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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 13E-3/A
(AMENDMENT NO. 2)
RULE 13E-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
STAFF BUILDERS, INC.
(Name of Issuer)
STAFF BUILDERS, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
852377 10 0
(CUSIP Number of Class of Securities)
Mr. Stephen Savitsky
Chairman of the Board, President and Chief Executive Officer
Staff Builders, Inc.
1983 Marcus Avenue
Lake Success, New York 11042-7011
(516) 358-1000
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of Person(s) Filing Statement)
Copies to:
Floyd I. Wittlin, Esq.
Richards & O'Neil, LLP
885 Third Avenue
New York, New York 10022-4802
This statement is filed in connection with (check the appropriate box):
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a. /X/ The filing of solicitation materials or an information statement subject to
Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities Exchange Act
of 1934.
b. / / The filing of a registration statement under the Securities Act of 1933.
c. / / A tender offer.
d. / / None of the above.
</TABLE>
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. / /
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INTRODUCTION
This Schedule 13E-3 relates to a recapitalization (the "Recapitalization")
of Staff Builders, Inc., a Delaware corporation (the "Company"), pursuant to a
Plan of Recapitalization, dated as of May 12, 1995 (the "Plan of
Recapitalization"), adopted by the Board of Directors of the Company. Under the
Plan of Recapitalization, (i) Article FOURTH of the Restated Certificate of
Incorporation of the Company would be amended to eliminate the Company's
currently authorized 50,000,000 shares of Common Stock, par value $.01 per share
(which are subject to a time phased voting rights plan pursuant to which
outstanding shares are entitled to either one vote per share or ten votes per
share, depending on how long they have been owned by the same beneficial owner),
and to authorize for issuance 50,000,000 shares of Class A Common Stock, par
value $.01 per share, and 1,450,000 shares of Class B Common Stock, par value
$.01 per share, subject in the case of the Class B Common Stock to adjustment,
and (ii) each outstanding share of Common Stock which is entitled to ten votes
per share as of both the record date for the Company's 1995 Annual Meeting of
Stockholders and the effective date of the Recapitalization (assuming for these
purposes only that the effective date of the Recapitalization is a record date
for a meeting of the Company's stockholders) would be reclassified, changed and
converted automatically into one share of Class B Common Stock and each other
share of outstanding Common Stock would be reclassified, changed and converted
automatically into one share of Class A Common Stock.
This Schedule 13E-3 is being filed by the Company. By filing this Schedule
13E-3, the Company does not concede that Rule 13e-3 under the Securities
Exchange Act of 1934 is applicable to the Recapitalization or any other
transaction contemplated by the Plan of Recapitalization.
The information set forth in the Proxy Statement filed concurrently herewith
by the Company with the Securities and Exchange Commission in connection with
the Recapitalization, including the Plan of Recapitalization and other exhibits
thereto, is incorporated in its entirety herein by reference. The following is a
summary cross-reference sheet, included pursuant to General Instruction F of
Schedule 13E-3, showing the location in the Proxy Statement of the information
required to be included in response to the items of Schedule 13E-3.
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SCHEDULE CAPTION OR LOCATION
13E-3 ITEM IN THE PROXY STATEMENT
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Item 1: Issuer and Class of Security
Subject to the Transaction.
(a) Cover Page; SOLICITATION OF PROXIES
(b) SOLICITATION OF PROXIES; RECORD DATE, OUTSTANDING VOTING
SECURITIES, VOTING RIGHTS AND VOTE REQUIRED
(c) MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(d) MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(e) Not applicable.
(f) RECORD DATE, OUTSTANDING VOTING SECURITIES, VOTING RIGHTS AND
VOTE REQUIRED
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SCHEDULE CAPTION OR LOCATION
13E-3 ITEM IN THE PROXY STATEMENT
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Item 2: Identity and Background. This schedule 13E-3 is being filed by the Company, the issuer of
the class of equity securities which is the subject of the Rule
13e-3 transaction.
(a)-(d) PROPOSAL 2 -- ELECTION OF DIRECTORS
(e)-(f) None of the persons with respect to whom information is provided
in response to this Item was, during the last five years,
convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or a party to a civil
proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such civil proceeding was or is
subject to a judgment, decree or final order enjoining further
violations of, or prohibiting activities subject to, Federal or
State securities laws or finding any violation of such laws.
(g) PROPOSAL 2 -- ELECTION OF DIRECTORS
Item 3: Past Contacts, Transactions or
Negotiations.
(a) Not applicable.
(b) Not applicable.
Item 4: Terms of the Transaction.
(a) PROPOSAL 1 -- PLAN OF RECAPITALIZATION
(b) PROPOSAL 1 -- PLAN OF RECAPITALIZATION -- SPECIAL FACTORS --
Effects of Recapitalization on Existing Stockholders
Item 5: Plans or Proposals of the Issuer or
Affiliate.
(a) PROPOSAL 1 -- PLAN OF RECAPITALIZATION
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) PROPOSAL 1 -- PLAN OF RECAPITALIZATION -- SPECIAL FACTORS --
Effects of Recapitalization on Existing Stockholders
(g) Not applicable.
Item 6: Source and Amount of Funds or Other
Consideration.
(a) PROPOSAL 1 -- PLAN OF RECAPITALIZATION -- THE RECAPITALIZATION;
GENERAL
(b) GENERAL
(c) Not applicable.
(d) Not applicable.
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2
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<CAPTION>
SCHEDULE CAPTION OR LOCATION
13E-3 ITEM IN THE PROXY STATEMENT
----------------------------------------------- ----------------------------------------------------------------
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Item 7: Purpose(s), Alternatives, Reasons
and Effects.
(a) PROPOSAL 1 -- PLAN OF RECAPITALIZATION -- SPECIAL FACTORS --
Reasons for the Recapitalization
(b) PROPOSAL 1 -- PLAN OF RECAPITALIZATION -- SPECIAL FACTORS --
Alternatives Considered
(c) PROPOSAL 1 -- PLAN OF RECAPITALIZATION -- THE RECAPITALIZATION,
-- INTEREST OF CERTAIN PERSONS IN THE CAPITALIZATION, --
SPECIAL FACTORS -- Reasons for the Recapitalization
(d) PROPOSAL 1 -- PLAN OF RECAPITALIZATION -- SPECIAL FACTORS --
Reasons for the Recapitalization, -- Effects of
Recapitalization on Existing Stockholders, -- Federal Income
Tax Consequences of Recapitalization
Item 8: Fairness of the Transaction.
(a) PROPOSAL 1 -- PLAN OF RECAPITALIZATION -- SPECIAL FACTORS --
Effects of Recapitalization on Existing Stockholders
(b) PROPOSAL 1 -- PLAN OF RECAPITALIZATION -- SPECIAL FACTORS --
Reasons for the Recapitalization, -- Effects of
Recapitalization on Existing Stockholders
(c) PROPOSAL 1 -- PLAN OF RECAPITALIZATION -- VOTE REQUIRED
(d) PROPOSAL 1 -- PLAN OF RECAPITALIZATION -- SPECIAL FACTORS --
Effects of Recapitalization on Existing Stockholders
(e) PROPOSAL 1 -- PLAN OF RECAPITALIZATION -- SPECIAL FACTORS --
Effects of Recapitalization on Existing Stockholders
(f) Not applicable.
Item 9: Reports, Opinions, Appraisals and
Certain Negotiations.
(a) PROPOSAL 1 -- PLAN OF RECAPITALIZATION -- SPECIAL FACTORS --
Effects of Recapitalization on Existing Stockholders
(b) Not applicable.
(c) Not applicable.
Item 10: Interest in Securities of the
Issuer.
(a) OWNERSHIP OF SECURITIES BY CERTAIN BENEFICIAL OWNERS, DIRECTORS
AND OFFICERS
(b) RECENT ACQUISITIONS OF COMMON STOCK BY THE COMPANY AND ITS
AFFILIATES
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3
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SCHEDULE CAPTION OR LOCATION
13E-3 ITEM IN THE PROXY STATEMENT
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Item 11: Contracts, Arrangements or Not applicable.
Understandings with Respect to the
Issuer's Securities.
Item 12: Present Intention and
Recommendation of Certain Persons
with Regard to the Transaction.
(a) RECORD DATE, OUTSTANDING VOTING SECURITIES, VOTING RIGHTS AND
VOTE REQUIRED
(b) RECORD DATE, OUTSTANDING VOTING SECURITIES, VOTING RIGHTS AND
VOTE REQUIRED
Item 13: Other Provisions of the
Transaction.
(a) RECORD DATE, OUTSTANDING VOTING SECURITIES, VOTING RIGHTS AND
VOTE REQUIRED
(b) Not applicable.
(c) Not applicable.
Item 14: Financial Information.
(a) PROPOSAL 1 -- PLAN OF RECAPITALIZATION -- FINANCIAL STATEMENTS
AND OTHER INFORMATION; Exhibit B to the Proxy Statement;
Exhibit C to the Proxy Statement; Exhibit D to the Proxy
Statement
(b) Not applicable.
Item 15: Persons or Assets Employed,
Retained or Utilized.
(a) GENERAL
(b) GENERAL
Item 16: Additional Information. None.
Item 17: Material to be Filed as Exhibits.
(a)-(c) Not applicable.
(d)(1) Notice of Annual Meeting of Stockholders, Proxy Statement and
Proxy for the Company's Annual Meeting of Stockholders to be
held on October 26, 1995.
(e)-(f) Not applicable.
</TABLE>
4
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SIGNATURE
After due inquiry, and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
STAFF BUILDERS, INC.
By: /s/ STEPHEN SAVITSKY
_____________________________________
Stephen Savitsky
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Dated: September 1, 1995
5
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INDEX TO EXHIBITS
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<CAPTION>
EXHIBIT NO. DESCRIPTION
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<C> <S>
(d)(1) Notice of Annual Meeting of Stockholders, Proxy Statement and Proxy for
the Company's Annual Meeting of Stockholders to be held on October 26,
1995.
</TABLE>
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
STAFF BUILDERS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
STAFF BUILDERS, INC.
1983 MARCUS AVENUE
LAKE SUCCESS, NEW YORK 11042
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Staff
Builders, Inc., a Delaware corporation (the "Company"), will be held at 1983
Marcus Avenue, Lake Success, New York, on October 26, 1995, at 10:00 A.M. (New
York Time) for the following purposes:
1) To consider and vote upon a plan of recapitalization by which (i)
Article FOURTH of the Restated Certificate of Incorporation of the Company
would be amended to eliminate the Company's currently authorized 50,000,000
shares of common stock, $.01 par value per share (which are subject to a
time phased voting rights plan pursuant to which outstanding shares are
entitled to either one vote per share or ten votes per share, depending on
how long they have been owned by the same beneficial owner), and to
authorize for issuance 50,000,000 shares of Class A Common Stock, $.01 par
value per share, and 1,450,000 shares of Class B Common Stock, $.01 par
value per share, subject in the case of the Class B Common Stock to
adjustment, and (ii) each outstanding share of common stock which is
entitled to ten votes per share as of both the record date of the Annual
Meeting and the effective date of the recapitalization (assuming for these
purposes only that the effective date of the recapitalization is a record
date for a meeting of the Company's stockholders) would be reclassified,
changed and converted automatically into one share of Class B Common Stock
and each other share of outstanding common stock would be reclassified,
changed and converted automatically into one share of Class A Common Stock;
2) To elect two Class B Directors, with each such Class B Director to
serve for a three-year term and until his successor is elected and
qualified; and
3) To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on August 28, 1995, are
entitled to notice of and to vote at the meeting.
By Order of the Board of Directors,
DAVID SAVITSKY
SECRETARY
September 1, 1995
IMPORTANT: Whether or not you plan to attend the meeting in person, it is
important that your shares be represented and voted at the meeting.
Accordingly, after reading the enclosed Proxy Statement, you are
urged to SIGN, DATE and RETURN the enclosed proxy in the envelope
provided which requires no postage if mailed in the United States.
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TABLE OF CONTENTS
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PAGE
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SOLICITATION OF PROXIES.............................................................. 1
RECORD DATE, OUTSTANDING VOTING SECURITIES, VOTING RIGHTS AND VOTE REQUIRED.......... 2
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS.............................. 5
RECENT ACQUISITIONS OF COMMON STOCK BY THE COMPANY AND ITS AFFILIATES................ 5
PROPOSAL 1 -- PLAN OF RECAPITALIZATION............................................... 6
THE COMPANY'S EXISTING COMMON STOCK................................................ 6
THE RECAPITALIZATION............................................................... 6
SPECIAL FACTORS.................................................................... 7
Reasons for the Recapitalization................................................. 7
Alternatives Considered.......................................................... 10
Effects of Recapitalization on Existing Stockholders............................. 11
Federal Income Tax Consequences of Recapitalization.............................. 12
INTERESTS OF CERTAIN PERSONS IN THE RECAPITALIZATION............................... 12
FINANCIAL STATEMENTS AND OTHER INFORMATION......................................... 13
SURRENDER AND EXCHANGE OF STOCK CERTIFICATES....................................... 14
VOTE REQUIRED...................................................................... 16
OWNERSHIP OF SECURITIES BY CERTAIN BENEFICIAL OWNERS, DIRECTORS AND OFFICERS......... 16
PROPOSAL 2 -- ELECTION OF CLASS B DIRECTORS.......................................... 19
OPERATION OF THE BOARD OF DIRECTORS.................................................. 21
COMMITTEES OF THE BOARD.............................................................. 22
COMPLIANCE WITH SECTION 16(a) OF SECURITIES EXCHANGE ACT OF 1934..................... 22
EXECUTIVE COMPENSATION AND OTHER INFORMATION......................................... 23
SUMMARY COMPENSATION TABLE......................................................... 23
OPTION GRANTS TABLE................................................................ 24
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE................. 25
EMPLOYMENT AGREEMENTS.............................................................. 25
</TABLE>
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PAGE
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COMPENSATION AND STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION........... 27
General.......................................................................... 27
Compensation Philosophy.......................................................... 27
Salaries......................................................................... 28
Annual Bonuses and Incentive Compensation........................................ 28
Stock Option Plans............................................................... 29
Compensation of Chief Executive Officer.......................................... 29
PERFORMANCE GRAPH.................................................................. 30
CERTAIN TRANSACTIONS................................................................. 32
STOCKHOLDER PROPOSALS................................................................ 34
SELECTION OF INDEPENDENT ACCOUNTANTS................................................. 34
INCORPORATION BY REFERENCE........................................................... 34
GENERAL.............................................................................. 35
EXHIBITS
EXHIBIT A -- Plan of Recapitalization
EXHIBIT B -- The Company's audited consolidated financial statements for the fiscal
year ended February 28, 1995.
EXHIBIT C -- The Company's pro forma financial information for the fiscal year ended
February 28, 1995.
EXHIBIT D -- The Company's unaudited condensed consolidated financial statements for
the three months ended May 31, 1995.
</TABLE>
ii
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STAFF BUILDERS, INC.
1983 MARCUS AVENUE
LAKE SUCCESS, NEW YORK 11042
------------------------
PROXY STATEMENT
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
This Proxy Statement is being mailed to stockholders in connection with the
solicitation of proxies by the Company's Board of Directors for use at the
Annual Meeting of Stockholders of the Company to be held on October 26, 1995,
and any adjournment thereof. A copy of the notice of meeting accompanies this
Proxy Statement. The first date on which this Proxy Statement and accompanying
proxy are being sent to stockholders is on or about September 6, 1995.
SOLICITATION OF PROXIES
All shares represented by proxies received pursuant to this solicitation
will be voted as instructed. If no instructions are given, the persons named in
the accompanying proxy intend to vote (i) for the plan of recapitalization of
the Company (the "Plan of Recapitalization") by which (A) Article FOURTH of the
Restated Certificate of Incorporation of the Company would be amended to
eliminate the Company's currently authorized 50,000,000 shares of common stock,
$.01 par value per share (which are subject to a time phased voting rights plan
pursuant to which outstanding shares are entitled to either one vote per share
or ten votes per share, depending on how long they have been owned by the same
beneficial owner) (the "Common Stock"), and to authorize for issuance 50,000,000
shares of Class A Common Stock, $.01 par value per share, and 1,450,000 shares
of Class B Common Stock, $.01 par value per share, subject in the case of the
Class B Common Stock, to adjustment, and (B) each outstanding share of Common
Stock which is entitled to ten votes per share as of both the record date of the
Annual Meeting and the effective date of the recapitalization (assuming for
these purposes only that the effective date of the recapitalization is a record
date for a meeting of the Company's stockholders) would be reclassified, changed
and converted automatically into one share of Class B Common Stock and each
other share of outstanding Common Stock would be reclassified, changed and
converted automatically into one share of Class A Common Stock (the transactions
contemplated by the Plan of Recapitalization are hereinafter referred to as the
"Recapitalization"), and (ii) for the nominees named herein as Class B Directors
of the Company.
Stockholders who execute proxies may revoke them by delivering subsequently
dated proxies or by giving written notice of revocation to the Secretary of the
Company at any time before such proxies are voted. No proxy will be voted if the
stockholder attends the meeting and elects to vote in person.
The Board of Directors does not know of any matter other than as set forth
herein that is expected to be presented for consideration at the meeting.
However, if other matters properly come before the meeting, the persons named in
the accompanying proxy intend to vote thereon in accordance with their judgment.
Pursuant to Rule 13e-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Company has filed with the Securities and Exchange
Commission a Rule 13e-3 Transaction Statement on Schedule 13E-3, as amended (the
"Schedule"), furnishing certain additional information with respect to the
Recapitalization. This Proxy Statement does not contain all of the information
contained in the Schedule, as permitted by the rules and regulations of the
Securities and Exchange Commission. Reference is hereby made to the Schedule for
further information with respect to the Company and the Recapitalization. The
Schedule may be inspected at the public reference facilities
<PAGE>
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following Regional Offices of the Commission: Chicago Regional
Office, Room 1204, 219 South Dearborn Street, Chicago, Illinois 60604; and New
York Regional Office, 75 Park Place, New York, New York 10007. Copies of the
Schedule can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
A copy of the Annual Report of the Company containing financial statements
for the year ended February 28, 1995, is included herewith, but is not to be
considered part of the proxy soliciting materials.
The Company's principal executive offices are located at 1983 Marcus Avenue,
Lake Success, New York 11042.
RECORD DATE, OUTSTANDING VOTING SECURITIES,
VOTING RIGHTS AND VOTE REQUIRED
Only stockholders of record at the close of business on August 28, 1995 (the
"Record Date"), will be entitled to notice of and to vote at the meeting and any
adjournment thereof. As of the Record Date, 23,666,837 shares of the Company's
Common Stock were outstanding, held of record by approximately 946 holders
(including brokerage firms holding stock in "street name" and other nominees).
Each holder of record of Common Stock, except in certain situations, is
entitled to ten votes for each share of Common Stock that has been beneficially
owned by the current beneficial owner for at least 48 consecutive calendar
months (dating from the first day of the first calendar month on or after the
holder acquired beneficial ownership of such share) prior to the Record Date for
the Annual Meeting ("Long-Term Shares"). Each holder of record of a share of
Common Stock that has not been beneficially owned by the current beneficial
owner for at least such a 48 consecutive calendar month period prior to the
Record Date (with certain limited exceptions) is entitled to only one vote per
share ("Short-Term Shares"). A change in beneficial ownership of a share of
Common Stock is deemed to have occurred whenever there is a change in the person
or persons who have direct voting or investment power with respect to such
share. Voting and investment power may be held simultaneously by more than one
person and shares may have more than one beneficial owner. Any change in the
identity of persons who have or share beneficial ownership of shares will
normally constitute a change in beneficial ownership. However, no change in
beneficial ownership of a share of Common Stock will be deemed to have occurred
upon (i) transfer by gift, (ii) transfer by devise, bequest or otherwise through
the laws of inheritance or descent, (iii) the substitution of a trustee,
guardian, committee of an incompetent, conservator or custodian, (iv) the
withdrawal or addition of beneficiaries of a trust or distribution from a trust
to the beneficiaries, in each case, under the terms of the trust, or (v) a
transfer if the circumstances surrounding it clearly demonstrate that no
material change in beneficial ownership has occurred. A holder may own both
Long-Term Shares and Short-Term Shares, in which case he will be entitled to ten
votes for each Long-Term Share and one vote for each Short-Term Share. Except
for the number of votes attached to each, Long-Term Shares and Short-Term Shares
are identical in all respects and constitute a single class of stock.
The Company's Board of Directors has established procedures to determine
whether a stockholder's shares of Common Stock are Long-Term Shares or
Short-Term Shares. Under the procedures, any share of Common Stock held of
record on the Record Date shall be presumed to have been owned beneficially by
the holder of record for the period indicated on the transfer books of the
Company maintained by the Company's transfer agent (the "Transfer Agent"),
except for shares held in "street" or "nominee" name or by a broker, clearing
agency, voting trustee, bank, trust company or other nominee. These nominee
shares shall be presumed to be Short-Term Shares, which presumption may be
rebutted by the beneficial owner delivering to the Company, on or before
September 5, 1995, a notarized affidavit, executed under penalty of perjury,
stating the name of the beneficial owner and the date upon which beneficial
ownership was acquired, together with a copy of the confirmation or other
appropriate documentation evidencing the transaction in which beneficial
ownership was
2
<PAGE>
acquired or, in the case of shares held of record by a voting trustee, a
certified copy of the voting trust agreement, together with a notarized
affidavit of the voting trustee, executed under penalty of perjury, stating the
name of the beneficial owner and the date upon which beneficial ownership was
acquired.
Holders claiming that shares are Long-Term Shares by virtue of a gift must
deliver to the Company, on or before October 19, 1995, an affidavit of the donor
stating, among other things, that (i) the shares were acquired by the donor at
least 48 consecutive calendar months (dating from the first day of the first
calendar month on or after the donor acquired beneficial ownership of such
shares) prior to the Record Date, and (ii) the shares were transferred to the
donee without any consideration.
Holders claiming that shares are Long-Term Shares by virtue of transfer by
will must deliver to the Company, on or before October 19, 1995, (i) a certified
copy of the transferor's will, (ii) the court decree evidencing probate of such
will, (iii) a current certificate of letters testamentary, and (iv) a notarized
affidavit of the personal representative of the decedent's estate, executed
under penalty of perjury, stating that the decedent acquired the shares at least
48 consecutive calendar months (dating from the first day of the first calendar
month on or after the decedent acquired beneficial ownership of such shares)
prior to the Record Date.
The Board of Directors also has established procedures by which holders may
demonstrate that shares are Long-Term Shares if they have been acquired through
intestate succession, through distribution from a trust, through divorce, legal
separation or annulment of a marriage, or by gift under the Uniform Gifts or
Transfers to Minors Act, or if they are shares held by a guardian, committee of
an incompetent or conservator or otherwise acquired in a manner in which it is
clearly demonstrable that no change in beneficial ownership has occurred.
ANY HOLDER OF RECORD WHO ACQUIRED RECORD OWNERSHIP OF HIS SHARES LESS THAN
48 CONSECUTIVE CALENDAR MONTHS (DATING FROM THE FIRST DAY OF THE FIRST CALENDAR
MONTH ON OR AFTER THE HOLDER ACQUIRED BENEFICIAL OWNERSHIP OF SUCH SHARES) PRIOR
TO THE RECORD DATE FOR THE ANNUAL MEETING AND WHO WISHES TO ASSERT THAT NO
CHANGE IN BENEFICIAL OWNERSHIP HAS OCCURRED FOR AT LEAST SUCH A 48 CONSECUTIVE
CALENDAR MONTH PERIOD PRIOR TO THE RECORD DATE FOR THE ANNUAL MEETING SHOULD
OBTAIN A COPY OF THE PROCEDURES BY MAILING A REQUEST TO GENERAL COUNSEL, STAFF
BUILDERS, INC., 1983 MARCUS AVENUE, LAKE SUCCESS, NEW YORK 11042. The Board of
Directors shall make the final determination whether shares are Long-Term Shares
or Short-Term Shares.
New York State requires the approval by the Public Health Council of the New
York State Department of Health ("NYPHC") of any change in the "controlling
person" of an operator of a licensed health care services agency (an "LHCSA").
Control of an entity is presumed to exist if any person owns, controls or holds
the power to vote securities representing 10% or more of the outstanding voting
securities or voting rights of such entity. The Company has 16 offices in New
York State which are LHCSAs.
The affirmative vote of a majority of the votes of holders of shares of
Common Stock represented at the meeting is necessary for the election of the
nominees for Class B Directors. The affirmative vote of a majority of the
Long-Term Shares outstanding as of the Record Date, voting as a class, and the
Short-Term Shares outstanding as of the Record Date, voting as a class, is
necessary for the approval of the Plan of Recapitalization, including the
related amendments to the Company's Restated Certificate of Incorporation.
Holders will not be entitled to exercise appraisal rights in connection with
the Recapitalization, nor will holders who object to the Plan of
Recapitalization have any special rights available under state law. Under
Delaware law, the directors of the Company owe the Company's stockholders a duty
of care and a duty of loyalty. The duty of care requires the Company's directors
to exercise the care that an ordinarily prudent person would exercise under
similar circumstances in approving the Plan
3
<PAGE>
of Recapitalization and recommending it to the Company's stockholders for their
approval. The duty of loyalty prohibits the directors from using their corporate
office to promote the Plan of Recapitalization if they have a financial interest
in the Recapitalization and the Recapitalization is not fair to the Company.
If an objecting stockholder believes that the directors of the Company have
breached their duty of care or duty of loyalty in connection with the
recommendation or approval of the Plan of Recapitalization, they may bring a
shareholder derivative action, if the alleged harm is to the Company, or a
direct action, if the alleged harm is to the objecting stockholder independent
of the harm to the Company. The Restated Certificate of Incorporation of the
Company eliminates the personal liability of the Company's directors for
monetary damages for breach of the duty of care and requires the Company to
indemnify its directors to the full extent permitted by Delaware law.
