<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
STAFF BUILDERS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Staff Builders, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) 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:
- --------------------------------------------------------------------------------
[ ] 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:
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<PAGE> 2
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 , 1998 at 3:00 P.M. (New
York Time) for the following purposes:
1) To consider and vote upon the issuance of 4,269,820 shares of Class
A Common Stock to Stephen Savitsky and David Savitsky in exchange for all
of their shares of Class A Preferred Stock.
2) To consider and vote upon an amendment to the Company's Restated
Certificate of Incorporation to effect a one-for-two reverse stock split on
the outstanding shares of Class A and Class B Common Stock;
3) To elect two Class B Directors to serve for a three-year term and
until their successors are elected and qualified;
4) To consider and vote upon the adoption of the 1998 Stock Option
Plan;
5) To consider and vote upon the adoption of the 1998 Employee Stock
Purchase Plan; and
6) 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 , 1998,
are entitled to notice of and to vote at the meeting.
By Order of the Board of Directors,
DAVID SAVITSKY
Secretary
August , 1998
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.
<PAGE> 3
STAFF BUILDERS, INC.
1983 MARCUS AVENUE
LAKE SUCCESS, NEW YORK 11042
---------------
PROXY STATEMENT
---------------
This Proxy Statement is being mailed to stockholders of Staff Builders,
Inc. (the "Company") in connection with the solicitation of proxies by the
Company's Board of Directors (the "Board of Directors") for use at the Annual
Meeting of Stockholders of the Company (the "Annual Meeting") to be held on
October , 1998, 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 August ,
1998.
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 Transaction (as defined
herein), including the issuance of 4,269,820 shares of Class A Common Stock (see
EXHIBITS A and B to this Proxy Statement); (ii) for the Reverse Stock Split (as
defined herein), including related amendments to the Company's Restated
Certificate of Incorporation (the "Restated Certificate of Incorporation") (see
EXHIBIT C to this Proxy Statement); (iii) for the nominees named herein as Class
B Directors of the Company; (iv) for the adoption of the 1998 Stock Option Plan
(see EXHIBIT D to this Proxy Statement); and (v) for the adoption of the 1998
Employee Stock Purchase Plan (see EXHIBIT E to this Proxy Statement).
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.
A copy of the Annual Report of the Company containing financial statements
for the fiscal year ended February 28, 1998, 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 , 1998
(the "Record Date") will be entitled to notice of, and to vote at, the meeting
and any adjournment thereof. As of the Record Date, 21,505,386 shares of the
Company's Class A Common Stock, $.01 par value per share (the "Class A Common
Stock"), and 1,041,809 shares of the Company's Class B Common Stock, $.01 par
value per share (the "Class B Common Stock," and, collectively with the Class A
Common Stock, the "Common Stock"), were outstanding. As of the Record Date, the
Class A Common Stock was held of record by approximately 285 holders and the
Class B Common Stock was held of record by approximately 463 holders (in each
case, including brokerage firms holding stock in "street name" and other
nominees).
Each holder of record of Class A Common Stock is entitled to one vote for
each share of Class A Common Stock held by such holder. Each holder of record of
Class B Common Stock is entitled to ten votes (except in certain circumstances
which are inapplicable to the election of directors and the other proposals to
be considered at the Annual Meeting) for each share of Class B Common Stock held
by such holder. A holder
<PAGE> 4
may own both Class A Common Stock and Class B Common Stock, in which case such
holder will be entitled to one vote for each share of Class A Common Stock and
ten votes for each share of Class B Common Stock held by such holder.
The affirmative vote of a majority of the votes of holders of shares of
Class A and Class B Common Stock, voting together as one class, represented at
the meeting in person or by proxy is necessary for the approval of the
Transaction, including the issuance of 4,269,820 shares of Class A Common Stock,
for the election of the nominees for Class B Directors, for the adoption of the
1998 Stock Option Plan and for the adoption of the 1998 Employee Stock Purchase
Plan. The affirmative vote of a majority of votes of the holders of shares of
Class A and Class B Common Stock outstanding as of the Record Date, voting
together as one class, is necessary for the approval of the Reverse Stock Split,
including the related amendment to the Company's Restated Certificate of
Incorporation. As of the Record Date, there were 21,505,386 shares of Class A
Common Stock and 1,041,809 shares of Class B Common Stock held of record, of
which 214,981 shares, and 723,375 shares, respectively, were held by the
executive officers and directors of the Company. The executive officers and
directors will control approximately 23.3% of the votes entitled to be cast at
the annual meeting by holders of Common Stock. The executive officers and
directors of the Company intend to vote their shares for the approval of the
Transaction, including the issuance of 4,269,820 shares of Class A Common Stock,
for the approval of the Reverse Stock Split, including the related amendment to
the Company's Restated Certificate of Incorporation, for the election of the
nominees for Class B Directors, for the adoption of the 1998 Stock Option Plan
and for the adoption of the 1998 Employee Stock Purchase Plan.
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 the Class B 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 the proposal, those shares will be
considered as present at the meeting for a particular proposal, but will not be
counted in determining the number of shares necessary for approval of the
proposal.
There are boxes on the proxy card to vote for or against or to abstain on
the Transaction, including the issuance of 4,269,820 shares of Class A Common
Stock, the Reverse Stock Split, including the related amendment to the Company's
Restated Certificate of Incorporation, the adoption of the 1998 Stock Option
Plan and the adoption of the 1998 Employee Stock Purchase Plan, respectively.
