINESS - Forward Looking Statements
- - Cautionary Factors"
On July 9, 1996, the State of New Jersey met to discuss the reduction of
Medicaid reimbursement rates for the year July 1, 1996 to July 1, 1997. This
meeting did not result in material reduction in the Medicaid reimbursement rates
for the period July 1, 1996 to July 1, 1997. During the quarter ended March 31,
1996, a reduction in authorized Medicaid reimbursable hours per case was imposed
by New York State. The results of this reduction did not have a material adverse
effect on the Company's results of operations for the fiscal year ended December
31, 1996. However, if a similar Medicaid reduction is imposed by the State of
New Jersey, the results of this reduction would have a material adverse effect
on the Company's results of operations, as the Company currently derives a
majority of its revenues from New Jersey Medicaid reimbursements. The Company
cannot predict the magnitude of future reductions, if any, in Medicaid
reimbursement rates or reimbursable hours.
New York State requires approval of the Public Health Council of the New
York State Department of Health ("NYPHC") for any change in a "Controlling
Person" of an operator of a licensed health care services agency ("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. To the
extent TPC or the Company may seek to acquire control of an LHCSA, TPC would
have to be granted the approval of the NYPHC prior to exercising control over
such LHCSA. NYPHC approval is also required if any entity seeks control of more
than 10 percent of the voting securities of the Company or TPC. The NYPHC has
approved the change of control that occurred from the acquisition by Coss of
approximately 66 percent of the Company's common stock and the change of control
which occurred when Arbor acquired 40 percent of the Company's common stock. An
application has been filed to approve Star's
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control over the Company pursuant to the Star Merger Agreement and approval on
that application is pending.
Health regulatory agencies of New York and New Jersey, where TPC operates,
require satisfaction of certain standards with respect to personnel, services
and supervision. Health regulatory agencies also require the establishment of a
professional advisory group that includes at least one physician, one registered
nurse and other representatives from related disciplines or consumer groups. TPC
is currently in compliance with such standards.
Applicable federal and state "anti-kickback" regulations in general
provide that TPC may not make certain payments in order to receive referrals of
patients. The Company believes that it and TPC are in compliance with both state
and Federal "anti-kickback" regulations.
Competitive Conditions
TPC's health care operations face competition in recruiting qualified
health care personnel, securing customers and providing services, from numerous
proprietary health care agencies and not-for-profit organizations, many of which
are substantially larger and better financed than TPC.
In New York, TPC has an annual contract with the Department of Social
Services in Nassau County representing approximately 21 percent of TPC's total
revenue in 1995 and 11 percent of TPC's total revenue in 1996. This type of
contract was awarded to approximately sixty home health care agencies, and
currently, no additional agencies are permitted to bid on this contract. Cases
are referred to agencies on a rotating basis. TPC is at a competitive
disadvantage in other locations in New York State, since TPC does not have
Medicaid contracts in areas other than Nassau County.
In New Jersey, unlike New York, the New Jersey Department of Medicaid will
grant Medicaid contracts to any accredited home health care agency. Each branch
office of TPC has a contract with the New Jersey Department of Medicaid for
billing and administrative purposes. For New Jersey, new business is dependent
on referrals through physicians, county medical services, community
organizations, hospital social service workers, nurses, insurance companies and
the patient's family. Consequently, all of TPC's New Jersey business is subject
to numerous competitive factors. TPC believes that prompt service, price
(excluding Medicaid which by virtue of fixed reimbursement rates cannot be a
differentiating factor), quality of service and the range of services offered
are the principal factors which enable it to compete effectively in the New
Jersey market.
Marketing and Sales
TPC currently markets its health care personnel and services in Nassau and
Queens counties in New York, in the eastern and northern counties in New Jersey
and in Allentown, Pennsylvania. TPC's services are marketed by a team of
professionals headed by a Regional Director, in each state. All of TPC's
services are promoted through print and yellow page advertising, brochures,
direct mail and visual presentations through field sales calls. Targeted clients
are hospitals, nursing homes, retirement centers, social service agencies,
senior citizen centers and other home care companies for sub-contract referrals.
TPC's representatives maintain telephonic contact not only to maintain a
relationship with existing referral sources, but also to establish new sources
and markets. TPC's staff attend health care sponsored seminars and various trade
shows and exhibitions.
10
<PAGE>
Liability Insurance
TPC is exposed to potential liability in the event of negligence or
wrongful acts of its personnel. TPC maintains liability insurance which it
believes to be adequate. There can be no assurance, however, that TPC will be
able to maintain its existing insurance at an acceptable cost or obtain
additional insurance in the future as required. There can be no assurance that
TPC's insurance will be sufficient to cover liabilities resulting from claims
that may be brought in the future.
Employees
The Company currently has approximately 557 active employees, 40 of which
are full-time employees. TPC has no union contracts with any of its employees
and believes that its relationship with its employees is good. TPC pays its
employees at rates that it believes are competitive.
The Company is not aware of any current efforts to unionize in any of its
branches. If such an effort were made, it is uncertain if same would be
successful and if successful whether it would have a material effect upon the
Company's operations or financial condition.
Forward Looking Statements - Cautionary Factors
Except for the historical information and statements contained in this
Report, certain matters and items set forth in this Report are forward looking
statements that involve uncertainties and risks some of which are discussed at
appropriate points in the Report and are also summarized below.
Health Care Reform. As a result of the escalation of health care costs and
the inability of many individuals and employers to obtain affordable health
insurance, numerous proposals have been or may be introduced in the United
States Congress and state legislatures, and other proposals are being
considered, relating to health care reform. Such proposals have included, among
other things, provision of universal access to health care, reforming the
payment methodology for health care goods and services by both the public
(Medicare and Medicaid) and private sectors, and methods to control or reduce
public and private spending on health care. The ultimate timing or the effect of
such reforms may have on the Company cannot be predicted and no assurance can be
given that any such reforms will not have a material adverse effect on the
Company's revenues and/or earnings. Short-term cost containment initiatives may
vary substantially from long-term reforms and may have a material adverse effect
on the Company.
Regulatory Environment. The Company's business is subject to substantial
regulation by state and local authorities. These regulations can cause
significant time delays, as well as additional costs, as the Company must comply
with state eligibility standards for licensing and/or accreditation as a Home
Care provider. The imposition of more stringent regulatory requirements or the
denial, revocation, or suspension of any license or accreditation necessary for
the Company to operate in a particular market could have a material adverse
effect on the Company's operations.
Medicaid reimbursement rates in New York and New Jersey are not negotiated
by TPC, but are established by the respective states. Recent budgetary pressures
at the federal and state governmental level may in the future reduce the
allocation of federal and state budgetary dollars appropriated for the Medicaid
program. Reductions may have a negative impact on TPC's revenues and
profitability. Federal and state budgetary pressures
11
<PAGE>
may adversely impact TPC by: (1) reducing the Medicaid reimbursement rates
paid by the state; (2) reducing the number of hours that will be reimbursed
per case; and (3) reducing the funding of one or more public assistance
agencies with which TPC presently does business. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OR PLAN OF OPERATION - Industry Information.
On July 9, 1996, the State of New Jersey met to discuss the reduction of
Medicaid reimbursement rates for the year July 1, 1996 to July 1, 1997. This
meeting did not result in material reduction in the Medicaid reimbursement rates
for the period July 1, 1996 to July 1, 1997. During the quarter ended March 31,
1996, a reduction in authorized Medicaid reimbursable hours per case was imposed
by New York State. The results of this reduction did not have a material adverse
effect on the Company's results of operations for the fiscal year ended December
31, 1996. However, if a similar Medicaid reduction is imposed by the State of
New Jersey, the results of this reduction would have a material adverse effect
on the Company's results of operations, as the Company currently derives a
majority of its revenues from New Jersey Medicaid reimbursements. The Company
cannot predict the magnitude of future reductions, if any, in Medicaid
reimbursement rates or reimbursable hours.
Securities Filings. Since filing its petition for bankruptcy in 1986,
until the filing of its Form 10-KSB for period ending December 31, 1995 (the
"1995 10-KSB") the Company had not filed any required reports under the
Securities Exchange Act of 1934 (the "Exchange Act"). The last such report filed
was the Company's Form 10-K for the fiscal year ended December 31, 1985. During
the years while in bankruptcy, the Company did not possess adequate financial
and staffing resources to produce audited financial statements and other reports
as required by the Exchange Act. The Company has filed all reports required
under the Exchange Act commencing with its 1995 10-KSB.
As a result of the Company's past non-compliance with the Exchange Act,
the Securities and Exchange Commission (the "SEC") may determine to bring civil
and administrative proceedings against the Company. While the likelihood of such
proceedings being brought is uncertain, if such proceedings were brought, the
Company could be subject to substantial monetary penalties and other
administrative remedies.
Competition. The home health care and temporary health care personnel
placement markets are highly fragmented and significant competitors are often
localized in particular geographic markets. Some of the entities with which the
Company competes have substantially greater financial and other resources than
the Company. Accordingly, the Company may be unable to successfully compete in
this environment. In New York, the Company has an annual contract with the
Department of Social Services in Nassau County representing approximately 11
percent of the Company's total revenue in 1996. This type of contract was
awarded to approximately sixty home health care agencies, and currently, no
additional agencies are permitted to bid on this contract. Cases are referred to
agencies on a rotating basis. The Company is at a competitive disadvantage in
other locations in New York State, since the Company does not have Medicaid
contracts in areas other than Nassau County.
In New Jersey, unlike New York, the New Jersey Department of Medicaid will
grant Medicaid contracts to any accredited home health care agency. Each branch
office of EFCC has a contract with the New Jersey Department of Medicaid for
billing and administrative purposes. For New Jersey, new business is dependent
on referrals through physicians, county medical services, community
organizations, hospital social service workers, nurses, insurance companies and
the patient's family. Consequently, all of EFCC's New Jersey business is subject
to numerous competitive factors. EFCC believes
12
<PAGE>
that prompt service, price (excluding Medicaid which by virtue of fixed
reimbursement rates cannot be a differentiating factor), quality of service and
the range of services offered are the principal factors which enable it to
compete effectively in the New Jersey market.
Shortage of Qualified Personnel. The Company's business is dependent in
large part upon its ability to recruit and retain qualified personnel to fill
positions in a timely manner. The Company faces intense competition from other
companies in recruiting such qualified health care personnel for its Home Care
and temporary placement operations. The Company's growth may depend, to a
significant degree, on its ability to continue to recruit and retain such
qualified health care personnel. There can be no assurance that such qualified
health care personnel will continue to be available to the Company in the
future. If the Company were unable to attract or retain such qualified health
care personnel, such inability would have a material adverse effect on the
business of the Company.
Third Party Payors. A significant portion of the Company's revenues are
generated by third party payors. Such payments are subject to audit and
adjustment, including retroactive adjustment. During the fiscal years 1994, 1995
and 1996, such adjustments have been insignificant. In the event that future
audits result in adjustments that are not insignificant, then such adjustments
could have a material adverse effect on the Company.
Possible Need For Additional Financing. The Company does not currently
have the benefit of a substantial amount of the $1.3 million in capital provided
by Arbor due to the payment of the special dividend of $750,000 in January 1997.
See "DESCRIPTION OF BUSINESS - Background" and see "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS." If the Company's business expands, significant additional
financing may be required. If the Company were unable to secure such financing
on terms deemed favorable by management, such inability would have a material
adverse effect on the Company's financial condition, including its ability to
meet certain of its obligations as they come due. If the Star Merger is
consummated, the Company's capital requirements would be provided by Star.
Possible Adverse Impact if Star Merger is not Consummated. Certain of
TPC's operations have been integrated with Star in furtherance of the Star
Merger Agreement. If, for any reason, the Star Merger were not to occur,
reversing these steps would be costly, time-consuming and may not be
completely effective in returning EFCC to the status of its
operations prior to entering into the Star Merger Agreement and may have a
material adverse effect on EFCC.
Item 2. Description of Property
-----------------------
The Company's corporate office is located in Carle Place, New York. The
lease expires on November 30, 2000. The Company leases 2,060 gross square feet
at an annual rental of $39,140, with annual escalations of 12%.
TPC's New York branch is located in Hempstead, New York. The space
consists of 1,688 square feet for a rental period expiring on July 31, 2000 at
an annual rental of $20,286. Employees of the Hempstead office were integrated
into Star's Hicksville office during the first quarter of 1997.
TPC leases space for three locations in New Jersey.
13
<PAGE>
The East Orange, New Jersey branch office occupies approximately 2,250
square feet. The lease term runs from March 1, 1996 through February 28, 2001 at
an annual rental of $29,400. The East Orange office's employees were integrated
into Star's South Orange, New Jersey office in the first quarter of 1997.
The Hackensack, New Jersey branch office occupies approximately 2,000
square feet at an annual rental of $27,600, pursuant to a lease that expires on
February 28, 2000. The employees of the Hackensack office were integrated into
EFCC's Clifton, New Jersey office in the first quarter of 1997.
The Clifton, New Jersey location serves as the New Jersey Regional Office.
This location occupies approximately 3,500 square feet with an annual rental of
$61,250. The lease term expires January 31, 2006. The Patterson, New Jersey
satellite office was integrated into the Clifton Regional Office during April,
1997.
TPC operates one office in Allentown, Pennsylvania. This office occupies
1,360 square feet. The base term runs from June 1, 1996 to June 30, 1999 at an
annual rental of $22,576, plus 2.7% of total operating expense.
Item 3. Legal Proceedings
-----------------
Bankruptcy Proceedings
In 1986 the Company and TPC filed for protection from its creditors under
Chapter 11 of the U.S. Bankruptcy Code in the Southern District, New York. An
Amended Joint Plan of Reorganization (the "Plan") dated February 5, 1992 was
filed for both the Company and TPC. The Plan was approved on March 23, 1992.
Shareholders of the Company prior to the bankruptcy filing retained ownership of
their shares.
There were seven classes of creditors. Some creditors withdrew their
claims, some received cash or negotiated extended payment terms, and some were
offered an option of receiving cash or newly issued common stock. The latter
group of creditors received 1,388,959 shares of newly issued common stock in
exchange for their claims.
As noted above, COSS received 12,749,658 shares of newly issued common
stock, representing, at that time, 66 percent of the Company's outstanding
common stock for a $250,000 cash investment.
A Final Decree was issued on January 13, 1995 confirming that the Plan has
been consummated permitting the Company and TPC to emerge from bankruptcy
proceedings.
14
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
--------------------------------------------------------
(a) Market Information
------------------
The Common Stock of the Company has traded in the over-the-counter market
since November 1980. Prices for the Company's common stock are quoted under the
symbol "CXCS" on the NASDAQ OTC Bulletin Board and on the "pink sheets"
published by the National Quotation Bureau located in Cedar Grove, New Jersey.
The high and low bid quotations for the common stock for each quarter of
1995 and 1996 are shown below. These quotations were supplied by National
Quotation Bureau, Inc. The prices reported reflect inter-dealer quotations that
may not represent actual transactions and do not include retail mark-ups,
mark-downs or commissions.
Bid Prices ($)
1996 High Low
---- ------------------
First Quarter $.437 $.250
Second Quarter .500 .187
Third Quarter .250 .125
Fourth Quarter .156 .040
Bid Prices ($)
1995 High Low
---- ------------------
First Quarter $.125 $.031
Second Quarter .250 .063
Third Quarter .250 .063
Fourth Quarter .375 .063
(b) Holders
-------
There are 1,281 holders of record of the Company's common stock as of April
8, 1997.
(c) Dividends
---------
On January 21, 1997, pursuant to the Star Merger Agreement, the Company paid
a special cash dividend of $750,000 to its stockholders of record on January 13,
1997. Otherwise, the Company has not paid dividends on its common equity in the
past two fiscal years.
Item 6. Management's Discussion and Analysis or Plan of Operation.
---------------------------------------------------------
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding
of the Company's results of operations and financial condition. This
15
<PAGE>
discussion should be read in conjunction with the audited consolidated financial
statements and related notes contained elsewhere in this filing.
Overview
TPC's revenues are derived from providing Home Care services to
individuals, in New York and New Jersey, through various contracts with
government agencies (under the Medicaid program) and to a lesser extent
hospitals, insurance companies, private pay and other third party payers.
Industry Information
According to published industry data, the home care industry in 1994
constituted a $23 billion market with an annual growth rate exceeding 20 percent
for this industry sector. Primary reasons cited for such rapid growth include:
(1) the general aging of the United States' population; (2) the substantial cost
savings achievable through at-home treatment as an alternative to hospital care;
(3) medical and technological advances which enable a growing number of
treatments to be administered at home rather than in a medical facility; and (4)
Insurance (both government regulated and private) reimbursement policies which
provide certain incentives to minimize the length of in-patient hospital care.
The Company believes that the factors above will continue to contribute to
steady growth for the home care industry.
Results of Operations
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Patient Service Revenue: Net patient service revenue increased $1,561,372 or
21% to $8,929,330 for the year ended December 31, 1996 from $7,367,958 for the
year ended December 31, 1995. The addition of three new branches in 1996
increased net patient service revenue by $1,358,545 or 18%. The balance of the
net increase in net patient service revenue resulted from (a) one branch
location which opened in August 1995 and, therefore, generated a full year
revenue in 1996 compared to four months of revenue in 1995; partially offset by
(b) an overall decrease in pre-existing branch net patient service revenue.
