SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED AUGUST 31, 1998, OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
Commission file number 0-11380
STAFF BUILDERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2650500
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1983 Marcus Avenue, Lake Success, New York 11042
(Address of principal executive offices) (Zip Code)
(516) 358-1000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
The number of shares of Class A Common Stock and Class B Common
Stock outstanding on October 9, 1998 was 21,417,540 and 1,034,449
shares, respectively.
<PAGE>
STAFF BUILDERS, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
August 31, 1998 and February 28, 1998 2
Condensed Statements of Consolidated
Income - Three and six months ended
August 31, 1998 and 1997 3
Condensed Statements of Consolidated Cash
Flows - Six months ended August 31, 1998
and 1997 4
Notes to Condensed Consolidated Financial
Statements 5-6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7-9
Factors Affecting the Company's Future
Performance 9
PART II OTHER INFORMATION
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K 10
-1-
<PAGE>
<TABLE>
<CAPTION>
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) AUGUST 31,
1998 FEBRUARY 28,
(UNAUDITED) 1998
ASSETS:
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,241 $ 1,931
Accounts receivable, net of allowance
for doubtful accounts of $4,100
and $3,600, respectively 43,482 76,668
Deferred income tax benefits 3,087 3,081
Prepaid expenses and other current assets 5,277 4,371
Total current assets 54,087 86,051
Fixed Assets, net of accumulated depreciation
of $10,097 and $8,187, respectively 11,316 11,548
Intangible Assets, net of accumulated
amortization of $10,746 and $10,413,
respectively 28,191 26,995
Investment in unconsolidated affiliate 16,395 15,125
Other Assets 11,781 10,682
Total $121,770 $150,401
LIABILITIES:
Current Liabilities:
Accounts payable and accrued expenses $ 28,203 $ 35,910
Accrued payroll and related expenses 24,600 27,233
Current portion of long-term debt 8,621 8,596
Total current liabilities 61,424 71,739
Long-term debt 20,707 36,293
Other Liabilities 4,131 4,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A Common stock - $.01 par value;
50,000,000 shares authorized; 21,508,008 and
23,009,247 shares outstanding at August 31,
1998 and February 28, 1998, respectively 215 230
Class B Common stock - $.01 par value;
1,554,936 shares authorized; 1,041,249 and
1,056,356 shares outstanding at August 31,
1998 and February 28, 1998, respectively 10 10
Convertible preferred stock, Class A; 10,000
shares authorized, 666 2/3 shares outstanding
at August 31, 1998 and February 28, 1998,
respectively. 1 1
Additional paid-in capital 70,810 73,692
Accumulated deficit (35,528) (35,564)
Total stockholders' equity 35,508 38,369
Total $121,770 $150,401
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
(In thousands, except per share data)
Three Months Ended Six Months Ended
August 31, August 31,
1998 1997 1998 1997
Revenues:
<S> <C> <C> <C> <C>
Service revenues:
Home health care $ 79,539 $115,373 $163,146 $230,850
ATC supplemental staffing 23,455 15,896 44,070 30,781
Total service revenues 102,994 131,269 207,216 261,631
Sale of franchises and fee, net 368 348 783 487
Total revenues 103,362 131,617 207,999 262,118
Costs and Expenses:
Operating costs 68,010 84,069 139,251 168,045
General and administrative expenses 35,181 44,578 68,467 88,580
Amortization of intangible assets 318 713 630 1,425
Interest expense 749 837 1,702 1,706
Interest (income) (212) (371) (557) (681)
Other (income) expense, net (927) (8) (1,562) (299)
Total costs and expenses 103,119 129,818 207,931 258,776
Income Before Income Taxes 243 1,799 68 3,342
Provision for Income Taxes 108 810 32 1,504
Net Income $ 135 $ 989 $ 36 $ 1,838
Weighted average number of common and
common equivalent shares:
Basic 22,526 23,910 23,090 23,876
Diluted 22,563 24,246 23,190 24,137
Income per common and
common equivalent share:
Basic $.01 $.04 $.00 $.08
Diluted $.01 $.04 $.00 $.08
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In thousands)
Six Months Ended
August 31,
1998 1997
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 36 $ 1,838
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization of fixed assets 1,987 1,858
Amortization of intangibles and other assets 630 1,425
Allowance for doubtful accounts 500 200
Deferred income taxes (5) (82)
Increase in other long-term liabilities 126 -
Write-off of goodwill 297 245
(Earnings) of unconsolidated affiliate (1,437) -
Change in operating assets and liabilities:
Accounts receivable 32,685 1,035