There is also a box on the proxy card to vote for or to withhold authority to
vote for the nominees for Class B Directors.
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<PAGE> 5
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 Class A Common Stock, Class
B Common Stock and the Company's Class A Preferred Stock, $1.00 par value per
share (the "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 (the "Named Executive Officers"), and
(iv) all directors and executive officers of the Company as a group.
CLASS A AND CLASS B COMMON STOCK
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
-------------------------------------------------------------------------------------
PERCENTAGE OF PERCENTAGE OF
NUMBER OF OUTSTANDING NUMBER OF OUTSTANDING
SHARES OF SHARES OF SHARES OF SHARES OF PERCENTAGE OF
NAME OF CLASS A CLASS A CLASS B CLASS B OUTSTANDING
BENEFICIAL OWNER COMMON STOCK(2) COMMON STOCK COMMON STOCK(3) COMMON STOCK VOTES OWNED
---------------- --------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Stephen Savitsky(4)...... 1,675,454(5)(6) 7.3% 342,738 32.9% 15.2%
David Savitsky(4)........ 1,624,153(6)(7)(8) 7.0% 378,537(9) 36.3% 16.2%
Bernard J.
Firestone(10).......... 1,500(11) * 2,100(12) * *
Jonathan J.
Halpert(10)............ -- -- -- -- --
Donald Meyers(10)........ 2,000(13) * -- -- *
Gary Tighe(10)........... 100 * -- -- *
Edward Teixeira(10)...... 77,800(14) * -- -- *
Cynthia Nye(10).......... 44,000(15) * -- -- *
Sandra Parshall(10)...... 16,667(16) * -- -- *
S Squared Technology
Corp.(17).............. 2,714,500 12.6% -- -- 8.5%
Dimensional Fund
Advisors, Inc.(18)..... 1,372,460 6.4% -- -- 4.3%
Wellington Management
Company, LLP(19)....... 2,195,000 10.2% -- -- 6.9%
All executive officers
and directors as a
group (12 persons)..... 3,348,567(6)(20) 13.6% 723,375 69.4% 30.3%
</TABLE>
- ---------------
* Less than one percent
CLASS A PREFERRED STOCK(21)
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(22)
--------------------------------------------
PERCENTAGE OF
NUMBER OF SHARES OF OUTSTANDING SHARES
NAME OF BENEFICIAL OWNER CLASS A PREFERRED STOCK OWNED
------------------------ ----------------------- ------------------
<S> <C> <C>
Stephen Savitsky........................................ 333 1/3 50%
David Savitsky.......................................... 333 1/3 50%
All executive officers and directors as a group (12
persons).............................................. 666 2/3 100%
</TABLE>
- ---------------
(1) "Beneficial ownership" is determined in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934, as amended. In general, a person is
treated as the "beneficial owner" of stock under Rule 13d-3 if such person
has (or shares) (i) either investment power or voting power over such stock
(which may be by means of a contract, arrangement, understanding,
relationship or otherwise), or (ii) the right to acquire such stock within
60 days, including by means of the exercise of an option or the conversion
of a convertible security. Each beneficial owner's percentage of ownership
and percentage of votes is determined by assuming that options that are
held by such person (but not those held by any other
3
<PAGE> 6
person) and which are exercisable within 60 days of the date of this table
have been exercised. Except as indicated in the footnotes that follow,
shares listed in the table are held with sole voting and investment power.
(2) Each holder of record of shares of Class A Common Stock is entitled to one
vote per share held by such holder.
(3) Each holder of record of Class B Common Stock is entitled to ten votes for
each share of Class B Common Stock held by such holder, except in certain
circumstances which are inapplicable to the election of directors and the
other proposals to be considered at the Annual Meeting.
(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 225,440 shares of Class A Common Stock
underlying options granted to him. As a result, (i) Stephen Savitsky has
sole voting and investment power with respect to 1,450,014 shares of Class
A Common Stock and 342,738 shares of Class B Common Stock and has shared
voting power with respect to the 225,440 shares of Class A Common Stock
beneficially owned by Mr. Koschitzki and (ii) David Savitsky has sole
voting and investment power with respect to 1,398,563 shares of Class A
Common Stock and 377,537 shares of Class B Common Stock and has shared
voting power with respect to the 225,440 shares of Class A Common Stock
beneficially owned by Mr. Koschitzki.
(5) Includes options to purchase 595,923 shares of Class A Common Stock under
the 1994 Performance-Based Stock Option Plan, options to purchase 397,000
shares of Class A Common Stock under the 1993 Stock Option Plan and options
to purchase 334,000 shares of Class A Common Stock under the 1986
Non-Qualified Stock Option Plan.
(6) Includes options to purchase 225,440 shares of Class A Common Stock granted
to Ephraim Koschitzki which are subject to the revocable proxy referred to
in footnote 4 above.
(7) Includes options to purchase 595,923 shares of Class A Common Stock under
the 1994 Performance-Based Stock Option Plan, options to purchase 397,000
shares of Class A Common Stock under the 1993 Stock Option Plan and options
to purchase 320,000 shares of Class A Common Stock under the 1986
Non-Qualified Stock Option Plan.
(8) Includes 150 shares of Class A Common Stock held by David Savitskys' wife.
Mr. Savitsky disclaims beneficial ownership of these shares.