The decrease in pre-existing branch net patient service revenue was mainly due
to an overall general decrease in authorized Medicaid reimbursable costs by
New York State (see "Forward Looking Statements - Cautionary Factors").
Cost of Services: Cost of services increased $937,358 or 20% to $5,643,554 for
1996 from $4,706,196 for 1995. The increase in cost of services is primarily due
to increases in field staff payroll cost resulting from a 21% increase in net
patient service revenue. The Company's growth in the number of cases serviced
increased the need for additional field staff to service these cases.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased $1,064,337 or 50% to $3,192,769 for 1996 from
$2,128,432 for 1995. Selling, general and administrative expenses as a
percentage of net revenues increased to 36% for 1996 from 29% for 1995. This
increase is due to (a) higher administrative salaries, marketing and facility
expenses associated with the additional branch locations and the increase in
case volume; (b) the Company's investment in its corporate infrastructure; and
(c) increased professional fees due to the Company's commitment to resume filing
the reports required under the Securities Exchange Act of 1934.
Provision For Income taxes: Provision for income taxes decreased by $154,000
or 74% to $55,000 for the year ended December 31, 1996 from $209,000 for the
year ended December 31, 1995. The decrease is primarily due to a $403,645 or
16
<PAGE>
84% decrease in pre-tax income and partially offset by an increase in the
Company's effective tax rate from 1995 to 1996.
Liquidity and Capital Resources
The nature of the Company's business requires weekly payments of wages to
its personnel at the time they render services, while it receives payments for
services rendered over an extended period of time (30 to 90 days). At December
31, 1996 and December 31, 1995, the Company's accounts receivable balances were
$1,066,277 and $895,131, respectively. During 1996 and 1995, TPC's days sales in
accounts receivable was approximately 47 days and 49 days, respectively.
At December 31, 1996, the Company had working capital of $1,527,503.
Historically, the Company's cash requirements have been met internally from
operations. The Company currently has no outstanding bank debt nor does it have
any agreements for a line of credit.
The Company's working capital was reduced on January 21, 1997 as a result
of the payment of a special dividend in the amount of $750,000. The Company's
working capital should be sufficient to fund existing operations for the next 12
months, but will not be sufficient to fund expanded activities if the Star
Merger is not consummated. If the Star Merger is consummated, the Company's
capital requirements would be provided by Star.
In 1996, the Company used cash for operating activities of $457,092
and in 1995, the Company generated cash from operating activities of $555,433,
respectively. The change in cash generated from operating activities in 1995 and
cash used for operations in 1996 was a result of decreased income from
operations, increased professional fees related to the anticipated Star Merger,
increased accounts receivable due to increased revenues and the settlement of a
pre-petition payroll tax claim by the IRS.
During 1996, the Company invested $122,979 in property and equipment
primarily for purchases of computers, telecommunication equipment and furniture
and equipment associated with the Company's three new branch locations,
including a regional office in Clifton, New Jersey, as well as increased
purchases of computer equipment throughout the Company. During 1995 the Company
invested $57,373 in property and equipment primarily for purchases of computers,
telecommunication equipment, and furniture and equipment associated with the
Company's two new branch locations.
In 1996, the Company was provided cash through financing activities of
$1,134,701 and in 1995, the Company used cash in financing activities of
$83,687. The change in cash used in financing activities in 1995 and cash
provided by financing activities in 1996 was primarily due to the $1,250,000 net
cash proceeds received by the Company in 1996 from the exercise of the Arbor
stock options. In 1995, the Company used cash to pay down $83,687 in various
loan and capital lease obligations.
Inflation and Seasonality
Medicaid reimbursements, which represent the Company's principal source of
revenue, have historically been adjusted to keep pace with inflation. There can
be no assurance that future Medicaid reimbursement will keep pace with
inflation.
The Company's business is generally not subject to seasonal trends.
17
<PAGE>
Item 7. Financial Statements.
---------------------
The Company's financial statements and schedules appear at the end of this
Report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
---------------------------------------------------------------
Effective February 19, 1996, the Company dismissed Rose, Michlin, Karpf &
Co. ("Rose, Michlin") as its independent auditor for the audit of its financial
statements. The new independent auditor to be engaged by the Company to audit
the Company's financial statements, effective February 19, 1996, is Carpenter &
Onorato, P.C.
Rose, Michlin did not complete the audit of the Company's financial
statements for the two most recent fiscal years 1994 and 1995. However, during
these years there were no disagreements with Rose, Michlin on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure. Further, the Company was not advised by Rose, Michlin during
this period of the existence of any of the events described in Item 304(a)(1)(B)
of Regulation S-B.
The decision to change accountants was recommended and approved by the
Company's Board of Directors.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
-------------------------------------------------------------
The directors and executive officers of the Company and TPC are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
EFCC TPC
---- ---
<S> <C> <C> <C>
Mary Ann Page 55 Former Chief Executive Former President/
Officer/Former Vice-President/ Former Director
Former Director
Patricia Cantalupo 37 Former Vice-President/ Former Vice President/
Former Director Former Secretary
Peter P. Jackson 46 None Former Chief Executive
Officer of TPC
Paul Elenio 30 Director/Former Vice Director
President/Former Controller/
Former Principal Financial
Officer
Robert Kohlmeyer 42 Secretary/Treasurer/ Secretary/Treasurer/
Director/ Director
18
<PAGE>
Steven Gorenstein 53 Former President/Former None
Chief Executive Officer/
Former Director
Joseph Heller 33 Vice President/Acting Chief
Executive Officer/Principal Director
Financial Officer/
Controller/Director
</TABLE>
Mary Ann Page
Ms. Page was Acting Chief Executive Officer since January 1996; Vice
President and Director of the Company since June 1994. Ms. Page was also
President and a Director of TPC. From 1991 to 1993, Ms. Page held the position
of Director of Training for Health Force, a national home health care agency,
where she was responsible for training new franchisees in all aspects of home
care personnel services. From 1988 to 1991, she held the position of Director
of Franchising for Winston Franchising Corp. Ms. Page's employment with the
Company and TPC ended on March 31, 1997. Ms. Page resigned as a director in
April, 1997.
Patricia Cantalupo
Vice President and Director since 1992. Dr. Cantalupo is also a Vice
President and Secretary of TPC. Dr. Cantalupo has been the principal owner of
Cantalupo Chiropractic Associates, a full service multi-disciplinary
Chiropractic Health Care Facility, since 1985. Dr. Cantalupo resigned from
all positions with the Company and TPC in August, 1996.
Peter P. Jackson
Mr. Jackson's employment with the Company and TPC ended in August, 1996.
Mr. Jackson had been Managing Director of Business Development since January
1996. Mr. Jackson was Chief Executive Officer of TPC from July 1993 to
December 1995.
Paul Elenio
Director of the Company and TPC since September, 1996. Mr. Elenio was Vice
President and Controller of the Company since January 1996, but resigned from
this position in January, 1997. From 1993 to 1995 Mr. Elenio held the position
of Financial Reporting and Tax Supervisor for BankAmerica Mortgage, FSB,
formally Arbor National Mortgage, Inc., a mortgage banking company which
originated, sold and serviced residential and commercial mortgages. From 1991 to
1993, Mr. Elenio held the position of Senior Accountant for Arbor National
Mortgage, Inc.
Robert Kohlmeyer
Secretary, Treasurer and Director of the Company since 1992. Mr.
Kohlmeyer is also Secretary/Treasurer and a Director of TPC. Mr. Kohlmeyer
has been President and Chief Operating Officer of CRK Contracting, a regional
large scale electrical contracting company, since 1987.
Steve Gorenstein
President, Chief Executive Officer and Director of the Company since
1992. Mr. Gorenstein resigned as an officer and director in January 1996.
19
<PAGE>
From 1991 to present, Mr. Gorenstein has been President of Career Placements,
Inc., a temporary employment agency.
Joseph Heller
Mr. Heller was appointed Vice President of the Company in March, 1996,
principal financial officer and controller in January, 1997, and acting Chief
Executive Officer in April, 1997. Mr. Heller has been a director of the Company
and TPC since September, 1996. From August 1995 to the present, Mr. Heller also
has been a Vice President of Arbor Home HealthCare Holding, LLC, a holding
company which owns 40% of the currently outstanding shares of the Company. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." From June 1995 to the present,
Mr. Heller also has been Vice President of Corporate Planning for Arbor
Management, LLC. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." From 1991
to May 1995, Mr. Heller has held the positions of Vice President of Financial
Analysis and Budgeting and Director of Shareholder Relations for Arbor National
Mortgage, Inc. and its successor. From 1990 to 1991, Mr. Heller was an
Acquisition Associate for WinStar Services, Inc., a merchant and investment
banking firm. From 1987 to 1990, Mr. Heller was a Senior Analyst for Morgan
Stanley & Co., a leading investment banking firm, and from 1985 to 1987, Mr.
Heller was a Senior Accountant for Ernst & Young, LLP, an international
accounting and consulting firm. Mr. Heller is a Certified Public Accountant; in
1991, he received a Masters degree in Business Administration from Fordham
University.
Item 10. EXECUTIVE COMPENSATION
----------------------
Summary Compensation Table
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
(a) (b) (c) (d) (e)
Name and
Principal Other
Position Year Salary($) Bonus($) Compensation($)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Steve Gorenstein 1996 $0 $0 $0
Chief Executive Officer 1995 $0 $0 $0
President and Director
Mary Ann Page 1996 $88,609 $5,000 $0
Acting Chief Executive 1995 $82,210 $6,250 $0
Officer
</TABLE>
No officer of the Company or TPC received compensation in excess of
$100,000 from 1995 - 1996. All compensation specified above is paid by TPC for
services rendered to TPC. Members of the Board of Directors received no
compensation of any kind for services provided as a director.
There are no employment agreements with any officer or director of the
Company or TPC.
20
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
--------------------------------------------------
(a) Security Ownership of certain beneficial owners.
The following sets forth the holdings of any person known by the issuer to
be the beneficial owner of more than five percent of the Company's Common Stock:
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Coss Holding Corp. 12,749,658 39.84
1 Old Country Road
Suite 335
Carle Place, NY 11514
Common Stock Arbor Home HealthCare 25,749,658 (1) 80.47
Holding, LLC
333 Earle Ovington Blvd.
Uniondale, NY 11553
Common Stock Ivan Kaufman 25,749,658 (1)(2) 80.47
c/o Arbor Home
HealthCare Holding, LLC
333 Earle Ovington Blvd.
Uniondale, NY 11553
- ---------------------------------------
</TABLE>
(1) Includes 13 million shares owned directly and also includes voting power
over 12,749,658 shares owned by Coss Holding Corp. pursuant to a voting
trust. (See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS").
(2) Ivan Kaufman owns a 99 percent interest in Arbor Home HealthCare Holding
LLC. and is its controlling member.
The following sets forth the holdings of all of the Company's directors,
executive officers and director nominees, as well as all directors and officers
as a group:
<TABLE>
<CAPTION>
Name and Amount and
Address of Nature of
Title Beneficial Beneficial Percent
of Class Owner Ownership of Class
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Steven Gorenstein 0 0
16 Barrington Place
Dix Hills, NY 11747
Common Stock Robert Kohlmeyer (1) 0 0
86 Hilltop Drive
Smithtown, NY 11787
Common Stock Mary Ann Page 0 0
c/o Cosmetic Sciences, Inc.
1 Old Country Road
Carle Place, NY 11514
21
<PAGE>
Common Stock Patricia Cantalupo 0 0
50 Harvard Drive
Westbury, NY 11590
Common Stock Peter P. Jackson 110,000 (1) *
c/o Cosmetic Sciences, Inc.
1 Old Country Road
Carle Place, NY 11514
Common Stock Paul Elenio 0 0
c/o Cosmetic Sciences, Inc.
1 Old Country Road
Carle Place, NY 11514
Common Stock Joseph Heller 0 0
c/o Arbor Management, LLC
333 Earle Ovington Blvd.
Uniondale, NY 11553
Common Stock All directors and 110,000 *
executive officers
as a group
- -------------------------------------
</TABLE>
*Less than 1%
(1) Owned by son, Steven Jackson. Peter Jackson disclaims beneficial
ownership of these shares.
(c) Changes in control
Coss has placed all of its 12,749,658 shares of the Company's Common Stock
(the "Coss Shares"), representing approximately 40 percent of the currently
outstanding Company Common Stock, in a voting trust. Arbor has the right
under this voting trust to direct the voting of all of the Coss Shares and to
nominate a majority of the Company's Board of Directors. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS".
In addition, pursuant to a certain Amended and Restated Option Agreement
(the "Option Agreement"), dated as of October 31, 1995, by and among Arbor,
Coss, Coss' shareholders, the Company, and TPC, Arbor acquired from the Company
an option to purchase up to 13 million shares of the Company's Common Stock.
This option has been exercised in full. Thus, Arbor has beneficial ownership and
voting rights to 80.47 percent of the outstanding Common Stock of the Company.
(See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".)
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Pursuant to the Option Agreement, Arbor acquired from the Company an
option to purchase up to 13 million shares of the Company's Common Stock as
follows: (a) Arbor had an irrevocable option (the "First Option") to purchase,
by June 21, 1996 (which date was extended to August 21, 1996), 6.5 million
shares of the Company's Common Stock at an exercise price of $.10 per share; (b)
subject to Arbor's timely exercise of the First Option and the issuance of the
shares of Common Stock pursuant to such exercise, Arbor was given the option
(the "Second Option") to purchase, by November 1, 1996, up to an additional 6.5
million shares of the Company's Common Stock at an exercise price of $.10 per
share. The First and Second Options were subject to adjustment in the event of
stock splits and similar events.
On August 21, 1996, Arbor exercised the First Option by delivering to the
Company a notice of exercise of the First Option and by depositing $650,000 in
escrow, to be released to the Company upon approval of an
22
<PAGE>
amendment to the Company's Certificate of Incorporation providing sufficient
authorized capital to exercise the First and Second Option. This approval
occurred at the Company's annual meeting on September 25, 1996 and the required
amendment was filed in October, 1996. On October 31, 1996, Arbor exercised the
Second Option by delivering to the Company a notice of exercise of the Second
Option and by paying $650,000 to the Company.
The Option Agreement also provides that Arbor's consent shall be required
before certain actions may be taken by Coss, its shareholders, the Company and
TPC. These remaining obligations of the Option Agreement will terminate upon the
consummation of the Star Merger.
Coss has placed all of its remaining 12,749,658 shares of the Company's
Common Stock (the "Coss Shares"), representing approximately 40 percent of the
currently outstanding Company Common Stock, in a voting trust. Arbor has the
right under this voting trust to direct the voting of all of the Coss Shares. In
addition, under certain circumstances, the trustee of the voting trust is
required to observe certain restrictions in the event Coss wishes to effect a
sale, transfer or encumbrance of the Coss Shares. Coss will retain all economic
rights in the Coss Shares, including, but not limited to, its right to
dividends. This Voting Trust Agreement will also terminate upon consummation of
the Star Merger.
Pursuant to a Registration Rights and Conditional Put Option Agreement
(the "Registration Rights Agreement"), dated as of October 31, 1995, between
Coss and the Company, the Company has agreed to register the Coss Shares for
resale under the Securities Act, upon the written demand of Coss made at any
time commencing one year after the date on which the Company's Common Stock is
listed on the Nasdaq Stock Market (whether as a SmallCap Market security or a
National Market System security, or any equivalent or successor of the
foregoing). Pursuant to the Registration Rights Agreement, the Company will be
obligated to file up to three registration statements over a three-year period,
with one-third of the Coss Shares (subject to certain adjustments) to be
registered in each year of such three year period. Notwithstanding the
foregoing, the Company has the right to reject the demand by Coss, following
which Coss may require that the Company redeem the Coss Shares at a price equal
to 75 percent of the average bid price in effect during the thirty trading days
prior to the demand for registration. Upon the Company's rejection of the
demand, Coss, at its option, may sell the Coss Shares to a party other than the
Company, subject to the Company's right of first refusal on such sale. Arbor has
the right to purchase the Coss Shares in lieu of the Company on the same terms
and conditions granted the Company as described in the two preceding sentences.
In addition, Coss has been granted certain registration rights in the event the
Company shall register any shares for sale under the Securities Act. In the
event the Star Merger occurs, neither the Company nor Arbor will have any
further obligations under the Registration Rights Agreement.
On October 31, 1995, the Company entered into a two year Financial
Services Agreement with Arbor Management, LLC ("Arbor Mgt."), in which Ivan
Kaufman owns a 99% interest. This Agreement requires Arbor Mgt. to provide
consulting services in the areas of finance, information systems, accounting and
marketing. Arbor Mgt. receives a fee of $7,500 per month for these services.
This agreement is subject to early termination upon the earlier of (i) the
listing of the Company's Common Stock on the NASDAQ Stock Market or (ii) upon
the completion of the Star Merger.
23
<PAGE>
On January 3, 1997, the Company, Merger Sub and Star entered into the Star
Merger Agreement, pursuant to which, among other things, (i) Star will acquire
100% of the outstanding common stock of the Company; and (ii) the Company will
be merged with and into Merger Sub and thereupon the separate existence of the
Company shall cease and Merger Sub, as the Surviving Corporation, shall continue
to exist.