Prepaid expenses and other current assets (894) 1,242
Accounts payable and accrued expenses (10,398) 8,233
Income taxes payable (7) 121
Other assets (1,432) (40)
Net cash provided by operating activities 22,088 16,075
Cash Flows from Investing Activities:
Acquisition of businesses (1,370) (1,193)
Disposition of business - (70)
Additions to fixed assets, net (130) (266)
Net cash used in investing activities (1,500) (1,529)
Cash Flows from Financing Activities:
Proceeds from Employee Stock Purchase Plan 188 286
Exercise of stock options 35 -
Purchase and retirement of common stock (3,120) -
Decrease in borrowings under
revolving line of credit (15,065) (1,871)
Reduction in other long-term liabilities (2,316) (2,351)
Net cash used in financing activities (20,278) (3,936)
Net Increase in Cash and Cash Equivalents 310 10,610
Cash and Cash Equivalents, Beginning
of Period 1,931 2,006
Cash and Cash Equivalents, End of Period $ 2,241 $12,616
Supplemental Data:
Cash paid for:
Interest $ 1,731 $ 1,507
Income taxes, net $(1,389) $ 927
Fixed assets acquired through
capital lease agreements $ 1,625 $ 1,675
Acquisition of businesses through
issuance of notes payable $ 275 $ -
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
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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
August 31, 1998 and February 28, 1998, the results of
operations for the three and six months ended August 31, 1998
and 1997 and the cash flows for the six months ended August
31, 1998 and 1997. Certain prior period amounts have been
reclassified to conform with the August 1998 presentation.
The results for the three and six months ended August 31, 1998
and 1997 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,
1998 and for the year then ended.
2. HEALTH CARE REFORM LEGISLATION - The Balanced Budget Act of
1997 ("BBA"), enacted by Congress on August 5, 1997, resulted
in significant changes to cost based reimbursement for
Medicare home health care providers. The BBA provided for an
interim payment system ("IPS") which became effective for the
Company as of March 1, 1998. The effect of changes under the
IPS was to reduce the limits for the amount of costs that are
reimbursable by Medicare. Accordingly, the Company together
with many of the Company's franchisees have modified their
operations as needed to meet the restrictive demands of the
IPS, including taking steps to reduce costs and maximize
operational efficiencies within the constraints of the IPS.
Based upon the Company's evaluation of each franchisee's
operations and the operating plans submitted by its
franchisees, the Company has funded the operational expenses
of many of its franchisees that have incurred losses
resulting from the provision of Medicare services. During the
six months ended August 31, 1998 ("the 1998 period"), the
Company recognized approximately $300 thousand of net royalty
income and advanced approximately $1.1 million in working
capital to these franchises, which amounts are included in
Prepaid Expenses and Other Current Assets in the accompanying
condensed consolidated balance sheet of August 31, 1998. The
Company expects to recover these amounts during the year
ending February 28, 1999. The results of the Company's and
franchisees' continuing cost reductions, changes in revenue
mix and care management strategies, in response to the IPS,
have not yet fully offset the decrease in Medicare revenues
in the 1998 period. Further, the Company has converted
approximately 24 franchise locations to company owned
operations during the 1998 period.
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3. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - The
Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share" ("SFAS No. 128"). SFAS No. 128 replaced
the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share, effective
with fiscal years ending after December 15, 1997. Earnings
per share amounts for all periods have been restated to
conform to the SFAS No. 128 requirements.
The shares used in computing basic earnings per share were
23,090,458 and 23,875,892 shares for the six months ended
August 31, 1998 and 1997, respectively. The shares used in
computing diluted earnings per share were 23,190,462 and
24,137,044 shares for the six months ended August 31, 1998 and
1997, respectively. The shares used in computing basic
earnings per share were 22,526,140 and 23,909,628 for the
three months ended August 31, 1998 and 1997, respectively.
The shares used in computing diluted earnings per share were
22,563,259 and 24,246,492 shares for the three months ended
August 31, 1998 and 1997, respectively.