(9) Includes 1,000 shares of Class B Common Stock held by Mr. Savitskys' wife
as trustee for the benefit of their three children. Mr. Savitsky disclaims
beneficial ownership of these shares.
(10) 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.
(11) Includes options to purchase 1,500 shares of Class A Common Stock under the
1986 Non-Qualified Stock Option Plan.
(12) Includes 1,000 shares of Class B Common Stock held by Dr. Firestone's wife.
Dr. Firestone disclaims beneficial ownership of these shares.
(13) Includes 2,000 shares of Class A Common Stock held by Mr. Meyers' wife. Mr.
Meyers disclaims beneficial ownership of these shares.
(14) Includes options to purchase 25,000 shares of Class A Common Stock under
the 1994 Performance-Based Stock Option Plan, options to purchase 15,000
shares of Class A Common Stock under the 1986 Non-Qualified Stock Option
Plan, options to purchase 27,800 shares of Class A Common Stock under the
1983 Incentive Stock Option Plan and options to purchase 10,000 shares of
Class A Common Stock under the 1993 Stock Option Plan.
4
<PAGE> 7
(15) Includes options to purchase 15,000 shares of Class A Common Stock under
the 1994 Performance-Based Stock Option Plan, options to purchase 1,000
shares of Class A Common Stock under the 1986 Non-Qualified Stock Option
Plan, options to purchase 18,000 shares of Class A Common Stock under the
1983 Incentive Stock Option Plan and options to purchase 10,000 shares of
Class A Common Stock under the 1993 Stock Option Plan.
(16) Includes options to purchase 16,667 shares of Class A Common Stock under
the 1993 Stock Option Plan.
(17) S Squared Technology Corp. ("S Squared"), a registered investment adviser,
is located at 515 Madison Avenue, New York, New York 10022. Includes
2,502,500 shares of Class A Common Stock for which S Squared has sole
voting and sole investment power and 212,000 shares of Class A Common Stock
for which S Squared has shared voting and shared investment power. The
shares are owned by limited partnerships for which S Squared is the sole
general partner, by advisory clients of S Squared, and by Seymour
Goldblatt, the principal of S Squared, and members of his family.
(18) Dimensional Fund Advisors, Inc. ("Dimensional"), a registered investment
advisor, is located at 1299 Ocean Avenue, Santa Monica, California 90401.
Dimensional is deemed to have beneficial ownership of 1,372,460 shares of
Class A Common Stock as of December 31, 1997, all of which shares are held
in portfolios of DFA Investment Dimensions Group Inc., a registered
open-end investment company, or in series of the DFA Investment Trust
Company, a Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional Fund Advisors Inc. serves as
investment manager. Dimensional disclaims beneficial ownership of all such
shares.
(19) Wellington Management Company, LLP ("Wellington"), a registered investment
adviser, is located at 75 State Street, Boston, Massachusetts 02109.
Includes 1,965,000 shares of Class A Common Stock, for which Wellington has
shared voting and shared investment power and 230,000 shares of Class A
Common Stock for which Wellington has shared investment power.
(20) Includes options to purchase 1,315,179 shares of Class A Common Stock under
the 1994 Performance Based Stock Option Plan, options to purchase 840,667
shares of Class A Common Stock under the 1993 Stock Option Plan, options to
purchase 681,500 shares of Class A Common Stock under the 1986 Non-
Qualified Stock Option Plan and options to purchase 70,800 shares of Class
A Common Stock under the 1983 Incentive Stock Option Plan.
(21) 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.
(22) Each person has sole power with respect to the voting and investment of the
shares which such person owns.
5
<PAGE> 8
PROPOSAL 1 -- APPROVAL OF THE ISSUANCE OF 4,269,820 SHARES OF
CLASS A COMMON STOCK TO STEPHEN SAVITSKY AND DAVID SAVITSKY
IN EXCHANGE FOR ALL OF THEIR SHARES OF CLASS A PREFERRED STOCK
The Board of Directors (by action of the Independent Committee (as defined
below)) has approved (subject to stockholder approval), and is hereby soliciting
stockholder approval of an agreement among Stephen Savitsky, Chairman of the
Board, President and Chief Executive Officer of the Company, David Savitsky, a
Director, Chief Operating Officer, Executive Vice President, Secretary and
Treasurer of the Company (together, the "Transferring Stockholders" or "Messrs.
Savitsky") and the Company by which (i) the Transferring Stockholders will
exchange a total of 666 2/3 shares of Class A Preferred Stock, $1.00 par value
per share, representing all of the Company's issued and outstanding Class A
Preferred Stock, for a total of 4,269,820 newly-issued shares of Class A Common
Stock, $.01 par value per share; and (ii) the Transferring Stockholders will
convert all of their 720,275 shares of Class B Common Stock, $.01 par value per
share, into an equal number of shares of Class A Common Stock (the
"Transaction"). A copy of the agreement relating to the Transaction is annexed
as EXHIBIT A to this Proxy Statement. Stockholder approval of the Transaction,
including the issuance of 4,269,820 shares of Class A Common Stock, is sought in
order to comply with a requirement for maintaining the quotation of the Class A
Common Stock on the Nasdaq National Market. This requirement provides that
certain issuances of shares to officers or directors require stockholder
approval. Due to their interest in the Transaction, Messrs. Savitsky did not
participate in the consideration or vote by the Board of Directors on the
Transaction. A committee of the independent directors (the "Independent
Committee"), consisting of Jonathan J. Halpert, Bernard J. Firestone and Donald
Meyers, acted on behalf of the Board of Directors in unanimously approving the
Transaction and recommending it for approval by the stockholders. The Company
intends to complete the Transaction as soon as practicable following stockholder
approval. The Transaction is intended to constitute a recapitalization of the
Company pursuant to Section 368(a)(1)(E) of the Internal Revenue Code of 1986,
as amended (the "Code").