As of the Record Date, the Company's Board of Directors estimates that there
are (i) 1,450,000 Long-Term Shares outstanding, of which 824,427 are held by the
executive officers and directors of the Company, and (ii) 22,216,837 Short-Term
Shares held of record, of which 184,513 are held by the executive officers and
directors of the Company. Assuming that the Board of Directors' estimate is
correct, the executive officers and directors will control (i) approximately
56.9% of the votes of Long-Term Shares as a class entitled to be cast at the
Annual Meeting, (ii) approximately 1.0% of the votes of Short-Term Shares as a
class entitled to be cast at the Annual Meeting, and (iii) approximately 23.0%
of the total votes entitled to be cast at the Annual Meeting. The executive
officers and directors of the Company intend to vote their shares for the
approval of the Plan of Recapitalization, including the related amendments to
the Company's Restated Certificate of Incorporation, and for the election of the
nominees for Class B Directors. To the knowledge of the Company, except as
described herein, none of the Company's executive officers, directors or other
affiliates, nor any executive officer, director or similar official of any such
affiliate, has made a recommendation in support of, or opposed to, the Plan of
Recapitalization.
With respect to abstentions, the shares will be considered present at the
meeting for a particular proposal, but since they are not affirmative votes for
the proposal, they will have the same effect as a vote withheld on the election
of directors or a vote against such other proposal, as the case may be. If a
broker indicates on the proxy that it does not have discretionary authority as
to certain shares to vote on a particular proposal, those shares will not be
considered as present at the meeting and entitled to vote in respect of that
proposal.
There is a box on the Proxy card to vote for or against or to abstain on the
Plan of Recapitalization, including the related amendments to the Company's
Restated Certificate of Incorporation. There is also a box to vote for or to
withhold authority to vote for the nominees for Class B Directors, and a line on
which the holder may insert the name of either nominee in order to withhold
authority to vote for such nominee.
4
<PAGE>
MARKET FOR COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market and
quoted on the Nasdaq National Market under the symbol "SBLI". The following
table sets forth, for the indicated fiscal periods, the high and low prices for
the Company's Common Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28, 1994 HIGH LOW
------------------------------------------------------------- --------- ---------
<S> <C> <C>
2nd Quarter................................................ $ 3.91 $ 2.31
3rd Quarter................................................ 4.38 3.31
4th Quarter................................................ 4.88 3.19
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28, 1995
-------------------------------------------------------------
<S> <C> <C>
1st Quarter................................................ $ 5.00 $ 3.25
2nd Quarter................................................ 3.69 2.63
3rd Quarter................................................ 3.50 2.88
4th Quarter................................................ 4.00 2.88
<CAPTION>
FISCAL YEAR ENDING FEBRUARY 29, 1996
-------------------------------------------------------------
<S> <C> <C>
1st Quarter................................................ $ 4.63 $ 3.25
</TABLE>
Since its organization, the Company has not paid any dividends on its shares
of Common Stock. The Company anticipates that for the foreseeable future all
earnings will be retained for use in its business and, accordingly, it does not
intend to pay cash dividends. In addition, pursuant to a revolving line of
credit agreement with a bank, the Company may not declare or pay cash dividends
on its Common Stock.
RECENT ACQUISITIONS OF COMMON STOCK
BY THE COMPANY AND ITS AFFILIATES
The following table sets forth, for the indicated fiscal periods, (i) the
number of shares of Common Stock purchased by the Company and, to the best of
the Company's knowledge, its affiliates, (ii) the high and low prices paid for
such shares of Common Stock, and (iii) the average price paid for such shares of
Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
FISCAL YEAR ENDED FEBRUARY 28, 1994 PURCHASED HIGH PRICE LOW PRICE AVERAGE PRICE
--------------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
1st Quarter................................ 0 -- -- --
2nd Quarter................................ 0 -- -- --
3rd Quarter................................ 0 -- -- --
4th Quarter................................ 0 -- -- --
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28, 1995
---------------------------------------------
<S> <C> <C> <C> <C>
1st Quarter................................ 20,000 $ 1.75 $ 1.75 $ 1.75
2nd Quarter................................ 0 -- -- --
3rd Quarter................................ 978,774 $ 3.06 $ 2.90 $ 2.90
4th Quarter................................ 0 -- -- --
<CAPTION>
FISCAL YEAR ENDING FEBRUARY 29, 1996
---------------------------------------------
<S> <C> <C> <C> <C>
1st Quarter................................ 1,159,467 $ 4.19 $ 1.93 $ 2.73
</TABLE>
In addition, on June 13, 1995, Cynthia Nye, Senior Vice President, Corporate
Support of a principal subsidiary of the Company, exercised options to acquire
15,000 shares of Common Stock at $3.00 per share and options to acquire 12,000
shares of Common Stock at $2.19 per share. Ms. Nye sold the shares of Common
Stock acquired upon exercise of these options on June 16, 1995 at a price of
$4.31 per share. On May 19, 1995, Donald Meyers, a director of the Company,
purchased 200 shares of Common Stock at $3.94 per share.
5
<PAGE>
PROPOSAL 1 -- PLAN OF RECAPITALIZATION
THE COMPANY'S EXISTING COMMON STOCK
The Restated Certificate of Incorporation of the Company authorizes the
issuance of up to 50,000,000 shares of Common Stock and 10,000 shares of
preferred stock, $1.00 par value per share. As of the Record Date, there were
23,666,837 shares of Common Stock, and 666 2/3 shares of Class A Preferred
Stock, outstanding.
The Restated Certificate of Incorporation contains a time phased voting
rights plan (the "Voting Rights Plan"). The Voting Rights Plan was adopted by
the Company in May 1986. Under the Voting Rights Plan, each holder of record of
Common Stock, except in certain situations, is entitled to ten votes for each
share of Common Stock that has been beneficially owned by the current beneficial
owner for at least 48 consecutive calendar months (dating from the first day of
the first calendar month on or after the holder acquired beneficial ownership of
such share) prior to the record date for a meeting of stockholders ("Long-Term
Shares"). Each holder of record of a share of Common Stock that has not been
beneficially owned by the current beneficial owner for at least such a 48
consecutive calendar month period prior to the record date (with certain limited
exceptions) is entitled to only one vote per share ("Short-Term Shares"). A
holder may own both Long-Term Shares and Short-Term Shares, in which case he
will be entitled to ten votes for each Long-Term Share and one vote for each
Short-Term Share. Except for the number of votes attached to each, Long-Term
Shares and Short-Term Shares are identical in all respects and constitute a
single class of stock.
THE RECAPITALIZATION
The Board of Directors (including all of the Company's directors who are not
employees of the Company) has unanimously approved the Plan of Recapitalization
by which (i) Article FOURTH of the Restated Certificate of Incorporation would
be amended (the "Amendment") to eliminate the Voting Rights Plan and the Common
Stock and to authorize for issuance 50,000,000 shares of Class A Common Stock,
$.01 par value per share (the "Class A Common Stock"), and 1,450,000 shares of
Class B Common Stock, $.01 par value per share (the "Class B Common Stock"),
subject in the case of the Class B Common Stock to adjustment as described
below, and (ii) upon the filing of the Amendment with the Secretary of State of
the State of Delaware (the "Effective Time"), each share of Common Stock which
is a Long-Term Share as of both the Record Date and the Effective Time (assuming
for these purposes only that the Effective Time is a record date for a meeting
of the Company's stockholders) would be reclassified, changed and converted
automatically into one share of Class B Common Stock and each other share of
Common Stock would be reclassified, changed and converted automatically into one
share of Class A Common Stock. The newly-created Class A Common Stock would be
identical in all respects to the Common Stock except that a holder of Class A
Common Stock would be entitled to one vote for each share of Class A Common
Stock held of record by such holder as of the record date for a meeting of
stockholders, regardless of how long the shares have been owned by the
beneficial owner of such Class A Common Stock. The newly-created Class B Common
Stock would be identical in all respects to the Common Stock and the Class A
Common Stock except that (i) a holder of Class B Common Stock would be entitled
to ten votes for each share of Class B Common Stock held of record by such
holder as of the record date for a meeting of stockholders, regardless of how
long the shares have been owned by the beneficial owner of such Class B Common
Stock, and (ii) each share of Class B Common Stock will be convertible into one
share of Class A Common Stock (and will automatically convert into one share of
Class A Common Stock upon any transfer subject to certain limited exceptions).
Except as otherwise required by the Delaware General Corporation Law, shares of
Class A Common Stock and Class B Common Stock will vote as a single class on all
matters submitted to a vote by the stockholders. A copy of the Plan of
Recapitalization is attached to this Proxy Statement as Exhibit A and a copy of
the Amendment is attached to the Plan of Recapitalization as Annex 1.
The Amendment authorizes for issuance 1,450,000 shares of Class B Common
Stock, which represents an estimate by the Company's Board of Directors of the
number of shares of Class B
6
<PAGE>
Common Stock to be issued in the Recapitalization. Under the Voting Rights Plan
(which would be eliminated by the Amendment) the precise number of shares of
Class B Common Stock to be issued in the Recapitalization (which will equal the
number of shares of Common Stock which are Long-Term Shares at both the Record
Date and the Effective Time) cannot be determined with certainty as of the date
of this Proxy Statement. The Voting Rights Plan provides that in order for
shares of Common Stock to be Long-Term Shares, they must have the same
beneficial owner for at least 48 consecutive calendar months (dating from the
first day of the first calendar month on or after the holder acquired beneficial
ownership of such shares) prior to the record date for determining the holders
entitled to vote on any matter submitted to a vote by the stockholders. Shares
of Common Stock held of record by the current holder for at least such a 48
consecutive calendar month period are presumed to be owned beneficially by the
current record holder for such period and are thus Long-Term Shares. However,
shares of Common Stock held of record in "street" or "nominee" name are presumed
to be owned beneficially by the current beneficial owner for less than such a 48
consecutive calendar month period and are thus presumed to be Short-Term Shares.
This latter presumption may be rebutted by presentation to the Company of
evidence (in accordance with procedures established by the Company) that such
beneficial owner has had beneficial ownership of such shares for at least the
required 48 consecutive calendar month period.
Because the Company cannot know the number of shares held in "street" or
"nominee" name which have been owned beneficially by the same stockholder for at
least a 48 consecutive calendar month period (dating from the first day of the
first calendar month on or after the holder acquired beneficial ownership of
such shares), the number of shares of Class B Common Stock to be issued in the
Recapitalization cannot be determined precisely. Accordingly, if after the
Effective Time, the Company's Board of Directors determines that a number of
shares of Class B Common Stock other than 1,450,000 is to be issued in the
Recapitalization, then the Company will file a further amendment to the Restated
Certificate of Incorporation to increase the number of authorized shares of
Class B Common Stock to the extent that more than 1,450,000 shares are required
to be issued in the Recapitalization and to reduce the number of authorized
shares of Class B Common Stock to the extent that fewer than 1,450,000 shares
are required to be issued in the Recapitalization. A VOTE IN FAVOR OF THE PLAN
OF RECAPITALIZATION WILL INCLUDE A VOTE IN FAVOR OF PERMITTING THE BOARD OF
DIRECTORS TO FILE AN ADDITIONAL AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION TO ADJUST THE NUMBER OF AUTHORIZED SHARES OF CLASS B COMMON STOCK
AS HEREIN PROVIDED.
It is anticipated that the Effective Time will be the date of the Annual
Meeting or as soon thereafter as is reasonably practicable. The Plan of
Recapitalization may be abandoned by the Company's Board of Directors at any
time prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company.
SPECIAL FACTORS
REASONS FOR THE RECAPITALIZATION
The Company's Board of Directors has unanimously approved the Plan of
Recapitalization, and unanimously recommends it to the Company's stockholders
for their approval, for the following reasons:
1. NEW YORK PUBLIC HEALTH LAW. The Company is licensed under the New
York Public Health Law to operate home care services agencies in the State
of New York. Under the New York Public Health Law, no person may become a
"controlling person" of an operator of a licensed home care services agency
without the prior approval of the New York Public Health Council. A person
who controls 10% or more of the voting power of an operator of a licensed
home care services agency is presumed to be a "controlling person" of that
operator. To date, only the officers and directors of the Company have been
approved by the New York Public Health Council as controlling persons of the
Company. Failure to comply with the New York Public Health Law may result in
fines and other sanctions, including possible forfeiture of the Company's
license to
7
<PAGE>
operate home care services agencies in New York. The Company operates 16
offices in the State of New York that are home care services agencies. These
16 offices accounted for 14.7% of the Company's revenues during the fiscal
year ended February 28, 1995. This revenue would be lost if the Company's
license to operate a home care services agency in New York were revoked.
Because the Common Stock is publicly traded, and much of it is held in
"street" or "nominee" name, the Company cannot prevent a person from
acquiring 10% of the voting power of the Company and triggering a violation
of the New York Public Health Law. Unfortunately, the Voting Rights Plan
increases the possibility of a violation of this law. Conceivably, a holder
of as little as 1.1% of the Company's outstanding Common Stock could, if
such shares are Long-Term Shares, become entitled to cast 10% or more of the
outstanding votes at any meeting of stockholders, thereby making such person
a "controlling person" of the Company under the New York Public Health Law.
Unless prior approval of the New York Public Health Council were obtained,
such stockholder would cause a violation of the New York Public Health Law.
The Voting Rights Plan increases the likelihood of an inadvertent
violation of the New York Public Health Law and limits the Company's ability
to monitor compliance with such law. Under the Voting Rights Plan, the
voting power of a stockholder is not merely a function of how many shares he
owns, but also a function of how long he has beneficially owned his shares
and how long other stockholders have beneficially owned their shares. A
stockholder may move back and forth over the 10% voting level even if he
refrains from buying and selling shares. Over time, the number of votes a
stockholder will be entitled to cast may increase as his shares convert from
Short-Term Shares to Long-Term Shares, while the aggregate votes of all
stockholders may decrease as holders of Long-Term Shares sell their Common
Stock or as the Company repurchases Common Stock. This problem is
exacerbated from the Company's perspective because it is unable to determine
at any point in time the number of votes attributable to shares of Common
Stock held in "street" or "nominee" name.
The Company believes that there are at least two holders of Short-Term
Shares who, beginning in February 1996, when many of their shares convert to
Long-Term Shares, will become "controlling persons" for purposes of the New
York Public Health Law unless they sell, or otherwise assign their voting
rights with respect to, a substantial number of their shares of Common Stock
prior to that time. The Company does not believe that such persons have
applied to the New York Public Health Council for approval as "controlling
persons." Even if such application were made, there can be no assurance that
such approval would be obtained in advance of February 1996, if at all.
Although the Recapitalization would not eliminate the difficulty all
operators of licensed home care services agencies with publicly-traded
securities have in complying with the voting control limitations of the New
York Public Health Law, it would reduce the Company's concerns in two
important respects. First, the holders who would otherwise become
"controlling persons" in February 1996 (unless between now and then they
were to sell a substantial number of their shares) will not become
controlling persons because they will receive Class A Common Stock in the
Recapitalization. Second, if the Company's outstanding stock represents a
fixed number of votes, the possibility of an inadvertent violation of the
New York Public Health Law would be greatly diminished. As long as a
shareholder owns shares of Class A Common Stock representing less than 10%
of the outstanding shares of the Company's common stock of both classes,
that shareholder would not have a larger percentage of the voting power and
could not become a "controlling person" under the New York Public Health Law
based on the "voting power" standard.
2. INABILITY TO USE POOLING-OF-INTERESTS METHOD. The Voting Rights
Plan precludes the Company from using the pooling-of-interests method of
accounting for business combinations.
8
<PAGE>
Generally, a business combination may be accounted for as a
pooling-of-interests if it meets certain specified criteria. A business
combination that does not meet all of these specified criteria must be
accounted for as a purchase.
Under the purchase method of accounting, the acquiring corporation must
record on its books as goodwill the amount by which the fair value of the
consideration paid by the acquiring corporation exceeds the fair value of
the net assets acquired, including identifiable intangible assets. Service
companies, including home health care agencies, generally have low tangible
and identifiable intangible asset values relative to their market value.
Therefore, acquisitions of these companies will generally result in the
creation of a significant amount of goodwill, which must be amortized by the
acquiring corporation over the periods to be benefitted, but in no event
more than 40 years. Amortization of goodwill will reduce the acquiring
corporation's earnings during the amortization period. Business combinations
which are accounted for as a pooling of interests do not result in the
creation of goodwill and do not thereby reduce the acquiring corporation's
earnings.
In order to avoid the negative earnings impact resulting from the
amortization of goodwill, the Company may prefer to avail itself of the
pooling-of-interests method of accounting for certain future business
combinations. One of the criteria which must be met in order for an
acquiring corporation to account for a business combination as a
pooling-of-interests is that the acquiring corporation issue in the business
combination only common stock with rights identical to those of the majority
of its outstanding voting common stock in exchange for the voting common
stock of the acquired corporation. The phrase "majority of its outstanding
voting common stock" has been interpreted to mean the class of stock having
majority control over the issuer for purposes of the accounting literature
governing the pooling-of-interests method of accounting. If the
Recapitalization is effected, the determination of which class has majority
control would be direct and straightforward. However, under the existing
Voting Rights Plan, such determination would be based upon holding periods
not necessarily known to the Company and which would vary over time, making
it impossible to determine accurately whether majority control is held by
holders of the Long-Term Shares or the Short-Term Shares. The Company
accordingly believes that its Voting Rights Plan does not satisfy this
condition for utilizing the pooling-of-interests method of accounting. The
Company further believes, however, that this condition would be satisfied if
the Plan of Recapitalization were effectuated and shares of Class A Common
Stock were issued by the Company in a business combination.
Under the accounting rules, any change in the equity interests of the
voting common stock of a corporation within two years prior to the
initiation of a business combination will be presumed to be made in
contemplation of a pooling and pooling treatment of such business
combination will not be permitted. The Recapitalization would constitute
such a change in the equity interest of the voting common stock of the
Company. Accordingly, whereas under the Voting Rights Plan the Company
cannot, under any circumstances or at any time, account for a business
combination using the pooling-of-interests method, if the Recapitalization
is consummated such accounting method would be available to the Company for
business combinations initiated two years after the approval of the Plan of
Recapitalization, provided such business combinations otherwise meet the
remaining criteria for use of the pooling-of-interests method.
3. POTENTIAL ADMINISTRATIVE BURDEN. Under the Voting Rights Plan,
shares of Common Stock are Long-Term Shares if they have had the same
beneficial owner for at least 48 consecutive calendar months prior to the
record date for determining the holders entitled to vote on any matter
submitted to a vote by the stockholders. Shares held of record by a holder
at least 48 consecutive calendar months (dating from the first day of the
first calendar month on or after the holder acquired beneficial ownership of
such shares) prior to any such record date are presumed to be owned
beneficially by the record holder for such period and are thus Long-Term
Shares. Shares held of record on a record date in "street" or "nominee" name
are presumed to be owned beneficially by the same beneficial owner for less
than such a 48 consecutive calendar month
9
<PAGE>
period prior to the record date and are thus presumed to be Short-Term
Shares. This latter presumption is rebuttable by presentation to the Company
of evidence (in accordance with procedures established by the Company) that
a beneficial owner has been the beneficial owner of his shares for at least
the required 48 consecutive calendar month period. These procedures are
discussed earlier in this Proxy Statement under "RECORD DATE, OUTSTANDING
VOTING SECURITIES, VOTING RIGHTS AND VOTE REQUIRED". To date, the
administration of the Voting Rights Plan has not proven burdensome to the
Company. However, if, as expected, there is an increase in the number of
holders of shares held in "street" or "nominee" name who seek to prove that
they have been the beneficial owners of such shares for at least the
required 48 consecutive calendar month period, the effort employed by the
Company in making determinations whether shares are Long-Term Shares or
Short-Term Shares could represent an administrative burden for the Company
and require it to incur additional expense.
ALTERNATIVES CONSIDERED
The Company is proposing the Plan of Recapitalization at this time because
it believes that the risk of a violation of the New York Public Health Law will
increase beginning in February 1996 when certain holders who purchased their
shares of Common Stock in the Company's 1992 public offering will first become
entitled to cast ten votes with respect to those shares. In addition, the
Company became aware of its inability to use the pooling-of-interests method of
accounting only last year when the issue arose in connection with the Company's
acquisition of ATC Services, Inc. The Plan of Recapitalization was originally
proposed by the Company's Chairman of the Board at a meeting of the Board of
Directors. In order to achieve its goal of eliminating the Voting Rights Plan,
the Company's Board of Directors also considered an amendment to the Company's
Restated Certificate of Incorporation that would have fixed the voting rights of
all holders of Common Stock at one vote per share, no matter how long a share
had been beneficially owned by its holder. While this proposal would have
enhanced the likelihood that the Company could avail itself of the
pooling-of-interest method of accounting for business combinations initiated two
years after the implementation of the proposal and eased the anticipated
administrative burden associated with the Voting Rights Plan, the Board of
Directors rejected the proposal for two reasons.
First, such a one vote recapitalization would have resulted in actual
disenfranchisement of holders of Long-Term Shares (i.e., their existing voting
rights would have been reduced). The Board of Directors believed that, because
of this disenfranchisement, such a recapitalization was unlikely to be approved
by the holders of the Long-Term Shares. The Board of Directors considered a
proposal to offer the holders of Long-Term Shares a greater number of one vote
shares to encourage such holders to approve the one vote recapitalization. This
alternative was rejected, however, because it would be dilutive to holders of
Short-Term Shares and have an adverse effect on the Company's earnings per
share. The Board of Directors did not consider the payment of a premium to
holders of Short-Term Shares that were nearing conversion to Long-Term Share
status.
Second, the Board of Directors believed that a one vote recapitalization
would increase the likelihood of a violation of the New York Public Health Law.
The Company has one stockholder (not approved as a "controlling person" by the
New York Public Health Council) that beneficially owns in excess of 10% of the
Company's Common Stock but less than 10% of the Company's voting power due to
the existence of the Long-Term Shares. If the additional votes enjoyed by the
holders of the Long-Term Shares were eliminated and this stockholder failed to
divest itself of a substantial number of shares, the stockholder would own in
excess of 10% of the Company's voting power, triggering a violation of the New
York Public Health Law. The current executive officers of the Company, who as of
the Record Date together beneficially own 822,327 Long-Term Shares with the
right to cast 8,233,270 votes, have been approved as "controlling persons" by
the New York Public Health Council. Although their continued holding of
Long-Term Shares does not eliminate the possibility of a violation of the New
York Public Health Law, it does reduce the risk of such a violation.
10
<PAGE>
EFFECTS OF RECAPITALIZATION ON EXISTING STOCKHOLDERS
The principal effect of the Recapitalization on existing stockholders of the
Company will be to fix the voting rights of the shares of the Company's common
stock which they own without regard to the duration of their ownership. Each
holder of a share of Class B Common Stock will be entitled to cast ten times the
number of votes as may be cast by a holder of a share of Class A Common Stock.
Current holders of Short-Term Shares, regardless of how long they have
beneficially owned such shares and how long they continue to beneficially own
them in the future, will lose their right to become holders of ten vote shares.
The Board of Directors unanimously recommends the Plan of Recapitalization
to the Company's stockholders, despite the effect it will have on current
holders of Short-Term Shares, because the Board of Directors believes that the
Plan of Recapitalization is fair to the Company's unaffiliated holders of Common
Stock and that the benefits of the Plan of Recapitalization described above for
all of the Company's stockholders outweigh the burden imposed on the current
holders of the Short-Term Shares in losing a possible right to a future
increased voting interest in the Company. In particular, the Board of Directors
believes that the potential economic harm to the Company that exists by virtue
of the provisions of the New York Public Health Law and the potential economic
benefit to the Company of being able to use the pooling-of-interests method of
accounting weigh heavily in favor of the Plan of Recapitalization. The Board of
Directors also believes that the Plan of Recapitalization is procedurally fair
to the Company's stockholders, principally due to the requirement for separate
approvals by holders of the Short-Term Shares and holders of the Long-Term
Shares.
The Recapitalization will not cause any existing stockholder to suffer any
dilution of its economic interest or voting power in the Company. The
Recapitalization is also not expected to have any impact on the Company's
financial condition beyond the potential future benefits described above. Due to
the limited economic impact that the Recapitalization will have on both the
Company and its stockholders, neither the Company nor any of its affiliates has
commissioned or received any report, opinion or appraisal from an outside party
with respect to the Recapitalization. In addition, due to this limited economic
impact, the Board of Directors did not consider the following factors
customarily considered in analyzing recapitalization proposals with economic
consequences: (i) current market prices, (ii) historical market prices, (iii)
net book value, (iv) going concern value, (v) liquidation value, and (vi) the
purchase price paid for shares of the Common Stock in recent purchases by the
Company and its affiliates. The Board of Directors determined that these
economic factors were irrelevant to the Plan of Recapitalization and that it was
accordingly in the best interests of the Company's stockholders, including the
Company's unaffiliated stockholders, to ignore them. No outside director has
retained an unaffiliated representative to act solely on behalf of the Company's
unaffiliated holders of Common Stock for purposes of negotiating the terms of
the Recapitalization or to prepare any report concerning the fairness of such
transaction.
On the Record Date, there were 23,666,837 shares of Common Stock
outstanding. Assuming that the Board of Directors' estimate of the number of
shares of Class B Common Stock to be issued in the Recapitalization is correct,
then there will be 22,216,837 shares of Class A Common Stock issued in the
Recapitalization, with the right to cast a total of 22,216,837 votes at any
meeting of stockholders, and 1,450,000 shares of Class B Common Stock issued in
the Recapitalization, with the right to cast a total of 14,500,000 votes at any
meeting of stockholders. Holders of the Class A Common Stock and the Class B
Common Stock will thus be entitled to cast approximately 60.5% and 39.5%,
respectively, of all votes cast at a meeting of stockholders. Upon the
conversion of shares of Class B Common Stock into shares of Class A Common
Stock, the percentage of all votes cast by holders of Class B Common Stock will
be reduced.