Since March 1998 to date, the Company purchased and retired
a total of 1,788,500 shares of its common stock at a cost of
approximately $3.2 million.
4. PROVISION FOR INCOME TAXES - The provision for income taxes
for the three and six months ended August 31, 1998 and 1997 is
based upon the Company's estimated tax provision required for
the full year.
5. CONTINGENCIES - On September 20, 1995, the United States
Attorney for the Eastern District of Pennsylvania alleged that
(i) between 1987 and 1989, a corporation, substantially all
assets and liabilities of which were acquired by a
subsidiary of the Company in 1993, submitted false claims to
Medicare totaling approximately $1.5 million and (ii) officers
and employees of that corporation submitted false statements
in support of such claims; the U.S. Attorney has made a pre-
complaint civil settlement demand of approximately $4.5
million. The alleged false claims and false statements were
made before the Company acquired that corporation in 1993.
There have been significant discussions with the office of the
U. S. Attorney which the Company believes are likely to lead
to an arbitration within specified parameters.
Although the Company cannot estimate the ultimate cost of its
open legal matters with precision, it maintains a loss
contingency accrual for the aggregate estimated amount to
settle such matters. In management's opinion, settlement of
these matters will not have a material adverse effect on the
Company's consolidated financial position, liquidity or
results of operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding
of the Company's results of operations and financial condition.
This discussion should be read in conjunction with the Condensed
Consolidated Financial Statements appearing in Item 1.
Results of Operations
Total revenues decreased by $28.2 million or 21.5% for the three
months ended August 31, 1998 to $103.4 million from $131.6 million
for the three months ended August 31, 1997. For the six months ended
August 31, 1998, ("the 1998 period") total revenues decreased by
$54.1 million or 20.6% to $208.0 million from $262.1 million for
the six months ended August 31, 1997 ("the 1997 period"). The
decrease for the 1998 period was primarily due to a decrease in
Medicare revenues of approximately $61.7 million, resulting from
the negative impact of the Medicare Interim Payment System, enacted
under the Balanced Budget Act of 1997, which reduced the limits for
the amount of costs which are reimbursable under the Medicare
program. Offsetting this decrease was an increase of approximately
$13.3 million in revenues generated by the Company's ATC
supplemental staffing division ("ATC"). ATC opened new offices
during the 1998 period in response to increased market demand for
these services, to a total of 54 supplemental staffing service
locations as of August 31, 1998.
The Company's home health care service revenues were $79.5 million
and $115.4 million for the three months ended August 31, 1998 and
1997, respectively and $163.1 million and $230.9 million for the
six months ended August 31, 1998 and 1997, respectively. The
following are the Company's home health care service revenues by
payment source:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Medicare 48.5% 60.2% 48.2% 60.7%
Medicaid and other local
government programs 31.0 23.0 30.9 22.4
Insurance and individuals 19.4 15.1 19.5 15.0
Other 1.1 1.7 1.4 1.9
Total 100.0% 100.0% 100.0% 100.0%
</TABLE>
Operating costs (the direct costs of providing services) were 66.0%
and 64.0% of service revenues for the three months ended August 31,
1998 and 1997, and 67.2% and 64.2% for the six months ended August
31, 1998 and 1997, respectively. The increases in operating costs
as a percentage of service revenues in the three and six months
ended August 31, 1998 over the comparable periods in the prior year
were primarily due to a change in revenue mix toward non-Medicare
services which have lower gross margins.
-7-
General and administrative expenses decreased by $9.4 million, or
21.1%, to $35.2 million for the three months ended August 31, 1998
from $44.6 million for the three months ended August 31, 1997. For
the six months ended August 31, 1998, general and administrative
expenses decreased by $20.1 million, or 22.7%, to $68.5 million
from $88.6 million for the six months ended August 31, 1997. The
decrease for the 1998 period is primarily due to a reduction in
those expenses related to the decline in Medicare services of
approximately $22.6 million. This decrease was partially offset by
an increase of approximately $2.1 million in general and
administrative expenses incurred by ATC.
Interest expense was approximately $750 thousand and $800 thousand
for the three months ended August 31, 1998 and 1997, and $1.7
million for the six months ended August 31, 1998 and 1997,
respectively. Interest expense consists primarily of interest on
the Company's line of credit facility and on capital leases.