Under the terms of the Star Merger Agreement, the holders of all of the
outstanding shares of the Company's common stock, after giving effect to the TPC
Merger, will receive consideration of $2.4 million in cash, or approximately 6.4
cents per share, and $4.85 million in Star common stock, or approximately 12.9
cents per share, for total consideration of $7.25 million, or approximately 19.3
cents per share, or at Star's option, all cash consideration of 19.3 cents per
share. As part of the Star Merger Agreement, on January 21, 1997, the
Company paid a special cash dividend of $750,000, or 2.3 cents per share, to its
shareholders of record on January 13, 1997.. It is anticipated that the Star
Merger will be treated as a tax-free reorganization for federal income tax
purposes to the extent of Star common stock received by the Registrant's
shareholders.
The Star Merger is expected to be completed by August of 1997, subject to
certain conditions set forth in the Star Merger Agreement, including, but not
limited to, approval by certain state regulatory boards and by the shareholders
of each of Star and the Company, and consummation of the TPC Merger. In
addition, either Star or the Company may terminate the Star Merger Agreement
under certain circumstances, as set forth in the Star Merger Agreement.
Coss and Arbor, which together will own 68% of the outstanding
shares of the Company after giving effect to the TPC Merger (see below),
will vote for the approval of the Star Merger. This percentage is sufficient
under New York law to approve the Star Merger on behalf of the Company's
shareholders. To the Company's knowledge, sufficient votes to approve the
Star Merger on behalf of the Star shareholders have not yet committed to such
approval. However, the Company has received the proxy of Stephen Sternbach,
President and Chairman of Star, to vote all of the shares beneficially owned by
him, currently constituting 20.77% of Star's outstanding shares, in favor of
the Star Merger.
The above figures give effect to the TPC Merger, which is expected to
occur, subject to approval by the shareholders of the Company and TPC, prior to
the Star Merger. The TPC Merger will not be conditioned upon the
completion of the Star Merger, but is subject to various other conditions,
including declaration of effectiveness by the SEC of a registration statement
with respect to the Company's shares to be issued in the TPC Merger. The Star
Merger is conditioned upon, among other things, the completion of the TPC
Merger.
Pursuant to the TPC Merger Agreement, all shareholders of TPC, other than
the Company, will receive 18.745545 shares of the Company's Common Stock in
exchange for each share of TPC they own. Stock certificates previously issued to
TPC shareholders do not give effect to a 1:4 reverse stock split which occurred
in 1985. Thus, shareholders of TPC actually own only one share of the Common
Stock for every four shares for which they possess a share certificate for TPC
Common Stock. TPC shares owned by the Company will be cancelled as a result of
the TPC Merger and no shares of the Company will be issued in respect thereof. A
proxy statement/prospectus relating to a proposed meeting of stockholders of the
Company and TPC is expected to be furnished in June, 1997. This proxy
statement/prospectus is expected to solicit the votes of the stockholders of the
Company and TPC to approve the TPC Merger. Coss and Arbor, which together own
80.47% shares of the Company, intend to vote for the approval of the TPC Merger.
In addition, the Company,
24
<PAGE>
as the owner of 83% of the outstanding shares of TPC, intend to vote for the
approval of the TPC Merger. These votes constitute a sufficient percentage under
New York law to approve and adopt the TPC Merger on behalf of the shareholders
of the Company and TPC.
Consulting Agreement
On January 3, 1997, Star and the Company entered into the Consulting
Agreement pursuant to which Star agreed that, upon the Company's request, it
will render to the Company, by and through such of its officers, employees and
agents as Star, in its sole discretion, designates from time to time, consulting
services with respect to the management and operation of the Company. The
consulting services to be rendered by Star under the Consulting Agreement
consist of those consulting services relating to the management and operation of
the Company's healthcare business reasonably requested by the Company. The
Company and Star have agreed that Star's role is that of a consultant and
advisor to, and not that of a manager of, the Company. Under the Consulting
Agreement, Star has no duty or responsibility to manage the affairs of the
Company which duty and responsibility remains at all times with the Board of
Directors and management of the Company.
For the consulting services to be rendered by Star, the Company has agreed
to pay Star fees in the amount of Twenty-five Thousand Dollars ($25,000) per
month, payable (a) $15,000 in arrears on the last day of each month, pro rated
for any partial month, and (b) the remaining $10,000 on the earlier to occur of
the consummation of the Star Merger or the termination of the Star Merger
Agreement.
The Consulting Agreement will terminate on the earlier of (i) the date on
which the Star Merger Agreement shall have been terminated pursuant to the terms
thereof other than by reason of the default of the Company thereunder, (ii) the
Effective Date of the Management Agreement or (iii) the consummation of the Star
Merger provided, that Star has the right to terminate its obligation to render
services under the Consulting Agreement at any time upon forty-five (45) days
prior notice to the Company.
Management Agreement
On January 3, 1997, Star and the Company also entered into the Management
Agreement pursuant to which Star agreed to act as manager of the Company. The
Management Agreement is subject to approval of the Commissioner of the New York
State Department of Health (the "Commissioner"). Pursuant to the Management
Agreement, Star will have the authority and responsibility to conduct, supervise
and effectively manage the day-to-day operation of the Company. In the absence
of oral or written direction or written policies of the Board of Directors of
the Company, Star will be expected to exercise the reasonable judgment of a
management company in its management activities. Star will specifically have
responsibility and commensurate authority, subject among other things to the
direction of the Board of the Company, to act on its behalf for the following
activities: (i) the establishment, maintenance, revision and administration of
the overall charge structure of the Company pursuant to pertinent regulations,
including, but not limited to, patient charges, charges for ancillary services,
charges for supplies and special services; (ii) (A) the hiring, discharge,
supervision and management of all employees of the Company, including the
determination, from time to time, of the numbers and qualifications of employees
needed in the various departments and services of the Company, (B) the
establishment, revision and administration of wage scales, rates of
compensation, employee benefits, rates and conditions of employment, in-service
training, attendance at seminars or
25
<PAGE>
conferences, staffing schedules, and job and position descriptions with respect
to all employees of the Company; (iii) the issuance of bills for services and
materials furnished by the Company, and the collection of accounts and monies
owed to the Company, including the responsibility to enforce the rights of the
Company as creditor under any contract or in connection with the rendering of
any service; (iv) the payment of payroll, trade accounts, amounts due on short
and long-term indebtedness, taxes and all other obligations of the Company;
provided, however, that the responsibility will be limited to the exercise of
reasonable diligence and care to apply the funds collected in the operation of
the Company to its obligations in a timely and prudent manner, and Star will not
become personally liable or act in a guarantor capacity with respect to any
obligation of the Company; (v) the establishment and administration of
accounting procedures and controls, in accordance with generally accepted
accounting principles and the establishment and administration of systems for
the development, preparation and safekeeping of records and books of account
relating to the business and financial affairs of the Company; (vi) the
maintenance of accounts in such banks, savings and loan associations, and other
financial institutions are the Board of the Company may, from time to time,
select (including certificates of deposit) with such balances therein (which may
be interest bearing or non-interest bearing) as Star shall, from time to time,
deem appropriate, taking into account the operating needs of the Company and the
disbursements from such accounts of such amounts of the Company's funds as Star
shall, from time to time, determine is appropriate in the discharge of its
responsibilities under the Management Agreement; provided, however, that Star
will not, in any case, have any obligation to supply, out of its own funds,
working capital for the Company; (vii) the management of all purchases and
leases of real property, equipment, supplies and all materials and services
which Star deems to be necessary in the operation of the Company; (viii) the
evaluation of all quality control aspects of the Company's operation, and the
implementation, with approval of the Board of the Company, of quality control
programs designed to meet standards imposed by appropriate certifying agencies
and to bring about a high standard of health care in accordance with Board of
the Company's policies and resources available to the Company.
Under the Management Agreement, Star will be empowered to negotiate, enter
into, terminate and administer on behalf of the Company, contracts for services
by medical, paramedical and other persons and organizations.
Notwithstanding any other provision of the Management Agreement, the Board
of the Company retains and Star is prohibited from exercising: (i) direct
independent authority to hire or fire Star or a qualified agency administrator
of the Company; (ii) independent control of the Company's books and records;
(iii) authority over the disposition of assets and the authority to incur on
behalf of the Company liabilities not normally associated with the day-to-day
operation of the Company; and (iv) authority for the independent adoption and
enforcement of policies affecting the delivery of health care services.
The Management Agreement will become effective upon the date it is
approved by the Commissioner (the "Effective Date"). The Management Agreement
may be terminated by the Commissioner, without financial penalty to the Board,
not more than sixty (60) days after notification to the parties of a
determination that the management of the Company is so deficient that the health
and safety of patients would be threatened by continuation of the Management
Agreement. The Management Agreement can be terminated by the Company without
cause on 60 days' notice and with cause on 14 day's notice. Unless sooner
terminated in accordance with the terms of the Management Agreement, or extended
or renewed by mutual agreement of the parties thereto,
26
<PAGE>
the Management Agreement will remain in effect until the consummation of the
Star Merger or December 31, 1998, whichever is sooner.
SECTION 16 REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission ("SEC"). Such persons are required by SEC regulation to furnish the
Company with copies of all Section 16(a) reports they file.
Based solely on its review of the copies of such reports received by it
with respect to fiscal 1996, or written representations from certain reporting
persons, the Company believes that all filing requirements in 1996 applicable to
its directors, officers and persons who own more than 10% of a registered class
of the Company's equity securities have been timely complied with.
EXPERTS
The consolidated financial statements of Extended Family Care Corporation
and subsidiaries as of December 31, 1995 and 1996 and for each of the years in
the two-year period ended December 31, 1996 included in this Report have been
audited by Carpenter & Onorato, P.C., independent certified public accountants,
as set forth in their report appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of said firm as experts in
accounting and auditing.
Item 13. Exhibits and Reports on Form 8-K.
---------------------------------
<TABLE>
<CAPTION>
(a) Exhibits Page
-------- ----
<S> <C>
2.1 Agreement and Plan of Merger, dated as of January 3, 1997 among Star,
Merger Sub and the Company, dated as of January 3, 1997. (6)
2.2 Plan and Agreement of Merger between TPC and the Company dated March 18,
1997. 50
3.1 Amended and Restated Articles of Incorporation. (1)
3.2 By-Laws. (2)
3.3 Amendment No.1 to By-Laws dated October 1, 1996. 62
10.1 Amended and Restated Option Agreement by and among the Company, Arbor
Home Healthcare Holding, LLC ("Arbor"), COSS Holding Corp. ("COSS"), TPC
Home Care Services, Inc.("TPC"), et al., dated October 26, 1995. (3)
10.2 Registration Rights and Conditional Put Option between the Company and
COSS dated October 26, 1995. (3)
10.3 Financial Services Agreement between the Company and Arbor Management,
LLC, dated October 26, 1995. (2)
27
<PAGE>
10.4 Lease dated March 1, 1996 between the Company and Hawke Associates for
TPC's Elizabeth, New Jersey office. (2)
10.5 Approval issued by the New York State Public Health Council of
Application No. 9586 submitted by TPC dated November 27, 1995. (2)
10.6 Notice of Accreditation issued by the Joint Commission on Accreditation
of Healthcare Organizations accrediting TPC d/b/a Extended Family Care,
dated February 9, 1996. (2)
10.7 Lease dated February 17, 1994 between 10-20 Banta Associates and the
Company for TPC's Hackensack, New Jersey office. (2)
10.8 Third Amendment of Lease dated July 1995, between TPC and Hempstead
Associates Limited Partnership for TPC's Hempstead, New York office. (2)
10.9 Lease dated May 12, 1995 between TPC and Castle Ventures Limited for the
Company's headquarters office. (2)
10.10 Agreement dated April 20, 1995 between TPC and the County of Nassau,
Department of Social Services. (2)
10.11 Lease dated February 1, 1996 between TPC and Phyllis C. Hyacinthe for
TPC's East Orange, New Jersey office. (2)
10.12 Lease dated February 8, 1996 between TPC and Clifton L&M Associates,
Ltd. for TPC's Clifton, New Jersey office. (2)
10.13 Agreement dated June 20, 1996 extending First Option Termination date
from June 21, 1996 to August 21, 1996. (4)
10.14 Voting Trust Agreement dated June 21, 1996. (5)
10.15 Stock Purchase Agreement dated June 30, 1996. (5)
10.16 Receivables Security Agreement between the Company and Arbor, dated as
of September 6, 1996, including letter agreement with TPC. (1)
10.17 Promissory Note dated September 6, 1996 in the amount of $250,000 made
by the Company to Arbor (1)
10.18 Stock Purchase Agreement between the Company and Arbor dated October 31,
1996. 65
10.19 Asset Sale Agreement between TPC and Public Services, Inc. dated
December 6, 1997. 77
16 Letter of Rose, Michlin, Karpf & Company. (7)
21 Subsidiaries of the Company. 93
27 Financial Data Schedule. 95
=============================================================
</TABLE>
(1) Filed as an Exhibit to the Company's Form 10-QSB for the period ended
September 30, 1996 and incorporated herein by reference thereto.
(2) Filed as an Exhibit to the Company's Form 10-KSB for the period ended
December 31, 1995 and incorporated herein by reference thereto.
28
<PAGE>
(3) Filed as an Exhibit to the Company's Form 8-K for event of October 31,
1995 and incorporated herein by reference thereto.
(4) Filed as an Exhibit to the Company's Form 8-K/A #2 for event of June 20,
1996 and incorporated herein by reference thereto.
(5) Filed as an Exhibit to the Company's Form 10-QSB for the period ended June
30, 1996 and incorporated herein by reference thereto.
(6) Included as Exhibit 1 to the Amended Schedule 13D filed by Stephen
Sternbach on January 17, 1997 and incorporated herein by reference
thereto.
(7) Filed as an Exhibit to Company's Form 8-K for the period February 19, 1996
and incorporated herein by reference thereto.
(b) Current Reports on Form 8-K. The Company filed a report on Form 8-K on
November 13, 1996 with respect to Arbor's exercise of the Second Option pursuant
to which it purchased 6.5 million shares of Common Stock at a exercise price of
$.10 per share for a total consideration of $650,000. No financial statements
were included in this report. Item 1 (Change in Control of Registrant) and Item
7 (Financial Statements and Exhibits) were the only items reported in this
filing.
29
<PAGE>
EXTENDED FAMILY CARE CORPORATION AND SUBSIDIARY
Consolidated Financial Statements
Years Ended December 31, 1996 and 1995
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
EXTENDED FAMILY CARE CORPORATION AND SUBSIDIARY
Page
Independent Auditor's Report F - 2
Consolidated Balance Sheets as of December 31, 1996 and
December 31, 1995 ........................................ F - 3
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 ................................ F - 4
Consolidated Statements of Shareholder's Equity for the
years ended December 31, 1996 and 1995 .................... F - 5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995 ................................ F - 6
Notes to Consolidated Financial Statements ................... F - 7 - F - 14
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors
Extended Family Care Corporation
We have audited the accompanying balance sheets of Extended Family Care
Corporation and subsidiary, as of December 31, 1996 and 1995 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Extended Family Care Corporation, at December 31, 1996 and 1995 and the
consolidated results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ Carpenter & Onorato, P.C.
Carpenter & Onorato, P.C.