The Company's Common Stock is currently registered under Section 12(g) of
the Exchange Act and quoted on the Nasdaq National Market. After the
Recapitalization, the Class A Common Stock will be similarly registered under
the Exchange Act and quoted on the Nasdaq National Market, while
11
<PAGE>
the registration and quotation of the Common Stock, which will no longer be
outstanding, will cease. The Company does not intend to have the Class B Common
Stock registered under the Exchange Act, quoted on any interdealer quotation
system or listed on any stock exchange. At the Effective Time, all outstanding
options and warrants to purchase shares of Existing Common Stock will be
converted automatically into options and warrants to purchase an equal number of
shares of Class A Common Stock. All other terms and conditions of such options
and warrants will remain unchanged. The Recapitalization will have no effect on
the Company's preferred stock.
FEDERAL INCOME TAX CONSEQUENCES OF RECAPITALIZATION
The Company's stockholders should not recognize gain or loss upon the
reclassification of Common Stock as Class A Common Stock or Class B Common
Stock.
Each stockholder's tax basis in, and holding period for, his shares of
Common Stock prior to implementation of the Recapitalization will carry over to
the shares of Class A Common Stock and Class B Common Stock received by him in
the Recapitalization. Such tax basis will be reallocated among such shares of
Class A Common Stock and Class B Common Stock in proportion to their respective
fair market values at completion of the Recapitalization.
Neither the Class A Common Stock nor the Class B Common Stock received by
stockholders pursuant to the Recapitalization will constitute "Section 306
stock" within the meaning of Section 306(c) of the Internal Revenue Code of
1986, as amended (the "Code").
The above discussion is believed to be a fair and accurate summary of the
material Federal income tax consequences to the Company's stockholders with
respect to the Recapitalization, based on the current provisions of the Code,
applicable regulations thereunder, judicial authority and administrative rulings
and practice. The discussion applies only to stockholders who are citizens or
residents of the United States and are not foreign corporations and hold their
shares as capital assets. Furthermore, state, local or foreign tax consequences
of the Recapitalization are not addressed in the discussion. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conclusions set forth herein. Any such
changes or interpretations may or may not be retroactive. Accordingly, each
stockholder should consult his tax advisor concerning the potential tax
consequences to such stockholder of the Recapitalization.
INTERESTS OF CERTAIN PERSONS IN THE RECAPITALIZATION
Based upon their share ownership on the Record Date, Stephen Savitsky, the
Company's Chairman, President and Chief Executive Officer, and David Savitsky,
the Company's Executive Vice President, Chief Operating Officer, Secretary and
Treasurer will receive 342,738 and 378,537 (which includes 1,000 shares of Class
B Common Stock to be issued to David Savitsky's wife as trustee for the benefit
of their children) shares of Class B Common Stock, respectively, in the
Recapitalization. In addition, based upon his share ownership on the Record
Date, a former executive officer and director of the Company who has granted to
Stephen and David Savitsky a revocable proxy to vote all his shares of Existing
Common Stock will receive 101,052 shares of Class B Common Stock in the
Recapitalization. Assuming that there are 1,450,000 shares of Class B Common
Stock issued in the Recapitalization and no change in the number of outstanding
shares of the Company's Existing Common Stock between the Record Date and the
Effective Time, Stephen and David Savitsky, together with David Savitsky's wife,
individually and as trustee, will have the right, collectively, to cast
approximately 22.9% of all votes cast at a meeting of stockholders. Over time,
as other holders of Class B Common Stock convert or sell their shares, the
voting power of Stephen and David Savitsky may increase. Although after the
Recapitalization Stephen and David Savitsky will not, together, have the right
to cast a majority of all votes cast at a meeting of stockholders, due to their
significant voting power and their positions as executive officers, directors
and members of the Executive Committee of the Company's Board of Directors, they
may have the ability to elect the entire Board of Directors and generally direct
the affairs of the Company.
12
<PAGE>
Based upon his share ownership on the Record Date, Bernard Firestone, a
director of the Company, will be issued 2,100 shares of Class B Common Stock in
the Recapitalization (which includes 1,000 shares of Class B Common Stock to be
issued to Dr. Firestone's wife). No other executive officer, director or
affiliate of the Company, or any of their associates, will receive shares of
Class B Common Stock in the Recapitalization. All of the other shares of Common
Stock owned beneficially by executive officers, directors and affiliates of the
Company will be converted automatically at the Effective Time into an equal
number of shares of Class A Common Stock. Assuming that there are 1,450,000
shares of Class B Common Stock issued in the Recapitalization and no change in
the number of outstanding shares of the Company's Common Stock between the
Record Date and the Effective Time, the Company's executive officers, directors
and affiliates will receive in the Recapitalization, or otherwise have the right
to vote immediately following the Effective Time, 184,513 shares of Class A
Common Stock and 824,427 shares of Class B Common Stock (including the shares of
Class B Common Stock to be issued to the wives of David Savitsky and Bernard
Firestone, as described above), representing an aggregate of 8,428,783 votes or
23.0% of all of the outstanding votes immediately following the Effective Time.
See "Ownership of Securities by Certain Beneficial Owners, Directors and
Officers."
Stephen Savitsky, David Savitsky and Bernard Firestone, as well as other
affiliates of the Company, may also benefit from the approval of the Plan of
Recapitalization because under the Voting Rights Plan their voting power may be
reduced as Short-Term Shares held by non-affiliates of the Company become
Long-Term Shares over time. The Plan of Recapitalization will negate this
potential dilution of their voting power.
The consummation of the Recapitalization may have the effect of discouraging
takeover bids which holders of Class A Common Stock deem to be in their best
interests and perpetuating the Company's existing management. This impediment to
takeover bids may have an adverse effect on the price of the Class A Common
Stock.
FINANCIAL STATEMENTS AND OTHER INFORMATION
Set forth as Exhibit B hereto, and made a part hereof, are the Company's
audited consolidated balance sheets as of February 28, 1995 and 1994, and the
related audited consolidated statements of income, stockholder's equity and cash
flows for each of the three years in the period ended February 28, 1995
(including the notes and schedule thereto and the report of the Company's
independent accountants thereon). Set forth as Exhibit C hereto, and made a part
hereof, is pro forma financial information of the Company for the year ended
February 28, 1995, giving effect to certain acquisitions occurring during such
year as if they had occurred at the beginning of such year. Set forth as Exhibit
D hereto, and made a part hereof, are the Company's unaudited condensed
consolidated balance sheets as of May 31, 1995 and February 28, 1995, and the
related unaudited condensed consolidated statements of income and cash flows for
the three month periods ended May 31, 1995 and 1994 (including the notes
thereto).
The Management's Discussion and Analysis of Financial Condition and Results
of Operations contained in Item 7 of the Company's Annual Report on Form 10-K
for the fiscal year ended February 28, 1995 (the "Annual Report"), and the
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in Item 2 of the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended May 31, 1995 (the "Quarterly Report") are hereby
incorporated herein by reference.
The book value per share of the Company's Common Stock was $2.28 and $2.30
at February 28, 1995 and May 31, 1995, respectively. The Company's ratio of
earnings to fixed charges for the years ended February 28, 1995 and 1994, and
for the three month periods ended May 31, 1995 and 1994, were 6.63, 2.13, 9.02
and 3.34, respectively. The ratio of earnings to fixed charges represents the
ratio of (i) the Company's pretax income from continuing operations for the
applicable period to (ii) the total interest expended by the Company during the
period.
13
<PAGE>
SURRENDER AND EXCHANGE OF STOCK CERTIFICATES
At the Effective Time (i) each share of Common Stock which is a Long-Term
Share on both the Record Date and the Effective Time (assuming for these
purposes only that the Effective Time is a record date for a meeting of the
Company's stockholders) automatically will be converted into one share of Class
B Common Stock and (ii) each other share of Common Stock will be automatically
converted into one share of Class A Common Stock. Promptly after the Effective
Time, the American Stock Transfer and Trust Company (the "Transfer Agent") will
mail to each record holder of a stock certificate representing shares of Common
Stock outstanding immediately prior to the Effective Time instructions and
transmittal materials for effecting the surrender of stock certificates
representing shares of Common Stock in exchange for replacement certificates
representing the number of shares of Class A Common Stock and Class B Common
Stock into which such shares of Common Stock have been converted. STOCKHOLDERS
ARE REQUESTED NOT TO SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY, AND
NOT TO SURRENDER STOCK CERTIFICATES FOR EXCHANGE, UNTIL THEY RECEIVE SUCH
TRANSMITTAL MATERIALS FROM THE TRANSFER AGENT.
After receipt of the transmittal materials from the Transfer Agent,
stockholders may complete and return such materials to the Transfer Agent along
with the certificate or certificates representing their shares of Common Stock.
Upon delivery of such materials and certificates to the Transfer Agent, the
stockholder will be entitled to receive a new stock certificate representing the
same number of shares of Class A Common Stock or Class B Common Stock, as the
case may be, as were represented by the certificate or certificates surrendered
to the Transfer Agent. Until surrendered, each stock certificate will represent
for all purposes the number of shares of Class A Common Stock or Class B Common
Stock into which the shares represented by such certificate were converted at
the Effective Time, as determined by the Transfer Agent's records.
If any new certificate representing shares of Class A Common Stock or Class
B Common Stock is to be issued in a name or number of shares other than that in
which or in respect of which the surrendered certificate is registered, it will
be a condition to such issuance that the person requesting such issuance deliver
to the Transfer Agent all documents necessary to evidence and effect such
transfer (with signature guarantees) and pay to the Transfer Agent any transfer
or other taxes required by reason thereof or establish to the Transfer Agent's
satisfaction that such taxes have been paid or are not applicable.
In the event any certificate representing shares of Common Stock has been
lost, stolen or destroyed, the Transfer Agent will issue a new certificate
representing the number and class of shares into which the shares represented by
such certificate were converted pursuant to the Recapitalization upon the making
of an affidavit of that fact by the person claiming such certificate to be lost,
stolen or destroyed. As a condition precedent to such issuance, the Company may
require a bond in such sum as the Company may direct to indemnify the Company
against any claim that may be made against the Company with respect to the
certificate that is alleged to have been lost, stolen or destroyed.
In determining whether a record holder of Common Stock at the Effective Time
will be entitled to receive shares of Class A Common Stock or Class B Common
Stock, the Board of Directors of the Company, or the Transfer Agent acting on
behalf of the Board of Directors, will apply the same principles which have been
used in determining whether shares are Long-Term Shares or Short-Term Shares for
purposes of voting on matters submitted to a vote by the stockholders. Shares
held of record by a holder at least 48 consecutive calendar months (dating from
the first day of the first calendar month on or after the holder acquired
beneficial ownership of such shares) prior to both the Record Date and the
Effective Time will be exchanged for an equal number of shares of Class B Common
Stock, except that shares held of record at the Effective Time in "street" or
"nominee" name will be presumed to be held for less than the required 48
consecutive calendar month period prior to both the Record Date and the
Effective Time and, unless such presumption is rebutted as described below,
exchanged for an equal number of shares of Class A Common Stock.
14
<PAGE>
The transmittal materials delivered by the Transfer Agent to each record
holder of Common Stock at the Effective Time will indicate the number of shares
of Class A Common Stock and Class B Common Stock the holder is entitled to
receive in the Recapitalization and will include the provisions established by
the Board of Directors of the Company by which a stockholder may establish that
he or she has been the beneficial owner of the shares to be exchanged in the
Recapitalization for at least 48 consecutive calendar months (dating from the
first day of the first calendar month on or after the holder acquired beneficial
ownership of such shares) prior to both the Record Date and the Effective Time.
These provisions are the same as those discussed earlier in this Proxy Statement
under "RECORD DATE, OUTSTANDING VOTING SECURITIES, VOTING RIGHTS AND VOTE
REQUIRED" (THE "PROVISIONS"). IF A STOCKHOLDER WISHES TO ASSERT THAT THE
TRANSMITTAL MATERIALS OVERSTATE THE NUMBER OF SHARES OF CLASS A COMMON STOCK,
AND UNDERSTATE THE NUMBER OF SHARES OF CLASS B COMMON STOCK, ENTITLED TO BE
RECEIVED BY SUCH STOCKHOLDER IN THE RECAPITALIZATION, THEN ON OR BEFORE DECEMBER
1, 1995, SUCH STOCKHOLDER MUST DELIVER TO THE GENERAL COUNSEL OF THE COMPANY THE
INFORMATION REQUIRED PURSUANT TO THE PROCEDURES TO ESTABLISH BENEFICIAL
OWNERSHIP OF HIS OR HER SHARES FOR AT LEAST 48 CONSECUTIVE CALENDAR MONTHS
(DATING FROM THE FIRST DAY OF THE FIRST CALENDAR MONTH ON OR AFTER THE HOLDER
ACQUIRED BENEFICIAL OWNERSHIP OF SUCH SHARES) PRIOR TO BOTH THE RECORD DATE AND
THE EFFECTIVE TIME. IF SUCH INFORMATION IS NOT FURNISHED TO THE COMPANY'S
GENERAL COUNSEL BY DECEMBER 1, 1995, THEN THE ALLOCATION OF THE NUMBER OF SHARES
OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK TO BE ISSUED TO SUCH
STOCKHOLDER AS SET FORTH IN THE TRANSMITTAL MATERIALS WILL BE FINAL AND BINDING
ON THE STOCKHOLDER. IF SUCH INFORMATION IS FURNISHED TO THE COMPANY'S GENERAL
COUNSEL PRIOR TO DECEMBER 1, 1995, THEN THE BOARD OF DIRECTORS OF THE COMPANY
SHALL DETERMINE THE PROPER ALLOCATION OF THE NUMBER OF SHARES OF CLASS A COMMON
STOCK AND CLASS B COMMON STOCK TO BE ISSUED TO SUCH STOCKHOLDER, WHICH
DETERMINATION SHALL BE FINAL AND BINDING.
VOTE REQUIRED
The affirmative vote of a majority of the Long-Term Shares outstanding as of
the Record Date, voting as a class, and the Short-Term Shares outstanding as of
the Record Date, voting as a class, is necessary for the approval of the Plan of
Recapitalization. As of the Record Date, the executive officers and directors of
the Company had the right to vote 184,513 Short-Term Shares. Although the
Company has not specifically structured the Recapitalization to require the
approval of at least a majority of its unaffiliated stockholders, if the Board
of Directors' estimate of the number of shares of Class B Stock to be issued in
the Recapitalization is correct, the Short-Term Shares held by the Company's
executive officers and directors will represent only approximately 1.0% of the
outstanding Short-Term Shares eligible to vote at the Annual Meeting. No other
affiliate of the Company holds any Short-Term Shares.
The Board of Directors recommends that you vote "For" the Plan of
Recapitalization.
15
<PAGE>
OWNERSHIP OF SECURITIES BY CERTAIN BENEFICIAL
OWNERS, DIRECTORS AND OFFICERS
The following table sets forth information as of the Record Date with
respect to the beneficial ownership of the Company's Common Stock and Class A
Preferred Stock by (i) each person known to the Company who beneficially owns
more than 5% of any class of voting securities of the Company, (ii) each
director of the Company, (iii) the Company's Chief Executive Officer and five
other executive officers, and (iv) all directors and executive officers of the
Company as a group.
COMMON STOCK
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP (1)
------------------------------
NUMBER OF PERCENTAGE OF PERCENTAGE OF
LONG-TERM NUMBER OF SHORT- OUTSTANDING OUTSTANDING
NAME OF BENEFICIAL OWNER SHARES (2) TERM SHARES (3) SHARES OWNED VOTES OWNED
------------------------------------------------------------------- ---------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Stephen Savitsky (4)............................................... 443,790 1,339,724(5)(6) 7.2% 15.5%
David Savitsky (4)................................................. 479,589(7) 1,303,423(6)(8)(9) 7.2% 16.3%
Bernard J. Firestone............................................... 2,100(10) 1,500(11) * *
Jonathan J. Halpert................................................ -- -- -- --
Donald Meyers...................................................... -- 1,400 * *
Gary Tighe......................................................... -- 105,000(12) * *
Sharon Hamilton.................................................... -- 82,500(13) * *
Edward Teixeira.................................................... -- 45,300(14) * *
Cynthia Nye........................................................ -- 8,500(15) * *
S Squared Technology Corp. (16).................................... -- 3,181,000 13.4% 8.8%
Horsburgh Carlson Investment Management, Inc. (17)................. 67,000 1,323,000 5.9% 5.5%
All executive officers and directors as a group (9 persons)........ 824,427 2,648,907(6)(18) 13.3% 28.2%
</TABLE>
CLASS A PREFERRED STOCK (19)
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE OF
OF BENEFICIAL OUTSTANDING SHARES
NAME OF BENEFICIAL OWNER (20) OWNERSHIP OWNED
--------------------------------------------------------------------- ------------------- ---------------------
<S> <C> <C>
Stephen Savitsky..................................................... 333 1/3 50%
David Savitsky....................................................... 333 1/3 50%
All executive officers and directors as a group (9 persons).......... 666 2/3 100%
<FN>
------------------------
* Less than one percent
(1) "Beneficial ownership" is determined in accordance with Rule 13d-3 under
the Exchange Act. In general, a person is treated as the "beneficial owner"
of stock under Rule 13d-3 if such person has (or shares) (i) either
investment power or voting power over such stock (which may be by means of
a contract, arrangement, understanding, relationship or otherwise), or (ii)
the right to acquire such stock within 60 days, including by means of the
exercise of an option or the conversion of a convertible security. Each
beneficial owner's percentage of ownership and percentage of votes is
determined by assuming that options that are held by such person (but not
those held by any other person) and which are exercisable within 60 days of
the date of this table have been exercised. Each beneficial owner's
percentage of votes is determined by assuming that any share of Common
Stock held of record on the Record Date has been beneficially owned by the
holder of record for the period indicated on the Transfer Agent's books for
purposes of determining the number of votes to which such share is
entitled, except for shares held in "street" or "nominee" name or by a
broker, clearing agency, voting trustee, bank, trust company or other
nominee which are presumed to be entitled to only one vote per share no
matter how long they have been held of record (except for 67,000 shares
held by Horsburgh Carlson Investment Management, Inc.
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
("HCIM") which HCIM has independently confirmed to the Company are entitled
to ten votes per share and 101,052 shares held by Ephraim Koschitzki, a
former executive officer and director of the Company, which the Company
believes are Long-Term Shares). Except as indicated in the footnotes that
follow, shares listed in the table are held with sole voting and investment
power.
(2) Each holder of record of Common Stock, except in certain circumstances, is
entitled to ten votes for each share of Common Stock that has been
beneficially owned by the current beneficial owner for at least 48
consecutive calendar months (dating from the first day of the first
calendar month on or after the holder acquired beneficial ownership of such
share) prior to the Record Date for any vote. Such shares are referred to
as "Long-Term Shares."
(3) Each holder of record of shares of Common Stock that have not been
beneficially owned by the current beneficial owner for at least 48
consecutive calendar months (dating from the first day of the first
calendar month on or after the holder acquired beneficial ownership of such
shares) prior to the Record Date (with certain limited exceptions) is
entitled to only one vote per share. Such shares are referred to as
"Short-Term Shares."
(4) The address of each of these persons is c/o Staff Builders, Inc., 1983
Marcus Avenue, Lake Success, New York 11042. Each of these persons has sole
power with respect to the voting and investment of the shares which he
owns, except as follows: on November 1, 1991, Ephraim Koschitzki, a former
executive officer and director of the Company, granted to Stephen Savitsky
and David Savitsky a ten year revocable proxy to vote all shares of Common
Stock now or hereafter owned of record by him. The Company believes that
Mr. Koschitzki beneficially owns 339,492 shares of Common Stock, of which
101,052 are Long-Term Shares and 238,440 are Short-Term Shares. As a
result, Stephen Savitsky and David Savitsky have sole voting and investment
power with respect to 1,444,022 and 1,443,520 shares of Common Stock,
respectively, and they have shared voting power with respect to the 339,492
shares of Common Stock beneficially owned by Mr. Koschitzki.
(5) Includes options to purchase 250,000 shares of Common Stock under the 1994
Performance-Based Stock Option Plan, options to purchase 200,000 shares of
Common Stock under the 1993 Stock Option Plan, options to purchase 334,000
shares of Common Stock under the 1986 Non-Qualified Stock Option Plan and
options to purchase 214,577 shares of Common Stock under the 1983 Incentive
Stock Option Plan.
(6) Also includes options to purchase 225,440 and 13,000 shares of Common Stock
granted to Ephraim Koschitzki under the 1986 Non-Qualified Stock Option
Plan and 1983 Incentive Stock Option Plan, respectively, which are subject
to the ten year revocable proxy referred to in footnote 4 above.
(7) Includes 1,000 shares of Common Stock held by Mr. Savitsky's wife as
trustee for the benefit of their three children. Mr. Savitsky disclaims
beneficial ownership of these shares.
(8) Includes options to purchase 250,000 shares of Common Stock under the 1994
Performance- Based Stock Option Plan, options to purchase 200,000 shares of
Common Stock under the 1993 Stock Option Plan, options to purchase 320,000
shares of Common Stock under the 1986 Non- Qualified Stock Option Plan and
options to purchase 214,577 shares of Common Stock under the 1983 Incentive
Stock Option Plan.
(9) Includes 150 shares of Common Stock held by David Savitsky's wife. Mr.
Savitsky disclaims beneficial ownership of these shares.
(10) Includes 1,000 shares of Common Stock held by Dr. Firestone's wife. Dr.
Firestone disclaims beneficial ownership of these shares.
(11) Includes options to purchase 1,500 shares of Common Stock under the 1986
Non-Qualified Stock Option Plan.
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
(12) Includes options to purchase 25,000 shares of Common Stock under the 1994
Performance-Based Stock Option Plan, options to purchase 20,000 shares of
Common Stock under the 1986 Non-Qualified Stock Option Plan and options to
purchase 60,000 shares of Common Stock under the 1983 Incentive Stock
Option Plan.
(13) Includes options to purchase 12,500 shares of Common Stock under the 1994
Performance-Based Stock Option Plan, options to purchase 20,000 shares of
Common Stock under the 1986 Non-Qualified Stock Option Plan and options to
purchase 50,000 shares of Common Stock under the 1983 Incentive Stock
Option Plan.
(14) Includes options to purchase 12,500 shares of Common Stock under the 1994
Performance-Based Stock Option Plan, options to purchase 15,000 shares of
Common Stock under the 1986 Non-Qualified Stock Option Plan and options to
purchase 17,800 shares of Common Stock under the 1983 Incentive Stock
Option Plan.
(15) Includes options to purchase 7,500 shares of Common Stock under the 1994
Performance-Based Stock Option Plan and options to purchase 1,000 shares of
Common Stock under the 1986 Non-Qualified Stock Option Plan.
(16) S Squared Technology Corp. ("S Squared"), a registered investment adviser,
is located at 515 Madison Avenue, New York, New York 10022. Includes
3,039,000 shares for which S Squared has sole voting and sole investment
power and 142,000 shares for which S Squared has shared voting and sole
investment power. The shares are owned by limited partnerships for which S
Squared is the sole general partner, by advisory clients of S Squared, and
by Seymour Goldblatt, the principal of S Squared, and members of his
family.
(17) HCIM, a registered investment adviser, is located at 675 Third Avenue, New
York, New York 10017. HCIM has shared voting and shared dispositive power
with respect to these shares. Such shares are owned by advisory clients of
HCIM.
(18) Includes options to purchase 557,500 shares of Common Stock under the 1994
Performance-Based Stock Option Plan, options to purchase 400,000 shares of
Common Stock under the 1993 Stock Option Plan, options to purchase 711,500
shares of Common Stock under the 1986 Non-Qualified Stock Option Plan and
options to purchase 556,954 shares of Common Stock under the 1983 Incentive
Stock Option Plan.
(19) The approval of holders of two-thirds of the shares of Class A Preferred
Stock is required to approve certain business combinations with respect to
the Company.
(20) Each person has sole power with respect to the voting and investment of the
shares which he owns.
</TABLE>
18
<PAGE>
PROPOSAL 2 -- ELECTION OF CLASS B DIRECTORS
The Board of Directors is divided into three classes. One class is elected
each year to hold office for a three-year term. Class B is the class whose term
will expire at the Annual Meeting. This class consists of two directors, Dr.
Bernard J. Firestone and Mr. Donald Meyers, who are nominees of the Board of
Directors. Each nominee for Class B Director, if elected by a majority of the
votes cast at the Annual Meeting, will serve until the 1998 Annual Meeting and
until his successor is elected and qualified. Unless otherwise instructed by the
stockholders, it is intended that the shares represented by the proxies in the
accompanying form will be voted for such nominees. If either nominee should
become unavailable to serve for any reason, which the Board of Directors does
not presently anticipate, the proxies will be voted for any substitute nominee
who may be selected by the Board of Directors prior to or at the meeting, the
Board of Directors may reduce the number of directors to eliminate the vacancy
for which the unavailable nominee was nominated or the Board of Directors may
elect to fill the vacancy at a later date after selecting an appropriate
nominee.
In addition to the Class B Directors, the Board of Directors consists of
three other directors. Mr. Stephen Savitsky is a Class C Director whose term
expires at the 1996 Annual Meeting and Mr. David Savitsky and Dr. Jonathan J.
Halpert are Class A Directors whose terms expire at the 1997 Annual Meeting.
The Company's By-Laws require that notice of nomination of persons for
election to the Board of Directors, other than those made by the Board of
Directors, must be submitted in writing to the Secretary of the Company not less
than thirty nor more than sixty days prior to the Annual Meeting. The notice
must set forth certain information concerning the nominees and the stockholders
making the nominations. Also, within the same period, the Secretary of the
Company must receive each nominee's written consent to being a nominee and a
statement of intention to serve as a director, if elected.
Each of the nominees for Class B Director named in this Proxy Statement has
filed with the Company a written consent to being a nominee and a statement of
intention to serve as a director, if elected.
The following table sets forth as to the nominees for election (shown by an
asterisk), each other director and each executive officer: (1) such person's
name, business or residence address and citizenship; (2) the year in which such
person was first elected (or designated) a director of the Company; (3)
biographical information for the last five years; (4) certain other
directorships, if any, held by such person; and (5) such person's age.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING THE PAST
FIVE YEARS, ANY OFFICE HELD IN THE YEAR FIRST ELECTED
NAME, ADDRESS AND CITIZENSHIP AGE COMPANY AND ANY OTHER DIRECTORSHIPS AS A DIRECTOR
------------------------------------------- --- ------------------------------------------------- ------------------
<S> <C> <C> <C>
Stephen Savitsky .......................... 49 A founder of the Company, Mr. Savitky has served 1983
Staff Builders, Inc. as Chairman of the Board, Chief Executive Officer
1983 Marcus Avenue and a Director of the Company since 1983 (and of
Lake Success, New York 11042 its predecessor from 1978 to 1983), and as
(United States) President of the Company since November 1991. Mr.