The provision for income taxes was approximately $30 thousand and
$1.5 million for the 1998 and 1997 periods, respectively. The
Company's effective income tax rate was 47% for the 1998 period as
compared to 45% in the 1997 period.
Liquidity and Capital Resources
The Company has a secured credit facility which consists of a
revolving line of credit, an acquisition line of credit and a
standby letter of credit facility under which it can borrow up to
an aggregate amount of $50 million. As of August 31, 1998 and
February 28, 1998, approximately $18.6 million was available for
borrowing under the credit facility.
In April 1998, an amendment was made to the credit facility which
increased the maximum available amount of the acquisition line of
credit from $15 million to $25 million and expanded the purpose to
include stock repurchases in amounts up to $10 million. The
acquisition line of credit continues to provide for borrowings up
to $15 million without collateral to finance acquisitions made by
the Company. Since March 1998 to date, the Company purchased and
retired a total of 1,763,500 shares of its common stock at a cost
of approximately $3.2 million.
At August 31, 1998 and February 28, 1998, the Company borrowed
$14.9 million and $29.4 million, respectively, under this facility.
Trade accounts receivable at August 31, 1998 and February 28, 1998
were outstanding approximately 62 days and 58 days, respectively.
At August 31, 1998, the Company's current portion of long-term debt
obligations was $8.6 million.
The Company expects that its existing working capital, cash from
operations and its credit facilities will be sufficient to meet its
needs for at least the next twelve months.
-8-
Impact of Year 2000 Computer Issue
The year 2000 issue is the result of computer programs which were
written using two digits rather than four to define the applicable
year. The Company is currently initiating programs to adapt its
computer systems to accommodate the year 2000. The Company is
utilizing both internal and external resources to reprogram or
replace its computer software for year 2000 modifications. The
Company anticipates that modifications to existing software and
investments being made in new software will provide compliance with
the requirements to handle the year 2000 issue with no significant
operational concerns. However, there is no guarantee that the
Company's expected results will be achieved and actual results
could differ materially from those expected results. Specific
factors that might cause such material differences include, but are
not limited to, the availability and cost of personnel trained in
this area. System maintenance and modification costs to existing
software will be expensed as incurred. The costs associated with
externally developed computer software that is year 2000 compliant
will be capitalized and amortized over the software's estimated
useful life. The estimated cost to replace existing software
applications, consisting of Lawson Software and HBO Corporation
systems, including modifications to accommodate the year 2000, is
approximately $16 million which will be capitalized and amortized
over the life of the software.
FORWARD LOOKING STATEMENTS
Certain statements in this report on Form 10-Q constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are
typically identified by their inclusion of phrases such as "the
Company anticipates", "the Company believes" and other phrases of
similar meaning. These forward looking statements are based on the
Company's current expectations. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors
that may cause the actual results, performance or achievements of
the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-
looking statements including those risks detailed in the Company's
Form 10-K as of February 28, 1998 and for the year then ended. The
potential risks and uncertainties which could cause actual results
to differ materially from the Company's expectations include the
impact of further changes in the Medicare reimbursement system,
including any changes to the current Interim Payment System ("IPS")
and/or the implementation of a prospective payment system;
government regulation; health care reform; pricing pressures from
third-party payors, including managed care organizations;
retroactive Medicare audit adjustments; and changes in the laws and
interpretations of laws or regulations relating to the health care
industry.
As part of its participation in Federal and state funded health
care programs, the Company is routinely audited in connection with
its services rendered under these programs. In connection with
-9-
recent increased pressure from the Federal government to reduce
health care expenditures, the scope of audits has significantly
increased. For example, in fiscal year 1998 the Medicare fiscal
intermediary conducted 25 field audits, whereas in fiscal 1997 it
had conducted nine field audits. Additionally, the interpretation
and application of regulatory guidelines has become more
restrictive.
Until the Company receives all information related to the current
audits and completes its assessment thereof, the Company cannot
quantify the ultimate cost of the resultant retroactive audit
adjustments. The Company anticipates receiving sufficient
information before the current fiscal year end so that it can
complete its assessment of the retroactive audit adjustments and
can quantify the effect of these adjustments. The Company has a
general reserve established and continues to increase the reserve
on a monthly basis, but there can be no assurance that the reserve
is adequate.