Certified Public Accountants
Garden City, NY 11530
February 18, 1997
F - 2
<PAGE>
EXTENDED FAMILY CARE CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
1996 1995
----- ----
Assets
------
<S> <C> <C>
Current assets:
Cash $1,066,193 $ 511,563
Accounts receivable, net of allowance for doubtful accounts
of $100,000 for 1996 and 1995 (note 2) 1,066,277 895,131
Prepaid expenses and other current assets (note 9) 496,185 146,809
---------- ----------
Total current assets 2,628,655 1,553,503
Property and equipment, net (note 5) 233,644 118,591
Other assets:
Deferred tax asset (note 6) 204,000 259,000
License, net (notes 3) 476,153 515,832
Other 29,410 11,197
---------- ----------
Total assets $3,571,862 $2,458,123
========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 223,362 $ 222,677
Accrued expenses (note 8) 586,396 543,974
Customer deposits 73,374 59,146
Notes payable (note 4) 43,449 148,449
Payroll taxes payable (note 8) 151,721 280,584
Current portion of obligations under capital leases 22,850 12,845
---------- ----------
Total current liabilities 1,101,152 1,267,675
Non-current liabilities
Long-term debt (note 4) 36,500 54,500
Obligations under capital leases 69,717 40,010
---------- ----------
Total non-current liabilities 106,217 94,510
---------- ----------
Total liabilities 1,207,369 1,362,185
Commitments and contingencies (notes 7, 8, 10 and 12)
Minority interest in subsidiary 139,649 140,008
---------- ----------
Shareholders' equity
Preferred stock, $.01 par value, 10,000,000 shares authorized in 1996
Common stock, $.01 par value, 50,000,000 shares authorized, 30,000,000
in 1996; 32,000,226 and 19,300,229 shares issued and
outstanding,
respectively 320,002 194,506
Additional paid-in-capital 1,763,348 638,844
Retained earnings 141,494 122,580
---------- ----------
Total shareholders' equity 2,224,844 955,930
---------- ----------
Total liabilities and shareholders' equity $3,571,862 $2,458,123
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F - 3
<PAGE>
EXTENDED FAMILY CARE CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
----- ----
<S> <C> <C>
Net patient service revenue (note 2) $ 8,929,330 $ 7,367,958
------------ ------------
Cost of services:
Salaries 4,806,668 4,058,749
Payroll taxes and other 836,886 647,447
------------ ------------
Total cost of services 5,643,554 4,706,196
------------ ------------
Gross profit 3,285,776 2,661,762
Selling, general and administrative expenses 3,192,769 2,128,432
Provision for doubtful accounts 25,000 51,810
------------ ------------
Income from operations 68,007 481,520
Interest (income) expense, net (5,548) 4,320
------------ ------------
Income before provision for income
taxes and minority interest 73,555 477,200
Provision for income
taxes (note 6 ) 55,000 209,000
------------ ------------
Net income before minority interest 18,555 268,200
Minority interest in subsidiary net income (359) 46,398
------------ ------------
Net income $ 18,914 $ 221,802
============ ============
Primary earnings per share $ 0.0009 $ 0.0107
============ ============
Fully diluted earnings per share $ 0.0009 $ 0.0105
============ ============
Weighted average number of shares outstanding:
Primary 21,808,560 20,823,555
============ ============
Fully diluted 21,808,560 21,033,562
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F - 4
<PAGE>
EXTENDED FAMILY CARE CORPORATION AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Years Ended December 31, 1996 and 1995
Common Stock Total
Additional Retained Shareholders'
Shares Amount Paid-in Earnings Equity
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1994 19,300,229 194,506 638,844 (99,222) 734,128
Net income -- -- -- 221,802 221,802
----------- ----------- ----------- ----------- -----------
December 31, 1995 19,300,229 194,506 638,844 122,580 955,930
Retired shares (300,003) (4,504) 4,504 -- --
Exercise of stock
options 13,000,000 130,000 1,120,000 -- 1,250,000
Net income -- -- -- 18,914 18,914
----------- ----------- ----------- ----------- -----------
December 31, 1996 32,000,226 $ 320,002 $ 1,763,348 $ 141,494 $ 2,224,844
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F - 5
<PAGE>
EXTENDED FAMILY CARE CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
Statements of Cash Flows
Years Ended December 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash flow from operating activities:
- ------------------------------------
Net income $ 18,914 $ 221,802
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Allowance for doubtful accounts -- 51,810
Depreciation and amortization 62,107 36,273
Amortization of intangible assets 39,680 39,679
Provision for income taxes 55,000 209,000
Minority interest in subsidiary net income (359) 46,398
Change in operating assets and liabilities:
(Increase) in assets:
Accounts receivable (171,146) (143,276)
Prepaid expenses (349,376) (74,053)
Security deposits (18,213) (4,074)
Increase (decrease) in liabilities:
Accounts payable (21,486) 17,982
Accrued expenses 42,422 218,290
Customer deposits 14,228 (12,124)
Payroll taxes payable (128,863) (52,274)
----------- -----------
Net cash (used in) provided by operating activities (457,092) 555,433
----------- -----------
Cash flow from investing activity:
- ----------------------------------
Purchase of property and equipment (122,979) (57,373)
----------- -----------
Net cash (used in) investing activity (122,979) (57,373)
----------- -----------
Cash flow from financing activities:
- ------------------------------------
Proceeds from exercise of stock options 1,250,000 --
Payment of obligations under capital leases (14,471) (6,187)
Repayment of loans (100,828) (77,500)
----------- -----------
Net cash provided by (used in) by financing activities 1,134,701 (83,687)
----------- -----------
Increase in cash 554,630 414,373
Cash balance at beginning of year 511,563 97,190
----------- -----------
Cash balance at end of year $ 1,066,193 $ 511,563
=========== ===========
Supplemental disclosures:
Equipment acquired under capital lease obligation $ 54,183 $ 59,042
=========== ===========
Cash paid during the year for:
Interest $ 7,080 $ 5,825
=========== ===========
Income taxes $ 14,638 $ 654
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F - 6
<PAGE>
EXTENDED FAMILY CARE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1996
(1) Significant Accounting Policies
--------------------------------
(a) Description of Business
-----------------------
Extended Family Care Corporation (EFCC) or (the Company),
is primarily engaged in the business of providing health care
services in the home through its 83% majority owned subsidiary,
T.P.C. Home Care Services, Inc. (TPC). EFCC is the
holding company for TPC.
TPC is a licensed home care provider servicing patients since
1980. TPC has offices in New York and New Jersey, providing
twenty four hour home care services. On August 5, 1986, TPC and
its parent, EFCC, filed voluntary petitions for reorganization
under Chapter 11 of the United States Bankruptcy Code. On March
23, 1992, this plan of reorganization was confirmed by the
United States Bankruptcy Court. On January 13, 1995, the
bankruptcy court issued a final decree.
As part of the plan of reorganization, on October 8, 1993, per
an agreement between C.O.S.S. Holding Corp. (C.O.S.S.), an
investor group, and EFCC dated March 23, 1992, EFCC issued
12,749,658 shares of stock to C.O.S.S. for $250,000 in cash
which resulted in C.O.S.S. owning a 66% interest in EFCC. Also,
unsecured creditors were given the option to receive a pro rata
share of EFCC's common stock or 12% of the allowed amount of
their respective claims. Creditors exercising this option
resulted in EFCC issuing 1,388,959 shares of common stock to the
unsecured creditors.
On October 31, 1995, EFCC entered into an agreement with Arbor
Home Healthcare Holdings, LLC (Arbor) (in which Ivan Kaufman
owns a 99% interest), by which EFCC granted Arbor an irrevocable
option exercisable in two installments for EFCC to issue in
total 13,000,000 shares of EFCC common stock to Arbor at $.10
per share. The first and second installments of the option were
exercised by Arbor on August 21, 1996 and October 31, 1996,
respectively. Shares were not issued with respect to the first
installment until October, 1996, when the Company's certificate
of incorporation was amended to provide sufficient authorized
capital to issue such shares. Arbor owns approximately a 40%
interest in EFCC. In addition, per the option agreement,
C.O.S.S. placed all of its 12,749,658 shares of EFCC common
stock in a voting trust. Arbor has the right to direct the
voting of all of the C.O.S.S. shares and to nominate a majority
of the EFCC Board of Directors.
(b) Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of
EFCC and its majority owned subsidiary. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(c) Revenue Recognition and Allowance for Doubtful Accounts
-------------------------------------------------------
Net patient service revenue is recorded at the Company's
reimbursement rates or contracted rates. Such revenue is
received from patients, third party payors and others for
services rendered. A significant portion of the Company's
revenue is received from third-party payors (i.e. Medicaid) and
is subject to audit and adjustment by those payors. A provision
F - 7 (Continued)
<PAGE>
EXTENDED FAMILY CARE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
for doubtful accounts is made for accounts receivable estimated
to be uncolllectible; which is based upon management's
evaluation of relevant facts that effect the collectibility
of accounts receivable.
(d) Property and Equipment
----------------------
Property and equipment are recorded at cost. The carrying amount
of the assets and related accumulated depreciation and
amortization are removed from the accounts when such assets are
disposed of and the resulting gain or loss is included in
operations. Depreciation and amortization of equipment and
leasehold improvements are computed using the declining balance
method for the following useful lives of the assets:
Furniture and fixtures 5 - 7 years
Equipment 5 years
Leasehold improvements lesser of the useful life of the
asset or the remaining lease period.
For assets acquired in 1996, the straight line method was used.
Management believes that the difference is immaterial.
(e) Post-retirement Health Care and Life Insurance Benefits
-------------------------------------------------------
The Company does not provide post-retirement benefits for its
employees.
(f) Income Taxes
------------
The Company is a C corporation for the taxable years ended
December 31, 1996 and 1995, respectively.
(g) Net Income per Common Share
---------------------------
Net income per common share is computed by dividing net income
by the weighted average number of common stock and common stock
equivalents outstanding during each period. Common stock
equivalents represent the dilutive effect of the assumed
exercise of certain outstanding stock options.
(h) Use of Estimates
----------------
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
(i) Reclassification
----------------
Certain prior year amounts have been reclassified to conform to
the current year presentation.
F - 8 (Continued)
<PAGE>
EXTENDED FAMILY CARE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Concentration of Segment Risk
-----------------------------
TPC provides temporary health care personnel to in-home patients in New
York and New Jersey. TPC grants credit to its patients who are insured
under third-party payor agreements. Deposits are required for all
private business. The mix of accounts receivable from private and
third-party payors at December 31 were as follows:
1996 1995
---- ----
Medicaid 54 % 62 %
Insurance 3 2
Other third-party payors 34 29
Private 8 7
Medicare 1 -
------------------ ---------------------
100 % 100 %
==================== =====================
Historically, credit losses relating to customers have not been
significant and have been within management's expectations.
(3) Intangible Assets
-----------------
Intangible assets at December 31 are as follows:
1996 1995
-------- --------
License $595,190 $595,190
less accumulated amortization 119,037 79,358
-------- --------
$476,153 $515,832
======== ========
F - 9 (Continued)
<PAGE>
EXTENDED FAMILY CARE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Notes Payable and Long-Term Debt
--------------------------------
Notes payable and long-term debt consist of the following at December
31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Note payable, non-interest bearing, payable in monthly installments of $1,500
with a final balloon payment of $26,000 due in August,
1998. Interest on this
note was not imputed, as the
Company considers the amount to be $ 54,500 $ 72,500
immaterial
Notes payable, non-interest bearing and
payable on demand -- 80,000
Due to Affiliated Parties (see note 7) 25,449 50,449
--------- ---------
Notes payable and long-term debt 79,949 202,949
Less current portion 43,449 148,449
--------- ---------
Long-term debt $ 36,500 $ 54,500
========= =========
(5) Property and Equipment
----------------------
Property and equipment consist of the following:
1996 1995
--------- ---------
Furniture and fixtures $ 64,095 $ 18,751
Machinery and equipment 229,872 167,108
Leasehold improvements 15,539 7,039
Equipment held under capital leases 113,225 59,042
--------- ---------
422,731 251,940
less accumulated depreciation and
amortization 189,087 133,349
--------- ---------
$ 233,644 $ 118,591
========= =========
</TABLE>
F - 10 (Continued)
<PAGE>
EXTENDED FAMILY CARE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(6) Income Taxes
------------
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995
---- -----
<S> <C> <C>
Current
Federal $ -- $ --
State -- --
-------- --------
$ -- $ --
-------- --------
Deferred
Federal $ 42,000 $160,500
State 13,000 48,500
-------- --------
55,000 209,000
-------- --------
$ 55,000 $209,000
======== ========
Deferred tax assets consist of the following:
Pre-reorganization net operating loss $100,000 $221,000
carryforward
Allowance for doubtful accounts 38,000 38,000
Other 66,000 --
--------
--------
Total deferred tax assets $204,000 $259,000
======== ========
The following is a reconciliation of the effective income tax rate to
the Federal statutory rate:
Computed income tax (benefit) expense at 34% $ 25,000 $162,000
Increase in taxes resulting from:
Nondeductible expenses 22,000 15,000
State income taxes, net of federal tax benefit 8,000 32,000
Other - effect of graduated tax rates -- --
-------- --------
$ 55,000 $209,000
======== ========
At December 31, 1996, the Company has a net operating loss carryforward
(NOL) of approximately $575,000 for tax purposes, expiring beginning
with the year 2000 through 2008.
</TABLE>
F - 11 (Continued)
<PAGE>
EXTENDED FAMILY CARE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(7) Related Party Transactions
---------------------------
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
C.O.S.S. holds a note which is non-interest
bearing, and payable upon demand $25,449 $25,449
An officer of the Company holds a note
which bears an interest rate of 11% and
is payable upon demand. Annual interest expense
amounted to $1,840 and $3,238, respectively -- 25,000
------- -------
$25,449 $50,449
======= =======
</TABLE>
The landlord for the Company's corporate office is an entity owned by
C.O.S.S. The annual rental is $43,837 per year, and shall be increased
by 12% over the prior year's fixed minimum annual rent. The lease
expires November 30, 2000.
On October 31, 1995, EFCC entered into an agreement with Arbor
Management, LLC (in which Ivan Kaufman owns a 99% interest), for two
years by which EFCC will pay $7,500 a month to Arbor Management, LLC
for management services, including accounting, finance, human resources
and marketing, rendered to the Company.
(8) Payroll Taxes Payable/Accrued Expenses
--------------------------------------
Federal pre-petition payroll tax liabilities were settled with the
Internal Revenue Service for $175,000 in cash on September 16, 1996,
which approximated the amounts recorded as payroll taxes payable and
accrued interest and penalties for this claim. As of December 31, 1996,
payroll taxes payable and accrued expenses included tax liabilities to
various state government agencies in the amounts of $52,437 and $5,775,
respectively.
(9) Sale of Branch Operations
-------------------------
On December 5, 1996, TPC sold certain assets and liabilities; and its
operations of its Jersey City branch to Public Services, Inc (P.S.I.)
for a $175,000, six month, 9% promissory note, plus an amount equal to
12% of the gross revenues of P.S.I. in excess of $90,000 per month for
a 24 month period commencing on October 6, 1997. The Company recognized
a gain of $24,617 on the sale of these assets. The assets from this
branch, remaining in the company, included cash and substantially all
of its security deposits.
F - 12 (Continued)
<PAGE>
EXTENDED FAMILY CARE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(10) Commitments and Contingencies
-----------------------------
TPC conducts its operations from leased office spaces in New York, New
Jersey and Pennsylvania. These leases expire at various dates through
the year 2000. Management expects that in the normal course of
business, these leases will be renewed or replaced by other leases.
Rent expense for the years ended December 31 amounted to $208,973 and
$104,965, respectively.
The Company is also the lessee of machinery and equipment under capital
leases expiring in various years through 2001.
As of December 31, future net minimum lease payments under capital and
operating leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
<S> <C> <C>
1997 $ 22,850 $ 203,482
1998 22,850 208,567
1999 21,984 201,093
2000 18,769 149,371
2001 6,116 66,150
Thereafter -- 260,313
---------- ----------
$ 92,569 $1,088,976
========== ==========
</TABLE>
The gross amount of assets recorded under capital lease obligations was
$113,225 at December 31, 1996. Interest on the capital lease
obligations was imputed and the Company considers the amount to be
immaterial.
(11) Fair Value of Financial Instruments
-----------------------------------
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments", defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current
transaction between willing parties. The carrying value of the
Company's financial instruments in the accompanying balance sheets
approximates their fair value.
(12) Subsequent Events
-----------------
An "Agreement and Plan of Merger" (Merger), was entered into on January
3, 1997 between the Company and Star Multi Care Services, Inc. (Star),
pursuant to which Star will acquire 100% of the outstanding common
shares of the Company. Under the terms of the merger agreement EFCC
shareholders will receive $2,400,000 in cash or approximately $.064 per
share and $4,850,000 in Star common stock or appromixately $.129 per
share for total consideration of $7,250,000 or approximately $.193 per
share, after giving effect to the merger of TPC with and into EFCC (see
below). As part of the merger agreement, EFCC paid a $.0234 per share
cash dividend on January 21, 1997 to all its common shareholders of
record on January 13, 1997.
F - 13 (Continued)
<PAGE>
EXTENDED FAMILY CARE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
It is anticipated that the Merger will be treated as a tax free
reorganization for Federal income tax purposes to the extent of Star's
common stock received by EFCC shareholder's. This merger is expected to
be completed by August 1997, subject to approval of EFCC and Star
shareholders, certain state regulatory boards and other conditions.
In connection with the Merger, EFCC and Star have entered into a
Consulting Agreement pursuant to which Star will render to EFCC
consulting and advisory services in connection with the management,
operation and supervision of EFCC. The term of the Consulting Agreement
shall end on the earlier of (i) one year from the signing of the
Merger, (ii) the closing of the merger or (iii) the termination of the
Merger. In consideration for the consulting services to be rendered by
Star, EFCC will pay Star $25,000 per month, payable (a) $15,000 in
arrears on the last day of each month and (b) the remaining $10,000 on
the earlier to occur of the closing date or the termination of the
Merger Agreement.
On January 3, 1997, Star and EFCC also entered into a management
agreement (the "Management Agreement") pursuant to which Star agreed to
act as manager of EFCC. The Management Agreement will become effective
upon approval of the Commissioner of the New York State Department of
Health (the "Commissioner"). Pursuant to the Management Agreement Star
will have the authority and responsibility to conduct , supervise and
effectively manage the day-to-day operation of EFCC. Star will be
expected to exercise the reasonable judgment of a management company in
its management activities.
The Management Agreement may be terminated by the Commissioner, without
financial penalty to the Board, not more than sixty (60) days after
notification to the parties of a determination that the management of
EFCC is so deficient that the health and safety of patients would be
threatened by continuation of the Management Agreement. The Management
Agreement may be terminated by the Company with cause on 14 days'
notice or without cause on 60 days' notice. Unless sooner terminated in
accordance with terms of the Management Agreement, or extended or
renewed by mutual agreement of the parties thereto, the Management
Agreement will remain in effect until the closing of the Star Merger or
December 31, 1998, whichever is sooner.
On March 18, 1997 the company entered into a merger agreement with its
83% owned subsidiary, TPC, where EFCC will be the surviving entity. It
is anticipated that the minority shareholders of TPC will receive
5,601,975 common shares of EFCC or 18.745545 common shares of EFCC for
each common share of TPC upon the completion of the merger. TPC common
stock owned by EFCC will be cancelled as a result of the merger and no
EFCC common stock shall be issued to EFCC. This anticipated merger will
not be conditioned upon the completion of the merger of EFCC and Star.