Savitsky is the brother of David Savitsky.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING THE PAST
FIVE YEARS, ANY OFFICE HELD IN THE YEAR FIRST ELECTED
NAME, ADDRESS AND CITIZENSHIP AGE COMPANY AND ANY OTHER DIRECTORSHIPS AS A DIRECTOR
------------------------------------------- --- ------------------------------------------------- ------------------
<S> <C> <C> <C>
David Savitsky ............................ 47 A founder of the Company, Mr. Savitsky has served 1983
Staff Builders, Inc. as Secretary, Treasurer and a Director of the
1983 Marcus Avenue Company since 1983 (and of its predecessor from
Lake Success, New York 11042 1978 to 1983), as Executive Vice President since
(United States) December 1987 and as Chief Operating Officer
since April 1991. Mr. Savitsky is the brother of
Stephen Savitsky.
Jonathan J. Halpert, Ph.D. ................ 50 Dr. Halpert was elected a Director by the Board 1983
Camelot Community Residence of Directors in August 1987. He previously served
Program as a Director of the Company from May 1983 until
5 Roosevelt Avenue he resigned from the Board in February 1985. Dr.
Port Jefferson Station, New York Halpert is a consultant in the area of
11776 deinstitutionalization of the mentally retarded
(United States) and Chief Executive Officer of the Camelot
Community Residence Program.
*Bernard J. Firestone, Ph.D. .............. 46 Dr. Firestone was elected a Director by the Board 1987
Hofstra University of Directors in August 1987. He is an associate
200 Hegar Hall professor of political science at Hofstra
Hempstead Turnpike University where he has been teaching for 19
Hempstead, New York 11550 years.
(United States)
*Donald Meyers ............................ 66 Mr. Meyers was elected a Director by the Board of 1994
R.M.R. Health & Hospital Directors in August 1994. He has been an
Management Consultants, Inc. Associate Clinical Professor, Health Policy and
160-63 25th Drive Management, and the Director of the Resident and
Flushing, New York 11358 Fellow Program in administration at New York
(United States) University's Robert W. Wagner Graduate School of
Public Service, located at 40 W. 4th Street, New
York, New York 10012, since November 1991. Mr.
Meyers is also the President and sole director
and stockholder of RMR Health & Hospital
Management Consultants, Inc. ("RMR Health"), a
health care consulting firm, where he has been an
executive officer, director and stockholder since
1976. From November 1986 through November 1991,
Mr. Meyers served as a Special Consultant in
health care matters to the accounting firm of
KPMG Peat Marwick, located at 345 Park Avenue,
New York, New York.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING THE PAST
FIVE YEARS, ANY OFFICE HELD IN THE YEAR FIRST ELECTED
NAME, ADDRESS AND CITIZENSHIP AGE COMPANY AND ANY OTHER DIRECTORSHIPS AS A DIRECTOR
------------------------------------------- --- ------------------------------------------------- ------------------
<S> <C> <C> <C>
Gary Tighe ................................ 46 Mr. Tighe has been Senior Vice President, Finance Not Applicable
Staff Builders, Inc. and Chief Financial Officer of the Company since
1983 Marcus Avenue April 1991. From June 1990 through April 1991,
Lake Success, New York 11042 Mr. Tighe was self-employed as a certified public
(United States) accountant.
Sharon E. Hamilton ........................ 51 Ms. Hamilton has been Executive Vice President, Not Applicable
Staff Builders, Inc. Health Care Operations of a principal subsidiary
1983 Marcus Avenue of the Company since February 1995. From November
Lake Success, New York 11042 1991 until February 1995, Ms. Hamilton served as
(United States) Senior Vice President, Healthcare Operations of a
principal subsidiary of the Company. From May
1989 through December 1990, Ms. Hamilton was
President of Partners In Care, a home health care
company located at 5 Penn Plaza, New York, New
York.
Edward Teixeira ........................... 52 Mr. Teixeira has been Senior Vice President, Not Applicable
Staff Builders, Inc. Franchising of a principal subsidiary of the
1983 Marcus Avenue Company since December 1990. From March 1989 to
Lake Success, New York 11042 December 1990, he was Vice President, Franchise
(United States) Operations of a principal subsidiary of the
Company.
Cynthia Nye ............................... 43 Ms. Nye has been Senior Vice President, Corporate Not Applicable
Staff Builders, Inc. Support of a principal subsidiary of the Company
1983 Marcus Avenue since November 1994. From January 1992 through
Lake Success, New York 11042 November 1994, Ms. Nye served as Vice President,
(United States) Corporate Support of a principal subsidiary of
the Company. From 1983 to 1991, Ms. Nye served as
the Chief Financial Officer of United Cerebral
Palsy of New York State, a not-for-profit health
care organization located at 330 West 34th
Street, New York, New York 10001.
</TABLE>
OPERATION OF THE BOARD OF DIRECTORS
The Board of Directors is responsible for the overall affairs of the
Company. To assist it in carrying out its duties, certain authority has been
delegated to standing committees of the Board.
Each director who is not an officer or employee of the Company receives a
fee of $10,000 per annum for service on the Company's Board of Directors.
Directors who are officers or employees of the Company receive no fees for
service on the Board.
The Board of Directors held five meetings and acted by written consent on
eleven occasions during the fiscal year ended February 28, 1995.
21
<PAGE>
COMMITTEES OF THE BOARD
The Executive Committee, the Audit Committee and the Compensation and Stock
Option Committee are the only standing committees of the Board of Directors.
Membership is as follows:
<TABLE>
<CAPTION>
COMPENSATION
EXECUTIVE AUDIT AND STOCK OPTION
-------------------- ------------------------ ------------------------
<S> <C> <C>
Stephen Savitsky Bernard J. Firestone Bernard J. Firestone
David Savitsky Jonathan J. Halpert Jonathan J. Halpert
Donald Meyers
</TABLE>
The Executive Committee is authorized to exercise all powers of the Board
when the Board is not in session, except as to matters upon which action by the
Board itself is required.
The Audit Committee generally assists the Board with respect to accounting,
auditing and reporting practices.
The Compensation and Stock Option Committee determines the cash and other
incentive compensation, if any, to be paid to the Company's executive officers
and other key employees. In addition, it administers the 1983 Incentive Stock
Option Plan, 1986 Non-Qualified Stock Option Plan, 1993 Stock Option Plan, 1993
Employee Stock Purchase Plan, 1994 Performance-Based Stock Option Plan and the
Teamwork Incentive Program.
The Executive Committee held five meetings and the Audit Committee held two
meetings during the fiscal year ended February 28, 1995. The Compensation and
Stock Option Committee acted by written consent on eleven occasions during the
fiscal year ended February 28, 1995.
COMPLIANCE WITH SECTION 16(A) OF SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own beneficially more than ten
percent of the Common Stock to file with the Securities and Exchange Commission
initial reports of beneficial ownership and reports of changes in beneficial
ownership of the Common Stock. Officers, directors and persons owning more than
ten percent of the Common Stock are required to furnish the Company with copies
of all such reports. To the Company's knowledge, based on a review of copies of
such reports furnished to the Company and written representations from its
officers and directors that no other reports were required, during the fiscal
year ended February 28, 1995, all Section 16(a) filing requirements applicable
to its executive officers, directors and persons owning beneficially more than
ten percent of the Common Stock were complied with on a timely basis.
22
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation of the Company's Chief Executive Officer and the other
four most highly compensated executive officers (the "Named Executive Officers")
for services as executive officers of the Company for the last three fiscal
years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
AWARDS
ANNUAL COMPENSATION -------------
------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS (#)
-------------------------------------------------- --------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Stephen Savitsky.................................. 1995 $ 372,073 $ 16,950 -- 1,000,000
Chairman, President and 1994 $ 330,298 -- -- 339,270
Chief Executive Officer 1993 $ 292,312 -- -- 150,000
David Savitsky.................................... 1995 $ 269,999 $ 16,950 -- 1,000,000
Executive Vice President, Chief 1994 $ 240,217 -- $ 27,862(1) 339,270
Operating Officer, Secretary and Treasurer 1993 $ 212,591 -- $ 27,811(2) 150,000
Sharon E. Hamilton................................ 1995 $ 174,308 $ 8,475 -- 50,000
Executive Vice President, 1994 $ 158,917 -- -- 20,000
Health Care Operations 1993 $ 143,770 -- -- 50,000
Gary Tighe........................................ 1995 $ 139,458 $ 8,475 -- 100,000
Senior Vice President, Finance and 1994 $ 128,025 -- -- 50,000
Chief Financial Officer 1993 $ 124,123 -- -- 50,000
Edward Teixeira................................... 1995 $ 141,639 $ 5,085 -- 50,000
Senior Vice President, Franchising 1994 $ 129,159 -- -- --
1993 $ 121,384 -- -- 25,000
<FN>
------------------------
(1) Includes a $13,000 expense allowance and $14,862 for an automobile
furnished for David Savitsky's business and personal use.
(2) Includes a $13,000 expense allowance and $14,811 for an automobile
furnished for David Savitsky's business and personal use.
</TABLE>
23
<PAGE>
OPTION GRANTS TABLE
The following table sets forth information with respect to the Named
Executive Officers concerning the grant of stock options during the fiscal year
ended February 28, 1995. The Company did not have during such fiscal year, and
currently does not have, any plans providing for the grant of stock appreciation
rights ("SARs").
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
-------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE
GRANTED IN FISCAL OR BASE EXPIRATION GRANT DATE
NAME (#) YEAR PRICE (3) DATE PRESENT VALUE (2)
--------------------------------------------- ----------- ----------- ----------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Stephen Savitsky............................. 1,000,000 42.7% 3.136 10/01/04 $ 1,567,500
David Savitsky............................... 1,000,000 42.7% 3.136 10/01/04 $ 1,567,500
Sharon E. Hamilton........................... 50,000 2.1% 3.136 10/01/04 $ 78,375
Gary Tighe................................... 100,000 4.3% 3.136 10/01/04 $ 156,750
Edward Teixeira.............................. 50,000 2.1% 3.136 10/01/04 $ 78,375
<FN>
------------------------
(1) All options granted to the Named Executive Officers during the last fiscal
year were granted on October 1, 1994, under the 1994 Performance-Based
Stock Option Plan. The terms of the Plan provide that options are not
exercisable during the first six months following the date of grant. The
options also are subject to a performance-based condition to
exercisability: 25% of the options granted become exercisable if the
closing price of the Company's Common Stock exceeds the exercise price of
the options by 10% or more for ten consecutive trading days prior to the
first anniversary of the date of grant; 50% of the options granted (less
any that have previously become exercisable) become exercisable if the
closing price of the Company's Common Stock exceeds the exercise price of
the options by 20% or more for ten consecutive trading days during the
second year following the date of grant; 75% of the options granted (less
any that have previously become exercisable) become exercisable if the
closing price of the Company's Common Stock exceeds the exercise price of
the options by 30% or more for ten consecutive trading days during the
third year following the date of grant; and 100% of the options granted
(less any that have previously become exercisable) become exercisable if
the closing price of the Company's Common Stock exceeds the exercise price
of the options by 40% or more for ten consecutive trading days during the
fourth year following the date of grant. Options may also become
exercisable following a change of control of the Company, the amount
depending on when the change of control occurs and the price per share of
Common Stock paid to effect the change of control. The performance target
for the first year was achieved on February 7, 1995, and accordingly 25% of
the options granted to each of the Named Executive Officers became
exercisable on April 1, 1995, at the end of the initial six month
restricted period.
(2) The values shown were calculated utilizing the Black-Scholes option pricing
model and are presented solely for the purpose of comparative disclosure in
accordance with certain regulations of the SEC. This model is a
mathematical formula used to value traded stock price volatility. The
actual value that an executive officer may realize, if any, is dependent on
the amount by which the stock price at the time of exercise exceeds the
exercise price. There is no assurance that the value realized by an
executive officer will be at or near the value estimated by the
Black-Scholes model. In calculating the grant date present values, the
Company used the following assumptions: (a) expected volatility of 22%; (b)
risk-free rate of return of 7.25%; (c) no dividends payable during the
relevant period; and (d) exercise at the end of a 10 year period from the
date of grant. An adjustment of 25% has been made for the performance-based
condition to exercisability described in Footnote 1 above. No adjustment
has been made for non-transferability.
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
(3) Pursuant to the terms of the 1994 Performance-Based Stock Option Plan, the
exercise price of options granted to the Named Executive Officers during
the last fiscal year was computed on the basis of the average of the
closing prices of the Company's Common Stock for the 20 consecutive trading
days preceding the granting of the options on October 1, 1994.
</TABLE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table provides information concerning the number and value of
stock options exercised during the fiscal year ended February 28, 1995, and held
at the end of such fiscal year, by the Named Executive Officers. No SARs were
exercised during such fiscal year, and no SARs are held by any Named Executive
Officer, because the Company does not have any plans providing for SARs.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FEBRUARY 28, 1995 AT FEBRUARY 28, 1995
SHARES -------------------- --------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
------------------------------ --------------- -------- -------------------- --------------------
<S> <C> <C> <C> <C>
Stephen Savitsky.............. -- -- 1,053,863 / $ 1,308,684 /
1,133,407 $ 651,090
David Savitsky................ -- -- 1,018,863/ $ 1,246,839/
1,133,407 $ 651,090
Sharon E. Hamilton............ -- -- 53,332/ $ 69,131/
86,668 $ 52,769
Gary Tighe.................... 20,000 $ 50,000 60,000/ $ 78,700/
160,000 $ 110,700
Edward Teixeira............... -- -- 27,800/ $ 38,757/
65,000 $ 33,825
</TABLE>
EMPLOYMENT AGREEMENTS
On June 1, 1987, the Company entered into a five year employment agreement
with Stephen Savitsky under which Mr. Savitsky received an initial base salary
(beginning in June 1987) of $200,000 per year, which base salary increases
annually at the rate of ten percent plus any increase in the cost of living. Mr.
Savitsky's employment agreement is automatically extended at the end of each
year for an additional year and is terminable by the Company upon five years'
notice. For the fiscal year ended February 28, 1995, Mr. Savitsky received a
base salary of $372,073. Mr. Savitsky's employment agreement provides that, upon
a "change of control" of the Company and his termination of employment other
than for his conviction for a felony, he will be entitled to receive a lump sum
severance payment equal to 2.99 times his average annual compensation for the
five calendar years prior to termination. Mr. Savitsky is required to devote all
of his business time to the affairs of the Company and his employment agreement
provides that during the term of his employment and for a period of six months
thereafter he will not compete with the Company. After termination of his
employment (other than by reason of his conviction of a felony), Mr. Savitsky
will provide consulting services to the Company for a period of ten years at an
annual salary of $50,000.
The Company entered into an employment agreement, effective as of June 1,
1987, with David Savitsky on terms substantially similar to the employment
agreement with Stephen Savitsky, except that his initial base salary was
$110,000 per year. Under his employment agreement, Mr. Savitsky is required to
devote all of his business time to the affairs of the Company. His base salary
for the fiscal year ended February 28, 1995, was $269,999.
As of May 15, 1993, the Company entered into a 47-month employment agreement
with Gary Tighe under which Mr. Tighe receives a base salary of $128,532 per
year, which base salary increases
25
<PAGE>
by 10% per annum each April 15. Mr. Tighe's salary for the fiscal year ended
February 28, 1995, was $139,458. He also receives an automobile allowance of
$6,000 per annum. The employment agreement obligates Mr. Tighe to devote all of
his business time to the affairs of the Company and provides that during the
term of his employment and for one year thereafter he will not compete with the
Company. Upon a "change of control" of the Company and termination of Mr.
Tighe's employment for any reason (other than for his conviction for a felony)
within 12 months after such change of control, he will be entitled to receive a
lump sum severance payment equal to 2.99 times his average annual compensation
for the five calendar years prior to termination.
The Company entered into a two-year employment agreement with Edward
Teixeira to serve as Senior Vice President, Franchising of a principal
subsidiary of the Company until November 30, 1993. On July 26, 1993, that
principal subsidiary of the Company entered into an agreement with Mr. Teixeira
whereby he would continue to serve in such capacity for three additional years,
until November 30, 1996. Under his employment agreement, Mr. Teixeira is
obligated to devote his full business time to the affairs of the Company. Mr.
Teixeira receives a base salary of $126,000 per year, which base salary
increases by a minimum of 8% per annum. Mr. Teixeira's base salary for the
fiscal year ended February 28, 1995, was $141,639. He also receives an
automobile allowance of $6,600 per annum. Further, if within 90 days after a
"change of control" Mr. Teixeira were terminated for any reason (other than the
commission of a felony or the perpetration of fraud against the Company), he
would then be entitled to receive an amount equal to six months' salary. The
employment agreement prevents Mr. Teixeira from competing with the Company for
six months after his employment is terminated.
As of May 1, 1993, a principal subsidiary of the Company entered into a
three-year employment agreement with Sharon Hamilton. Ms. Hamilton's base salary
for the fiscal year ended February 28, 1995, was $174,308. This agreement
currently provides for the payment of a base salary to Ms. Hamilton at the
annual rate of $186,000 for the remainder of the term ending May 1, 1996. Ms.
Hamilton also receives an automobile allowance of $6,000 per year. In the event
Ms. Hamilton is terminated other than for cause, she will then be entitled to
receive her base salary payable in weekly installments for the remainder of the
term expiring May 1, 1996. Upon a "change of control" and her resignation or the
involuntary termination of her employment (other than for cause) within 12
months after such change of control, she will then be entitled to receive a lump
sum severance payment equal to 12 months of her annual base salary then in
effect. The employment agreement entitles Ms. Hamilton to receive 5% of the
amount, if any, made available under the Teamwork Incentive Program for the
1994, 1995 and 1996 fiscal years of the Company. Under the Teamwork Incentive
Program, the Company can award its officers and other corporate employees with
cash payments if the Company achieves certain levels of profitability. The
aggregate amount payable under the Teamwork Incentive Program for a fiscal year
equals 10% of the amount by which the Company's income from continuing
operations before income taxes (excluding extraordinary items) for that fiscal
year exceeds a specified percentage determined by the Board of Directors for
that fiscal year, subject to any limits on total payments during that fiscal
year as established by the Board. Ms. Hamilton received $8,475 for fiscal 1995
under the Teamwork Incentive Program. The employment agreement obligates Ms.
Hamilton to devote her full business time to the affairs of the Company and
prevents her from competing with the Company during her employment or, if she
resigns or is terminated for cause, through May 1996.
If a "change of control" were to occur prior to the next anniversary date of
the respective employment agreements of Stephen Savitsky, David Savitsky, Gary
Tighe, Edward Teixeira and Sharon Hamilton and such officers' employment
relationship with the Company were to terminate for reasons triggering the
severance payments noted above, then the Company would be obligated to make lump
sum payments to them in the approximate amounts of $940,000, $683,000, $673,000,
$76,000 and $186,000, respectively. The lump sum severance payments payable
after the end of the calendar year or the anniversary dates of the respective
employment agreements, as the case may be, would change as a result of changes
in such individuals' compensation. The term "change of control"
26
<PAGE>
as used in the employment agreements with the Company's executive officers
refers to an event in which a person, corporation, partnership, association or
entity (i) acquires a majority of the Company's outstanding voting securities,
(ii) acquires securities of the Company bearing a majority of voting power with
respect to election of directors of the Company, or (iii) acquires all or
substantially all of the Company's assets.
COMPENSATION AND STOCK OPTION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
GENERAL
The Compensation and Stock Option Committee (hereinafter, the "Committee")
determines the cash and other incentive compensation, if any, to be paid to the
Company's executive officers and other key employees. In addition, the Committee
administers the Company's 1983 Incentive Stock Option Plan, 1986 Non-Qualified
Stock Option Plan, 1993 Stock Option Plan, 1993 Employee Stock Purchase Plan,
1994 Performance-Based Stock Option Plan and Teamwork Incentive Program. The
Committee currently consists of Bernard J. Firestone and Jonathan J. Halpert,
each of whom is a non-employee director of the Company and a "disinterested
director" (within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934).
COMPENSATION PHILOSOPHY
The Committee has developed and implemented a compensation program that is
designed to attract, motivate, reward and retain the broad-based management
talent required to achieve the Company's business objectives and increase
stockholder value. There are three major components of the Company's
compensation program: base salary, short-term incentive compensation, including
annual bonuses, and long-term incentive compensation, including stock options.
These components are intended to provide management with incentives to aid the
Company in achieving both its short-term and long-term objectives. While salary
and bonus provide incentives to achieve short-term objectives, the Committee
believes that the potential for equity ownership by management addresses the
long-term objective of aligning management's and stockholders' interests in the
enhancement of stockholder value.
The Committee's executive compensation philosophy is to base management's
pay, in part, on the achievement of the Company's annual and long-term
performance goals, to provide competitive levels of compensation and to
recognize individual initiative, achievement and length of service to the
Company. The Committee does not assess these factors in a mechanical fashion,
but rather relies on its business experience in making a subjective evaluation
of the appropriate level and mix of compensation for each executive officer and
key employee.
The Committee evaluates the Company's performance by reviewing period to
period changes in such quantitative measures of performance as stock price,
revenue, net income and earnings per share.
During the Company's most recently completed fiscal year, the Company's
revenues grew by 32% over fiscal 1994 to a record $325.1 million while income
from operations improved 41% over fiscal 1994 to $4.73 million. Despite a
nonrecurring gain of $.03 per share during fiscal 1994 and a 19% increase in the
weighted average number of shares outstanding during fiscal 1995, the Company
maintained its earnings per common share at $.20 per share, reflecting an 18%
increase in earnings per share from operations during fiscal 1995 over fiscal
1994. The Committee also considers such qualitative performance criteria as the
development of new business strategies and resources, and improvements in
customer satisfaction and cost management. During fiscal 1995, the Company
opened 28 new offices and improved the terms of its banking relationship. The
Company experienced a significant 33% increase in its pre-tax operating margin
to 2.52% in fiscal 1995 over its prior fiscal year. The Company also reduced
long-term debt by 35% and increased stockholders' equity by 28% during fiscal
1995, leaving the Company with a debt to equity ratio of 17% at February 28,
1995, down from 34% at the end of fiscal 1994.
27
<PAGE>
The Committee believes that it competes for executives not only with the
companies comprising the New Peer Group Index described below under the heading
"Performance Graph" but also with numerous other companies in the home health
care, supplemental staffing and temporary personnel industries that are actively
seeking executives having the same type of skills and experience as the
Company's executives. The Committee has not made a statistical analysis of the
compensation practices of these competitors, but tries to keep itself generally
informed of such practices. The Committee believes that, notwithstanding the
variety of compensation packages offered by these competitors which make
objective comparisons difficult, the compensation paid by the Company to its
executive officers and other key employees is above average, reflecting the
Company's relative size and desire to retain its current employees.
The Committee also considers other subjective factors bearing on the
appropriate compensation for each of its executive officers and other key
employees, such as the length of an employee's service with the Company, which
the Committee believes enhance the value of the employee to the Company. The
Committee takes note of the individual initiative demonstrated by such officers
and employees in the development and implementation of the Company's business
plan. Where appropriate, the Committee will consider the performance of specific
divisions or departments of the Company for which the employee has direct
supervisory responsibility.
When the Company identifies a talented executive, it seeks to secure his or
her employment for a long term. For this reason, the Company has entered into
employment contracts with its executive officers, each of which provides for a
specified base salary. The existence of these employment agreements establishes
certain minimum salary and benefit levels for each covered employee during the
term of such employee's agreement which may not be reduced by the Committee. The
Committee is able, however, to apply its compensation philosophy at the time
each such employment agreement is negotiated or renewed and in determining what,
if any, additional compensation, including bonuses or issuances of stock or
stock options, is appropriate beyond the minimums established by each employment
agreement.
The particular components of executive compensation employed by the Company
are discussed in greater detail below.
SALARIES
Base salaries for the Company's executive officers and other key employees
are determined initially by evaluating the responsibilities of the position held
and the experience of the individual in light of the Committee's compensation
philosophy discussed above. No specific formula is applied in setting an
employee's base salary, either with respect to the total amount of such base
salary or the relative value such base salary should bear to the employee's
total compensation package. The Committee believes that the base salaries paid
by the Company should be maintained at levels at least competitive with those
offered by companies with which the Company competes for executive talent in
order to attract and retain executive officers and other key employees of the
caliber that the Company desires.
The base salaries for the Company's executive officers and other key
employees are reflected in the employment agreements negotiated by the Company
with each such employee and are accordingly subject to formal review only at the
time each such contract is entered into or renewed. No such contract was entered
into or renewed during the Company's most recently completed fiscal year.
ANNUAL BONUSES AND INCENTIVE COMPENSATION
The payment of bonuses and other incentive compensation is an important
motivating factor in recognizing an executive's performance each year. For this
reason, the Company adopted a Teamwork Incentive Program commencing with the
Company's 1993 fiscal year to award its officers, including executive officers,
and other corporate employees with cash payments if the Company achieves certain
levels of profitability. Annual payments are made under the Teamwork Incentive
Program in an aggregate amount equal to 10% of the amount by which income from
continuing operations before
28
<PAGE>
income taxes (excluding extraordinary items) for a fiscal year exceeds a
specified percentage of the Company's revenues, as determined by the Board of
Directors. For the fiscal year ended February 28, 1995, and for the fiscal year
ending February 29, 1996, such percentage was and will be 2%. Any amounts
distributed to executive officers of the Company under the Program are
determined by the Committee. In determining the allocation of the annual
payments under the Program, including those to executive officers, and subject
to the right of Sharon Hamilton under her employment agreement to receive 5% of
any payments made under such Program, the Committee considers the same factors
as it considers in setting base salaries. For fiscal 1995, an aggregate of
approximately $169,500 was available for the payment of bonuses under the terms
of the Teamwork Incentive Program. From this amount and in addition to the bonus
awarded to Stephen Savitsky (described below), the Committee awarded bonuses to
David Savitsky, Sharon Hamilton, Gary Tighe and Edward Teixeira of $16,950;
$8,475; $8,475; and $5,085, respectively, in recognition of their efforts which
resulted in the Company's meeting its performance goals under the Teamwork
Incentive Program.