As a result of the implementation of the IPS as provided for in the
Balanced Budget Act of 1997, the Company's fiscal year ending
February 28, 1999 net revenues are estimated to be less than the
prior fiscal year due principally to reductions in the limits for
the amount of costs that are reimbursable in connection with the
provision of Medicare services. Further changes in the law and
regulations as well as new interpretations enforced by the relevant
regulatory agencies could have an adverse effect on the Company's
operations and the cost of doing business. Additionally,
uncertainties relating to the nature and outcomes of health care
reforms have also generated numerous realignments, combinations and
consolidations in the health care industry which may also have an
adverse impact on the Company's business strategy and results of
operations. The Company expects that in addition to industry
consolidation generally, there may be consolidations within Staff
Builders' company-owned and franchised locations, with the likely
result that there will be fewer offices by the end of its current
fiscal year.
Part II - OTHER INFORMATION
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(A) Exhibit
Exhibit No.
10.1 Employment Agreement, dated as of March 1,
1998, between Staff Builders, Inc. (NY) and
Willard T. Derr.
(B) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant for the quarter
ended August 31, 1998.
-10-<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Staff Builders, Inc.
Dated: October 14, 1998 By: /s/ Stephen Savitsky
Stephen Savitsky
Chairman of the Board, President
and Chief Executive Officer
Dated: October 14, 1998 By: /s/ Dale R. Clift
Dale R. Clift
Exec. Vice President, Finance
Chief Financial Officer
Dated: October 14, 1998 By: /s/ Willard T. Derr
Willard T. Derr
Sr. Vice President,
Corporate Controller
Principal Accounting Officer
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> AUG-31-1998
<CASH> 2241
<SECURITIES> 0
<RECEIVABLES> 47582
<ALLOWANCES> 4100
<INVENTORY> 0
<CURRENT-ASSETS> 54087
<PP&E> 21413
<DEPRECIATION> 10097
<TOTAL-ASSETS> 121770
<CURRENT-LIABILITIES> 61424
<BONDS> 0
1
0
<COMMON> 225
<OTHER-SE> 35282
<TOTAL-LIABILITY-AND-EQUITY> 121770
<SALES> 0
<TOTAL-REVENUES> 207999
<CGS> 0
<TOTAL-COSTS> 139251
<OTHER-EXPENSES> (1489)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1702
<INCOME-PRETAX> 68
<INCOME-TAX> 32
<INCOME-CONTINUING> 36
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
EXHIBIT
10.1
<PAGE>
EMPLOYMENT AGREEMENT
Employment Agreement, effective as of March 1, 1998, by and
between Staff Builders, Inc., a New York corporation ("Staff
Builders" or the "Corporation") and Willard Derr who resides at 8
Shirley Court, East Northport, NY 11731 ("EMPLOYEE").
WHEREAS, Staff Builders wishes to secure the services of the
EMPLOYEE on the terms and conditions set forth below; and
WHEREAS, the EMPLOYEE represents that he has no restrictions
on employment arising out of any previous employment agreements and
the EMPLOYEE is willing to accept employment with Staff Builders on
such terms and conditions.
NOW, THEREFORE, in consideration of their mutual promises and
other adequate consideration, Staff Builders and the EMPLOYEE do
hereby agree as follows:
1. EMPLOYMENT. Staff Builders will employ the EMPLOYEE as
Senior Vice President - Corporate Controller in accordance with the
terms and provisions of this Agreement.
2. DUTIES. The EMPLOYEE shall report to the Executive
Vice President-Finance, CFO of Staff Builders and shall be
responsible to perform such duties as shall be assigned to the
EMPLOYEE by the President, Executive Vice President, CFO of Staff
Builders or their designee. The EMPLOYEE shall devote his full
business time, attention and skill such as is required for the
performance of his duties hereunder and to the advancement of the
business and interests of Staff Builders.
3. TERM. This Agreement shall be effective on March 1,
1998, and shall remain in effect until February 28, 2001, unless
terminated earlier pursuant to the terms hereof.