The information with respect to share and option numbers set forth in this
discussion of Proposal 1 does not give effect to the Reverse Stock Split
discussed in Proposal 2 of this Proxy Statement.
The Transaction
Pursuant to the Transaction, the Company is proposing to exchange a total
of 4,269,820 shares of its Class A Common Stock for 666 2/3 shares of the Class
A Preferred Stock held by Messrs. Savitsky. Messrs. Savitsky each own 333 1/3
shares of Class A Preferred Stock, and each of them will receive 2,134,910
shares of Class A Common Stock in exchange therefor. As part of the exchange of
their Class A Preferred Stock for shares of Class A Common Stock, Messrs.
Savitsky have agreed to convert their shares of Class B Common Stock into an
equal number of shares of Class A Common Stock. In the Transaction, the shares
of Class A Preferred Stock presently owned by the Transferring Stockholders will
be retired by the Company.
As of the Record Date, there were 666 2/3 shares of Class A Preferred Stock
outstanding, all of which are held by Messrs. Savitsky. As of the Record Date,
there were 21,505,386 shares of Class A Common Stock outstanding, of which
208,731 shares, in the aggregate, were owned by Messrs. Savitsky, and 1,041,809
shares of Class B Common Stock outstanding, of which 720,275 shares, in the
aggregate, were owned by Messrs. Savitsky. For a description of the voting
powers, preferences and rights of the Class A and Class B Common Stock and the
Class A Preferred Stock, see "Description of Capital Stock" below. If the
Transaction is consummated, the Company will have no outstanding shares of Class
A Preferred Stock and will have 26,495,481 shares of Class A Common Stock and
321,534 shares of Class B Common Stock outstanding.
Prior to the Transaction, by virtue of their ownership of 208,731 shares of
Class A Common Stock and 720,275 shares of Class B Common Stock (each share of
Class B Common Stock, generally, carries ten votes per share; see "Description
of Capital Stock" below), Messrs. Savitsky control 23.2% of the combined voting
power of the outstanding shares of Class A and Class B Common Stock. If the
Transaction is consummated, Messrs. Savitsky will together own 5,198,826 shares
of Class A Common Stock, which would represent 17.5% of the combined voting
power of the outstanding shares of Class A and Class B Common Stock. Prior to
the Transaction, Messrs. Savitsky control 100% of the voting power of the Class
A Preferred Stock, and if the
6
<PAGE> 9
Transaction is consummated, there will be no Class A Preferred Stock
outstanding. The foregoing information with respect to the ownership of Class A
Common Stock by Messrs. Savitsky and their combined voting control does not
include options to purchase an aggregate of 4,440,822 shares of Class A Common
Stock held by Messrs. Savitsky or as to which Messrs. Savitsky have shared
voting power. The options held by Messrs. Savitsky are exercisable at prices
ranging from $1.75 to $3.75 per share. In connection with its approval of the
Transaction, the Independent Committee determined that Messrs. Savitsky would
not be eligible for the grant of options under the Company's 1998 Stock Option
Plan.
On July 13, 1998, the Independent Committee was formed to determine whether
the Transaction is in the best interest of the Company and its common
stockholders. Cain Brothers & Company LLC ("Cain Brothers"), an independent firm
of financial advisors and appraisers, which was retained by the Independent
Committee for purposes of reviewing the terms of the Transaction, has given its
opinion that as of the Record Date, the exchange by the Transferring
Stockholders of 666 2/3 shares of the Class A Preferred Stock for 4,269,820
shares of Class A Common Stock, together with the conversion of the 720,275
shares of Class B Common Stock owned by Messrs. Savitsky for an equal number of
shares of Class A Common Stock, is fair from a financial point of view to the
holders of the Class A and Class B Common Stock. The opinion of that firm is
annexed as EXHIBIT B to this Proxy Statement. After consultation with Cain
Brothers, review of Cain Brothers' opinion, consideration of the complexities of
the Company's capital structure and the disproportionate voting rights
attributable to securities held by Messrs. Savitsky, and review of the terms of
the Transaction, the Independent Committee recommended to the Board of Directors
that the proposed Transaction be approved and recommended to the stockholders
for approval. For a description of the factors considered by the Independent
Committee, see "Purposes of the Transaction" and for principles on which the
Cain Brothers opinion is based, see "Opinion of Financial Advisor."
Description of Capital Stock
Class A Preferred Stock. On May 27, 1994, at a Special Meeting of the Board
of Directors, the Board, pursuant to authority conferred on it in the Restated
Certificate of Incorporation, adopted a resolution providing for the creation of
the Class A Preferred Stock and the issuance of 333 1/3 shares of Class A
Preferred Stock to Stephen Savitsky and 333 1/3 shares of Class A Preferred
Stock to David Savitsky. Holders of Class A Preferred Stock are entitled to
receive non-cumulative, preferential dividends of $1.00 per share per annum. The
Class A Preferred Stock has a liquidation preference of $1.00 per share and
holders of Class A Preferred Stock have no voting rights except as provided in
Article EIGHTH of the Company's Restated Certificate of Incorporation.