STOCK OPTION PLANS
To promote the long-term objectives of the Company and encourage growth in
stockholder value, options are granted to key executives who are in a position
to make a substantial contribution to the long-term success of the Company. We
believe that the executive officers should benefit together with stockholders as
the Company's stock increases in value. Stock options focus the executives'
efforts on managing the Company from the perspective of an owner with an equity
stake in the business. Because the Company views stock option grants as a part
of the executive officer's total annual compensation package, the amount of
stock options outstanding at the time of a new grant or granted in prior years
does not serve to increase or decrease the size of the new grant.
In the fiscal year ended February 28, 1995, in addition to the options
granted to Stephen Savitsky (described below), the Committee awarded stock
options under the 1994 Performance-Based Stock Option Plan to David Savitsky,
Sharon Hamilton, Gary Tighe and Edward Teixeira to purchase 1,000,000 shares,
50,000 shares, 100,000 shares and 50,000 shares, respectively. It is the
philosophy of the Committee that stock options should be awarded to executive
officers of the Company to promote long-term interests between such individuals
and the Company's stockholders and to assist in the retention of such
individuals. The 1994 Performance-Based Stock Option Plan imposes a
performance-based condition to exercisability on each option granted, making it
particularly well-suited for these purposes. The options granted to the
Company's key executive officers in fiscal 1995 under this Plan become
exercisable over a four year period following the date of grant if and only if
the Company experiences certain specified increases in the price of its Common
Stock, thus closely linking the interests of these key executive officers with
those of the Company's stockholders. As with the other components of executive
compensation, the Committee does not apply any fixed formula to determine the
appropriate number of options to grant to an executive but rather relies on its
subjective judgment in applying the compensation philosophy described above. In
order to avoid any adverse effect on the Company's earnings or cash flow, the
Committee has generally relied much more on the granting of stock options rather
than the award of cash bonuses as a means of rewarding the Company's executive
officers and other key employees.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Committee applies the same factors in considering Stephen Savitsky's
compensation that it applies to the Company's other executive officers and key
employees. Mr. Savitsky's five-year employment agreement establishes his annual
minimum base salary, including the amount of his minimum annual salary
adjustment (see "Executive Compensation and Other Information -- Employment
Agreements"). The Committee may reduce this base salary only at the time a new
agreement is negotiated, although the Committee does have the ability to award
Mr. Savitsky additional base salary and to give the five year notice necessary
to terminate the agreement. During the fiscal year ended February 28, 1995, the
Committee neither gave notice of termination nor awarded Mr. Savitsky any
additional base salary and he accordingly received a base salary of $372,073
under the terms of his
29
<PAGE>
employment agreement. During the last fiscal year, Mr. Savitsky's efforts
contributed to the Company's 32% increase in revenues, 18% increase in earnings
per share from operations, 33% increase in pre-tax operating margin and 28%
increase in stockholders' equity over fiscal 1994. As Chief Executive Officer,
Mr. Savitsky was responsible for overseeing the opening of 28 new offices and
the renegotiation of the Company's banking relationship during fiscal 1995. In
light of these accomplishments and the Company's success in meeting its goals
under the Teamwork Incentive Program, the Committee awarded Mr. Savitsky a bonus
of $16,950 under the Teamwork Incentive Program for the fiscal year ended
February 28, 1995.
With respect to long-term incentives, the Committee considers it important
to link Mr. Savitsky's compensation closely to stockholder interests and for
that reason the Committee approved the grant to him of 1,000,000 options under
the 1994 Performance-Based Stock Option Plan during the fiscal year ended
February 28, 1995. These options will provide Mr. Savitsky with a strong
incentive to work toward an increase in the price of the Company's Common Stock
and, in light of the significant increase in the number of outstanding shares of
the Company's Common Stock during fiscal 1995, will continue to provide Mr.
Savitsky with a substantial interest in the Company. In approving the grant of
these options to Mr. Savitsky, the Committee also applied the other compensation
philosophy factors described above. As with the stock options granted to the
other executive officers and key employees of the Company, the stock options
granted to Mr. Savitsky were used in part to reward Mr. Savitsky without payment
of a substantial cash bonus which the Committee might otherwise have favored.
Compensation and Stock Option
Committee
Bernard J. Firestone
Jonathan J. Halpert
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<PAGE>
PERFORMANCE GRAPH
The following Performance Graph compares the total cumulative return
(assuming dividends are reinvested) on the Company's Common Stock during the
five fiscal years ended February 28, 1995, with the cumulative return on the
NASDAQ Market Index, a New Peer Group Index and an Old Peer Group Index,
assuming investment of $100 in the Company's Common Stock, the NASDAQ Market
Index, the New Peer Group Index and the Old Peer Group Index at closing stock
prices on February 28, 1990. The New Peer Group selected by the Company consists
of The Olsten Corporation, Uniforce Temporary Personnel, Inc., In Home Health
Inc., Hooper Holmes Inc. and Hospital Staffing Services, Inc. The New Peer Group
consists of a representative group of companies whose common stock has been
publicly-traded during the five years ended February 28, 1995, and each of
which, like the Company, engages in providing home health care and temporary
personnel services. Last year, the Company's performance graph included Adia
Services, Inc. and did not include In Home Health Inc., Hooper Holmes Inc. and
Hospital Staffing Services, Inc. Adia Services, Inc. was unavailable for this
year's Peer Group because it was acquired by a foreign corporation in January
1995 and its common stock was no longer actively traded on February 28, 1995.
The Old Peer Group Index consists only of The Olsten Corporation and Uniforce
Temporary Personnel, Inc., the two remaining companies from the peer group index
used by the Company last year.
The Performance Graph below is presented in accordance with SEC
requirements. Stockholders are cautioned against drawing any conclusions from
the data contained herein, as past results are not necessarily indicative of
future stock performance. The Performance Graph in no way reflects the Company's
forecast of future stock price performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
OF COMPANY, NEW PEER GROUP AND BROAD MARKET
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
----------------------------------------------------------------
COMPANY 1990 1991 1992 1993 1994 1995
------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Staff Builders, Inc........................ 100 41.67 116.67 108.33 180.56 161.11
New Peer Group............................. 100 111.21 192.46 251.63 276.36 286.87
Broad Market............................... 100 104.75 115.76 115.95 147.74 141.05
</TABLE>
The Broad Market Index Chosen was:
NASDAQ Market Index
The New Peer Group is made up of the following Securities:
Hooper Homes Inc
Hospital Staffing Svcs
In Home Health Inc
Olsten CP
Uniforce Temp Personnel
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
OF COMPANY, OLD PEER GROUP AND BROAD MARKET
31
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
----------------------------------------------------------------
COMPANY 1990 1991 1992 1993 1994 1995
------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Staff Builders, Inc........................ 100 41.67 116.67 108.33 180.56 161.11
Old Peer Group............................. 100 104.79 178.39 264.79 301.18 326.84
Broad Market............................... 100 104.75 115.76 115.95 147.74 141.05
</TABLE>
The Broad Market Index Chosen was:
NASDAQ Market Index
The Old Peer Group is made up of the following Securities:
Olsten CP
Uniforce Temp Personnel
32
<PAGE>
CERTAIN TRANSACTIONS
Effective April 1, 1992, the Company approved the sale by CTR Management
Corp. ("CTR") of a Staff Builders franchise for Nassau County, New York to Bayit
Care Corp. ("BCC"). The shareholders, officers and directors of BCC are Stuart
Savitsky, son of Stephen Savitsky, Chairman of the Board, President and Chief
Executive Officer of the Company, Samuel Schreier, the son-in-law of Stephen
Savitsky, and Julie Schreier, the daughter of Stephen Savitsky. The terms and
conditions of the franchise agreement between the Company and BCC, entered into
at the time of the sale, are substantially similar to those for other
franchisees of the Company, including the term of ten years with a five year
renewal option. In connection with the acquisition of its franchise, CTR
purchased certain assets of an existing branch office of the Company for
$911,000. The purchase price was evidenced by a promissory note, dated August
30, 1989. BCC purchased the franchise from CTR by assuming this promissory note
which, at the time of BCC's purchase of the franchise, had an outstanding
principal balance of $844,573 (the "BCC Note"). The terms of the BCC Note
originally provided for repayment of the outstanding principal amount in 120
consecutive monthly installments of $7,038 each, commencing May 1, 1994,
together with interest at 3% over the prime rate, payable monthly. Effective
June 1, 1994, the BCC Note was amended and restated to (i) provide for the
repayment of the outstanding principal amount over a fifteen (15) year period,
and (ii) reduce the interest rate to the prime rate. The amended principal
payment schedule requires fixed monthly principal payments of $3,500 each with
all unpaid principal due at the end of the fifteen (15) year period or earlier
upon the termination of the franchise agreement for such franchise. The BCC Note
is secured by all of the franchisee's assets. The Company restructured the BCC
Note because it found the additional monthly expense associated with the start
of the principal repayment schedule in May 1994 to have a clear negative impact
on the franchisee's ability to operate the franchise. As described in greater
detail below, during the fiscal year ended February 28, 1995, the Company
retained $61,790 from the amount otherwise due to BCC under the terms of its
franchise agreement as interest payments on the BCC Note. The outstanding
balance of the BCC Note was $813,073 at February 28, 1995.
Effective August 23, 1993, Home Care Plus, Inc. ("Home Care") acquired a
franchise from the Company for Bristol and Barnstable counties in Massachusetts.
Mr. Edward Teixeira, Senior Vice President, Franchising of a principal
subsidiary of the Company, and his wife, each owns 25% of the outstanding
capital stock of Home Care. In purchasing the franchise, Home Care paid a
$23,000 franchise fee, received a commitment to advance up to $75,000 for
expenses from the Company, issued a $75,000 promissory note (the "Home Care
Note") to the Company with respect to such advance, and entered into a franchise
agreement with the Company. Interest on the Home Care Note is computed at 3%
over the prime rate and is payable monthly beginning September 1, 1994. The
principal amount is payable in 60 consecutive monthly installments of $1,250
each, beginning September 1, 1994. The terms and conditions of the franchise
agreement between the Company and Home Care are substantially similar to those
for other franchisees of the Company, including the term of ten years with a
five year renewal option. During the fiscal year ended February 28, 1995, the
Company retained $8,241 from the amount otherwise due Home Care under the terms
of its franchise agreement as interest payments on the Home Care Note. The
outstanding balance of the Home Care Note was $65,919 at February 28, 1995.
Effective February 6, 1995, Home Care Plus Two, Inc. ("Home Care Two")
acquired a franchise from the Company for Worcester, Hampden and Franklin
counties in Massachusetts. Mr. Teixeira and his wife each own 25% of the
outstanding capital stock of Home Care Two. In purchasing the franchise, Home
Care Two committed to pay the Company a franchise fee of $29,500, payable in
equal installments of $14,750 on February 6, 1995, and August 6, 1995. The terms
and conditions of the franchise agreement between the Company and Home Care Two
are substantially similar to those for other franchisees of the Company,
including the term of ten years with a five year renewal option. The Home Care
Two franchise has not yet commenced operations.
Effective October 1, 1993, Partners Two Management Corp. ("Partners")
acquired an existing franchise for Suffolk County, New York from an unaffiliated
franchisee of the Company. Prior to
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<PAGE>
July 20, 1995, Ms. Sharon Hamilton, Executive Vice President, Health Care
Operations of a principal subsidiary of the Company, owned 50% of the
outstanding stock of Partners. Effective July 20, 1995, Ms. Cynthia Nye, Senior
Vice President, Corporate Support of a principal subsidiary of the Company,
acquired 9% of the outstanding stock of Partners, reducing Ms. Hamilton's
interest to 45.5%. The terms and conditions of the franchise agreement between
the Company and Partners are substantially similar to those for other
franchisees of the Company, including the term of ten years with a five year
renewal option. In connection with acquiring the franchise, Partners assumed the
obligations owing under a promissory note (the "Partners Note") issued by the
former franchisee to the Company, and entered into a franchise agreement with
the Company. When originally issued by the former franchisee on December 31,
1988, the Partners Note was in the principal amount of $446,909.76. On the date
of its assumption by Partners, the Partners Note had an outstanding principal
balance of $300,000. The Partners Note bears interest at 2% over the prime rate
of interest charged by Mellon Bank, N.A., and is payable monthly, in arrears,
beginning on November 1, 1993. Principal is payable in 96 consecutive monthly
installments of $3,125 each, beginning October 1, 1995. Ms. Sharon Hamilton and
the owner of the other 45.5% interest in Partners have jointly and severally
guaranteed payment of all amounts due under the Partners Note. As described in
greater detail below, during the fiscal year ended February 28, 1995, the
Company retained $28,063 from the amount otherwise due Partners under the terms
of its franchise agreement as interest payments on the Partners Note. The
outstanding balance of the Partners Note was $300,000 at February 28, 1995.
Under the Company's franchise program, the Company processes and pays the
payroll to the field employees who service clients and invoices the clients for
such services. Each month the Company pays the franchisee 60% of the gross
margin dollars (in general, the difference between the amount so invoiced and
the payroll and related expenses for such field employees) from the franchisee's
business for the prior month's activity. Franchisees are responsible for their
general and administrative expenses, including office payroll. If the franchisee
elects, the Company will process payment of the franchisee's office payroll and
some or all of the franchisee's other administrative expenses, and withhold the
amount so expended from the 60% gross margin otherwise due the franchisee.
During the fiscal year ended February 28, 1995, the Company paid (i) BCC
$114,467 under the terms of its franchise agreement, representing a 60% gross
margin of $730,424 less $61,790 and $31,500 of interest and principal,
respectively, withheld on the BCC Note and $522,667 withheld for administrative
expenses; (ii) Home Care $430,317 under the terms of its franchise agreement,
representing 60% gross margin of $509,977 less $8,241 and $8,706 of interest and
principal, respectively, withheld on the Home Care Note and $62,713 withheld for
administrative expenses; and (iii) Partners $1,035,811 under the terms of its
franchise agreement, representing a 60% gross margin of $2,466,897 less $28,063
of interest withheld on the Partners Note and $1,403,023 withheld for
administrative expenses.
To a great extent, the success of the Company is dependent upon the success
of its approximately 70 franchisees. In order to facilitate the acquisition of a
franchise by a willing prospective franchisee, the Company will frequently
accept a promissory note as consideration for the purchase from the Company of
an existing branch location and will occasionally advance expenses to a
franchisee. The Company's transactions with BCC, Home Care, Home Care Two and
Partners described above are consistent with this business purpose and with
accommodations granted to other, unaffiliated franchisees in the past.
Messrs. Stephen Savitsky and David Savitsky are directors and each owns
one-third of the capital stock of Offset House, Inc. ("Offset House"), a private
printing company that on occasion provides services to the Company. For the
fiscal year ended February 28, 1995, the Company paid approximately $284,478 for
such services. The Company has also engaged Offset House during its 1996 fiscal
year. The Company believes that the terms of such transactions are as favorable
as the Company would have received in arm's length transactions with an
unaffiliated party.
Mr. Donald Meyers, a director of the Company, is also the President and sole
director and stockholder of RMR Health, a health care consulting firm. From time
to time, the Company has
34
<PAGE>
engaged RMR Health to perform consulting services on the Company's behalf. For
the fiscal year ended February 28, 1995, the Company paid RMR Health $26,750 in
fees for such services. The Company has also engaged RMR Health during its 1996
fiscal year. The Company believes that the terms of such transactions are as
favorable as the Company would have received in arm's length transactions with
an unaffiliated party.
Although the Company has no formal policy regarding transactions with
affiliates, it does not intend to enter into a transaction with any affiliate on
terms less favorable to the Company than those it would receive in an arm's
length transaction with an unaffiliated party.
STOCKHOLDER PROPOSALS
Stockholders of the Company wishing to include proposals in the proxy
material in relation to the Annual Meeting of the Company to be held in 1996
must submit the same in writing so as to be received at the executive offices of
the Company on or before May 4, 1996. Such proposals must also meet the other
requirements of the rules of the Securities and Exchange Commission relating to
stockholder proposals.
SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has selected the firm of Deloitte &
Touche, LLP as the independent certified public accountants to audit the
accounts of the Company for the fiscal year ending February 28, 1996. A
representative of Deloitte & Touche, LLP, which also audited the accounts of the
Company for the fiscal year ended February 28, 1995, is expected to be present
at the Annual Meeting, with an opportunity to make a statement, if he so
desires, and to respond to appropriate questions at the meeting.
INCORPORATION BY REFERENCE
The Management's Discussion and Analysis of Financial Condition and Results
of Operations for the fiscal year ended February 28, 1995 and for the fiscal
quarter ended May 31, 1995 contained in the Annual Report and the Quarterly
Report have been incorporated by reference in this Proxy Statement. See
"FINANCIAL STATEMENTS AND OTHER INFORMATION."
GENERAL
The management of the Company does not know of any matters other than those
stated in this Proxy Statement which are to be presented for action at the
meeting. If any other matters should properly come before this meeting, it is
intended that proxies in the accompanying form will be voted on any such matters
in accordance with the judgment of the persons voting such proxies.
Discretionary authority to vote on such matters is conferred by such proxies by
the persons voting them.
The Company has retained Morrow & Company to perform certain services in
connection with soliciting proxies for the meeting for a fee of $10,000 plus
$3.50 per telephone call. Proxies may also be solicited by directors, officers
and regular employees of the Company (who will not be specifically compensated
for such services) by mail, telephone, telecopier or by personal solicitation.
Brokerage houses and other custodians, nominees and fiduciaries will be required
to forward proxies and proxy material to the beneficial owners of the Company's
Common Stock, and the Company will reimburse them for their expenses.
The Company estimates that it will incur total expenses of approximately
$200,000 in connection with the Recapitalization. Such estimated expenses
include $18,773 for filing fees, $15,000 for accounting fees, $100,000 for legal
fees, $18,000 for solicitation expenses, $25,000 for printing costs and $23,227
for other expenses associated with the Recapitalization.
35
<PAGE>
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON BEING SOLICITED BY
THIS PROXY STATEMENT, UPON WRITTEN REQUEST, A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED FEBRUARY 28, 1995, FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. ALL SUCH REQUESTS SHOULD BE DIRECTED TO MR.
GARY TIGHE, STAFF BUILDERS, INC., 1983 MARCUS AVENUE, LAKE SUCCESS, NEW YORK
11042.
Insofar as any of the information in this Proxy Statement may rest
peculiarly within the knowledge of persons other than the Company, the Company
has relied upon information furnished by them.
By Order of the Board of Directors
DAVID SAVITSKY
SECRETARY
Dated: September 1, 1995
36
<PAGE>
EXHIBIT A TO THE
PROXY STATEMENT
PLAN OF RECAPITALIZATION
PLAN OF RECAPITALIZATION, dated as of May 12, 1995, adopted by the Board of
Directors of Staff Builders, Inc., a Delaware corporation (the "CORPORATION").
ARTICLE I
THE RECAPITALIZATION AND RELATED MATTERS
1.1. THE RECAPITALIZATION.
(a) Article FOURTH of the Restated Certificate of Incorporation of the
Corporation authorizes the issuance of up to 50,000,000 shares of common stock,
$.01 par value per share (the "EXISTING COMMON STOCK"), and 10,000 shares of
preferred stock, $1.00 par value per share, and contains a time phased voting
rights plan (the "VOTING RIGHTS PLAN"). Under the Voting Rights Plan, each
holder of record of Existing Common Stock, except in certain situations, is
entitled to ten votes for each share of Existing Common Stock that has been
beneficially owned by the current beneficial owner for at least 48 consecutive
calendar months (dating from the first day of the first calendar month on or
after the holder acquired beneficial ownership of such share) prior to the
record date for a meeting of stockholders ("LONG-TERM SHARES"). Each holder of
record of Existing Common Stock that has not been beneficially owned by the
current beneficial owner for at least such a 48 consecutive calendar month
period prior to the record date (with certain limited exceptions) is entitled to
only one vote per share ("SHORT-TERM SHARES"). A holder may own both Long-Term
Shares and Short-Term Shares, in which case he is entitled to ten votes for each
Long-Term Share and one vote for each Short-Term Share. Except for the number of
votes attached to each, Long-Term Shares and Short-Term Shares are identical in
all respects and constitute a single class of stock.
(b) Subject to the terms and conditions of this Plan of Recapitalization
(the "PLAN"), at the Effective Time (as defined in Section 1.1(c)), the common
stock of the Corporation shall be reclassified (the "RECAPITALIZATION") in
accordance with Section 1.2 of this Plan and the provisions of the Delaware
General Corporation Law (the "GCL") and exchanged in accordance with this
Article I for the New Shares (as defined in Section 1.3).
(c) The Recapitalization shall become effective upon the filing of a
certificate of amendment to the Corporation's Restated Certificate of
Incorporation in the form of ANNEX 1 hereto with the Secretary of State of the
State of Delaware (the "CERTIFICATE OF AMENDMENT") in accordance with the
provisions of Section 242 of the GCL. The Certificate of Amendment shall be
filed promptly following the approval of this Plan by the stockholders of the
Corporation in accordance with the terms hereof. The date and time when the
Recapitalization shall become effective is hereinafter referred to as the
"EFFECTIVE TIME".
1.2. RECLASSIFICATION OF STOCK. At the Effective Time:
(a) The Voting Rights Plan and the Existing Common Stock will be
eliminated and the issuance of 50,000,000 shares of Class A Common Stock,
$.01 par value per share (the "CLASS A COMMON STOCK"), and 1,450,000 shares
of Class B Common Stock, $.01 par value per share (the "CLASS B COMMON
STOCK"), will be authorized.
(b) Each share of Existing Common Stock which is a Long-Term Share as of
both August 28, 1995 (the "RECORD DATE") and the Effective Time (assuming
for these purposes only that the Effective Time is a record date for a
meeting of the Company's stockholders) will be reclassified, changed and
converted automatically into one share of Class B Common Stock (the terms of
A-1
<PAGE>
which are set forth in the Certificate of Amendment) and each other share of
Existing Common Stock will be reclassified, changed and converted
automatically into one share of Class A Common Stock (the terms of which are
set forth in the Certificate of Amendment).
1.3. EXCHANGE.
(a) Promptly after the Effective Time, the American Stock Transfer and Trust
Company (the "TRANSFER AGENT") will mail to each record holder of a stock
certificate representing shares of Existing Common Stock outstanding immediately
prior to the Effective Time instructions and transmittal materials for effecting
the surrender of stock certificates representing shares of Existing Common Stock
in exchange for replacement certificates representing the number of shares of
Class A Common Stock and Class B Common Stock into which such shares of Existing
Common Stock have been converted (the "NEW SHARES").
(b) After receipt of the transmittal materials from the Transfer Agent,
stockholders may complete and return such materials to the Transfer Agent along
with the certificate or certificates representing their shares of Existing
Common Stock. Upon delivery of such materials and certificates to the Transfer
Agent, the stockholder will be entitled to receive a new stock certificate
representing the same number of shares of Class A Common Stock or Class B Common
Stock, as the case may be, as were represented by the certificate or
certificates surrendered to the Transfer Agent. Until surrendered, each stock
certificate will represent for all purposes the number of shares of Class A
Common Stock or Class B Common Stock, as the case may be, into which the shares
represented by such certificate were converted at the Effective Time, as
determined by the Transfer Agent's records.
(c) If any new certificate representing shares of Class A Common Stock or
Class B Common Stock is to be issued in a name or number of shares other than
that in which or in respect of which the surrendered certificate is registered,
it will be a condition to such issuance that the person requesting such issuance
deliver to the Transfer Agent all documents necessary to evidence and effect
such transfer (with signature guarantees) and pay to the Transfer Agent any
transfer or other taxes required by reason thereof or establish to the Transfer
Agent's satisfaction that such taxes have been paid or are not applicable.
(d) In the event any certificate representing shares of Existing Common
Stock has been lost, stolen or destroyed, the Transfer Agent will issue a new
certificate representing the number and class of shares into which the shares
represented by such certificate were converted pursuant to the Recapitalization
upon the making of an affidavit of that fact by the person claiming such
certificate to be lost, stolen or destroyed. As a condition precedent to such
issuance, the Corporation may require a bond in such sum as the Corporation may
direct to indemnify the Corporation against any claim that may be made against
the Corporation with respect to the certificate that is alleged to have been
lost, stolen or destroyed.
(e) In determining whether a record holder of Existing Common Stock on the
Effective Time will be entitled to receive shares of Class A Common Stock or
Class B Common Stock, the Board of Directors of the Corporation will apply the
same principles which have been used in determining whether shares are Long-Term
Shares or Short-Term Shares for purposes of voting on matters submitted to a
vote by the stockholders. Shares held of record by a holder at least 48
consecutive calendar months (dating from the first day of the first calendar
month on or after the holder acquired beneficial ownership of such shares) prior
to both the Record Date and the Effective Time (assuming for these purposes only
that the Effective Time is a record date for a meeting of the Company's
stockholders) will be exchanged for an equal number of shares of Class B Common
Stock, except that shares held of record on the Effective Time in "street" or
"nominee" name will be presumed to be held for less than 48 consecutive calendar
months (dating from the first day of the first calendar month on or after the
holder acquired beneficial ownership of such shares) prior to both the Record
Date and the Effective Time and, unless such presumption is rebutted as
described below, exchanged for an equal number of shares of Class A Common
Stock.