4. COMPENSATION.
(a) Salary. The EMPLOYEE shall be paid a salary of
$137,000 per annum during the term hereof, payable in weekly
installments. The EMPLOYEE'S salary will be reviewed by Staff
Builders on March 1, 1999.
(b) Benefits. The EMPLOYEE shall be eligible to receive
and participate in all health, medical or other insurance benefits
which Staff Builders provides or makes available to its employees.
(c) Expenses. Staff Builders shall reimburse the
EMPLOYEE for all reasonable and necessary expenses upon submission
by the EMPLOYEE of receipts, accounts or such other documents
reasonably requested by Staff Builders.
(d) Automobile Allowance. Employee shall have the use
of a 1997 Toyota Camry VIN # 4T1BF22K8VU003368 for the balance of
the lease which expires on October, 1999, thereafter for the
balance of the term of this Agreement Employee shall receive a car
allowance of $300.00 per month.
5. TERMINATION: RIGHTS AND OBLIGATIONS UPON TERMINATION.
(a) If the EMPLOYEE dies during the Term, then the
EMPLOYEE'S employment under this Agreement shall terminate. In
such event, the EMPLOYEE'S estate shall be entitled only to
compensation and expenses accrued and unpaid as at the date of the
EMPLOYEE'S death.
(b) If, as a result of the EMPLOYEE'S total incapacity
due to physical or mental illness, whether or not job related, the
EMPLOYEE is absent from his duties hereunder for 180 consecutive
days, the EMPLOYEE'S employment hereunder shall terminate. The
EMPLOYEE'S salary shall continue during such period of incapacity
until the period of 180 consecutive days has elapsed. In such
event, the EMPLOYEE shall be entitled to severance, payable as the
then weekly base salary for a period of six (6) months, and
expenses accrued and unpaid as at the date of termination of the
EMPLOYEE'S employment.
(c) The Corporation shall have the right to terminate
the EMPLOYEE'S employment under this Agreement for Cause. For
purposes of the Agreement, the Corporation shall have "Cause" to
terminate the EMPLOYEE'S employment if (i) the EMPLOYEE assigns,
pledges, or otherwise disposes of his rights and obligations under
this Agreement, or attempts to do the same without the prior
written consent of the Corporation; or (ii) the EMPLOYEE
deliberately or intentionally fails or habitually neglects to
fulfill his obligations under this Agreement (except by reason of
incapacity due to physical or mental illness or disability), has
engaged in willful misconduct or has acted in bad faith; (iii) the
EMPLOYEE has breached Section 7 of this Agreement; (iv) the
EMPLOYEE is convicted of a felony or other crime involving moral
turpitude for any act committed prior to March 1, 1998; (v) the
EMPLOYEE has perpetrated a fraud or other dishonest acts against
the Corporation at any time after March 1, 1998; or (vi) the
EMPLOYEE has engaged in deliberate or reckless acts which place the
Employer's officers, employees, customers or invitees in immediate
physical danger or deliberate or reckless acts which result in
damage to or destruction of Employer's property. If the
Corporation terminates this Agreement for Cause, the Corporation's
obligations hereunder shall cease, except for the Corporation's
obligation to pay the EMPLOYEE the compensation and expenses
accrued and unpaid as of the date of termination in accordance with
the provisions hereof.
(d) Notwithstanding anything to the contrary contained
herein, all payments owed to the EMPLOYEE upon termination of this
Agreement shall be subject to offset by the Corporation for amounts
owed to the Corporation by the EMPLOYEE hereunder or otherwise.
(e) The obligations of the Corporation and the EMPLOYEE
pursuant to this Section 5 shall survive the termination of this
Agreement.
6. NOTICES. Any written notice permitted or required under
this Agreement shall be deemed sufficient when hand delivered or
posted by certified or registered mail, postage prepaid, and
addressed to:
if to Staff Builders: Staff Builders, Inc.
1983 Marcus Avenue
Lake Success, New York 11042
Attn.: Executive Vice President-Finance
if to the EMPLOYEE:
Willard Derr
8 Shirley Court
East Northport, NY 11731
Either party may, in accordance with the provisions of this
Section, give written notice of a change of address, in which event
all such notices and requests shall thereafter be given as above
provided at such changed address.
7. CONFIDENTIALITY OBLIGATIONS; NON-COMPETITION BY
EMPLOYEE.