This merger is expected to close prior to the merger of EFCC and Star.
F - 14
<PAGE>
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report 10-KSB to be signed on its behalf by the
undersigned, thereunto duly authorized.
(Registrant) EXTENDED FAMILY CARE CORPORATION
By: /s/ Joseph Heller
Joseph Heller
Acting Chief Executive Officer,
Vice President, Principal
Financial Officer, Controller and Director
Date: April 15, 1997
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dated indicated.
By: /s/ Joseph Heller Date: April 15, 1997
Joseph Heller
Acting Chief Executive Officer,
Vice President, Principal
Financial Officer, Controller and Director
By: /s/ Paul Elenio Date: April 15, 1997
Paul Elenio, Director
<PAGE>
INDEX OF EXHIBITS
Page 2.1 Agreement and Plan of Merger, dated as of January
- ---- 3, 1997 among Star, Merger Sub and the Company,
dated as of January 3, 1997. (6)
50 2.2 Plan and Agreement of Merger between TPC and the
Company dated March 18, 1997.
3.1 Amended and Restated Articles of Incorporation. (1)
3.2 By-Laws. (2)
62 3.3 Amendment No.1 to By-Laws dated October 1, 1996.
10.1 Amended and Restated Option Agreement by and among
the Company, Arbor Home Healthcare Holding, LLC
("Arbor"), COSS Holding Corp. ("COSS"), TPC Home
Care Services, Inc.("TPC"), et al., dated October
26, 1995. (3)
10.2 Registration Rights and Conditional Put Option
between the Company and COSS dated October 26,
1995. (3)
10.3 Financial Services Agreement between the Company
and Arbor Management, LLC, dated October 26, 1995.
(2)
10.4 Lease dated March 1, 1996 between the Company and
Hawke Associates for TPC's Elizabeth, New Jersey
office. (2)
10.5 Approval issued by the New York State Public Health
Council of Application No. 9586 submitted by TPC
dated November 27, 1995. (2)
10.6 Notice of Accreditation issued by the Joint
Commission on Accreditation of Healthcare
Organizations accrediting TPC d/b/a Extended Family
Care, dated February 9, 1996. (2)
10.7 Lease dated February 17, 1994 between 10-20 Banta
Associates and the Company for TPC's Hackensack,
New Jersey office. (2)
10.8 Third Amendment of Lease dated July 1995, between
TPC and Hempstead Associates Limited Partnership
for TPC's Hempstead, New York office. (2)
<PAGE>
10.9 Lease dated May 12, 1995 between TPC and Castle
Ventures Limited for the Company's headquarters
office. (2)
10.10 Agreement dated April 20, 1995 between TPC and the
County of Nassau, Department of Social Services.
(2)
10.11 Lease dated February 1, 1996 between TPC and
Phyllis C. Hyacinthe for TPC's East Orange, New
Jersey office. (2)
10.12 Lease dated February 8, 1996 between TPC and
Clifton L&M Associates, Ltd. for TPC's Clifton, New
Jersey office. (2)
10.13 Agreement dated June 20, 1996 extending First
Option Termination date from June 21, 1996 to
August 21, 1996. (4)
10.14 Voting Trust Agreement dated June 21, 1996. (5)
10.15 Stock Purchase Agreement dated June 30, 1996. (5)
10.16 Receivables Security Agreement between the Company
and Arbor, dated as of September 6, 1996, including
letter agreement with TPC. (1)
10.17 Promissory Note dated September 6, 1996 in the
amount of $250,000 made by the Company to Arbor (1)
65 10.18 Stock Purchase Agreement between the Company and
Arbor dated October 31, 1996.
77 10.19 Asset Sale Agreement between TPC and Public
Services, Inc. dated December 6, 1997.
16 Letter of Rose, Michlin, Karpf & Company. (7)
93 21 Subsidiaries of the Company.
95 27 Financial Data Schedule.
<PAGE>
Exhibit 2.2
=================================================================
PLAN AND AGREEMENT OF MERGER
OF
T.P.C. HOME CARE SERVICES, INC.,
a New York corporation
WITH AND INTO
EXTENDED FAMILY CARE CORPORATION,
a New York corporation
------------------------------------
Dated as of March 18, 1997
=================================================================
<PAGE>
PLAN AND AGREEMENT OF MERGER
OF
T.P.C. HOME CARE SERVICES, INC.,
a New York corporation
WITH AND INTO
EXTENDED FAMILY CARE CORPORATION
a New York corporation
THIS PLAN AND AGREEMENT OF MERGER (hereinafter referred to as the "Plan
and Agreement of Merger"), is made as of March 18, 1997, by and among T.P.C.
HOME CARE SERVICES, INC., a New York corporation ("TPC") and EXTENDED FAMILY
CARE CORPORATION, a New York corporation ("EFCC").
W I T N E S S E T H :
WHEREAS, EFCC is the legal and beneficial owner of 82.92% of
the issued and outstanding shares of TPC; and
WHEREAS, the directors of each of EFCC and TPC deem it advisable and in
the best interests of each such corporation that TPC merge with and into EFCC as
set forth in this Plan and Agreement of Merger (hereinafter referred to as the
"Merger"), upon the terms and conditions herein provided.
NOW, THEREFORE, for the purpose of prescribing the terms and conditions
of the Merger, the manner and mode of carrying the same into effect, and such
other details as are deemed necessary or desirable, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
NAMES OF CONSTITUENT CORPORATIONS;
SURVIVING CORPORATION
Section 1.1 Names of Constituent Corporations. The names
of each of the constituent corporations to the Merger are as
follows:
(a) "T.P.C. HOME CARE SERVICES, INC.",
a New York corporation,
<PAGE>
(b) "EXTENDED FAMILY CARE CORPORATION",
a New York corporation.
Hereinafter, TPC and EFCC are sometimes hereinafter referred to
individually as a "Constituent Corporation" and collectively as the "Constituent
Corporations."
Section 1.2 The Surviving Corporation. The name of the surviving
corporation of the Merger is "EXTENDED FAMILY CARE CORPORATION", a New York
corporation (sometimes, hereinafter, the "Surviving Corporation"), which shall
continue to exist as the Surviving Corporation pursuant to the provisions of the
Business Corporation Law of the State of New York (the "New York BCL").
Section 1.3 Filing of Certificate of Incorporation; etc.
-------------------------------------------
(a) The Certificate of Incorporation of EFCC was originally filed
by the Office of the Department of State of the State of New
York on May 10, 1978 under the name of M.A.E. Enterprises,
Inc. The name of the corporation was changed to Cosmetic
Sciences, Inc. by filing a certificate of amendment to the
corporation's Certificate of Incorporation on March 20, 1980.
The name of the corporation was changed for the second and
last time to Extended Family Care Corporation by filing a
certificate of amendment to the corporation's Certificate of
Incorporation on October 1, 1996.
(b) The Certificate of Incorporation of TPC was filed by the
Office of the Department of State of the State of New York on
October 26, 1983.
ARTICLE II
DESIGNATION AND NUMBER OF SHARES
OF CONSTITUENT CORPORATIONS
Section 2.1 Capitalization. As to each Constituent
Corporation, the designation and number of outstanding shares of
each class and series are as follows:
Constituent Corporation Class Number Outstanding
T.P.C. HOME CARE SERVICES, Common Stock,
INC., a New York $.01 par value 1,750,000 Shares
corporation ("TPC Common Stock")
<PAGE>
EFCC FAMILY CARE Common Stock,
CORPORATION, a New York $.01 par value 32,000,226 Shares
corporation ("EFCC Common Stock")
82.92% of the shares of TPC Common Stock are owned by EFCC, and the
balance of the shares of TPC Common Stock are owned by approximately 1,100
shareholders.
Section 2.2 Voting Rights. The Common Stock of each of
the Constituent Corporations is entitled to one vote per share.
The number of outstanding shares of each of the Constituent Corporations shall
not change prior to the Effective Date (hereinafter defined).
ARTICLE III
TERMS AND CONDITIONS OF MERGER OF TPC
WITH AND INTO EFCC
The terms and conditions of the Merger are as follows:
Section 3.1 Merger; Effective Date. (a) Upon the terms and subject to
the conditions herein contained, and in accordance with the provisions of the
New York BCL, TPC shall be merged with and into EFCC as soon as practicable
following the satisfaction of the conditions set forth in Article V hereof, but
not later than the Effective Date (hereafter defined). The Merger shall become
effective upon the filing with the Department of State of the State of New York,
in accordance with the provisions of Section 904 of the New York BCL, of a
Certificate of Merger substantially in the form of Exhibit A attached hereto.
The parties hereto may determine a later time that the Merger may become
effective. The date and time when the Merger shall become effective is sometimes
herein referred to as the "Effective Date".
Section 3.2 Effect of Merger. On the Effective Date, the separate
existence of TPC shall cease and TPC shall be merged with and into EFCC in
accordance with the provisions of this Plan and Agreement of Merger and EFCC
shall survive such Merger and shall continue in existence and shall, without
other transfer, succeed to and possess all the rights, privileges, immunities,
powers and purposes of each of the Constituent Corporations, and all the
property, real and personal, including subscriptions to shares, causes of action
and every other asset of each of the Constituent Corporations shall vest in EFCC
without further act or deed; and EFCC shall assume and be liable for all the
liabilities, obligations and penalties of each of the Constituent Corporations.
No liability or obligation due or to become due, claims or demands for any cause
existing against any of the Constituent Corporations, or any shareholder,
officer or director thereof, shall be released or impaired solely by virtue of
the Merger. No action or proceeding, civil or criminal, then pending by or
against any Constituent Corporation, or any shareholder, officer or director
thereof, shall abate or be discontinued solely by virtue of the
<PAGE>
Merger, but may be enforced prosecuted, settled or compromised as if such Merger
had not occurred, or the Surviving Corporation may be substituted in such action
in place of any Constituent Corporation.
Section 3.3 Exchange and Cancellation of Shares of TPC Common Stock.
(a) On the Effective Date, each issued and outstanding share of TPC Common Stock
shall, automatically, by virtue of the Merger and without any action on the part
of any of the Constituent Corporations or the holders thereof, be transferred to
EFCC and be cancelled and each share of TPC Common Stock shall entitle the
holder thereof to be issued 18.745545 shares of EFCC Common Stock, such shares
of EFCC Common Stock to be issued, subject to Section 3.11, as soon as
practicable after the Effective Date. TPC Common Stock owned by EFCC will be
cancelled as a result of the Merger and no EFCC Common Stock shall be issued to
EFCC in respect thereof. No fractional shares of EFCC Common Stock shall be
issued in the Merger; rather in lieu of any such fractional shares of EFCC
Common Stock, each holder of shares of TPC Common Stock who would otherwise be
entitled to fractional shares of EFCC Common Stock shall, upon surrender of such
shareholder's TPC stock certificate (the "TPC Certificate") be paid an amount
(without interest) equal to such shareholder's proportionate interest in such
fractional shares multiplied by the last quoted bid price of EFCC Common Stock
as supplied by the National Quotation Bureau, Inc. at the Effective Date. The
shares of EFCC Common Stock and cash in lieu of fractional shares issuable
pursuant to the Merger is sometimes hereinafter referred to as the "Merger
Consideration."
Section 3.4 No Impact on Capital Stock of EFCC. Other than with respect
to shares of EFCC Common Stock to be issued pursuant to the Merger, the Merger
shall have no impact whatsoever on the shares of EFCC Common Stock which were
issued and outstanding immediately prior to the Merger, which shares shall
remain issued and outstanding after giving effect to the Merger.
Section 3.5 Abandonment of Merger. If, at any time prior to the
Effective Date, events or circumstances occur which, in the opinion of a
majority of the board of directors of either Constituent Corporation, renders it
inadvisable to consummate the Merger, this Plan and Agreement of Merger shall
not become effective even though previously adopted by the shareholders of the
Constituent Corporations. The filing of the Certificate of Merger referred to in
Paragraph 3.1 above shall conclusively establish that no action to terminate
this Plan and Agreement of Merger has been taken by the board of directors of
either Constituent Corporation.
Section 3.6 Dissenters' Rights. Shares of TPC Common Stock that have
not been voted in favor of the adoption of the Merger and with respect to which
dissenters' rights shall have been validly and properly demanded and perfected
in accordance with the New York BCL ("Dissenting Shares") shall not be converted
into the right to
<PAGE>
receive the Merger Consideration on or after the Effective Date unless and until
the holder of such shares of TPC Common Stock withdraws his demand for such
appraisal in accordance with applicable law or becomes ineligible for such
appraisal, at which time such shares of TPC Common Stock shall be converted into
and represent the right to receive the Merger Consideration. TPC shall give
EFCC: (i) prompt notice of any written demand for appraisal, withdrawals of
demands for appraisal and any other instrument in respect thereof received by
TPC; and (ii) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal. TPC will not voluntarily make any payment with
respect to any demands for appraisal and will not, except with the prior written
consent of EFCC, settle or offer to settle any such demand.
Section 3.7 Exchange of Certificates. As of the Effective Date, EFCC
shall deposit, or shall cause to be deposited, with American Stock Transfer and
Trust Company, or such other bank or trust company which shall be mutually
acceptable to the parties hereto (the "Exchange Agent"), for the benefit of
holders of shares of TPC Common Stock, for exchange in accordance with Section
3.3 through the Exchange Agent: (i) certificates representing the shares of EFCC
Common Stock (the "EFCC Certificates") to be issued pursuant to the Merger; and
(ii) the estimated amount of cash to be paid in lieu of fractional shares (in
each case other than with respect to Dissenting Shares) (together, all such
certificates and cash being hereinafter referred to as the "Exchange Fund"). The
Exchange Agent shall deliver, pursuant to irrevocable instruments, the shares of
EFCC Common Stock and cash in lieu of fractional shares to be issued pursuant to
Section 3.3.
Section 3.8 Instruction to TPC Shareholders. As soon as
-------------------------------
reasonably practicable after the Effective Date, the Exchange Agent
shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Date
represented outstanding shares of TPC Common Stock, whose shares of
TPC Common Stock were converted into the right to receive the
Merger Consideration pursuant to Section 3.3: (i) a letter of
transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the TPC Certificates shall pass, only
upon delivery of the TPC Certificates to the Exchange Agent and
shall be in such form and have such other provisions as EFCC may
reasonably specify); and (ii) instructions for use in effecting the
surrender of TPC Certificates in exchange for the certificates
representing shares of EFCC Common Stock. Upon surrender of a TPC
Certificate for cancellation to the Exchange Agent, or to such
other agent or agents as may be appointed by EFCC, together with
such letter of transmittal, duly executed, and such other documents
as may be reasonably required by the Exchange Agent, the holder of
such TPC Certificate shall be entitled to receive in exchange
therefor the Merger Consideration and the TPC Certificate so
surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of TPC Common Stock which is not registered
on the transfer records of TPC, the Merger Consideration may be
paid to and certificates representing the proper number of shares
<PAGE>
of EFCC Common Stock may be issued to a transferee if the TPC Certificate
representing such TPC Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 3.8, each TPC Certificate shall be
deemed at any time after the Effective Date to represent only the right to
receive upon such surrender the Merger Consideration. The Exchange Agent shall
not be entitled to vote or exercise any rights of ownership with respect to the
EFCC Common Stock held by it from time to time hereunder.
Section 3.9 Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to EFCC Common Stock with a record
date after the Effective Date shall be paid to the holder of any unsurrendered
TPC Certificate with respect to the shares of EFCC Common Stock represented
thereby and no cash payment (including, without limitation, cash payment in lieu
of fractional shares) shall be paid to any such holder pursuant to Section 3.3
until the surrender of such Certificate in accordance with Section 3.8. Subject
to the effect of applicable laws, following surrender of any such TPC
Certificate, there shall be paid to the holder of the share certificate
representing whole shares of EFCC Common Stock issued in exchange therefor,
without interest: (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Date theretofore paid
with respect to such whole shares of EFCC Common Stock; and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Date but prior to such surrender and with a
payment date subsequent to such surrender payable with respect to such whole
shares of EFCC Common Stock.
Section 3.10 No Further Ownership Rights in Common Stock. All shares of
EFCC Common Stock issued, upon the surrender for exchange of TPC Certificates in
accordance with the terms hereof (including any cash paid pursuant to Section
3.3) shall be deemed to have been issued (and/or paid) in full satisfaction of
all rights pertaining to such shares of TPC Common Stock and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of TPC Common Stock which were outstanding immediately
prior to the Effective Date. If, after the Effective Date, TPC Certificates are
presented to the Surviving Corporation or the Exchange Agent for any reason,
they shall be canceled and exchanged as provided in Section 3.3.
Section 3.11 Possible Merger with Star Multi Care Services, Inc.. In
the event that a currently contemplated merger between EFCC and Star Multi Care
Services, Inc., a New York corporation ("Star"), is consummated (hereinafter
referred to as the "Star Merger"), EFCC shareholders and those holders of shares
of TPC Common Stock entitled to receive the Merger Consideration will receive a
combination of Star common stock, par value $.001 per share, and cash, or all
cash, pursuant to the terms of an Agreement
<PAGE>
and Plan of Merger dated as of January 3, 1997 among Star, EFCC and an
acquisition subsidiary of Star, assuming that such persons are shareholders of
record of EFCC on the record date of the Star Merger and do not exercise
dissenters' rights with respect thereto. In such event, the holder of shares of
TPC Common Stock who is entitled to receive the Merger Consideration hereunder
and does not dissent from the Star Merger, as a matter of expediency and not in
alteration or derogation of the rights granted to such holder hereunder, will
not be issued EFCC Certificates in connection with the Merger, but rather will
be deemed to have been issued such EFCC Certificates. Such shareholders will
receive the same consideration payable to an EFCC shareholder in the Star
Merger, in proportion to the number of shares of EFCC Common Stock issuable to
such shareholder as Merger Consideration hereunder, as if such shares EFCC
Certificates had actually been issued.