Article EIGHTH of the Restated Certificate of Incorporation prohibits the
Company from consummating certain transactions with Interested Stockholders (as
hereinafter defined) that are not approved by a majority of the Continuing
Directors (as hereinafter defined) unless such transactions are approved by the
holders of at least 80% of the common stock and 66% of the Class A Preferred
Stock. Transactions subject to the Article EIGHTH voting requirements include
mergers or consolidations, sales of assets having a value in excess of $1
million and the issuance of securities having a value in excess of $1 million,
in each case with or to an Interested Stockholder or its affiliates. An
"Interested Stockholder" is defined as any person (other than the Company or any
subsidiary) who is (i) the beneficial owner of more than 10% of the voting power
of the outstanding voting stock; (ii) an affiliate of the Company who was a
beneficial owner of more than 10% of the voting power of the outstanding voting
stock at any time within the two year period immediately prior to the date in
question; or (iii) an assignee of or has otherwise succeeded to any shares of
voting stock which were beneficially owned within the two year period in
question by an Interested Stockholder. A "Continuing Director" is defined as any
Board member who is unaffiliated with the Interested Stockholder and was a
member of the Board prior to the time that the Interested Stockholder became an
Interested Stockholder. Any amendment to Article EIGHTH requires the approval of
the holders of 66% of the Class A Preferred Stock.
Common Stock. The common stock of the Company consists of two classes,
Class A Common Stock and Class B Common Stock. There are 50,000,000 shares of
Class A Common Stock, $.01 par value per share, and 1,554,936 shares of Class B
Common Stock, $.01 par value per share, authorized. The Class A
7
<PAGE> 10
Common Stock and Class B Common Stock are identical to each other except for the
difference in voting rights. Holders of Class A and Class B Common Stock vote as
a single class, but holders of Class A Common Stock have 1 vote per share and
holders of the Class B Common Stock have ten votes per share, on all corporate
matters submitted to stockholders; provided, however, that for purposes of any
vote on a proposal submitted to the stockholders solely under Article EIGHTH of
the Restated Certificate of Incorporation and for purposes of any vote on a
proposal to amend or repeal such Article EIGHTH and certain other provisions of
the Restated Certificate of Incorporation, a holder of Class B Common Stock is
entitled to only one vote. In addition, each share of Class B Common Stock is
convertible into one share of Class A Common Stock. Any attempted transfer of
shares of Class B Common Stock (except in certain limited circumstances) is
treated as an irrevocable election by the holder thereof to convert such shares
into shares of Class A Common Stock.
Value of Class A Preferred Stock
If a majority of the Continuing Directors do not approve a business
combination with an Interested Stockholder under Article EIGHTH of the Company's
Restated Certificate of Incorporation, the Interested Stockholder needs to
secure the votes of holders of 66% of the Class A Preferred Stock and 80% of the
Common Stock in order to complete the business combination. Because Messrs.
Savitsky together own all of the outstanding Class A Preferred Stock, in a
transaction in which Article EIGHTH applies, either one of them could block such
a transaction even if the Interested Stockholder or its affiliate offers an
attractive change of control premium to the common stockholders. Under such
conditions, even if the votes of holders of 80% of the common stock approved the
business combination, the Class A Preferred Stockholders could prevent it. Such
an action would prevent the common stockholders from receiving a change of
control premium.
The blocking power of the Class A Preferred Stock is the feature that gives
it value. The Independent Committee believes that, as a practical matter, any
potential acquiror of the Company in an "unfriendly" context would have to
negotiate directly and separately with the Transferring Stockholders, as holders
of the Class A Preferred Stock, in order to win their support. Thus, the
blocking power of the holders of the Class A Preferred Stock becomes a
controlling interest in the Company under certain circumstances. If Messrs.
Savitsky were to surrender their controlling interest, it is reasonable to
expect that they would be compensated for it. In determining the appropriate
amount to pay to the Transferring Stockholders in exchange for their surrender
of the controlling interest represented by the Class A Preferred Stock, the
Independent Committee, in consultation with Cain Brothers, examined control
premiums paid in recent health care services transactions and considered other
elements of value to be derived from the Transaction. Based on this analysis,
the Independent Committee determined that the value of the Transaction including
the change of control premium attributable to surrender of the Class A Preferred
Stock and other elements of value is approximately 19% of the market value of
the Company. Cain Brothers has advised the Independent Committee that on a
percentage basis this value premium falls substantially below the mean and
median change of control premiums for both recent health care services
transactions generally and home health care services transactions in particular.
Although the Independent Committee believes that the elimination of the
Class A Preferred Stock would make a business combination with an Interested
Stockholder more likely, the Certificate of Incorporation and By-Laws of the
Company contain certain other provisions which may have the effect of
discouraging or impeding certain types of transactions involving actual or
threatened changes in control of the Company. See "Proposal 2 -- Existing
Provisions of Restated Certificate of Incorporation and By-Laws." In addition,
after the Transaction, Messrs. Savitsky together will have 17.5% of the combined
voting power of the common stock.