(a) The EMPLOYEE acknowledges that in the course of
performing his duties hereunder, he will be made privy to
confidential and proprietary information. The EMPLOYEE covenants
and agrees that during the term of this Agreement and at any time
after the termination of this Agreement, he will not directly or
indirectly, for his own account or as an employee, officer,
director, partner, joint venturer, shareholder, investor, or
otherwise, disclose to other or use for his own benefit or cause or
induce others to do the same, any proprietary or confidential
information or trade secrets of Staff Builders, including but not
limited to, any matters concerning the business or operations of
Staff Builders, including its plans, procedures or methods of
operations, any Staff Builders' lists of clients or business
contacts, any information concerning specialty programs or business
development, other work product or records of Staff Builders, other
than in the performance of his duties hereunder.
(b) The EMPLOYEE agrees that, during the term hereof and
for eleven (11) months following the termination hereof (the
"Restrictive Covenant Period"), he will not, within the United
States (A) directly or indirectly solicit, recruit or hire any
employee of Staff Builders to leave the employ of Staff Builders;
or (B) solicit any client or customer of Staff Builders to
terminate or modify its business relationship with Staff Builders.
(c) The foregoing restrictions on the EMPLOYEE set forth
in this Section 7 shall be operative for the benefit of Staff
Builders and of any business owned or controlled by Staff Builders,
or any successor or assign of any of the foregoing.
(d) EMPLOYEE acknowledges that the restricted period of
time and geographical area specified in this Section 7 is
reasonable, in view of the nature of the business in which Staff
Builders is engaged and the EMPLOYEE'S knowledge of Staff Builders'
business. Notwithstanding anything herein to the contrary, if the
period of time or the geographical area specified in this Section
7 should be determined to be unreasonable in a judicial proceeding,
then the period of time and territory of the restriction shall be
reduced so that this Agreement may be enforced in such area and
during such period of time as shall be determined to be reasonable.
(e) The parties acknowledge that any breach of this
Section 7 will cause Staff Builders irreparable harm for which
there is no adequate remedy at law, and as a result of this, Staff
Builders shall be entitled to the issuance of an injunction,
restraining order or other equitable relief in favor of Staff
Builders restraining EMPLOYEE from committing or continuing any
such violation. Any right to obtain an injunction, restraining
order or other equitable relief hereunder shall not be deemed a
waiver of any right to assert any other remedy Staff Builders may
have at law or in equity.
(f) For purposes of this Section 7, the term "Staff
Builders" shall refer to the Corporation and all of its parents,
subsidiaries and affiliated corporations.
8. JURISDICTION. The EMPLOYEE consents to the jurisdiction
of the Supreme Court of the State of New York or of any Federal
Court in the City of New York for a determination of any dispute as
to any matters whatsoever arising out of or in any way connected
with this Agreement and authorizes the service of process on his by
registered mail sent to him at his address shown on the records of
Staff Builders.
9. HANDBOOK; GROUP INSURANCE PROGRAM BOOKLET. The EMPLOYEE
acknowledges receipt of Staff Builders Employee Handbook and Group
Insurance Program booklet (together, the "Handbook"). The terms of
the Handbook are incorporated herein by reference.
10. BINDING EFFECT. This Agreement shall bind and inure to
the benefit of Staff Builders, its successors and assigns and shall
inure to the benefit of, and be binding upon, the EMPLOYEE, his
heirs, executors and legal representatives.
11. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall in no way affect the validity or
enforceability of any other provision, or any part thereof.
12. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire
Agreement between the parties hereto pertaining to the subject
matter hereof and supersedes all prior and contemporaneous
agreements, understandings, negotiations, and discussions, whether
oral or written, of the parties.
14. MODIFICATION, TERMINATION OR WAIVER. This Agreement may
only be amended or modified by a written instrument executed by the
parties hereto. The failure of any party at any time to require
performance of any provision of this Agreement shall in no manner
affect the right of such party at a later time to enforce the same.
IN WITNESS WHEREOF, Staff Builders and the EMPLOYEE have
executed this Employment Agreement as of the date first above
written.
STAFF BUILDERS, INC.
By: /s/ Stephen Savitsky
Stephen Savitsky, President
EMPLOYEE
By: s/s Willard T. Derr
Willard Derr