ARTICLE IV
CERTIFICATE OF INCORPORATION, BY-LAWS,
DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
The Certificate of Incorporation of EFCC and the By-Laws of EFCC as
they exist prior to the Effective Date, shall be and remain the Certificate of
Incorporation and the By-Laws of the Surviving Corporation until the same shall
be altered, amended or repealed as provided therein. The directors and officers
of EFCC shall continue to be the directors and officers of the Surviving
Corporation and shall serve until the expiration of the terms for which they
were elected and until their successors are duly elected and qualified or as
otherwise as provided in the By-Laws of the Surviving Corporation.
ARTICLE V
CONDITIONS PRECEDENT
Anything herein contained notwithstanding, the respective obligations
of each Constituent Corporation to effect the Merger are subject to, and the
Effective Date shall not occur until, all of the following conditions precedent
have been fully satisfied or waived, which satisfaction or waiver may occur
simultaneously on the Effective Date: (i) this Plan and Agreement of Merger
shall have been submitted to the shareholders of each of the Constituent
Corporations for adoption hereof, and shall have been adopted and approved by
the shareholders of each Constituent Corporation in accordance with the
requirements of Section 903 of the New York BCL, and applicable federal proxy
rules; (ii) a registration statement with respect to the shares of EFCC Common
Stock to be issued to TPC shareholders in the Merger shall have been declared
effective and no stop order suspending the effectiveness of the registration
statement shall have been issued by the Securities and Exchange Commission (the
"Commission") or shall be continuing in effect, and no proceedings for that
purpose shall have been initiated or threatened by the Commission; (iii) EFCC
shall have
<PAGE>
received all state securities laws or "blue sky" permits and authorizations
necessary to issue the shares of EFCC Common Stock pursuant to the Merger and
the transactions contemplated thereby; (iv) no governmental authority or other
agency, commission or court of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or the order (whether temporary, preliminary or permanent) which is
in effect and has the effect of making the Merger illegal or otherwise
prohibiting consummation of the transactions contemplated by this Plan and
Agreement of Merger; provided, however, that, prior to invoking this condition,
each party to this Plan and Agreement of Merger shall use all reasonable efforts
to have such statute, rule, regulation, injunction or order vacated; (v) the
receipt of the opinion of Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C.
that, more likely than not, the Merger will constitute a tax-free reorganization
under Section 368(a) of the Internal Revenue Code; and (vi) any consents,
permits, approvals or authorizations required by any third party, including
private parties and governmental or regulatory authorities, in connection with
the transactions contemplated hereby shall have been obtained.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Counterparts. For the convenience of the parties and to
facilitate approval of this Plan and Agreement of Merger, any number of
counterparts hereof may be executed, and each such executed counterpart shall be
deemed to be an original instrument.
Section 6.2 Further Assurances. If at any time after the Effective
Date, the Surviving Corporation shall consider or be advised that any deeds,
assignments or assurances in law or any other things are necessary, desirable or
proper to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, the title to any property or rights of any of the Constituent
Corporations acquired or to be acquired by reason of, or as a result of, the
Merger, the Constituent Corporations agree that the Surviving Corporation and
its proper officers and directors shall and will execute and deliver all such
proper deeds, assignments and assurances in law and do all things necessary,
desirable or proper to vest, perfect or confirm title to such property or rights
in the Surviving Corporation and otherwise to carry out the purposes of this
Plan and Agreement of Merger, and that the proper officers and directors of the
Surviving Corporation are fully authorized in the name of each of the
Constituent Corporations or otherwise to take any and all such action.
Section 6.3 Amendment. Subject to applicable law, this Plan and
Agreement of Merger may be amended, modified or supplemented only by written
agreement signed by each of the parties hereto.
<PAGE>
Section 6.4 Entire Agreement. This Plan and Agreement of Merger,
including the certificates referred to herein, embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein.
Section 6.5 Assignment. This Plan and Agreement of Merger shall be
binding upon and inure to the benefits of the parties hereto and their
respective successors and permitted assigns, but neither this Plan and Agreement
of Merger nor any of the rights, interests or obligations hereunder shall be
assigned by any party hereto without the prior written consent of the other
party hereto, nor is this Plan and Agreement of Merger intended to confer upon
any other person or entity except the parties any rights or remedies hereunder.
Section 6.6 Governing Law. This Plan and Agreement of Merger shall be
governed by and construed in accordance with the internal, substantive laws of
the State of New York, without giving effect to the conflicts of laws principles
thereof.
Section 6.7 Existing Agreements. TPC and the Surviving Corporation
shall insure and guaranty that the provisions with respect to indemnification by
TPC or any of its subsidiaries or affiliates in favor of any present or former
director, officer, employee or agent (and their respective heirs and assigns) of
TPC or any of its subsidiaries or affiliates (the "Indemnified Parties"), as set
forth in their respective charters or bylaws or pursuant to other agreements
(including any insurance policies), shall survive the Merger, shall not be
amended, repealed or modified in any manner as to adversely affect the rights of
such Indemnified Parties and shall continue in full force and effect for a
period of at least six years from the Effective Date. This Section 6.7 shall
survive the closing of any of the transactions contemplated hereby, is intended
to benefit the directors and officers of TPC and affiliates at the Effective
Date and each of the Indemnified Parties (each of which shall be entitled to
enforce
<PAGE>
this Section 6.7 against TPC and the Surviving Corporation, as the case may be,
as a third-party beneficiary of this Plan and Agreement of Merger), and shall be
binding on all successors and assigns of the Surviving Corporation.
IN WITNESS WHEREOF, the undersigned have executed this Plan and
Agreement of Merger on this 18th day of March, 1997.
T.P.C. HOME CARE SERVICES, INC.,
a New York corporation
By: Mary Ann Page
Name: Mary Ann Page
Title:
EXTENDED FAMILY CARE CORPORATION,
a New York corporation
By: Joseph Heller
Name: Joseph Heller
Title: VP
<PAGE>
Exhibit 3.3
AMENDMENT NO.1 TO BY-LAWS
OF
EXTENDED FAMILY CARE CORPORATION
(Formerly M.A.E. ENTERPRISES, INC. and COSMETIC SCIENCES, INC.)
Dated as of October 1, 1996
ARTICLE XII
INDEMNIFICATION
Section 1. Indemnification of Directors and Officers.
Any person made or threatened to be made, a party to an action or
proceeding (other than one by or in the right of the Corporation to procure a
judgment in its favor), whether civil or criminal, including an action by or in
the right of any other corporation of any type or kind, domestic or foreign, or
any partnership, joint venture, trust, employee benefit plan or other enterprise
which any person served in any capacity at the request of the Corporation, by
reason of the fact that he, his testator or intestate is or was a Director or
officer of the Corporation, or served such other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, in any capacity,
shall be indemnified by the Corporation against the judgment, fines, amounts
paid in settlement and reasonable expenses (including attorney's fees) actually
and necessarily incurred by him as a result of such action or proceeding, or any
appeal therein, to the full extent permissible under Section 722, 723 and 725 of
the Business Corporation Law, or any successor statute of the foregoing
sections.
Any person made or threatened to be made, a party to an action by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he, his testator or intestate is or was a Director or officer of the
Corporation, or is serving or was serving at the request of the Corporation as a
director or officer of any other corporation of any type, domestic or foreign,
or any partnership, joint venture, trust, employee benefit plan or other
enterprise, shall be indemnified by the Corporation against amounts paid in
settlement and reasonable expenses (including attorney's fees) actually and
necessarily incurred by him in connection with the defense or settlement of such
action or in connection with any appeal therein, to the full extent permissible
under Sections 722, 723 and 725 of the Business Corporation Law, or any
successor statute of the foregoing sections.
<PAGE>
Section 2. Contract of Indemnification.
The provisions of Section 1. of this Article XII of the By-Laws shall
be deemed a contract between the Corporation and each Director and officer who
serves in such capacity at any time while Section 1. hereof and the relevant
provisions of the Business Corporation Law and other applicable law, if any, are
in effect, and any repeal or modification thereof shall not affect any rights or
obligations then existing with respect to any state of facts then or theretofore
existing or any action or proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts.
Section 3. Nonexclusivity of statutory provisions for
indemnification of Directors and Officers.
The indemnification and advancement of expenses granted pursuant to, or
provided by, this Article and the relevant provisions of the Business
Corporation Law and other applicable law, if any, shall not be deemed exclusive
of any other rights to which a Director or officer seeking indemnification or
advancement of expenses may be entitled by a resolution of shareholders, a
resolution of directors, or an agreement providing for such indemnification,
provided that no indemnification may be made to or on behalf of any director or
officer if a judgment or other final adjudication adverse to the Director or
officer establishes that his acts were committed in bad faith or were the result
of active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
Section 4. Indemnification of other Persons.
The Board, in its discretion, shall have power on behalf of the
Corporation to indemnify any person, other than a Director or officer, made a
party to any action or proceeding by reason of the fact that he, his testator or
intestate, is or was an employee of the Corporation.
<PAGE>
Exhibit 10.18
This STOCK PURCHASE AGREEMENT, dated as of Otober 31, 1996
(this "Agreement"), by and among EXTENDED FAMILY CARE CORPORATION, a New York
corporation, with its principal place of business at One Old Country Road, Carle
Place, New York 11514 (the "Company") and ARBOR HOME HEALTH CARE HOLDING, LLC, a
New York limited liability company, with its principal place of business at 333
Earle Ovington Boulevard, Uniondale, New York 11553 (the "Purchaser").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Amended and Restated Option
Agreement dated October 31, 1995 ("Option Agreement"), the Company (formerly
named Cosmetic Sciences, Inc.) has granted to Purchaser the Second Option, as
defined therein ("Second Option"), which entitles the Purchaser to purchase
6,500,000 shares of the Company's common stock, $.01 par value, as adjusted for
stock splits, stock dividends, capital reorganizations and similar events
("Second Option Shares"); and
WHEREAS, pursuant to the Option Agreement, Purchaser has the right to
compel the Company to enter into a stock purchase agreement pursuant to which
Purchaser may exercise the Second Option and the Company will make various
representations and warranties as specified in the Option Agreement;
NOW, THEREFORE, in reliance upon the representations, warranties and
agreements made herein and in consideration of the premises and mutual promises
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
ARTICLE I
MATTERS RELATING TO THE EXERCISE OF THE SECOND OPTION
Section 1.01. Exercise of the Second Option. Subject to the terms and
provisions hereof, upon the Purchaser's compliance with Section 1.02(i) herein,
which provides for (i) the delivery by Purchaser to the Company of a notice of
exercise of the Second Option and (ii) delivery by Purchaser to the Company the
amount of Six Hundred Fifty Thousand ($650,000.00) Dollars representing the
purchase price of the Second Option Shares ("Purchase Price"), the Company shall
issue to Purchaser the Second Option Shares.
Section 1.02. The Closing. The closing of the exercise of the Second
Option (the "Closing") shall be held at the offices of Meltzer, Lippe,
Goldstein, Wolf & Schlissel, P.C., 190 Willis Avenue, Mineola, New York 11501 or
at such other place or places as the parties may agree upon, at 11:00 o'clock
A.M., New York time, on October 31, 1996 or such other time and date as may be
mutually approved by the parties in writing, but not later than November 1, 1996
(the "Closing Date"). At the Closing, the following shall occur:
<PAGE>
(i) Purchaser will deliver to the Company the Purchase Price,
by certified check or wire transfer in the amount of $650,000, along
with a notice of exercise as required under the Option Agreement, in
the form annexed hereto as Exhibit B.
(ii) If Purchaser has complied with subparagraph 1.02(i), the
Company will issue an Acknowledgement of Exercise of Option, in the
form annexed hereto as Exhibit C, and a stock certificate representing
the Second Option Shares.
Section 1.03. Failure to Timely Close. If, other than through fault of
Purchaser, the Closing does not occur in the time periods provided for above,
then Purchaser may, in its discretion, extend the time period for the Closing to
occur for so long as it may deem appropriate. Such extension shall not be in
derogation of any other rights of Purchaser under this Agreement or the Option
Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser, as of the date
hereof, and as of Closing, as follows:
Section 2.01. Title. The Second Option Shares, when issued and
delivered to Purchaser in accordance with Section 1.01 and Section 1.02 hereof,
shall be duly and validly authorized, issued and outstanding, fully paid and
non-assessable. The Second Option Shares are being sold to Purchaser free and
clear of any and all liens, claims and encumbrances.
Section 2.02. Due Incorporation. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of New York and has full corporate and other power and authority to conduct its
business and own its properties as now conducted and owned. The Company is
qualified as a foreign corporation in all jurisdictions in which the nature of
its properties and business requires such qualification and in which
noncompliance with such qualification would materially affect the business of
the Company.
Section 2.03. Capital Structure. The Company's current capital
structure is as follows: 50,000,000 shares of common stock authorized, of which
25,500,226 shares are outstanding; 10,000,000 shares of Preferred Stock
authorized, none of which are outstanding. Other than the Option Agreement,
there are no agreements to issue any of the Company's securities, including, but
not limited to, subscriptions, warrants, options, convertible securities or the
rights to purchase or otherwise acquire the Company's securities. All issued
securities of the Company are validly issued and fully paid, non-assessable
(subject to the provisions of Section 630 of the Business Corporation Law of the
State of New York), are owned free and clear of any liens, pledges or
encumbrances (except as specifically noted herein), and all
<PAGE>
issued securities have been issued in compliance with all applicable Federal and
state securities laws.
Section 2.04. Power and Authority; No Defaults. The Company has full
power and authority and has taken all required corporate and other action
necessary to permit the Company to execute and deliver this Agreement, and
otherwise to carry out the terms of this Agreement and all other documents,
instruments or transactions required or contemplated by this Agreement. None of
such actions will violate any provision of the Certificate of Incorporation or
By-laws of the Company, or result in the breach of or constitute a default under
any agreement or instrument or court order to which the Company is a party or by
which it is bound or result in the creation or imposition of any material lien,
claim or encumbrance on any asset of the Company. No event has occurred and no
conditions exist which would constitute violations of this Agreement or the
Option Agreement.
Section 2.05. Enforceability. This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally, and except that no representation or
warranty is made as to the availability of the remedy of specific performance or
other equitable remedies. No agreement to which the Company is a party gives any
rights to any person to terminate any agreements with the Company or otherwise
to exercise rights against the Company, as a result of the execution of this
Agreement or the performance of the transactions hereby contemplated.
Section 2.06. Litigation. There are no suits, proceedings or
investigations pending or threatened against or affecting the Company, its
assets or any officer or director of the Company, which has or could have a
material adverse effect on the business, assets or financial condition of the
Company, or which concern in any way the transactions contemplated by this
Agreement.
Section 2.07. Title to Assets. The Company has good and sufficient
title to all of the properties and assets which it currently deems necessary for
the conduct of its business. The Company owns not less than 80% of the
outstanding stock of TPC Home Care Services, Inc., its operating subsidiary
("TPC").
Section 2.08. Permits, Licenses, etc. The Company has all franchises,
permits, licenses, and other rights which it currently deems necessary for the
conduct of its business (including, but not limited to, the license of the New
York State Department of Health to operate TPC as a home care services agency)
and it knows of no basis for the denial of such rights in the future. The
Company is not in violation of any order or decree of any court, or of the
provisions of any contract or agreement to which it is a party or by which it
may be bound, or, to the best of its knowledge, of any
<PAGE>
law, order or regulation of any governmental authority, and neither the
execution of this Agreement nor the transactions contemplated hereby will result
in any such violation.
Section 2.09. Order and Consents. Except for Federal or State
securities law requirements, if any, the Company is not required to obtain any
order, consent, approval or authorization of, or presently required to make any
declaration or filing with, any United States federal, state or local
governmental authority in connection with the execution and delivery of this
Agreement or its performance of the transactions contemplated herein.
Section 2.10. Financial Information. The Company has furnished to
Purchaser the audited Consolidated Balance Sheet of the Company as at December
31, 1995 and 1994 and the related statements of income, shareholders' equity and
cash flows of the Company for the years then ended. The Company has also
furnished to Purchaser its unaudited Balance Sheet as at June 30, 1996, and
related statement of income, stockholder's equity and cash flow for the three
months then ended. All such financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
and fairly present the financial position of the Company, as at the dates and
for the periods to which they relate. Since the date of the Company's Balance
Sheet as at June 30, 1996 (i) there has been no change in the assets,
liabilities or financial condition of the Company from that reflected in said
Balance Sheet except for changes in the ordinary course of business which in the
aggregate have not been materially adverse and (ii) none of the business,
prospects, financial condition, operations, property or affairs of the Company
has been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against.