Purposes of the Transaction
The primary purpose of the Transaction is to eliminate the Class A
Preferred Stock and to reduce the voting rights of Messrs. Savitsky through
conversion of their outstanding shares of Class B Common Stock into an equal
number of shares of Class A Common Stock. The Independent Committee believes
that the common stockholders of the Company will realize several benefits from
the Transaction. First, the ability of
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the holders of the Class A Preferred Stock to block a change of control in
certain circumstances will be eliminated. Second, the 10 to 1 voting power
associated with Messrs. Savitskys' Class B Common Stock, which gives rise to a
significantly greater influence over the outcome of matters generally submitted
to a vote of stockholders than their pecuniary interests in the Company would
otherwise warrant, also will be eliminated. Third, the Transaction will serve to
more closely align the interests of the Company's two most senior executives
with the interests of the holders of the Class A Common Stock. Finally, the
Company's complicated capital and voting structure will be substantially
eliminated.
Elimination of Class A Preferred Stock's Blocking Power. If a majority of
the Continuing Directors approves a business combination with an Interested
Stockholder, the Interested Stockholder only needs to secure the vote of holders
of a majority of the voting power of the Company's common stock to approve the
business combination. However, as discussed above under "Value of Class A
Preferred Stock," the holders of the Class A Preferred Stock could prevent the
common stockholders from receiving a change of control premium in the context of
an attempted "unfriendly" takeover. The Independent Committee deems the
elimination of this blocking power to be in the best interest of the Company and
its stockholders.
Elimination of Transferring Stockholders' 10 to 1 Voting Power. As of the
Record Date, Messrs. Savitsky have, in the aggregate, 23.2% of the total voting
power of the common stock. This voting power is substantially greater than the
combined 4.1% of the outstanding shares of common stock held by Messrs.
Savitsky. Accordingly, by virtue of their ownership of Class B Common Stock,
Messrs. Savitsky have significantly greater influence over the outcome of
matters submitted to the vote of common stockholders than their pecuniary
interest in the Company would otherwise warrant. The Independent Committee
believes that this divergence between voting power and economic interest is no
longer in the best interest of the Company and its stockholders. If the
Transaction is approved and consummated, the voting power and pecuniary interest
of Messrs Savitsky attributable to their common stock ownership will be
substantially the same. They will own 19.4% of the outstanding shares of common
stock and will control 17.5% of the voting power of the Common Stock.
Alignment of Interests Between Senior Management and Common
Stockholders. While Messrs. Savitsky are the two most senior executives of the
Company, they each own relatively modest percentages of the outstanding Class A
Common Stock. Third parties could infer from their modest ownership of Class A
Common Stock, and their more substantial ownership of Class B Common Stock and
Class A Preferred Stock, that Messrs. Savitskys' interests may not necessarily
be directly aligned with the holders of Class A Common Stock. Moreover, third
parties could infer that, because their Class A Preferred Stock and Class B
Common Stock have blocking rights, they will be content to entrench themselves
instead of maximizing shareholder value. Such inferences could discourage third
parties from initiating strategic discussions with the Company. The Independent
Committee believes that eliminating the Class A Preferred Stock and converting
Messrs. Savitskys' shares of Class B Common Stock into Class A Common Stock will
better align the interests of Messrs. Savitsky with the interests of the common
stockholders.
Substantial Elimination of Complex Capital and Voting Structure. Based on
discussions with its financial advisor, the Independent Committee believes that
potential investors may have been deterred from investing in the Company and
analysts who otherwise would be inclined to follow the Company in their reports
and recommendations may have been deterred from doing so due to the voting power
of the Transferring Stockholders. It is the opinion of the Company's financial
advisor, Cain Brothers, that the complex capital and voting structure of the
Company potentially serves to confuse and discourage stock analysts and
investors. The Independent Committee believes that the Transaction will simplify
the Company's capital and voting structure and, as a result, will encourage
analysts to follow the Company and enhance the Company's ability to raise
capital more efficiently and economically through the issuance, if necessary, of
additional equity securities.
Effect of the Transaction on Existing Stockholders
The consummation of the Transaction is expected to have a number of
beneficial effects on the current common stockholders, as more fully described
under "Purposes of the Transaction."
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The consummation of the Transaction also will have a dilutive effect. The
Transaction will result in the issuance of 4,269,820 shares of Class A Common
Stock to Messrs. Savitsky, an increase of 19% in the number of outstanding
shares of common stock. This increase will likely have the effect of decreasing
the Company's earnings per share. Such dilution could result in a decrease in
the per share trading price of the Class A Common Stock, as quoted on the Nasdaq
National Market, and, if the price of the Class A Common Stock as quoted on the
Nasdaq National Market is below $1, the quotation of the Class A Common Stock on
the Nasdaq National Market could cease.
Opinion of Financial Advisor
The Company has engaged Cain Brothers to act as its financial advisor in
connection with the Transaction and to render its opinion (the "Cain Brothers
Opinion") as to whether the exchange of Messrs. Savitskys' 666 2/3 shares of
Class A Preferred Stock for 4,269,820 shares of Class A Common Stock, together
with the conversion of Messrs. Savitskys' 720,275 shares of Class B Common Stock
into an equal number of shares of Class A Common Stock, is fair from a financial
point of view to the holders of the Class A and Class B Common Stock.