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(f) The transmittal materials delivered by the Transfer Agent to each record
holder of Common Stock on the Effective Time will indicate the number of shares
of Class A Common Stock and Class B Common Stock the holder is entitled to
receive in the Recapitalization and will include the provisions established by
the Board of Directors of the Corporation by which a stockholder may establish
that he or she has been the beneficial owner of the shares to be exchanged in
the Recapitalization for at least 48 consecutive calendar months (dating from
the first day of the first calendar month on or after the holder acquired
beneficial ownership of such shares) prior to both the Record Date and the
Effective Time (assuming for these purposes only that the Effective Time is a
record date for a meeting of the Company's stockholders). If a stockholder
wishes to assert that the transmittal materials overstate the number of shares
of Class A Common Stock, and understate the number of shares of Class B Common
Stock, entitled to be received by such stockholder in the Recapitalization, then
on or before December 1, 1995, such stockholder must deliver to the general
counsel of the Corporation the information required pursuant to the procedures
to establish beneficial ownership of his or her shares for at least 48
consecutive calendar months (dating from the first day of the first calendar
month on or after the holder acquired beneficial ownership of such shares) prior
to both the Record Date and the Effective Time (assuming for these purposes only
that the Effective Time is a record date for a meeting of the Company's
stockholders). If such information is not furnished to the Corporation's general
counsel by December 1, 1995, then the allocation of the number of shares of
Class A Common Stock and Class B Common Stock to be issued to such stockholder
as set forth in the transmittal materials will be final and binding on the
stockholder. If such information is furnished to the Corporation's general
counsel prior to December 1, 1995, then the Board of Directors of the
Corporation shall determine the proper allocation of the number of shares of
Class A Common Stock and Class B Common Stock to be issued to such stockholder,
which determination shall be final and binding.
1.4. CERTIFICATE OF INCORPORATION.
(a) The Corporation's Restated Certificate of Incorporation, as in effect
immediately prior to the Effective Time, shall be amended at the Effective Time
in the manner set forth in ANNEX 1 hereto and, as so amended, shall be the
certificate of incorporation of the Corporation until thereafter amended as
provided therein and in accordance with the GCL.
(b) The Certificate of Amendment will authorize for issuance 1,450,000
shares of Class B Common Stock, which represents an estimate by the Board of
Directors of the number of shares of Class B Common Stock to be issued in the
Recapitalization. If a number of shares of Class B Common Stock other than
1,450,000 is required to be issued in the Recapitalization, then the Board of
Directors shall be authorized to file a further amendment to the Corporation's
Restated Certificate of Incorporation, in the form of ANNEX 2 hereto, to reflect
the precise number of shares of Class B Common Stock to be issued in the
Recapitalization.
1.5. EFFECTIVE TIME. This Plan shall become effective on the later of (i)
the day on which the last of the conditions set forth in Article III hereof is
fulfilled or (subject to applicable law) waived, or (ii) such other date as the
Board of Directors of the Corporation shall fix.
ARTICLE II
ADDITIONAL ACTIONS OF THE CORPORATION UNDER
THIS PLAN OF RECAPITALIZATION
2.1. STOCK OPTIONS.
(a) The Corporation shall take such actions as are necessary to permit each
holder of an Option (as hereinafter defined), whether or not exercisable, to
have such Option adjusted as provided in Section 2.1(b). The term "OPTION" means
a right issued under any of the Corporation's stock option plans to purchase
shares of Existing Common Stock.
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(b) Each Option will be adjusted so that upon exercise the holder will be
entitled to acquire the number of shares of Class A Common Stock equal to the
number of shares of Existing Common Stock such holder would have been entitled
to acquire under the applicable stock option plan.
2.2. STOCK WARRANTS.
(a) The Corporation shall take such actions as are necessary to permit each
holder of a Warrant (as hereinafter defined), to have such Warrant adjusted as
provided in Section 2.2(b). The term "WARRANT" means a right granted under any
of the Corporation's warrant agreements to purchase shares of Existing Common
Stock.
(b) Each Warrant will be adjusted so that upon exercise the holder will be
entitled to acquire the number of shares of Class A Common Stock equal to the
number of shares of Existing Common Stock such holder would have been entitled
to acquire under the applicable warrant agreement.
2.3. OTHER ACTIONS. The Corporation shall use its reasonable best efforts
to take such other actions as it, in its sole discretion, deems necessary or
advisable (including the amendment of any of the Corporation's existing employee
benefit plans) in connection with the consummation of this Plan and the
transactions contemplated hereby.
ARTICLE III
CONDITIONS PRECEDENT
3.1. CONDITIONS PRECEDENT TO CONSUMMATION OF THE RECAPITALIZATION. The
consummation of the Recapitalization is subject to the satisfaction or (subject
to applicable law) waiver of each of the following conditions:
(a) APPROVAL OF STOCKHOLDERS. The approval of this Plan and all
actions contemplated by this Plan that require the approval of the
Corporation's stockholders shall have been obtained in accordance with the
GCL and the Corporation's Restated Certificate of Incorporation. Further,
such approval shall have been obtained from holders of a majority of the
Long-Term Shares, voting as a class, and from holders of a majority of the
Short-Term Shares, voting as a class.
(b) RECEIPT OF LICENSES, PERMITS AND CONSENTS. The Corporation shall
have received evidence, in form and substance reasonably satisfactory to it,
that such licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to
contracts with the Corporation and its subsidiaries as are necessary for
consummation of the Recapitalization have been obtained and are in full
force and effect (other than those which, if not obtained, would not have a
material adverse effect on (i) the Recapitalization, (ii) the financial
condition, results of operations or businesses of the Corporation and its
subsidiaries taken as a whole, or (iii) the continuation of the operations
and businesses of the Corporation and its subsidiaries after the
consummation of the Recapitalization).
(c) LITIGATION. No action, proceeding or investigation shall have been
instituted or threatened prior to the Effective Time before any court or
administrative body to restrain, enjoin or otherwise prevent the
consummation of this Plan or the transactions contemplated hereby or to
recover any damages or obtain other relief as a result of this Plan or the
transactions contemplated hereby, and no restraining order or injunction
issued by any court of competent jurisdiction shall be in effect prohibiting
the consummation of this Plan or any of the transactions contemplated
hereby.
(d) ACTIONS AND PROCEEDINGS. All actions, proceedings, instruments and
documents required to carry out the transactions contemplated by, or
incidental to, this Plan and all other related legal matters shall have been
reasonably satisfactory to and approved by counsel for the
A-4
<PAGE>
Corporation, and such counsel shall have been furnished with certified
copies of such corporate actions and proceedings and such other instruments
and documents as such counsel shall have reasonably requested.
(e) NASDAQ LISTING. The Class A Common Stock shall have been approved
for listing, upon official notice of issuance, on the NASDAQ National
Market.
ARTICLE IV
MISCELLANEOUS
4.1. TERMINATION AND ABANDONMENT. This Plan may be terminated and the
transactions contemplated hereby may be abandoned by the Board of Directors of
the Corporation at any time prior to the filing of the Certificate of Amendment
in accordance with Section 1.1(c), notwithstanding approval thereof by the
stockholders of the Corporation.
4.2. AMENDMENT AND MODIFICATION. Subject to applicable law, the provisions
of this Plan (including the exhibits attached hereto) may be amended or waived
in any respect by the Board of Directors of the Corporation at any time prior to
the filing of the Certificate of Amendment in accordance with Section 1.1(c);
PROVIDED that after the approval of this Plan by the stockholders of the
Corporation, no such amendment or waiver shall, without the further approval of
such stockholders, (x) modify the amendments to the Corporation's Restated
Certificate of Incorporation attached as ANNEX 1 hereto (except as contemplated
by the terms of ANNEX 2 with respect to the number of authorized shares), or (y)
change the kind of New Shares to be delivered in respect of each share of
Existing Common Stock pursuant to Sections 1.2(a) and 1.2(b). The good faith
determination by the Board of Directors that an amendment to this Plan complies
with this Section 4.2 shall be conclusive on all holders of shares of Existing
Common Stock or shares of any series of preferred stock.
By Order of the Board of Directors
David Savitsky
SECRETARY
A-5
<PAGE>
ANNEX 1 TO
PLAN OF RECAPITALIZATION
AMENDMENT TO RESTATED
CERTIFICATE OF INCORPORATION
TO EFFECT RECAPITALIZATION
Paragraphs (a) through (j) (and the introductory language thereto) of
Article FOURTH of the Restated Certificate of Incorporation of the Corporation
are hereby amended to read as follows:
FOURTH: The total number of shares of stock that the Corporation shall
have authority to issue is 51,460,000, consisting of 50,000,000 shares of
Class A Common Stock, par value $.01 per share ("Class A Common Stock"),
1,450,000 shares of Class B Common Stock, par value $.01 per share ("Class B
Common Stock" and, collectively with Class A Common Stock, "Common Stock"),
and 10,000 shares of Preferred Stock, par value $1.00 per share (the
"Preferred Stock"). Effective upon the filing with the Secretary of State of
the State of Delaware of this Certificate of Amendment of the Corporation's
Restated Certificate of Incorporation (the "Effective Time"): (i) each
outstanding share of common stock, par value $.01 per share ("Old Common
Stock"), of the Corporation that was a Long-Term Share on the record date
for the meeting of the stockholders of the Corporation at which this
Certificate of Amendment was approved (the "Record Date") and continues to
be a Long-Term Share at the Effective Time shall, without any action on the
part of the holder thereof, be reclassified as, and converted into, one
fully paid and nonassessable share of Class B Common Stock of the
Corporation, and (ii) every other share of Old Common Stock of the
Corporation outstanding or held in treasury shall, without any action on the
part of the holder thereof, be reclassified as, and converted into, one
fully paid and nonassessable share of Class A Common Stock of the
Corporation. Following the initial issuance of shares of Class B Common
Stock to effect the above described reclassification, the Corporation may
only issue shares of the Class B Common Stock in the form of a distribution
pursuant to a stock dividend on, or split-up or reverse split-up of, the
shares of Class B Common Stock and only to the holders of the then
outstanding shares of Class B Common Stock. At any time shares of the Class
B Common Stock are outstanding, the Corporation may issue shares of Common
Stock in the form of a distribution pursuant to a stock dividend on, or
split-up or reverse split-up of, the shares of Common Stock only if such
stock dividend, split-up or reverse split-up is made pro rata to the holders
of the Class A Common Stock and Class B Common Stock solely in shares of
their respective classes.
The designations, powers, preferences and rights, and the qualifications
and restrictions, of the Common Stock and the Preferred Stock are as
follows:
(a) Except as otherwise required by statute, as set forth in a
resolution or resolutions of the Board of Directors as hereinafter provided,
or as otherwise provided herein, the holders of shares of Common Stock of
the Corporation shall (i) possess the exclusive right to vote for the
election of directors and for all other corporate purposes, and (ii) vote
together without regard to class. Except as otherwise required by the
General Corporation Law of Delaware or as otherwise provided herein, each
share of Class A Common Stock and each share of Class B Common Stock shall
have identical powers, preferences and rights, including rights in
liquidation and to dividends and distributions. With respect to any proposed
amendment to the Restated Certificate of Incorporation of the Corporation
that would increase or decrease the number of authorized shares of either
Class A Common Stock or Class B Common Stock (other than any such amendment
approved by the stockholders of the Corporation at the same meeting at which
this Certificate of Amendment was approved), increase or decrease the par
value of the shares of Class A Common Stock or Class B Common Stock, or
alter or change the powers, preferences, relative voting power or special
rights of the shares of Class A Common Stock or Class B Common Stock so as
to affect them adversely, the approval of a majority of the votes entitled
to be cast by the holders
A-6
<PAGE>
of the Class adversely affected by the proposed amendment, voting separately
as a class, shall be obtained in addition to the approval of a majority of
the votes entitled to be cast by the holders of the Common Stock voting
together without regard to Class as hereinabove provided.
(b) A holder of Class A Common Stock shall be entitled to one (1) vote
on each matter submitted to a vote at a meeting of stockholders for each
share of Class A Common Stock held of record by such holder as of the record
date for such meeting.
(c) A holder of Class B Common Stock shall be entitled to ten (10) votes
on each matter submitted to a vote at a meeting of stockholders for each
share of Class B Common Stock held of record by such holder as of the record
date for such meeting; provided, however, that for purposes of any vote on a
proposal submitted to stockholders solely under Article EIGHTH of the
Restated Certificate of Incorporation of the Corporation and for purposes of
any vote on a proposal to amend, alter or repeal such Article EIGHTH or
Paragraph (a) or (d) of Article FIFTH, a holder of Class B Common Stock
shall be entitled to one (1) vote for each share of Class B Common Stock
held of record by such holder as of the record date for determining
stockholders entitled to vote on such proposal.
(d) Each share of Class B Common Stock may at any time be converted at
the election of the holder thereof into one share of Class A Common Stock.
Any holder of shares of Class B Common Stock may elect to convert any or all
of such shares at one time or at various times in such holder's discretion.
Such right shall be exercised by the surrender of the certificate
representing each share of Class B Common Stock to be converted to the agent
for the registration of transfer of shares of Class B Common Stock at its
office, or to the Corporation at its principal executive offices,
accompanied by a written notice of the election by the holder thereof to
convert and (if so required by the transfer agent or by the Corporation) by
instruments of transfer, in form satisfactory to the transfer agent and to
the Corporation duly executed by such holder or his duly authorized
attorney. The issuance of a certificate for shares of Class A Common Stock
upon conversion of shares of Class B Common Stock shall be made without
charge for any stamp or other similar tax in respect of such issuance.
However, if any such certificate is to be issued in a name other than that
of the holder of the shares of Class B Common Stock converted, the person
requesting the issuance thereof shall pay to the transfer agent or to the
Corporation the amount of any tax which may be payable in respect of such
transfer, or shall establish to the satisfaction of the transfer agent or
the Corporation that such tax has been paid. As promptly as practicable
after the surrender for conversion of a certificate representing shares of
Class B Common Stock and the payment of any such tax, the Corporation will
deliver or cause to be delivered, to the holder thereof, a certificate
representing the number of shares of Class A Common Stock issuable upon such
conversion, issued in such name or names as such holder may direct. Such
conversion shall be deemed to have been made immediately prior to the close
of business on the date of the surrender of the certificate representing
shares of Class B Common Stock (if on such date the transfer books of the
Corporation shall be closed, then immediately prior to the close of business
on the first date thereafter that said books shall be open), and all rights
of such holder arising from ownership of shares of Class B Common Stock
shall cease at such time; and the person in whose name the certificate
representing shares of Class A Common Stock is to be issued shall be treated
for all purposes as having become the record holder of such shares of Class
A Common Stock at such time and shall have and may exercise all the rights
and powers appertaining thereto. The Corporation shall at all times reserve
and keep available, solely for the purpose of issue upon conversion of
outstanding shares of Class B Common Stock, such number of shares of Class A
Common Stock as may be issuable upon the conversion of such outstanding
shares of Class B Common Stock; provided, however, that the Corporation may
deliver shares of Class A Common Stock which are held in the treasury of the
Corporation for shares of Class B Common Stock that are converted. If any
shares of Class A Common Stock require registration with or approval of any
governmental authority under any federal or state law before such shares of
Class A Common Stock may be issued upon conversion, the Corporation will
cause such shares to
A-7
<PAGE>
be duly registered or approved, as the case may be. The Corporation will
endeavor to list shares of Class A Common Stock required to be delivered
upon conversion prior to such delivery upon any national securities exchange
or national automated quotation system on which the outstanding shares of
Class A Common Stock may be listed or quoted at the time of such delivery.
All shares of Class A Common Stock which may be issued upon conversion of
shares of Class B Common Stock will, upon issue, be fully paid and
nonassessable.
(e) No share of Class B Common Stock may be sold or otherwise
transferred in any transaction that results in a change in the beneficial
ownership of such share unless such transaction is an Exempt Transfer. Any
attempted transfer of a share of Class B Common Stock in violation of this
Paragraph (e) shall be treated as an irrevocable election by the holder
thereof to convert such share to a share of Class A Common Stock pursuant to
Paragraph (d) of this Article FOURTH.
(f) For purposes of this Article FOURTH, "Exempt Transfer" shall mean
the occurrence of any of the following events with respect to any share of
the Old Common Stock or Class B Common Stock, as the case may be:
1. The transfer of such share by gift; by devise, bequest or
otherwise through the laws of inheritance or descent; or by a trustee to
a trust beneficiary or beneficiaries under the terms of the trust; or
2. The appointment of a successor trustee, guardian, committee of an
incompetent, conservator or custodian with respect to such share; or
3. The addition, withdrawal or demise of a beneficiary or
beneficiaries of a trust under the terms of the trust and by reason of
the birth, death, marriage or divorce of any natural person; the adoption
of any natural person; the passage of a given period of time; the
attainment by any natural person of a specific age; or the creation or
termination of any guardianship or custodial arrangement; or
4. The transfer of record or the transfer of a beneficial interest
or interests in such share where the circumstances surrounding such
transfer clearly demonstrate that no material change in beneficial
ownership has occurred;
provided, in each such case, that (i) the transferee or the transferor shall
have provided to the Corporation, in accordance with the procedures
established by the Board of Directors pursuant to Paragraph (i) of this
Article FOURTH, satisfactory evidence that such change in beneficial
ownership qualifies as an Exempt Transfer, and (ii) such change was not
undertaken in order to circumvent the provisions or purposes of this Article
FOURTH.
(g) For purposes of this Article FOURTH, "Long-Term Share" shall mean
any share of Old Common Stock which has had the same beneficial owner or
owners for at least 48 consecutive calendar months (dating from the first
day of the first full calendar month on or after the date the holder
acquired beneficial ownership of such share) prior to the Record Date and
prior to the Effective Time; subject, in the case of holders referred to in
Paragraph (h) hereof, to the requirements set forth in such Paragraph.
(h) Any share of the Old Common Stock held of record on the Record Date
and at the Effective Time shall be presumed to be owned beneficially by the
record holder and for the period shown by the stockholder records of the
Corporation. Notwithstanding the preceding sentence of this Paragraph (h),
any share of Old Common Stock held of record on the Record Date or the
Effective Time in "street" or "nominee" name or by a broker, clearing
agency, voting trustee, bank, trust company or other nominee shall be
presumed to have had the same beneficial owner for a period of less than 48
consecutive calendar months prior to both the Record Date and the Effective
Time. These presumptions shall be rebuttable by presentation to the
Corporation on or before December 1, 1995, in accordance with the procedures
established by the Corporation as provided in Paragraph (i) hereof, of
satisfactory evidence.
A-8
<PAGE>
(i) For purposes of this Article FOURTH, all determinations concerning
changes in beneficial ownership, or the absence of any such change, shall be
made by the Board of Directors or a transfer agent acting on behalf of the
Board of Directors and any such determination shall be conclusive. In
determining whether any share of Old Common Stock is a Long-Term Share on
the Record Date and at the Effective Time for purposes of this Article
FOURTH, the Board of Directors, or any transfer agent acting on behalf of
the Board of Directors, will apply the same principles as those reflected in
the written procedures theretofore adopted by the Board of Directors for the
determination of the voting rights of the Old Common Stock as in effect
immediately prior to the Record Date. The Board of Directors shall also
establish written procedures from time to time to facilitate such
determinations with respect to Exempt Transfers of the outstanding shares of
Class B Common Stock. Such procedures shall provide, among other things, the
manner of proof of facts that will be accepted. The Board of Directors and
any transfer agent shall be entitled to rely on information concerning
beneficial ownership of the Old Common Stock and the Class B Common Stock
coming to their attention from any source and in any manner reasonably
deemed by them to be reliable, but neither the Board of Directors nor any
transfer agent shall be charged with any other information concerning the
beneficial ownership of the Old Common Stock or the Class B Common Stock.
(j) For purposes of this Article FOURTH, the terms "beneficial owner"
and "beneficially owned" shall be defined in accordance with Rule 13d-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended (or any subsequent provisions replacing
such act or rule), except as provided otherwise in this Article FOURTH.
A-9
<PAGE>
ANNEX 2 TO
PLAN OF RECAPITALIZATION
AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
TO ADJUST NUMBER OF
AUTHORIZED SHARES OF CLASS B COMMON STOCK
The first sentence of Article FOURTH of the Restated Certificate of
Incorporation of the Corporation is hereby amended to read as follows:
FOURTH: The total number of shares of stock that the Corporation shall
have authority to issue is *, consisting of 50,000,000 shares of
Class A Common Stock, par value $.01 per share ("Class A Common Stock"),
* shares of Class B Common Stock, par value $.01 per share ("Class B
Common Stock" and, collectively with Class A Common Stock, "Common Stock"),
and 10,000 shares of Preferred Stock, par value $1.00 per share (the
"Preferred Stock").
------------------------
* Appropriate figures will be inserted to reflect the actual number of shares of
Class B Common Stock required to effect the Plan of Recapitalization.
A-10
<PAGE>
EXHIBIT B TO THE
PROXY STATEMENT
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Staff Builders, Inc.:
We have audited the accompanying consolidated balance sheets of Staff
Builders, Inc. and subsidiaries (the "Company") as of February 28, 1995 and
1994, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended February 28,
1995. Our audits also included the financial statement schedule listed in the
table of contents. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the companies at February 28,
1995 and 1994 and the results of their operations and their cash flows for each
of the three years in the period ended February 28, 1995 in conformity with
generally accepted accounting principles. Also in our opinion, the financial
statement schedule when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
Deloitte & Touche, LLP
Jericho, New York
April 13, 1995
B-1
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FEBRUARY 28,
-----------------------
NOTES 1995 1994
----- ----------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................................... $ 4,508 $ 7,330
Accounts receivable, net of allowance for doubtful accounts of $1,750 and
$1,400 at February 28, 1995 and 1994, respectively............................ 53,369 49,417
Deferred income tax benefits................................................... 8 1,303 1,258
Prepaid expenses and other current assets...................................... 2 1,954 1,260
----------- ----------
Total current assets......................................................... 61,134 59,265
FIXED ASSETS, net................................................................ 4 5,726 3,208
INTANGIBLE ASSETS, net........................................................... 3 30,149 21,820
OTHER ASSETS..................................................................... 2,8 3,624 3,017
----------- ----------
TOTAL............................................................................ 7 $ 100,633 $ 87,310
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................... $ 9,654 $ 10,069
Accrued expenses............................................................... 5 8,103 5,923
Accrued payroll................................................................ 8,605 5,661
Accrued payroll related expenses............................................... 6 10,269 8,442
Current portion of long-term liabilities....................................... 7 1,267 827
Current income taxes payable................................................... 8 1,320 1,488
----------- ----------
Total current liabilities.................................................... 39,218 32,410
----------- ----------
LONG-TERM LIABILITIES............................................................ 7 9,064 13,924
----------- ----------
COMMITMENTS AND CONTINGENCIES 9
STOCKHOLDERS' EQUITY: 7,11
Common stock -- $.01 par value; 50,000,000 shares authorized; 22,937,049 and
20,919,219 shares issued at February 28, 1995 and 1994, respectively.......... 229 210
Convertible preferred stock, 10,000 shares authorized; Class A -- $1.00 par
value; 666 2/3 shares outstanding at February 28, 1995 and 1994............... 1 1
Additional paid-in capital..................................................... 71,828 65,207
Accumulated deficit............................................................ (19,707) (24,442)
----------- ----------
Total stockholders' equity................................................... 52,351 40,976
----------- ----------
TOTAL............................................................................ $ 100,633 $ 87,310
----------- ----------
----------- ----------
</TABLE>
See notes to consolidated financial statements
B-2
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28,
-------------------------------------
NOTES 1995 1994 1993
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Service revenues................................................. $ 324,013 $ 245,357 $ 197,791
Sales of franchises and fees, net................................ 2 1,098 725 836
----------- ----------- -----------
Total revenues................................................. 325,111 246,082 198,627
----------- ----------- -----------
COSTS AND EXPENSES:
Operating costs.................................................. 201,365 152,824 128,331
General and administrative expenses.............................. 111,462 83,682 62,075
Provision for doubtful accounts.................................. 2,431 2,400 2,352
Amortization of intangible assets................................ 1,237 884 775
Interest expense................................................. 1,237 2,189 2,244
Interest income and other........................................ (818) (569) (935)
----------- ----------- -----------
Total costs and expenses....................................... 316,914 241,410 194,842
----------- ----------- -----------
INCOME BEFORE INCOME TAXES......................................... 8,197 4,672 3,785
PROVISION FOR INCOME TAXES......................................... 8 3,462 1,308 1,211
----------- ----------- -----------
NET INCOME......................................................... $ 4,735 $ 3,364 $ 2,574
----------- ----------- -----------
----------- ----------- -----------
INCOME APPLICABLE TO COMMON STOCKHOLDERS:
NET INCOME......................................................... $ 4,735 $ 3,364 $ 2,574
----------- ----------- -----------
----------- ----------- -----------
Add net discount (deduct dividends) on Class B Preferred Stock..... 10 -- 590 (400)
----------- ----------- -----------
NET INCOME APPLICABLE TO COMMON SHAREHOLDERS....................... $ 4,735 $ 3,954 $ 2,174
----------- ----------- -----------
----------- ----------- -----------
SHARE INFORMATION:
Primary earnings per share....................................... 12 $ .20 $ .20 $ .14
----------- ----------- -----------
----------- ----------- -----------
Fully diluted earnings per share................................. 12 $ .20 $ .20 $ .13
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements
B-3
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED ADDITIONAL
COMMON STOCK, PAID-IN ACCUMULATED TREASURY
NOTES TOTAL STOCK CLASS A CAPITAL DEFICIT STOCK
----- ------- ------ ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, March 1, 1992 (15,709,235 common shares
issued).............................................. $20,909 $157 $1 $51,403 $(30,570) $(82)
Issuance of 13,155 additional common shares in
connection with a 1987 acquisition................... -- --
Issuance of 86,346 common shares in connection with
exercise of stock options............................ 11 158 1 157
Dividends on Redeemable Class B Preferred Stock....... 10 (400) (400)
Net Income............................................ 2,574 2,574
--
------- ------ ---------- ----------- ---
Balances, February 28, 1993 (15,808,736 common shares
issued).............................................. 23,241 158 1 51,560 (28,396) (82)
Issuance of 1,076 additional common shares in
connection with a 1987 acquisition................... -- --
Issuance of 60,500 common shares in connection with
exercise of stock options............................ 11 129 1 128
Discount, net of accrued dividends, on Redeemable
Class B Preferred Stock.............................. 10 590 590
Issuance of 5,060,000 common shares in connection with
the call for redemption of stock warrants............ 11 13,652 51 13,601
Retirement of 11,093 shares of treasury stock......... -- (82) 82
Net Income............................................ 3,364 3,364
--
------- ------ ---------- ----------- ---
Balances, February 28, 1994 (20,919,219 common shares
issued).............................................. 40,976 210 1 65,207 (24,442) --
Issuance of 600 additional common shares in connection
with a 1987 acquisition.............................. -- --
Issuance of 35,450 common shares in connection with
exercise of stock options............................ 11 95 -- 95
Issuance of 250,000 common shares in connection with
exercise of stock warrants........................... 11 502 2 500
Issuance of 2,570,388 common shares in connection with
acquisitions......................................... 3 8,482 26 8,456
Issuance of 139,166 common shares in connection with
the employee stock purchase plan..................... 11 397 1 396
Purchase and retirement of 977,774 common shares...... (2,836) (10) (2,826)
Net Income............................................ 4,735 4,735
--
------- ------ ---------- ----------- ---
Balances, February 28, 1995 (22,937,049 common shares
issued).............................................. $52,351 $229 $1 $71,828 $(19,707) $--
--
--
------- ------ ---------- ----------- ---
------- ------ ---------- ----------- ---
</TABLE>
See notes to consolidated financial statements
B-4
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28,
-------------------------------
NOTES 1995 1994 1993
----- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income........................................................... $ 4,735 $ 3,364 $ 2,574
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation and amortization of fixed assets...................... 1,378 1,392 1,241
Amortization of intangibles and other assets....................... 1,237 884 775
Amortization of rent escalation liability.......................... 7 106 (167) (92)
Allowance for doubtful accounts.................................... 350 200 200
Deferred income taxes.............................................. 8 513 (1,611) (897)
Change in operating assets and liabilities:
Accounts receivable................................................ (1,300) (8,011) (5,876)
Prepaid expenses and other current assets.......................... (212) 912 207
Accounts payable and accrued expenses.............................. 5,116 5,052 1,359
Income taxes payable............................................... (398) 489 692
Other assets....................................................... (595) 556 684
--------- --------- ---------
Net cash provided by operating activities........................ 10,930 3,060 867
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses............................................ 3 (3,956) (1,025) (150)
Additions to fixed assets............................................ (2,101) (1,018) (627)
Proceeds from disposal of fixed assets............................... 3 17 40
--------- --------- ---------
Net cash used in investing activities............................ (6,054) (2,026) (737)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Employee Stock Purchase Plan........................... 11 397 -- --
Exercise of stock options............................................ 95 129 158
Exercise of warrants................................................. 11 502 13,652 --
Payment of Redeemable Class B Preferred Stock........................ 10 -- (5,444) --
Purchase and retirement of common stock.............................. (2,836) -- --
Borrowings under revolving line of credit............................ 7 (5,094) 1,870 604
Reduction of notes payable and other long-term liabilities........... 7 (762) (4,090) (856)
--------- --------- ---------
Net cash provided by (used in) financing activities.............. (7,698) 6,117 (94)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... (2,822) 7,151 36
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......................... 7,330 179 143
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................... $ 4,508 $ 7,330 $ 179
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DATA:
Cash paid for:
Interest........................................................... $ 962 $ 1,974 $ 1,936
--------- --------- ---------
--------- --------- ---------
Income taxes, net.................................................. $ 2,846 $ 2,485 $ 1,206
--------- --------- ---------
Fixed assets purchased through capital lease agreements................ $ 1,330 $ 493 $ 959
--------- --------- ---------
--------- --------- ---------
Common stock issued for business acquisitions.......................... $ 8,482 $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements
B-5
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1995 ("FISCAL 1995"), FEBRUARY 28, 1994
("FISCAL 1994"), AND FEBRUARY 28, 1993 ("FISCAL 1993")
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED OTHERWISE AND FOR PER SHARE
AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Staff Builders, Inc. ("Staff Builders" or the "Company") is a national
provider of home health care personnel and supplemental staffing to health care
institutions.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Staff Builders and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated. Certain prior period amounts
have been reclassified to conform with the Fiscal 1995 presentation.