The Company will be liable to Purchaser for any damages to Purchaser
resulting from breach or inaccuracy of any of the above representations and
warranties.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Purchaser hereby represents and warrants to the Company as follows:
(a) Purchaser is a limited liability company duly organized
and validly subsisting under the laws of the State of New York.
(b) This Agreement and the transactions contemplated hereby
have been duly authorized by Purchaser and the person executing this
Agreement on behalf of Purchaser has all the required power and
authority necessary to permit Purchaser to execute and deliver this
Agreement.
(c) Neither the execution of this Agreement nor the
<PAGE>
performance of the transactions contemplated hereby will violate the
governing operating agreement of Purchaser or result in the breach of
or constitute a default under any agreement or instrument to which
Purchaser is a party or by which it is bound.
(d) Neither Purchaser nor Ivan Kaufman has been engaged in any
of the events described in Item 401(f) of Regulation S- K, as
promulgated under the Securities Exchange Act of 1934, as amended.
(e) Ivan Kaufman owns not less than a 90% interest in
Purchaser.
ARTICLE IV
SURVIVAL OF VARIOUS AGREEMENTS
The Registration Rights and Conditional Put Option Agreement dated
October 31, 1995 between Coss and the Company, the Financial Services Agreement
dated October 31, 1995 between the Company and Arbor Management, LLC and the
Voting Trust Agreement dated June 10, 1996 between Coss, the Purchaser and the
Company shall all remain in full force and effect. The Option Agreement shall
also remain in full force and effect.
<PAGE>
ARTICLE V
FURTHER ASSURANCES
The parties hereto agree that they will cooperate with each other and
will execute and deliver, or cause to be executed and delivered, all such other
instruments and will take all such other actions, as either party hereto may
reasonably request from time to time in order to effectuate the provisions
hereof.
ARTICLE VI
CONDITIONS TO THE PURCHASER'S OBLIGATIONS
The obligations of Purchaser to purchase the Second Option Shares
pursuant to this Agreement shall be subject to the satisfaction of the following
conditions:
Section 6.01. Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true in all
material respects at the execution of this Agreement, and as of the Closing.
Section 6.02. Making of Required Deliveries under Section 1.02(i).
Purchaser shall make the deliveries specified in Section 1.02(i), it being
understood that nothing in this Agreement shall require that such deliveries be
made and the Purchaser will have no liability of any kind if it chooses not to
make such deliveries.
ARTICLE VII
MISCELLANEOUS
Section 7.01. Representations and Warranties. The representations and
warranties made in this Agreement shall survive the execution of this Agreement
and the Closing Date for a period of three years from the date hereof.
Section 7.02. Governing Law. This Agreement shall be construed and
enforced in accordance with the internal, substantive laws of the State of New
York, without giving effect to the conflict of law rules thereof.
Section 7.03. Notices. All notices, consents, requests, instructions,
approvals and other communications provided for herein shall be deemed validly
given, made or served if in writing and delivered personally (as of such
delivery) or sent by certified mail (as of two days after deposit in a United
States post office), postage prepaid:
(a) if to Purchaser, addressed to:
Arbor Home Health Care Holding, LLC
333 Earle Ovington Boulevard
Uniondale, New York 11553
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Attention: Joe Heller
with a copy to:
Meltzer, Lippe, Goldstein,
Wolf & Schlissel, P.C.
190 Willis Avenue
Mineola, New York 11501
Attention: Allan Grauberd, Esq.
(b) if to Company, addressed to:
Cosmetic Sciences, Inc.
333 Earle Ovington Boulevard
Uniondale, New York 11553
Attention: Mary Ann Page
with a copy to:
Richard Lane, Esq.
One Old Country Road
Carle Place, New York 11514
or such other address as shall be furnished in writing by either
party to the other.
Section 7.04 Jurisdiction. Legal proceedings commenced by the
parties arising out of any of the transactions or obligations contemplated by
this Agreement shall be brought exclusively in the state courts of the State of
New York or if properly removed, to the federal courts, in either case in Nassau
County, New York. The parties irrevocably and unconditionally submit to the
jurisdiction of such courts and agree to take any and all future action
necessary to submit to the jurisdiction of such courts. Each of the parties
irrevocably waives any objection which it may now or hereafter have to the
laying of venue of any suit, action or proceeding brought in any federal or
state court in Nassau County, New York and further irrevocably waives any claims
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum.
Section 7.05. Assignment; Amendments, Waivers. Neither the
Company nor the Purchaser shall assign any of its rights or obligations under
this Agreement without the prior written consent of the other, except Purchaser
may assign rights or delegate duties hereunder as long as the majority in
interest of the entity entitled to the rights and subject to the duties under
this Agreement is owned by Ivan Kaufman, subject to Article 36 of the New York
Public Health Law. No provision of this Agreement may be amended, modified or
waived except by written agreement duly
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executed by each of the parties.
Section 7.06. Entire Agreement. This Agreement represents the
entire agreement between the parties related to the exercise of the Second
Option and supersedes and cancels any prior oral or written agreement, letter of
intent or understanding related to that subject matter.
Section 7.07. Binding Agreement. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and, to the extent permitted hereunder, their respective
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement.
Section 7.08. Counterparts. This Agreement may be
executed in one or more counterparts, and shall become effective
when one or more counterparts have been signed by each of the
parties.
IN WITNESS WHEREOF, this Stock Purchase Agreement has been
duly executed by the parties hereto on the day and year first above written.
EXTENDED FAMILY CARE CORPORATION
By:Mary Ann Page
Name:Mary Ann Page
Title:Vice President
ARBOR HOME HEALTH CARE HOLDING, LLC
By:Joseph Heller
Name:Joseph Heller
Title:Vice President
STATE OF NEW YORK)
) ss.:
COUNTY OF NASSAU )
On the 31st day of October, 1996 before me personally came
Joseph Heller, to me known to be the Vice President of ARBOR HOME HEALTH CARE
HOLDING, LLC, in and who executed the foregoing Stock Purchase Agreement, and he
acknowledged to me that he executed the same on behalf of ARBOR HOME HEALTH CARE
HOLDING, LLC.
WALTER HORN
NOTARY PUBLIC
<PAGE>
[NOTARIAL SEAL]
STATE OF NEW YORK)
) ss.:
COUNTY OF NASSAU )
On the 31st day of October, 1996 before me personally came
Mary Ann Page, to me known to be the Vice President of EXTENDED FAMILY CARE
CORPORATION, in and who executed the foregoing Stock Purchase Agreement, and he
acknowledged to me that he executed the same on behalf of EXTENDED FAMILY CARE
CORPORATION.
WALTER HORN
NOTARY PUBLIC
[NOTARIAL SEAL]
<PAGE>
EXHIBIT B
NOTICE OF EXERCISE OF OPTION
All defined terms used herein have the same meaning as specified in the Stock
Purchase Agreement as to which this Notice of Exercise constitutes Exhibit B.
Pursuant to Section 1(f) of the Option Agreement, the undersigned
Purchaser hereby notifies the Company of the exercise of the Second Option.
As provided in Section 8(a) of the Option Agreement, the undersigned
hereby represents to you that the Second Option Shares are being acquired by the
undersigned for investment and not with a view to the distribution thereof.
ARBOR HOME HEALTH CARE HOLDING, LLC
By: Joseph Heller
Vice President
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EXHIBIT C
ACKNOWLEDGMENT OF EXERCISE OF OPTION
All defined terms used herein have the same meaning as specified in the Stock
Purchase Agreement as to which this Acknowledgment
constitutes Exhibit C.
The Company hereby acknowledges the Purchaser's exercise of the Second
Option as in conformity with the requirements specified for such exercise in the
Option Agreement. The Company hereby acknowledges that Purchaser's obligations
specified in Section 1.02(i) have been complied with by Purchaser.
EXTENDED FAMILY CARE CORPORATION
By: Mary Ann Page
<PAGE>
Exhibit 10.19
-------------------------
ASSET SALE AGREEMENT
by and between
TPC HOME CARE SERVICES, INC.,
(the "Seller")
and
PUBLIC SERVICES, INC.,
(the "Buyer")
-------------------------
Dated as of December 5, 1996
Relating to the purchase of certain of
the assets of TPC Home Care
Services, Inc.
<PAGE>
ASSET SALE AGREEMENT
THIS ASSET SALE AGREEMENT (this "Agreement"), dated as of
December 6, 1996, by and between TPC HOME CARE SERVICES, INC., a New York
corporation having an office at One Old Country Road, Suite 335, Carle Place,
New York 11514 (the "Seller"), on the one hand, and PUBLIC SERVICES, INC., a New
York corporation having an office at One Old Country Road, Suite ___, Carle
Place, New York 11514 (the "Buyer"), on the other hand.
W I T N E S S E T H:
WHEREAS, the Seller desires to sell and the Buyer desires to
purchase, certain assets and properties of the Seller, as more fully described
in Section 1.2, and the Buyer desires to assume certain liabilities and
obligations relating to certain of the assets and properties of the Seller, as
more fully described in Section 1.3, all upon the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties, intending
to be legally bound, hereby agree as follows:
ARTICLE I
THE TRANSACTION
1.1 Transaction. The sale by the Seller of certain of its
assets and properties and the acquisition thereof by the Buyer, and the other
transactions contemplated hereby, shall be made on the Closing Date (as defined
in Section 4.1), shall be based on the representations, warranties and
agreements of the Seller and the Buyer herein contained and shall be subject to
the terms and conditions herein stated.
1.2 Transfer of Property, Assets and Business. a. On the
Closing Date, Seller shall sell, convey, transfer, assign and deliver to the
Buyer, and the Buyer shall purchase and accept, all of Seller's right, title and
interest in, to and under the following properties and assets of Seller, as the
same shall exist on the Closing Date (collectively, the "Transferred Assets"):
(1) all tangible assets, properties and equipment, including personal
computers, computer software, furniture, office equipment, supplies, furnishings
and fixtures, owned by Seller (the "Equipment") and physically located at 2780
Kennedy Blvd., 2nd Floor, Jersey City, NJ 70306 (the "Leased Real Property"), as
set forth more particularly on Exhibit 1.2(a)(i) attached hereto;
(2) all of Seller's rights and obligations as lessee, to the extent assignable,
under the Lease Agreement, dated as of July 1, 1995 by and between Nassif S.
Banout and Extended Family Care (the "Lease"), a copy of which is attached
hereto as Exhibit 1.2(a)(ii);
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(3) all of Seller's rights under the accounts receivable specified on Exhibit
1.2(a)(iii) (the "Accounts"). The parties hereby agree that Exhibit 1.2(a)(iii)
shall be updated by Seller within fourteen (14) days of the Closing Date to
reflect Accounts as of December 6, 1996;
(iv) all of Seller's rights and obligations under the contracts specified on
Exhibit 1.2(a)(iv) to the extent assignable (the "Contracts"); and
(v) all correspondence, documentation, agreements and records relating
to the Equipment, the Leased Real Property, the Accounts and the Contracts
(collectively, the "Records").
b. The Transferred Assets being sold by Seller to the Buyer
shall not include any cash, or cash equivalents or accounts receivable or
security deposits owned by the Seller on the Closing Date, or in respect of
services rendered prior to the Closing Date and billed after the Closing Date,
except the Transferred Assets shall include (i) the Accounts and (ii) a $2,600
security deposit paid in connection with the Lease, but no other security
deposits.
1.3 Assumption of Liabilities. (a) On the Closing Date, the
Buyer shall assume, and agree and undertake to pay, perform and discharge as and
when due, and shall indemnify the Seller for, and hold the Seller harmless from
and against, each of the following obligations, responsibilities and liabilities
(all of which are hereinafter referred to collectively as the "Assumed
Liabilities"): (i) all obligations, responsibilities and liabilities arising or
incurred for time periods after the Closing Date relating to or arising out of
or incurred in connection with the Lease and the Contracts; and (ii) all
obligations, responsibilities and liabilities arising out of or incurred in
connection with the obligation to bargain with the United Service Workers of
America for an initial collective bargaining agreement for Seller's Jersey City
location, including, but not limited to, agreeing to pay all retroactive wages
and/or benefits contained or referred to in the most recent draft of the
proposed collective bargaining agreement, a copy of which is attached hereto as
Exhibit 1.3, and agreeing to all other terms contained therein.
(b) On the Closing Date, the Seller and/or the Buyer, as the
case may be, shall execute and deliver the instruments of conveyance and
transfer referred to in Section 1.5.
1.4 Purchase Price. In consideration for the sale, conveyance,
transfer, assignment and delivery of the Transferred Assets by the Seller to the
Buyer and the assumption by the Buyer of the Assumed Liabilities, the Buyer
shall pay to the Seller $175,000 plus the Contingent Consideration (as defined
in subparagraph (ii) below) (collectively, the "Purchase Price"). The Purchase
Price shall be paid by the Buyer to the Seller as follows:
(i) on the Closing Date, by the execution and delivery by the
Buyer to Seller of a promissory note in the amount of $175,000 substantially in
the form of Exhibit 1.3 hereto (the "Buyer's Note");
(ii) Buyer shall also pay Seller additional consideration (the
"Contingent Consideration") in an amount equal to 12% of the gross revenues of
Buyer in excess of $90,000 per month relating to the operations of Buyer as a
home health care agency at the Leased
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Premises in the ordinary course. Such amounts shall be paid for a twenty-four
(24) month period commencing on a date which is the ten (10) month anniversary
of the Closing Date and continuing until the thirty-four (34) month anniversary
of the Closing Date. Such amounts shall be paid monthly, fifteen (15) days in
arrears based on the prior month's gross revenues.
1.5 Instruments of Conveyance and Transfer. In order to
evidence the sale, conveyance, transfer and assignment of the Transferred Assets
as contemplated by Section 1.2, Seller will execute and deliver on the Closing
Date, (i) a bill of sale for the Equipment and Accounts, substantially in the
form of Exhibit 1.51 attached hereto (the "Bill of Sale"); (ii) an assignment
relating to the Lease, substantially in the form of Exhibit 1.52 attached hereto
(the "Assignment and Release"); and (iii) an assignment relating to the
Contracts, substantially in the form of Exhibit 1.53 attached hereto (the
"Assignment of Contracts"). In order to evidence Buyer's assumption of the
Assumed Liabilities, Buyer will execute and deliver on the Closing Date to
Seller an agreement (the "Assumption Agreement") substantially in the form of
Exhibit 1.54 attached hereto.
1.6 Further Assurances. From time to time, pursuant to the
reasonable request of the Buyer, the Seller will execute and deliver such
instruments and documents as the Buyer reasonably may request in order to sell,
convey, transfer and assign to the Buyer, or to perfect or record the Buyer's
interest in or title to, or to enable the Buyer to use, any of the Transferred
Assets, or otherwise to carry out the purposes and intent of this Agreement.
From time to time, pursuant to the request of the Seller, the Buyer will execute
and deliver such instruments and documents as the Seller reasonably may request
to cause the Buyer to assume the Assumed Liabilities or otherwise to carry out
the purposes and intent of this Agreement.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
The Seller represents and warrants to the Buyer as follows:
2.1. Organization. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of New York.
2.2. Authority; Consents. This Agreement has been duly
executed and delivered by the Seller. Seller has the corporate power to own all
of the Transferred Assets. Seller has the corporate power and authority to
execute, deliver and perform this Agreement and all other agreements,
certificates or documents contemplated hereby. On or prior to the Closing Date,
the Seller shall have taken all corporate action required to authorize the
execution and delivery of this Agreement and all other agreements, certificates
and documents contemplated hereby and to authorize the consummation of the
transactions contemplated hereby; provided, however, that no representation is
being made as to whether any of the Contracts or Accounts may be validly
assigned, and the failure of Seller to procure valid consents of any party which
is required to assign any Contract or Account shall not be a breach of
representation or warranty of Seller, nor shall procuring such consent or
consents constitute a condition to Closing for purposes of Article VII hereof;
provided, however, that Seller procuring landlord's consent to an assignment of
the Lease to Buyer shall constitute a condition to Closing for purposes of
Article VII hereof.
2.3. Title. Seller is the owner of all of the Transferred
Assets, free and clear of any lien, restriction or encumbrance.
2.4. Litigation. Except as disclosed in writing by Seller to
the Buyer, there is no claim, action, suit or proceeding pending, and, to the
best of the knowledge of the Seller, there is no investigation pending or
threatened with respect to the Seller on the date hereof before any
governmental, administrative or regulatory agency. The Seller is not aware of
any order or injunction that would restrain or prevent the consummation of the
transactions contemplated by this Agreement.
2.5. Contracts. Attached as Exhibit 2.5 hereto are true and
complete copies of all Contracts which constitute a portion of the Transferred
Assets and all amendments thereto. No default exists on the part of the Seller
thereunder, and to the knowledge of the Seller, no default exists on the part of
any other party under the Contracts.
2.6 Accounts. Attached as Exhibit 1.1(a)(iii) hereto is a true
and complete schedule of the Accounts which constitute a portion of the
Transferred Assets. To Seller's knowledge, all of said Accounts are valid and
binding obligations of the respective obligors under each of such Accounts and
not subject to any set-off or counterclaim.
ARTICLE III
4
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REPRESENTATIONS AND WARRANTIES
OF THE BUYER
The Buyer represents and warrants to the Seller as follows:
3.1 Organization. The Buyer is a New York corporation duly
organized, validly existing and in good standing under the laws of the State of
New York.