On July 14, 1998, Cain Brothers participated telephonically in a meeting
among members of the Independent Committee, and on July 16 and 27, 1998, Cain
Brothers participated in person in meetings among members of the Independent
Committee in connection with their evaluation of the Transaction. On July 24,
1998, Cain Brothers delivered its draft opinion, which opinion was subsequently
confirmed in a final written opinion, that, as of the date hereof and subject to
certain assumptions, factors and limitations described below, the exchange of
666 2/3 shares of the Class A Preferred Stock for 4,269,820 shares of Class A
Common Stock, together with the conversion of Messrs. Savitskys' shares of Class
B Common Stock into an equal number of shares of Class A Common Stock, is fair
from a financial point of view to the holders of the Class A and Class B Common
Stock.
THE FULL TEXT OF THE WRITTEN OPINION OF CAIN BROTHERS, DATED AUGUST ,
1998, WHICH SETS FORTH ASSUMPTIONS MADE, FACTORS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN BY CAIN BROTHERS, IS ATTACHED AS EXHIBIT B TO THIS PROXY
STATEMENT. THE SUMMARY OF THE CAIN BROTHERS OPINION SET FORTH IN THIS PROXY
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION.
No limitations were imposed by the Independent Committee on the scope of
Cain Brothers' investigation or procedures to be followed by Cain Brothers in
rendering its opinion. In arriving at its opinion, Cain Brothers did not ascribe
a specific range of values to the Class A Preferred Stock or Class B Common
Stock, but made its determination as to the fairness of the transaction on the
basis of the financial and comparative analyses described below. The Cain
Brothers Opinion is for the use and benefit of the Independent Committee. It
does not constitute a recommendation to any common stockholder as to how such
stockholder should vote on the proposed Transaction. Cain Brothers is not
expressing any opinion as to the prices at which the Class A Common Stock will
trade following the announcement or consummation of the Transaction.
In arriving at its opinion, Cain Brothers, among other things: (1) reviewed
the Restated Certificate of Incorporation; (2) discussed with the Independent
Committee and senior members of management the reasons for the establishment of
the Class A Preferred Stock and the Class B Common Stock and certain issues that
arise under the Restated Certificate of Incorporation; (3) considered the number
of shares and the indicated value of the Class A Common Stock that Messrs.
Savitsky will receive upon exchange of their Class A Preferred Stock and the
share dilution that will be experienced by the existing common stockholders upon
such exchange; (4) reviewed certain information relating to the business,
earnings, cash flow, assets, liabilities and prospects of the Company furnished
by the Company; (5) compared certain financial and operating characteristics of
the Company in comparison to those of its competitors; (6) considered the
rationale for purchase premiums paid in change of control situations, such as
sales or mergers of businesses, and studied empirical data relating to actual
change of control premiums paid in the health care services
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<PAGE> 13
industry; and (7) considered elements of value to be derived from the exchange
in addition to the elimination of the Class A Preferred Stock blocking right.
In preparing its opinion, Cain Brothers assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to them
by the Company or publicly available. Cain Brothers has not assumed any
responsibility for independently verifying such information or undertaken an
independent evaluation or appraisal of any of the assets or liabilities of the
Company. The Cain Brothers Opinion is necessarily based upon market, economic
and other conditions as they exist and can be evaluated on the date hereof.
In its opinion letter, Cain Brothers set forth the Company's request and
the firm's conclusion in the following language:
"You have asked us whether, in our opinion, the exchange of 666 2/3 shares
of Class A Preferred Stock for 4,269,820 shares of Class A Common Stock,
together with the conversion of Messrs. Savitskys' 720,575 shares of Class B
Common Stock into an equal number of shares of Class A Common Stock, is fair
from a financial point of view to the holders of the Class A and Class B Common
Stock of the Company. . . . [W]e are of the opinion that, as of the date hereof,
the proposed exchange of Class A Preferred Stock for Class A Common Stock,
together with Messrs. Savitskys' agreement to convert their shares of Class B
Common Stock for an equal number of shares of Class A Common Stock, is fair from
a financial point of view to the holders of the Company's Class A and Class B
Common Stock."
Cain Brothers is a nationally recognized investment banking firm that
focuses principally on health care finance, and, as part of its investment
banking activities, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placement and valuations for corporate and for other
purposes. The Company selected Cain Brothers to act as its financial advisor in
connection with the Transaction because of its reputation as a capable,
high-integrity company with wide-ranging health care investment banking skills,
substantial experience in transactions comparable to the Transaction and because
it is familiar with the Company and its business and the health care services
industry generally.
In connection with Cain Brothers' services as financial advisor to the
Company, the Company has agreed to pay Cain Brothers $200,000. In addition, in
connection with the rendering of financial advisory services to the Company with
respect to the Transaction, the Company has agreed to reimburse Cain Brothers
for certain out-of-pocket expenses incurred in connection with its services to
the Company and to indemnify Cain Brothers and certain related persons against
certain liabilities and expenses in connection with the Transaction, including
liabilities under federal securities laws.
Cain Brothers has no affiliation or relationship with the Company, its
subsidiaries or any of its affiliates. The Company does not own any stock in
Cain Brothers and is advised that Cain Brothers does not own any stock in the
Company. Cain Brothers has not previously provided financial advisory services
for which it received compensation from the Company.
NASDAQ Approval Requirement
The issuance by the Company of the Class A Common Stock is subject to
stockholder approval pursuant to the rules applicable to companies whose
securities are traded on the Nasdaq National Market. Rule 4460(i)(A) of the
Nasdaq Stock Market rules requires stockholder approval of a plan or arrangement
pursuant to which stock may be acquired by officers or directors (except in
certain circumstances which are inapplicable to the Transaction).