A majority of the Company's service revenues are derived under a form of
franchising where the Company licenses independent companies or contractors to
represent the Company within a designated territory using the Company's trade
names and service marks. These franchisees recruit direct service personnel and
solicit orders and assign Company personnel including registered nurses,
therapists and home health aides to service the Company's clients. The Company
pays and distributes the payroll for the direct service personnel, administers
all payroll withholdings and payments, bills the customers, receives and
processes the accounts receivable. The franchisees are responsible for providing
an office and paying related expenses for administration including rent,
utilities and costs for administrative personnel.
The Company owns all necessary health care-related permits and licenses and,
where required, certificates of need for operation of franchise offices. The
revenues generated by the franchise operations along with the related accounts
receivable belong to the Company. These revenues and related direct costs are
included in the Company's consolidated service revenues and operating costs.
The Company pays a distribution or commission to the franchisees based on a
defined formula of gross profit generated. For Fiscal 1995, 1994 and 1993, total
franchisee distributions of approximately $56.9 million, $40.5 million, and
$30.1 million, respectively, were included in the Company's general and
administrative expenses.
The Company has implemented its franchise program to permit it to quickly
penetrate new markets and realize economies of scale. This program also enables
the Company to maintain stable local management by reducing personnel turnover.
CASH
Cash includes certificates of deposit and commercial paper purchased with a
maturity of less than three months.
FIXED ASSETS
Fixed assets, primarily consisting of office equipment, furniture and
fixtures, leased equipment and leasehold improvements, are depreciated on a
straight-line basis over the estimated useful lives of the assets or terms of
the related lease, whichever is shorter. The estimated useful life of office
equipment and furniture and fixtures is seven years and leasehold improvements
and other equipment is five years.
B-6
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1995 ("FISCAL 1995"), FEBRUARY 28, 1994
("FISCAL 1994"), AND FEBRUARY 28, 1993 ("FISCAL 1993")
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED OTHERWISE AND FOR PER SHARE
AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
The excess of the purchase price and related acquisition costs over the fair
market value of the net assets of the businesses acquired is amortized on a
straight-line basis over periods ranging from fifteen to forty years. Intangible
assets also include customer lists, trademarks and noncompete agreements, which
are amortized over a four to fifteen-year period on a straight-line basis. The
accumulated amortization as of February 28, 1995 and 1994 was $6,532 and $5,342,
respectively. Management evaluates the recoverability of intangible assets based
on projections of future earnings, on an undiscounted basis, attributable to the
assets acquired.
REVENUE RECOGNITION FROM SALES AND LICENSING OF FRANCHISES
Revenues generated from the sales and licensing of franchises and initial
franchise fees are recognized when the Company has performed substantially all
of its obligations under its franchise agreements and when collectibility of
such amounts is reasonably assured. In circumstances where a reasonable basis
does not exist for estimating collectibility of the proceeds of the sales of
franchises and initial franchise fees, such proceeds are deferred and recognized
as collections are made, utilizing the cost recovery method (see Note 2).
INCOME TAXES
Deferred income taxes result from timing differences between financial and
income tax reporting which primarily include the deductibility of certain
expenses in different periods for financial reporting and income tax purposes.
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes" during the fourth quarter of Fiscal 1993,
effective March 1, 1992. The impact on the Company's financial statements of the
adoption of SFAS 109 was not material (see Note 8).
2. FRANCHISE OPERATIONS
Prior to June 1990, the Company recorded revenues relating to the sale of
certain assets, the sale of rights to establish and operate franchised
businesses and initial franchise fees. The Company received notes and cash in
connection with these franchise sales. The notes generally bear interest at the
prevailing prime lending rate plus three percent and are generally payable over
a term of ten years. The balance of these notes receivable at February 28, 1995
and 1994 amounted to $1,459 and $1,639, of which $138 and $173 are included in
Prepaid Expenses and Other Current Assets and $1,321 and $1,466 are included in
Other Assets, respectively.
Subsequently, the Company generated certain franchise sales and licensing
income for which the related notes receivable will be recognized as income as
cash is collected or as it becomes evident that the franchisees have the ability
to pay. These notes also generally bear interest at the prevailing prime lending
rate plus three percent and are generally payable over a period of ten years. At
February 28, 1995 and 1994, the outstanding notes amounted to $5,328 and $6,154,
respectively, and are included in Other Assets, net of deferred income reflected
as a valuation reserve for financial reporting purposes of $4,971 and $5,761,
respectively. During Fiscal 1995 and 1994, $381 and $178, respectively, of these
notes were collected and included in revenues. During Fiscal 1993, $588 of notes
receivable previously deferred were recognized as income based on management's
belief that the franchisees have the ability to pay.
B-7
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1995 ("FISCAL 1995"), FEBRUARY 28, 1994
("FISCAL 1994"), AND FEBRUARY 28, 1993 ("FISCAL 1993")
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED OTHERWISE AND FOR PER SHARE
AMOUNTS)
2. FRANCHISE OPERATIONS (CONTINUED)
Sales of franchises and fees, net include $480, $498 and $71 of initial
franchise fees for the years ended February 28, 1995, 1994 and 1993,
respectively. The remaining amounts represent charges to franchisees for the use
of Company assets including customer and employee lists. The Company has
performed substantially all of its obligations as required under the terms of
its franchise agreements.
General and administrative expenses include reserves and write-offs of notes
receivable from franchisees of $400 and $600 in Fiscal 1994 and 1993,
respectively. There was no expense incurred in Fiscal 1995 related to reserves
and write-offs of notes receivable.
During Fiscal 1993, one of the franchisees was acquired by a corporation
owned by a family member of one of the Company's officers. The purchase price
for the franchise included the assumption of a note payable to the Company of
$845 of which $813 remains outstanding at February 28, 1995. The note bears
interest at three percent above the prevailing prime lending rate and matures in
2009.
During Fiscal 1994, two of the Company's executive officers each acquired a
portion of two franchises. In one transaction, the purchase price paid to the
former franchisee included the assumption of a note payable to the Company of
$300, under which principal payments are scheduled to begin on October 1, 1995.
In the other transaction, the Company issued a $75 advance on expenses which is
being repaid with interest at 3% over the prevailing prime lending rate, of
which $66 remains outstanding at February 28, 1995.
3. ACQUISITIONS
On July 22, 1994, the Company acquired the stock of ATC Services
Incorporated ("ATC"), an Atlanta, Georgia based provider of medical staffing
services, for aggregate consideration of approximately $8.7 million which
resulted in goodwill and intangibles of approximately $5.7 million. The
consideration consisted of approximately 2.5 million shares of the Company's
common stock and approximately $300 in related acquisition costs. In November
1994, ATC acquired certain assets and the operations of seven additional medical
staffing locations for aggregate cash consideration of $800, which resulted in
goodwill of approximately $700. These acquisitions were accounted for as
purchase transactions.
On July 2, 1993, the Company acquired the assets of the Albert Gallatin
Visiting Nurse Association, Inc. and the stock of Albert Gallatin Services
Corporation for aggregate consideration of approximately $1.9 million including
cash paid of $493. This acquisition was accounted for as a purchase and resulted
in goodwill of approximately $1.9 million.
The results of operations of the acquired companies are included in the
accompanying consolidated financial statements subsequent to their respective
dates of acquisition. Revenues, net income and earnings per share, on an
unaudited pro-forma basis for the year ended February 28, 1995, if the Fiscal
1995 acquisitions had occurred on March 1, 1994, would have approximated $343
million, $4.9 million and $.19, respectively. Revenues, net income and earnings
per share on an unaudited pro-forma basis for the year ended February 28, 1994,
if the Fiscal 1995 and 1994 acquisitions had occurred on March 1, 1993, would
have approximated $295 million, $3.7 million and $.17, respectively. Revenues,
net income and earnings per share on an unaudited pro-forma basis for the year
ended February 28, 1993, if the Fiscal 1995 and 1994 acquisitions had occurred
on March 1, 1992, would have approximated $260 million, $2.8 million and $.13,
respectively.
B-8
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1995 ("FISCAL 1995"), FEBRUARY 28, 1994
("FISCAL 1994"), AND FEBRUARY 28, 1993 ("FISCAL 1993")
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED OTHERWISE AND FOR PER SHARE
AMOUNTS)
3. ACQUISITIONS (CONTINUED)
Additionally, the Company acquired certain assets, consisting primarily of
employee and customer lists, of other home heath care providers in Fiscal 1995
and 1994 for aggregate consideration of approximately $3,147 and $712,
respectively. The Fiscal 1995 consideration was paid in cash and the Fiscal 1994
consideration included $532 of cash and $180 of notes payable (see Note 7).
These acquisitions consisted of seven and five separate health care entities in
Fiscal 1995 and Fiscal 1994, respectively, and were accounted for as purchase
transactions.
In connection with the Fiscal 1995 and 1994 acquisitions, consideration paid
was as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Fair value of assets acquired..................................... $ 5,559 $ 6,163
Liabilities assumed............................................... 1,603 5,138
--------- ---------
Total consideration for assets and stock.......................... $ 3,956 $ 1,025
--------- ---------
--------- ---------
</TABLE>
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Equipment under capital leases (see Note 7)...................... $ 3,147 $ 3,928
Office equipment, furniture and fixtures......................... 6,293 3,579
Leasehold improvements........................................... 578 865
Land and building................................................ 106 51
--------- ---------
Total, at cost................................................... 10,124 8,423
Less accumulated depreciation and amortization................... 4,398 5,215
--------- ---------
Fixed assets, net................................................ $ 5,726 $ 3,208
--------- ---------
--------- ---------
</TABLE>
During the year ended February 28, 1995, the Company wrote-off fully
depreciated fixed assets of approximately $2.1 million.
5. ACCRUED EXPENSES
Accrued expenses include $5,460 and $3,468 at February 28, 1995 and 1994,
respectively, of accrued franchise distributions. These amounts represent
distributions earned by the franchisees based upon a percentage of the gross
profit generated.
6. ACCRUED PAYROLL RELATED EXPENSES
Accrued payroll related expenses consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Accrued insurance................................................ $ 5,531 $ 4,773
Accrued payroll taxes............................................ 3,048 2,326
Other............................................................ 1,690 1,343
--------- ---------
Total............................................................ $ 10,269 $ 8,442
--------- ---------
--------- ---------
</TABLE>
B-9
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1995 ("FISCAL 1995"), FEBRUARY 28, 1994
("FISCAL 1994"), AND FEBRUARY 28, 1993 ("FISCAL 1993")
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED OTHERWISE AND FOR PER SHARE
AMOUNTS)
7. LONG-TERM LIABILITIES
Long-term liabilities consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Borrowings under a secured revolving line of credit (a)......... $ 6,461 $ 11,555
Obligations under capital leases (b)............................ 2,290 1,824
Rent escalation liability (c)................................... 769 663
Notes payable in connection with acquisitions (d)............... 301 709
Other........................................................... 510 --
--------- ---------
Total........................................................... 10,331 14,751
Less current portion............................................ 1,267 827
--------- ---------
Long-term liabilities (e)....................................... $ 9,064 $ 13,924
--------- ---------
--------- ---------
</TABLE>
(a) The Company has a secured credit facility which expires on July 31,
1997. The credit facility consists of a revolving line of credit and an
acquisition line of credit, under which the Company can borrow up to an
aggregate amount of $25 million.
Amounts borrowed under the credit facility are collateralized by a pledge of
all the stock of the Company's subsidiaries, by all accounts receivable and by
liens on substantially all other assets of the Company and its subsidiaries. The
agreement contains certain financial covenants which, among other things, (i)
require the maintenance of a specified minimum defined level of working capital,
effective net worth, net income, current ratio and the ratio of senior debt to
effective net worth, (ii) limit the amount of capital expenditures, and (iii)
prohibit the declaration or payment of cash dividends.
The amount available for borrowing under the credit facility was
approximately $13.8 million at February 28, 1995. The maximum amounts borrowed
under the credit facility for the years ended February 28, 1995 and 1994 were
$16.9 million and $17.0 million, respectively, and the average interest rates
for the periods then ended were 7.53% and 8.25%, respectively.
The Company is permitted to borrow up to 75% of eligible accounts
receivable, up to the maximum amount of the credit facility less amounts
outstanding under the acquisition line of credit. The acquisition line of credit
provides for borrowings up to $7.5 million without collateral to finance
acquisitions, provided that the sum of all borrowings do not exceed $25 million.
Each amount borrowed under the acquisition line of credit is subject to the
Bank's approval and must be repaid over twelve to forty-eight months as
determined by the Bank, at one percent over prime. There have been no borrowings
under the acquisition line of credit.
For the period March 1, 1994 through September 30, 1994, funds were borrowed
at the prevailing prime lending rate on the first $7.0 million of daily
borrowings and at 2.25% over the prevailing prime rate for borrowings in excess
of $7.0 million. Effective October 1, 1994, the Bank reduced the interest rate
on borrowings under the revolving line of credit to the prevailing prime lending
rate, such prime rate being 9.00% at February 28, 1995. A commitment fee on the
unused portion of the credit facility is
B-10
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1995 ("FISCAL 1995"), FEBRUARY 28, 1994
("FISCAL 1994"), AND FEBRUARY 28, 1993 ("FISCAL 1993")
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED OTHERWISE AND FOR PER SHARE
AMOUNTS)
7. LONG-TERM LIABILITIES (CONTINUED)
payable at the rate of .375% per annum, which was reduced effective October 1994
from .5% per annum. Additionally, an annual collateral management fee of $75 is
payable, which was reduced from $150 in August 1994.
(b) At February 28, 1995, the Company had capital lease agreements for
computers and other equipment through September 2002. The net carrying value of
the assets under capital leases was approximately $2.5 million and $1.4 million
at February 28, 1995 and 1994, respectively, and such amounts are included in
Fixed Assets.
(c) The Company entered into a new Corporate headquarters operating lease
which requires scheduled rent increases from December 1994 through September 30,
2003. At February 28, 1995, the Company has a rent escalation liability of $769
resulting from accrued rent expense, which is recognized on a straight-line
basis over the life of the lease, in excess of payments made.
(d) In connection with acquisitions made in Fiscal 1994 and 1993, the
Company issued notes payable aggregating $530, which bear interest at rates
ranging from 7% to 8%. Such notes mature at dates through October 2003. During
Fiscal 1995, payments of $89 were made on these notes and $319 was paid on notes
related to acquisitions prior to Fiscal 1993.
(e) Long-term liabilities maturing subsequent to February 28, 1995 are as
follows:
<TABLE>
<CAPTION>
OBLIGATIONS
UNDER
CAPITAL OTHER
YEARS ENDING FEBRUARY LEASES DEBT TOTAL
------------------------------------------------------------------- ----------- --------- ---------
<S> <C> <C> <C>
1996............................................................... $ 978 $ 463 $ 1,441
1997............................................................... 802 135 937
1998............................................................... 574 6,589 7,163
1999............................................................... 262 133 395
2000............................................................... 9 142 151
Thereafter......................................................... 10 579 589
----------- --------- ---------
2,635 8,042 10,676
Less amount representing interest ($174 payable in Fiscal 1996).... 345 -- 345
----------- --------- ---------
Total............................................................ $ 2,290 $ 8,042 $ 10,331
----------- --------- ---------
----------- --------- ---------
</TABLE>
8. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal................................................................ $ 2,208 $ 2,221 $ 1,749
State.................................................................. 741 698 359
Deferred................................................................. 513 (753) (730)
Reduction of valuation allowance......................................... -- (858) (167)
--------- --------- ---------
Total.................................................................. $ 3,462 $ 1,308 $ 1,211
--------- --------- ---------
--------- --------- ---------
</TABLE>
B-11
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1995 ("FISCAL 1995"), FEBRUARY 28, 1994
("FISCAL 1994"), AND FEBRUARY 28, 1993 ("FISCAL 1993")
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED OTHERWISE AND FOR PER SHARE
AMOUNTS)
8. INCOME TAXES (CONTINUED)
The deferred tax assets (liabilities) at February 28, 1995 and 1994 are
comprised of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Current:
Allowance for doubtful accounts receivable.................................... $ 453 $ 303
Nondeductible accruals........................................................ 850 955
--------- ---------
Current..................................................................... 1,303 1,258
--------- ---------
Non-Current:
Revenue recognition........................................................... 261 354
Accelerated depreciation...................................................... (84) (13)
Other assets.................................................................. (21) 12
--------- ---------
Non-current................................................................. 156 353
--------- ---------
Total..................................................................... $ 1,459 $ 1,611
--------- ---------
--------- ---------
</TABLE>
The non-current deferred tax assets are included in Other Assets on the
accompanying balance sheets.
The following is a reconciliation of the effective income tax rate to the
Federal statutory rate:
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory rate.................................................... 34.0% 34.0% 34.0%
State and local income taxes, net of Federal income tax benefit........... 6.9 7.5 7.0
Tax credits............................................................... (0.1) (0.2) (1.0)
Goodwill amortization..................................................... 2.9 3.9 5.0
Reduction in valuation allowance on deferred tax assets................... -- (18.4) (4.4)
Reversal of prior year accrual............................................ -- -- (7.2)
Other..................................................................... (1.5) 1.2 (1.4)
--- ----- ---
Effective rate............................................................ 42.2% 28.0% 32.0%
--- ----- ---
--- ----- ---
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
Approximate minimum annual rental commitments for the remaining terms of the
Company's noncancellable operating leases relating to office space and equipment
rentals are as follows:
<TABLE>
<CAPTION>
YEARS ENDING FEBRUARY
---------------------------------------------------------------------------------------------
<S> <C>
1996........................................................................................ $ 2,969
1997....................................................................................... 2,548
1998....................................................................................... 1,839
1999....................................................................................... 1,586
2000....................................................................................... 1,348
Thereafter................................................................................. 4,305
---------
Total...................................................................................... $ 14,595
---------
---------
</TABLE>
B-12
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1995 ("FISCAL 1995"), FEBRUARY 28, 1994
("FISCAL 1994"), AND FEBRUARY 28, 1993 ("FISCAL 1993")
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED OTHERWISE AND FOR PER SHARE
AMOUNTS)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Certain leases require additional payments based upon property tax and
maintenance expense escalations.
Aggregate rental expense for Fiscal 1995, 1994 and 1993 approximated $2,850,
$2,605 and $2,545, respectively.
The Company has entered into employment agreements with several key officers
and personnel which require minimum aggregate payments of approximately $2,816,
$2,516, $1,467, $953 and $1,048, over the next five fiscal years. During 1993,
five-year employment agreements with two executives were amended to provide, in
the event of their death, for the continued payment of their compensation to
their beneficiaries for the duration of their agreements. Additionally, certain
officers have entered into agreements which provide that in the event of change
in control of, and the discontinuance of such employee's employment with Staff
Builders, the Company will pay a lump sum amount of 2.99 times the average
annual compensation paid to the employee during the five-year period immediately
preceding the date of the discontinuance of employment.
The Company is a guarantor of a mortgage in the amount of $603 as of
February 28, 1995 through February 2005 arising from the sale of land and a
building in June 1988.
The Company is a defendant in several civil actions which are routine and
incidental to its business. The Company purchases insurance in such amounts
which management believes to be reasonable and prudent. In management's opinion,
after consultation with legal counsel, settlement of these actions will not have
a material adverse effect on the Company's consolidated financial position,
liquidity or results of operations. Accrued expenses include $462 at February
28, 1995 which represents the estimated amount of liability claims payable. Such
amount represents the deductible amounts for which the Company is liable net of
payments by the Company's insurers which are probable of realization, estimated
at $1,085.
10. REDEEMABLE CLASS B PREFERRED STOCK
Pursuant to an agreement between the Company and the holders of the Class B
Preferred Stock, the Company redeemed all of the outstanding shares of the Class
B Preferred Stock. This redemption occurred upon the payment of $5,444 during
the fourth quarter ended February 28, 1994. Such amount was net of a discount of
$900. Income applicable to common stockholders for the year ended February 28,
1994 included the discount, less dividends accrued of $310.
11. STOCKHOLDERS' EQUITY
COMMON STOCK -- VOTING RIGHTS
A holder of Staff Builders common stock is entitled, except in certain
circumstances, to ten votes for each share of common stock held by such person
on the record date for a meeting of stockholders if such person has been the
beneficial owner of such shares for a period of at least 48 consecutive calendar
months. Holders of shares which do not meet such criteria, with certain limited
exceptions, are entitled to one vote for each such share.
STOCK OPTIONS
During Fiscal 1994, the Company adopted a stock option plan (the "1993 Stock
Option Plan") under which an aggregate of one million shares of common stock are
reserved for issuance upon exercise of options thereunder. Options granted under
this plan may be incentive stock options
B-13
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1995 ("FISCAL 1995"), FEBRUARY 28, 1994
("FISCAL 1994"), AND FEBRUARY 28, 1993 ("FISCAL 1993")
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED OTHERWISE AND FOR PER SHARE
AMOUNTS)
11. STOCKHOLDERS' EQUITY (CONTINUED)
("ISO's") or non-qualified options ("NQSO's"). This plan replaces the 1986
Non-Qualified Plan ("1986 NQSO Plan") and the 1983 Incentive Stock Option Plan
("1983 ISO Plan") which terminated in 1993 except as to options then
outstanding. Employees, officers, directors and consultants are eligible to
participate in the plan. Options are granted at not less than the fair market
value of the common stock at the date of grant.
A total of 640,500 stock options were granted under the 1993 Stock Option
Plan, at option prices ranging from $2.94 to $3.87, of which 635,500 remain
outstanding at February 28, 1995.