3.2 Authority; Consents. The Buyer has the power to own all of
its properties and assets and to carry on its business as now conducted or as
contemplated to be conducted. The Buyer has the power to execute, deliver and
perform this Agreement, the Buyer's Note, the Assumption Agreement and all other
agreements, certificates and documents contemplated hereby. The Buyer has taken
all action required to authorize the execution and delivery of this Agreement,
the Buyer's Note, the Assumption Agreement and all other agreements,
certificates and documents contemplated hereby and to authorize the consummation
of the transactions contemplated hereby, and this Agreement and the Buyer's Note
and the Assumption Agreement have been or prior to the Closing Date will be,
duly executed and delivered by the Buyer. No consent, action, approval or
authorization of, or registration, declaration or filing with, any governmental
department, commission, agency or other instrumentality having jurisdiction over
the Buyer is required to be obtained or made by the Buyer to authorize the
execution and delivery by the Buyer of this Agreement or the performance by the
Buyer of its terms, except for those items specified on Exhibit 3.2.
3.3 Litigation. There is no claim, action, suit or proceeding
pending, and, to the best of the Buyer's knowledge, there is no investigation
pending or threatened, with respect to the Buyer or any of its shareholders
before any governmental, administrative or regulatory agency. The Buyer is not
aware of any order or injunction that would restrain or prevent the consummation
of the transactions contemplated by this Agreement.
3.4 Buyer's Examination. The Seller has provided the Buyer
with such access to the records, books, documents, facilities and personnel of
the Seller as the Buyer has deemed necessary and appropriate in order for the
Buyer to investigate and examine to its satisfaction the business, affairs and
properties of the Seller sufficient to make an informed decision to purchase the
Transferred Assets, to enter into this Agreement and to consummate the
transactions contemplated hereby. The Buyer is capable of evaluating the merits
and risks of the purchase of the Transferred Assets and the other transactions
contemplated hereby.
3.5 Working Capital. On or prior to the Closing Date, Buyer
will have on hand not less than $25,000 in available working capital.
ARTICLE IV
CLOSING
4.1 Closing. The closing of the transactions contemplated
hereby (the "Closing") shall be held at the offices of Meltzer, Lippe,
Goldstein, Wolf & Schlissel, P.C., 190 Willis
5
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Avenue, Mineola, New York 11501 or at such other place as the parties may agree
upon, at 10:00 o'clock A.M., New York time, on December 6, 1996 or, subject to
Article VI hereof, such other time and date as the parties may agree upon. If
the Closing does not occur by December 31, 1996, this Agreement will be
terminated forthwith and the parties hereto will have no further obligations to
each other, other than as provided in Article VI hereof. The time and date of
the Closing is called the "Closing Date."
ARTICLE V
ADDITIONAL COVENANTS OF THE PARTIES
5.1 Cooperation. The parties will use all reasonable efforts
to obtain all consents of other parties required to sell, convey, transfer or
assign to the Buyer, or to provide the Buyer with the benefits of, all
agreements and leases included in the Transferred Assets; provided that no party
shall be required to expend funds to procure any such consents.
5.2 Best Efforts. Each of the Seller and the Buyer shall use
its respective best efforts to cause all of the conditions to the obligations of
the other to consummate the transactions contemplated hereby which requires
action by it to be met as soon as practicable after the date of this Agreement.
5.3 Confidentiality. The Buyer will maintain the
confidentiality of all patient
records and files included in the Transferred Assets.
5.4 Non-Competition. Buyer agrees, for a period of two years
after the Closing Date, that it will not, directly or indirectly (i) hire or
solicit for hire, as employee, consultant or independent contractor, any person
who worked in any capacity for Seller (other than in its Jersey City branch) for
at least one hundred (100) hours in the nine (9) month period ended September
30, 1996; or (ii) do business as a home health care agency beyond the radius of
fifty (50) miles of Jersey City, New Jersey. For purposes of the proceeding
sentence, "doing business" shall include the soliciting of clients or agencies
which act as providers of clients, and/or the furnishing of home health care
services. The parties agree that a violation of the provisions of this Section
5.4 may cause irreparable harm to Seller which may not be adequately redressed
by monetary damages; as such, Buyer and Seller agree that the provisions hereof
will be specifically enforceable by Seller in any court having jurisdiction over
Buyer and/or its properties.
ARTICLE VI
TERMINATION
6.1 Termination by Parties. Subject to Section 6.2(b), this
Agreement may be terminated and the transactions contemplated hereby abandoned
at any time before the Closing Date as follows:
a. by the mutual written consent of each of the Seller and the Buyer;
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b. by the Buyer, if there has been a material misrepresentation in this
Agreement by the Seller that has not been corrected by the Seller prior to the
Closing, or a material breach by the Seller of any of its warranties or
covenants set forth herein;
c. by the Seller, if there has been a material
misrepresentation in this Agreement by the Buyer that has not been
corrected by the Buyer prior to the Closing, or a material breach by
the Buyer of any of its warranties or covenants set forth herein.
6.2 Obligations Upon Termination; Cure, etc.
(a) If this Agreement shall be terminated pursuant to Section
6.1(a), neither party shall have any further obligation to the other.
(b) If the Seller or the Buyer shall have the right to
terminate this Agreement pursuant to Section 6.1(b) or (c), then the party which
does not have the right so to terminate this Agreement will use its best efforts
to promptly cure the condition giving rise to such right. If such party is
unable to cure the condition giving rise to such right, the other party may
exercise its right under Section 6.1(b) or 6.1(c), as the case may be, to
terminate the Agreement or may waive such right and proceed to consummate the
transactions contemplated hereby. If such right to terminate is exercised,
neither party shall have any further obligation to the other, provided, however,
that if such termination shall result from the failure of any party to fulfill a
condition to the performance of the other party or to perform a covenant or
agreement in this Agreement or from a breach of any of its representations or
warranties, such party shall be fully liable for any and all damages sustained
or incurred by the other party.
ARTICLE VII
CONDITIONS PRECEDENT TO
BUYER'S OBLIGATIONS
The obligations of the Buyer to purchase the Transferred
Assets, to assume the Assumed Liabilities and otherwise to consummate the
transactions contemplated by this Agreement shall be subject to the
satisfaction, at or before the Closing Date, of the following conditions (any of
which may be waived in writing, in whole or in part, by the Buyer):
7.1 Representations and Warranties True and Correct. The
representations and warranties of the Seller contained in this Agreement shall
be true and correct in all material respects on the Closing Date as if made on
and as of the Closing Date. The Seller shall have duly performed and complied
with all material agreements and conditions required by this Agreement to be
performed or complied with by the Seller at or before the Closing Date.
7.2 Closing Documents. The Seller shall have furnished the
Buyer with the following documents:
(a) the certificate of incorporation of Seller, duly certified by the
Secretary of
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Seller;
(b) a certificate of good standing and status, dated as of a
recent date, executed by an appropriate official of the State of New York with
respect to the Seller; and
(c) certificates of the Secretary of Seller certifying (i)
that attached thereto is a true and complete copy of all resolutions of its
board of directors pertaining to the transactions contemplated by this
Agreement, and (ii) as to the incumbency and authority of the officers or
representatives executing this Agreement and the other documents and agreements
executed in connection herewith.
7.3 Instruments of Transfer; Assignments of Contracts. The
Bill of Sale, the Assignment and Release, the Assignment of Contracts and the
Assumption Agreement shall have been duly executed by Seller and delivered to
the Buyer.
7.4 Consent as to Lease. The landlord under the Lease shall
have consented in writing to the assignment of the Lease to Buyer.
7.5 Regulatory/Health Approvals. The Buyer shall have received
the consents, authorizations and approvals specified in Exhibit 3.2.
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ARTICLE VIII
CONDITIONS PRECEDENT TO
SELLER'S OBLIGATIONS
The obligations of the Seller to sell, convey, transfer,
assign and deliver the Transferred Assets and otherwise to consummate the
transactions contemplated by this Agreement shall be subject to the
satisfaction, at or before the Closing Date, of the following conditions (any of
which may be waived in writing, in whole or in part, by the Seller):
8.1 Representations and Warranties True and Correct. The
representations and warranties of the Buyer contained in this Agreement or in
any certificate or document delivered to the Seller pursuant hereto shall be
true in all material respects on the Closing Date as if made on and as of the
Closing Date. The Buyer shall have duly performed and complied with all material
agreements and conditions required by this Agreement to be performed or complied
with by the Buyer at or before the Closing Date.
8.2 Closing Documents. The Buyer shall have furnished the
Seller with the following documents:
(a) its certificate of incorporation and all amendments
thereto, duly certified by its Secretary;
(b) a certificate, dated as of a recent date, executed by an
appropriate official of the State of New York, as to the good standing of the
Buyer in such jurisdiction;
(c) a certificate of the Secretary of the Buyer certifying (i)
that attached thereto is a true and complete copy of all resolutions of its
board of directors pertaining to the transactions contemplated by this
Agreement, and (ii) as to the incumbency and authority of the officers executing
this Agreement and the other documents and agreements executed in connection
herewith;
(d) a written consent of landlord under the Lease to the
release of Seller from its obligations under the Lease and permitting assignment
to the Buyer; and
(e) such other documents as the Seller may reasonably request.
8.3 Payment of Purchase Price. The Buyer shall have paid to
the Seller the Purchase Price in the manner provided in Section 1.4 and shall
have delivered the Buyer's Note to Seller.
8.4 Agreements, etc. (a) The Buyer shall have duly authorized,
executed and delivered the Assignment and Release, the Assignment of Contracts,
the Assumption Agreement and such other instruments as shall be necessary for
the Buyer to assume the Assumed Liabilities and perform its obligations
hereunder or in connection herewith. The Seller shall have obtained the consent
of the landlord to assign the Lease to Buyer and release Seller from its
obligations thereunder.
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8.5 Working Capital. Buyer shall have on hand $25,000
in available working ---------------
capital.
ARTICLE IX
DISCLAIMER OF WARRANTY; INDEMNIFICATION
9.1 Assets Transferred "As Is, Where Is". BUYER ACKNOWLEDGES
AND AGREES THAT ALL ASSETS BEING TRANSFERRED HEREUNDER ARE BEING TRANSFERRED ON
AN "AS IS, WHERE IS" BASIS, AND THAT EXCEPT AS EXPRESSLY SET FORTH IN ARTICLE 2,
SELLER IS MAKING NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESSED OR
IMPLIED, RESPECTING THE TRANSFERRED ASSETS, AS TO MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR ANY OTHER MATTER. Buyer acknowledges that Buyer is fully
familiar with the Transferred Assets and agrees that Seller is making no
representations or warranties with respect to the Transferred Assets, except as
set forth in Article 2.
9.1 Indemnification. (a) The Seller shall indemnify and hold
harmless the Buyer, its officers, directors and shareholders from and against
all damages, losses, liabilities, costs and expenses resulting from any
obligations, claims or demands incurred by them which arise out of the conduct
of Seller's business prior to the Closing Date.
(b) The Buyer shall indemnify and hold harmless the Seller,
their officers, directors, partners and shareholders from and against all
damages, losses, liabilities, costs and expenses resulting from any obligations,
claims or demands incurred by them which arise out of the conduct of the Buyer's
business after the Closing Date, or result from a breach by Buyer of any
agreement or covenant set forth herein, including, but not limited to, Buyer's
covenants with respect to the Assumed Liabilities.
ARTICLE X
MISCELLANEOUS
10.1 Non-Survival. None of the representations and warranties
made in this Agreement or in any Schedule, Exhibit, certificate or document
delivered pursuant hereto shall survive after the Closing Date. The covenants
herein shall survive the Closing in accordance with their terms.
10.2 Brokerage. The Buyer and the Seller represent and warrant
that there is no claim for brokerage commissions or finder's fees in connection
with the transactions contemplated hereby resulting from any action taken by it
or its officers and directors.
10.3 Governing Law. This Agreement shall be construed and
enforced in accordance with the internal, substantive laws of the State of New
York without giving effect to the conflict of law principles thereof.
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10.4 Notices. All notices, consents, requests, instructions,
approvals and other communications provided for herein shall be validly given,
made or served if in writing and delivered personally or sent by registered or
certified mail, return receipt requested, postage prepaid, or by nationally
recognized overnight courier:
(a) if to the Seller, addressed to the Seller at:
TPC Home Care Services, Inc.
One Old Country Road
Suite 335
Carle Place, New York 11514
with copies to:
Meltzer, Lippe, Goldstein, Wolf & Schlissel, P.C.
190 Willis Avenue
Mineola, New York 11501
Attention: Richard A. Lippe, Esq.
(b) if to the Buyer, addressed to the Buyer at:
Public Services, Inc.
One Old Country Road
Suite ___
Carle Place, New York 11514
with copies to:
Richard Lane, Esq.
One Old Country Road
Suite 430
Carle Place, New York 11514
or such other address as shall be furnished in writing by either party to the
other parties.
10.5 Expenses. Except as otherwise provided herein, each party
shall pay its own expenses in connection with the preparation and performance of
the terms of this Agreement and the transactions contemplated hereby, including
all fees and expenses of its counsel and accountants.
10.6 Sales and Transfer Taxes. All sales and transfer taxes
(including taxes, if any, imposed upon the transfer of Transferred Assets),
filing, recording and registration fees payable in connection with the
transactions contemplated hereby shall be paid by the Buyer.
10.7 Rent, Utilities and Other Charges. All rent, insurance,
fees, fuel, utilities, telephone and other like charges real and personal
property taxes with respect to the Transferred Assets shall be apportioned
between the Buyer and the Seller as of the Closing Date on the basis of the
fiscal (or lien) period for which such charges, deposits and taxes are
11
<PAGE>
attributable.
10.8 Assignment; Amendments; Waivers.
(a) Neither the Buyer nor the Seller shall assign any of its
rights or obligations under this Agreement without the prior written consent of
the other parties.
(b) This Agreement shall be binding upon and shall inure to
the benefit of the parties and their respective successors and permitted
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement.
(c) No provision of this Agreement may be amended, modified or
waived except by written agreement duly executed by each of the parties.
10.9 Jurisdiction; Consent to Service. Legal proceedings
commenced by the Seller, on the one hand, or the Buyer, on the other hand,
against the other arising out of any of the transactions contemplated hereby
shall be brought exclusively in the Federal court sitting in the Eastern
District of New York or in the appropriate New York State court in Nassau
County, New York. Each of the Seller and the Buyer irrevocably and
unconditionally submits to the jurisdiction of such courts and agrees to take
all future actions necessary to submit to the jurisdiction thereof. Each of the
Seller and the Buyer irrevocably waives any objection which it may have to the
laying of venue of any suit, action or proceeding brought in such courts in
Nassau County, New York and further irrevocably waives any claim that any such
suit, action or proceeding brought in such courts has been brought in an
inconvenient forum.
10.10 Headings. The Section headings hereof are provided for
convenience of reference only and do not constitute a part of this Agreement.
10.11 Entire Agreement. The Exhibits and Schedules referred to
herein constitute a part of this Agreement as if set forth herein in full. This
Agreement constitutes the entire agreement between the parties hereto and
cancels and supersedes all prior oral and written agreements, letters of intent,
and understandings relating to the subject matter hereof.
10.12 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Asset Sale Agreement has been duly
executed by the parties hereto as of the day and year first above written.
TPC HOME CARE SERVICES, INC., Seller
By Joseph Heller
Name: Joseph Heller
Title: VP
12
<PAGE>
PUBLIC SERVICES, INC., Buyer
By: Gary Melius
Name: Gary Melius
Title: President
13
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NASSAU )
On this, the 10th day of December, 1996, before me, a Notary
Public in and for Said County and State, personally appeared Joseph Heller of
TPC HOME CARE SERVICES, INC., a New York corporation, and that such officer,
being duly authorized to do so, executed the foregoing instrument for the
purposes therein contained by signing and attesting his name on behalf of said
corporation.
Blanche S. Berkowitz
Notary Public
[NOTARY]
STATE OF NEW YORK )
) ss.:
COUNTY OF NASSAU )
On this, the 10th day of December, 1996, before me, a Notary
Public in and for Said County and State, personally appeared Gary Melius of
PUBLIC SERVICES, INC., a New York corporation, and that such officer, being duly
authorized to do so, executed the foregoing instrument for the purposes therein
contained by signing and attesting his name on behalf of said corporation.
Blanche S. Berkowitz
Notary Public
[NOTARY]
14
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE COMPANY
T.P.C. HOME CARE SERVICES, INC.- New York
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,066,193
<SECURITIES> 0
<RECEIVABLES> 1,166,277
<ALLOWANCES> 100,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,628,655
<PP&E> 233,644
<DEPRECIATION> 189,087
<TOTAL-ASSETS> 3,571,862
<CURRENT-LIABILITIES> 1,101,152
<BONDS> 0
0
0
<COMMON> 320,002
<OTHER-SE> 1,763,348
<TOTAL-LIABILITY-AND-EQUITY> 3,571,862
<SALES> 8,929,330
<TOTAL-REVENUES> 8,929,330
<CGS> 5,643,554
<TOTAL-COSTS> 5,643,554
<OTHER-EXPENSES> 3,192,769
<LOSS-PROVISION> 25,000
<INTEREST-EXPENSE> (5,548)
<INCOME-PRETAX> 73,555
<INCOME-TAX> 55,000
<INCOME-CONTINUING> 18,914
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,914
<EPS-PRIMARY> .001
<EPS-DILUTED> .001
</TABLE>