A summary of activity under the 1993 Stock Option Plan, the 1986 NQSO Plan
and the 1983 ISO Plan is as follows:
<TABLE>
<CAPTION>
OPTIONS
FOR SHARES PRICE PER SHARE
----------- -----------------
<S> <C> <C>
INCENTIVE STOCK OPTIONS
Options outstanding at March 1, 1992.......................................... 1,155,506 $ 1.75 to $2.27
Granted....................................................................... 563,500 $ 2.88 to $3.00
Exercised..................................................................... (56,546) $ 1.75
-----------
Options outstanding at February 28, 1993...................................... 1,662,460 $ 1.75 to $3.00
Granted....................................................................... 579,540 $ 2.19 to $3.87
Exercised..................................................................... (60,500) $ 1.93 to $3.00
Terminated.................................................................... (45,550) $ 2.19 to $3.00
-----------
Options outstanding at February 28, 1994...................................... 2,135,950 $ 1.75 to $3.87
Granted....................................................................... 85,000 $ 2.94 to $3.62
Exercised..................................................................... (12,450) $ 2.19 to $3.00
Terminated.................................................................... (23,800) $ 2.19 to $3.69
-----------
Options outstanding at February 28, 1995...................................... 2,184,700 $ 1.75 to $3.87
-----------
-----------
NON-QUALIFIED STOCK OPTIONS
Options outstanding at March 1, 1992.......................................... 1,109,765 $ 1.19 to $6.38
Exercised..................................................................... (29,800) $ 1.44 to $1.75
Terminated.................................................................... (52,300) $ 1.19 to $5.88
-----------
Options outstanding at February 28, 1993...................................... 1,027,665 $ 1.13 to $6.38
Granted....................................................................... 450,000 $ 3.00 to $3.75
-----------
Options outstanding at February 28, 1994...................................... 1,477,665 $ 1.31 to $6.38
Granted....................................................................... 25,500 $ 3.03 to $3.75
Exercised..................................................................... (23,000) $ 1.31 to $1.75
-----------
Options outstanding at February 28, 1995...................................... 1,480,165 $ 1.75 to $6.38
-----------
-----------
</TABLE>
Included in the outstanding options are 1,585,484 ISO's and 901,165 NQSO's
which are exercisable at February 28, 1995. The remaining options to purchase
1,178,216 shares become exercisable at various dates through December 1998.
During Fiscal 1995, the Company adopted a stock option plan (the "1994
Performance-Based Stock Option Plan") which provides for the issuance of up to
3,400,000 shares of its common stock.
B-14
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1995 ("FISCAL 1995"), FEBRUARY 28, 1994
("FISCAL 1994"), AND FEBRUARY 28, 1993 ("FISCAL 1993")
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED OTHERWISE AND FOR PER SHARE
AMOUNTS)
11. STOCKHOLDERS' EQUITY (CONTINUED)
Executive officers of the Company and its wholly owned subsidiaries are eligible
for grants. Performance-based stock options are granted for periods of up to ten
years and the exercise price is equal to the average of the closing price of the
common stock for the twenty consecutive trading days prior to the date on which
the option is granted. Vesting of performance based options is during the first
four years after the date of grant, and is dependent upon increases in the
market price of the common stock.
A total of 2,230,000 stock options were granted under the 1994
Performance-Based Stock Option Plan at an option price of $3.14. Options for
557,500 are currently exercisable through 2004 and the remaining 1,672,500
options may become exercisable prior to October 1998 based upon the market price
of the Company's common stock.
During Fiscal 1994, the Company adopted an Employee Stock Purchase Plan
which provides for the issuance of up to one million shares of its common stock.
The purchase price of the shares is the lesser of 90 percent of the fair market
value at the enrollment date, as defined, or the exercise date. During Fiscal
1995, 139,166 shares were issued under this plan.
STOCK WARRANTS
In connection with a public sale of securities completed in February 1992,
the Company sold warrants to purchase its common stock at $3.00 per share.
During Fiscal 1994, the Company called for redemption of the outstanding public
warrants ("Warrant Redemption"), which resulted in the issuance of 5,060,000
shares of common stock. As a result of the Warrant Redemption, the Company
received net proceeds of $13.7 million.
In connection with the Warrant Redemption, the Company issued to a financial
advisor, for an aggregate of $200, warrants to purchase an additional 200,000
shares of the Company's common stock at $3.20 per share. These warrants are
exercisable through December 31, 1995.
In connection with the February 1992 public sale of securities, the Company
sold to the underwriter and its designees, for an aggregate consideration of
$200, warrants to purchase 200,000 units at an exercise price of $9.90 per unit.
Each unit currently consists of four shares of common stock. The underwriter
warrants are exercisable through January 31, 1997.
During Fiscal 1992, the Company granted warrants for the purchase of 150,000
shares of its common stock at $1.12 per share and 250,000 shares at $2.08 per
share to a financial public relations firm which expire in October 1996 and
February 1997, respectively.
In connection with the establishment of the Company's revolving line of
credit, the Company issued warrants for the purchase of 250,000 shares of its
common stock at $2.00 per share to a consulting firm. These warrants were
exercised during Fiscal 1995.
CONVERTIBLE PREFERRED STOCK, CLASS A
Each issued and outstanding share of Convertible Preferred Stock, Class A,
is entitled to a noncumulative dividend of $1.00, and has a preference on
liquidation of $1.00. The holders of the Convertible Class A Preferred Stock do
not have any voting rights except on matters concerning the substantive rights,
privileges and preferences of the Class A Preferred Stock and on issues related
to certain business combinations.
B-15
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1995 ("FISCAL 1995"), FEBRUARY 28, 1994
("FISCAL 1994"), AND FEBRUARY 28, 1993 ("FISCAL 1993")
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED OTHERWISE AND FOR PER SHARE
AMOUNTS)
11. STOCKHOLDERS' EQUITY (CONTINUED)
COMMON SHARES RESERVED
The following represents common shares reserved and available for issuance,
at February 28, 1995, for options granted and outstanding warrants and employee
stock purchases:
<TABLE>
<CAPTION>
AVAILABLE
FOR
RESERVED ISSUANCE
----------- -----------
<S> <C> <C>
1994 Performance-Based Stock Option Plan.................................. 2,230,000 1,170,000
1993, 1986 and 1983 Stock Option Plans.................................... 3,664,865 364,500
1993 Employee Stock Purchase Plan......................................... -- 860,834
Underwriter Unit Warrants................................................. 800,000 --
Other Warrants............................................................ 600,000 --
Other..................................................................... 51,581 --
----------- -----------
Total................................................................. 7,346,446 2,395,334
----------- -----------
----------- -----------
</TABLE>
12. EARNINGS PER COMMON SHARE
Primary and fully diluted earnings per common and common equivalent share
were computed by dividing the earnings applicable to common stockholders, as
adjusted for the dividends and discount on the Class B Preferred Stock (see Note
10), by the weighted average number of shares of common stock and common stock
equivalents, principally dilutive stock options and warrants, outstanding during
the period.
The Fiscal 1995 and 1994 computations include the additional shares and the
assumed savings of interest expense, net of income taxes, that would have
occurred if all outstanding options and warrants were exercised.
B-16
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1995 ("FISCAL 1995"), FEBRUARY 28, 1994
("FISCAL 1994"), AND FEBRUARY 28, 1993 ("FISCAL 1993")
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED OTHERWISE AND FOR PER SHARE
AMOUNTS)
12. EARNINGS PER COMMON SHARE (CONTINUED)
The following table presents information necessary to calculate earnings per
share for Fiscal 1995, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
PRIMARY
Shares outstanding:
Weighted average outstanding............................................... 22,389 16,412 15,835
Share equivalents.......................................................... 1,684 5,763 238
--------- --------- ---------
Adjusted outstanding....................................................... 24,073 22,175 16,073
--------- --------- ---------
--------- --------- ---------
Adjusted net income applicable to common stockholders:
Net income................................................................. $ 4,735 $ 3,364 $ 2,574
Add net discount (deduct dividends) on Class B Preferred Stock (see Note
10)....................................................................... -- 590 (400)
--------- --------- ---------
Net income applicable to common stockholders............................... 4,735 3,954 2,174
Add interest savings, net of tax provision................................. -- 438 --
--------- --------- ---------
Adjusted net income applicable to common stockholders........................ $ 4,735 $ 4,392 $ 2,174
--------- --------- ---------
--------- --------- ---------
FULLY DILUTED
Shares outstanding:
Weighted average outstanding............................................... 22,389 16,412 15,835
Share equivalents.......................................................... 1,987 5,763 653
--------- --------- ---------
Adjusted outstanding....................................................... 24,376 22,175 16,488
--------- --------- ---------
--------- --------- ---------
Adjusted net income applicable to common stockholders:
Net income................................................................. $ 4,735 $ 3,364 $ 2,574
Add net discount (deduct dividends) on Class B Preferred Stock (see Note
10)....................................................................... -- 590 (400)
--------- --------- ---------
Net income applicable to common stockholders............................... 4,735 3,954 2,174
Add interest savings, net of tax provision................................. 25 373 --
--------- --------- ---------
Adjusted net income applicable to common stockholders........................ $ 4,760 $ 4,327 $ 2,174
--------- --------- ---------
--------- --------- ---------
</TABLE>
B-17
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1995 ("FISCAL 1995"), FEBRUARY 28, 1994
("FISCAL 1994"), AND FEBRUARY 28, 1993 ("FISCAL 1993")
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED OTHERWISE AND FOR PER SHARE
AMOUNTS)
13. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized unaudited quarterly financial data for Fiscal 1995 and 1994 are
as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28,
1994 1994 1994 1995
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues..................................................... $ 72,577 $ 76,038 $ 85,085 $ 91,411
Gross profit................................................. $ 26,725 $ 30,134 $ 32,325 $ 34,562
Net Income................................................... $ 814 $ 1,178 $ 1,263 $ 1,480
Income per common share:
Primary.................................................... $ .04 $ .05 $ .05 $ .06
Fully diluted.............................................. $ .04 $ .05 $ .05 $ .06
Weighted average number of common shares:
Primary.................................................... 23,103 23,708 25,042 24,463
Fully diluted.............................................. 23,123 23,804 26,244 25,936
<CAPTION>
QUARTERS ENDED
--------------------------------------------------
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28,
1993 1993 1993 1994
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues..................................................... $ 54,740 $ 59,698 $ 64,473 $ 67,171
Gross profit................................................. $ 20,371 $ 22,590 $ 24,501 $ 25,796
Net Income................................................... $ 733 $ 901 $ 1,061 $ 669
Income per common share:
Primary.................................................... $ .04 $ .05 $ .06 $ .07
Fully diluted.............................................. $ .04 $ .04 $ .06 $ .07
Weighted average number of common shares:
Primary.................................................... 16,481 17,134 18,827 21,747
Fully diluted.............................................. 16,716 18,943 18,827 21,747
</TABLE>
The quarterly earnings per share amounts were calculated on a discrete basis
and therefore may not aggregate to the year to date earnings per share amounts.
Income per common share for the fourth quarter ended February 28, 1994
includes $790 which represents a discount obtained through early retirement of
the preferred stock issue, less dividends accrued during the period (see Note
10).
B-18
<PAGE>
SCHEDULE II
STAFF BUILDERS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Balance, beginning of period.................................................. $ 1,400 $ 1,200 $ 1,000
Charged to costs and expenses................................................. 2,431 2,400 2,352
Deductions.................................................................... (2,081) (2,200) (2,152)
--------- --------- ---------
Balance, end of period........................................................ $ 1,750 $ 1,400 $ 1,200
--------- --------- ---------
--------- --------- ---------
ACCUMULATED AMORTIZATION OF INTANGIBLE ASSETS:
Balance, beginning of period.................................................. $ 5,342 $ 4,485 $ 3,865
Charged to costs and expenses................................................. 1,190 857 763
Deductions.................................................................... -- -- (143)
--------- --------- ---------
Balance, end of period........................................................ $ 6,532 $ 5,342 $ 4,485
--------- --------- ---------
--------- --------- ---------
DEFERRED INCOME (NETTED AGAINST FRANCHISE NOTES RECEIVABLE):
Balance, beginning of period.................................................. $ 5,761 $ 5,693 $ 7,745
Charged to notes receivable................................................... 402 390 700
Deductions.................................................................... (1,192) (322) (2,752)
--------- --------- ---------
Balance, end of period........................................................ $ 4,971 $ 5,761 $ 5,693
--------- --------- ---------
--------- --------- ---------
</TABLE>
B-19
<PAGE>
EXHIBIT C TO THE
PROXY STATEMENT
STAFF BUILDERS, INC.
PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS)
The accompanying financial information reflects the pro forma effect of the
following acquisitions on the Company's results of operations for the year ended
February 28, 1995. On July 22, 1994, the Company acquired the stock of ATC
Services Incorporated ("ATC"), an Atlanta, Georgia based provider of medical
staffing services, for aggregate consideration of approximately $8.7 million
which resulted in goodwill and intangibles of approximately $5.7 million. The
consideration consisted of approximately 2.5 million shares of the Company's
common stock and approximately $300 in related acquisition costs. In November
1994, ATC acquired certain assets and the operations of seven additional medical
staffing locations for aggregate consideration of approximately $800, which
resulted in goodwill of approximately $700. These acquisitions were accounted
for as purchase transactions.
The results of operations of the acquired companies are included in the
accompanying pro forma financial statements subsequent to their respective dates
of acquisition under the historical results of operations. The pro forma
adjustments reflect the effect on the historical results of operations as if the
acquisitions were made as of March 1, 1994. Included in the pro forma
adjustments is the additional amortization of goodwill and intangibles which
would have been incurred as well as the additional number of shares of common
stock which would have been outstanding in connection with the ATC acquisition.
C-1
<PAGE>
STAFF BUILDERS, INC.
PRO-FORMA FINANCIAL INFORMATION
FOR THE YEAR ENDED FEBRUARY 28, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO-FORMA
RESULTS RESULTS
OF PRO-FORMA OF
OPERATIONS ADJUSTMENTS OPERATIONS
--------- ----------- ---------
(NOTE 1)
<S> <C> <C> <C>
Revenues................................................... $ 325,111 $ 17,970 $ 343,081
--------- ----------- ---------
Costs and Expenses:
Operating costs............................................ 201,365 13,924 215,289
--------- ----------- ---------
General and administrative expenses........................ 111,462 3,545 115,007
Provision for doubtful accounts............................ 2,431 19 2,450
Amortization of intangible assets.......................... 1,237 129 1,366
Interest expense........................................... 1,237 51 1,288
Other (income) expense, net................................ (818) 0 (818)
--------- ----------- ---------
Total costs and expenses............................... 316,914 17,668 334,582
--------- ----------- ---------
Income Before Income Taxes................................. 8,197 302 8,499
Provision for Income Taxes................................. 3,462 175 3,637
--------- ----------- ---------
Net Income............................................. $ 4,735 $ 127 $ 4,862
--------- ----------- ---------
--------- ----------- ---------
Weighted average number of common and common equivalent
shares:
Primary.................................................. 24,073 997 25,070
Fully diluted............................................ 24,376 997 25,373
Income per common and common equivalent share:
Primary.................................................. $0.20 $0.19
Fully diluted............................................ $0.20 $0.19
</TABLE>
See notes to condensed pro forma financial information
C-2
<PAGE>
STAFF BUILDERS, INC.
PRO FORMA FINANCIAL INFORMATION
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1 -- The pro forma adjustments include additional amortization expense
and interest expense which would have been incurred if the acquisitions noted
were made as of March 1, 1994 of $129 and $51, respectively. Included in the
provision for income taxes is a pro forma provision of $190 for the year ended
February 28, 1995 based upon pro forma earnings of the acquired companies offset
by income tax benefits of $15 related to the additional amortization expense.
There are no other pro forma adjustments required which would have a material
effect on the pro forma financial position or results of operations.
The Company issued 2,545 common shares to acquire ATC Services Incorporated
on July 22, 1994. The number of shares used in the calculation of the pro forma
per share data is based on the weighted average number of shares outstanding
during the period, adjusted to give effect to shares assumed to be issued had
the acquisition been made as of the beginning of the period.
The pro forma income per common and common equivalent share is based upon
net income applicable to common stockholders as reflected on the face of the
historical consolidated statement of income, adjusted by the pro forma amounts
to reflect the effect on the historical results of operations if the
acquisitions were made as of March 1, 1994.
C-3
<PAGE>
EXHIBIT D TO THE
PROXY STATEMENT
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1995 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 4,746 $ 4,508
Accounts receivable, net of allowance for doubtful
accounts of $1,800 at May 31, 1995 and $1,750 at February
28, 1995................................................. 54,714 53,369
Deferred income tax benefits.............................. 1,313 1,303
Prepaid expenses and other current assets................. 1,682 1,954
----------- ------------
Total current assets.................................... 62,455 61,134
Fixed Assets, net of accumulated depreciation of $3,017 at
May 31, 1995 and $4,398 at February 28, 1995............... 5,969 5,726
Intangible Assets, net of accumulated amortization of $5,908
at May 31, 1995 and $6,532 at February 28, 1995............ 30,183 30,149
Other Assets................................................ 3,715 3,624
----------- ------------
Total....................................................... $102,322 $100,633
----------- ------------
----------- ------------
LIABILITIES
Current Liabilities:
Accounts payable and accrued expenses..................... $ 17,563 $ 17,757
Accrued payroll and related expenses...................... 22,203 18,874
Current portion of long-term liabilities.................. 1,370 1,267
Current income taxes payable.............................. 1,065 1,320
----------- ------------
Total current liabilities............................... 42,201 39,218
----------- ------------
Amount Due Under Secured Revolving Line of Credit........... 3,106 6,461
----------- ------------
Other Long-Term Liabilities................................. 3,046 2,603
----------- ------------
STOCKHOLDERS' EQUITY
Common stock -- $.01 par value; 50,000,000 shares
authorized; 23,438,925 and 22,937,049 shares issued at May
31, 1995 and February 28, 1995, respectively............... 234 229
Convertible preferred stock, Class A; 666 2/3 shares
outstanding................................................ 1 1
Additional paid-in capital.................................. 72,047 71,828
Accumulated deficit......................................... (18,313) (19,707)
----------- ------------
Total stockholders' equity.............................. 53,969 52,351
----------- ------------
Total....................................................... $102,322 $100,633
----------- ------------
----------- ------------
</TABLE>
See notes to condensed consolidated financial statements.
D-1
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Revenues:
Service revenues...................................................................... $ 98,051 $ 72,166
Sales of franchises and fees, net..................................................... 375 411
--------- ---------
Total revenues...................................................................... 98,426 72,577
--------- ---------
Costs and Expenses:
Operating costs....................................................................... 60,498 45,852
General and administrative expenses................................................... 34,344 24,273
Provision for doubtful accounts....................................................... 620 600
Amortization of intangible assets..................................................... 397 263
Interest expense...................................................................... 276 420
Other (income) expense, net........................................................... (198) (234)
--------- ---------
Total costs and expenses............................................................ 95,937 71,174
--------- ---------
Income Before Income Taxes.............................................................. 2,489 1,403
Provision for Income Taxes.............................................................. 1,095 589
--------- ---------
Net Income.............................................................................. $ 1,394 $ 814
--------- ---------
--------- ---------
Income Applicable to Common Stockholders................................................ $ 1,394 $ 814
--------- ---------
--------- ---------
Weighted average number of common and common equivalent shares:
Primary............................................................................... 25,222 23,103
--------- ---------
--------- ---------
Fully diluted......................................................................... 25,239 23,123
--------- ---------
--------- ---------
Income per common and common equivalent share:
Primary............................................................................... $ .06 $ .04
--------- ---------
--------- ---------
Fully diluted......................................................................... $ .06 $ .04
--------- ---------
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
D-2
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 31,
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income............................................................................. $ 1,394 $ 814
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization........................................................ 870 535
Allowance for doubtful accounts...................................................... 50 100
Deferred income taxes................................................................ (10) 67
Rent escalation...................................................................... (20) (46)
Change in operating assets and liabilities:
Accounts receivable.................................................................. (1,395) 4,898
Prepaid expenses and other current assets............................................ 272 348
Accounts payable and accrued expenses................................................ 3,376 241
Income taxes payable................................................................. (255) (39)
Other assets......................................................................... (99) 52
--------- ---------
Net cash provided by operating activities.......................................... 4,183 6,970
--------- ---------
Cash Flows from Investing Activities:
Acquisition of businesses.............................................................. (425) (187)
Additions to fixed assets.............................................................. (260) (316)
--------- ---------
Net cash used in investing activities.............................................. (685) (503)
--------- ---------
Cash Flows from Financing Activities:
Exercise of options and warrants....................................................... 224 101
Decrease in borrowings under revolving line of credit.................................. (3,355) (6,121)
Reduction in other long-term liabilities............................................... (129) (478)
--------- ---------
Net cash used in financing activities.............................................. (3,260) (6,498)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents..................................... 238 (31)
Cash and Cash Equivalents, Beginning of Period........................................... 4,508 7,330
--------- ---------
Cash and Cash Equivalents, End of Period................................................. $ 4,746 $ 7,299
--------- ---------
--------- ---------
Supplemental Data:
Cash paid for:
Interest............................................................................. $ 275 $ 355
--------- ---------
--------- ---------
Income taxes, net.................................................................... $ 1,384 $ 594
--------- ---------
--------- ---------
Common stock issued for acquisition.................................................... $ -- $ 50
--------- ---------
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
D-3
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. FINANCIAL STATEMENTS -- In the opinion of the Company, the accompanying
unaudited condensed consolidated financial statements contain all adjustments
(consisting of only normal and recurring accruals) necessary to present fairly
the financial position of the Company and its subsidiaries as of May 31, 1995
and February 28, 1995 and the results of operations and the cash flows for the
three months ended May 31, 1995 and 1994. Certain prior period amounts have been
reclassified to conform with the May 1995 presentation.
The results for the three months ended May 31, 1995 and 1994 are not
necessarily indicative of the results for an entire year. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the Company's audited financial statements as of February 28, 1995 and for the
year then ended.
2. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE -- Earnings per common
and common equivalent share were computed by dividing the earnings applicable to
common stockholders by the weighted average number of shares of common stock and
common stock equivalents, principally dilutive stock options and warrants
outstanding during the period.
The shares used in computing primary earnings per common and common
equivalent share were 25,222,302 shares and 23,102,963 shares for the three
months ended May 31, 1995 and 1994, respectively. The shares used in computing
fully diluted earnings per share were 25,239,164 and 23,123,237 for the three
months ended May 31, 1995 and 1994, respectively.
3. PROVISION FOR INCOME TAXES -- The provision for income taxes for the
three months ended May 31, 1995 and 1994 is based upon the Company's estimated
tax provision required for the full year.
4. UNAUDITED QUARTERLY FINANCIAL DATA -- Summarized unaudited quarterly
financial data for Fiscal 1995 and 1994, and the quarter ended May 31, 1995, are
as follows (in thousands, except share data):
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------------
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28, MAY 31,
1994 1994 1994 1995 1995
--------- ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues.......................................... $ 72,577 $ 76,038 $ 85,085 $ 91,411 $ 98,426
Gross profit...................................... $ 26,725 $ 30,134 $ 32,325 $ 34,562 $ 37,928
Net Income........................................ $ 814 $ 1,178 $ 1,263 $ 1,480 $ 1,394
Income per common share:
Primary......................................... $.04 $.05 $.05 $.06 $.06
Fully diluted................................... $.04 $.05 $.05 $.06 $.06
Weighted average number of common shares:
Primary......................................... 23,103 23,708 25,042 24,463 25,222
Fully diluted................................... 23,123 23,804 26,244 25,936 25,239
</TABLE>
D-4
<PAGE>
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------
MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 28,
1993 1993 1993 1994
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues..................................................... $ 54,740 $ 59,698 $ 64,473 $ 67,171
Gross profit................................................. $ 20,371 $ 22,590 $ 24,501 $ 25,796
Net Income................................................... $ 733 $ 901 $ 1,061 $ 669
Income per common share:
Primary.................................................... $.04 $.05 $.06 $.07
Fully diluted.............................................. $.04 $.04 $.06 $.07
Weighted average number of common shares:
Primary.................................................... 16,481 17,134 18,827 21,747
Fully diluted.............................................. 16,716 18,943 18,827 21,747
</TABLE>
The quarterly earnings per share amounts were calculated on a discrete basis
and therefore may not aggregate to the year to date earnings per share amounts.
Income per common share for the fourth quarter ended February 28, 1994
includes $790 which represents a discount obtained through early retirement of
the preferred stock issue, less dividends accrued during the period.
D-5
<PAGE>
STAFF BUILDERS, INC.
PROXY
ANNUAL MEETING OF STOCKHOLDERS
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Stephen Savitsky and David Savitsky and
each of them (with power of substitution) proxies of the undersigned to
represent and vote, as designated below, all shares of common stock, par value
$.01 per share ("Common Stock"), of Staff Builders, Inc. (the "Company"), which
the undersigned would be entitled to vote if personally present at the Annual
Meeting of Stockholders to be held on October 26, 1995 and at any adjournment
thereof. Each holder of shares of Common Stock is entitled to ten votes for each
share beneficially owned by the current beneficial owner for at least
forty-eight consecutive calendar months (dating from the first day of the first
calendar month on or after the holder acquired beneficial ownership of such
shares) prior to the Record Date for the Annual Meeting and one vote for each
share not beneficially owned by the current beneficial owner for at least such
period, as more fully described in the Proxy Statement accompanying this Proxy.
The holders of ten vote shares and the holders of one vote shares will vote as
separate classes with respect to the proposed Recapitalization, including the
related amendments to the Company's Restated Certificate of Incorporation.
<PAGE>
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
1. Election of Class B Directors
FOR BOTH NOMINEES WITHHOLD AUTHORITY FOR BOTH NOMINEES
/ / / /
Nominees for Class B Directors: (1) Bernard J. Firestone
(2) Donald Meyers
For, except vote withheld for the following nominee:
--------------------------------------------------------
2. Approval of the Plan of Recapitalization, including the related amendments
to the Company's Restated Certificate of Incorporation.
FOR AGAINST ABSTAIN
/ / / / / /
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the annual meeting.
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no direction is made, this Proxy will be
voted "FOR" Items 1 and 2.
SIGNATURE(s) DATE
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IMPORTANT: Please date and sign as your name appears above and return in the
enclosed envelope. When signing as executor, administrator, trustee, guardian,
etc., please give full title as such. If the stockholder is a corporation, this
proxy should be signed in the full corporation name by a duly authorized officer
whose title is stated.