Financial Statement and Other Information
The Company's audited consolidated balance sheets as of February 28, 1998
and 1997, and the related audited consolidated statements of operations,
stockholders' equity and cash flows for each of the three years ended February
28, 1998 (including the notes and schedule thereto and the report of the
Company's independent accountants thereon) (collectively, the "February 28, 1998
Financial Statements") contained in
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<PAGE> 14
the Company's Annual Report on Form 10-K for the fiscal year ended February 28,
1998 (the "Annual Report"), and the Company's unaudited condensed consolidated
balance sheets as of May 31, 1998 and February 28, 1998, and the related
unaudited condensed consolidated statements of operations and cash flows for the
three month periods ended May 31, 1998 and 1997 (including the notes thereto)
(collectively, the "May 31, 1998 Financial Statements") contained in the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended May 31,
1998 (the "Quarterly Report") are incorporated herein by reference.
The Management's Discussion and Analysis of Financial Condition and Results
of Operations contained in Item 7 of the Annual Report and the Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in Item 2 of the Quarterly Report are incorporated herein by
reference.
Federal Income Tax Consequences of the Transaction
The following description of federal income tax consequences is based on
the Code, the applicable Treasury Regulations promulgated thereunder, judicial
authority and current administrative rulings and practices in effect on the date
of this Proxy Statement. This discussion is for general information only and
does not discuss the federal income tax consequences which may apply to
non-resident aliens, broker-dealers, stockholders who receive Common Stock in
compensatory transactions or insurance companies. This discussion does not
address any foreign, state or local tax consequences that may be relevant to the
Company's stockholders. Accordingly, stockholders are urged to consult their own
tax advisors to determine the particular consequences to them of the
Transaction.
Management believes that no taxable gain or loss will be recognized by the
Company, the stockholders of the Company or by the Transferring Stockholders
upon consummation of the Transaction. It is expected that the proposed exchange
of stock will qualify as a nontaxable reorganization under the Internal Revenue
Code of 1954, as amended, and that the Company and the Transferring Stockholders
will recognize no gain or loss or other taxable income upon the exchange of
shares of Class A Preferred Stock for Class A Common Stock or the conversion of
Class B Common Stock into Class A Common Stock. The Company has not, however,
requested a ruling from the IRS or an opinion of counsel regarding this issue.
Termination
The Board of Directors may terminate the Transaction without the approval
of the stockholders.
No Dissenter's Rights of Appraisal
Under Delaware Law, stockholders are not entitled to dissenter's rights of
appraisal with respect to the Transaction.
VOTE REQUIRED
Approval of the Transaction, including the issuance of 4,269,820 shares of
Class A Common Stock, requires the affirmative vote of a majority of the votes
of holders of shares of Class A and Class B Common Stock, voting together as one
class, represented at the meeting in person or by proxy.
THE INDEPENDENT COMMITTEE OF THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE "FOR" THE TRANSACTION AND THE RELATED ISSUANCE OF 4,269,820 SHARES OF CLASS
A COMMON STOCK.
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PROPOSAL 2 -- TO AMEND THE
RESTATED CERTIFICATE OF INCORPORATION
TO EFFECT A REVERSE STOCK SPLIT
General
The Board of Directors has unanimously approved (subject to stockholder
approval), and is hereby soliciting stockholder approval of, an amendment to the
Restated Certificate of Incorporation, substantially in the form of Exhibit C
attached to this Proxy Statement (the "Reverse Split Certificate Amendment") and
incorporated herein by this reference. If approved, the Reverse Split
Certificate Amendment will effect a reverse stock split (the "Reverse Stock
Split") pursuant to which each two (2) shares of Class A Common Stock ("Old
Class A Common Stock") will become one share of the Company's then outstanding
Class A Common Stock ("New Class A Common Stock") and each two (2) shares of
Class B Common Stock ("Old Class B Common Stock," and, together with the Old
Class A Common Stock, the "Old Common Stock") will become one share of the
Company's then outstanding Class B Common Stock ("New Class B Common Stock,"
and, together with the New Class A Common Stock, the "New Common Stock") as of
the time of filing of the Reverse Split Certificate Amendment with the Secretary
of State of the State of Delaware (the "Secretary of State") (the "Effective
Date"). The Board of Directors may make any and all changes to the Reverse Split
Certificate Amendment that it deems necessary in order to file the Reverse Split
Certificate Amendment with the Secretary of State and give effect to the Reverse
Stock Split.
The Restated Certificate of Incorporation currently provides for 51,564,936
authorized shares of stock, consisting of 50,000,000 shares of Class A Common
Stock, 1,554,936 shares of Class B Common Stock and 10,000 shares of Class A
Preferred Stock. Of the authorized shares of stock, 21,505,386 shares of Class A
Common Stock, 1,041,809 shares of Class B Common Stock and 666 2/3 shares of
Class A Preferred Stock were issued and outstanding as of the Record Date.
In order to effect the Reverse Stock Split, the stockholders are being
asked to approve the Reverse Stock Split and the Reverse Split Certificate
Amendment. The Board of Directors believes that the Reverse Stock Split is in
the best interests of both the Company and the stockholders and has approved,
subject to stockholder approval, the Reverse Stock Split. If the Reverse Stock
Split is approved by the Company's stockholders, the Reverse Stock Split would
become effective at such time as the Company files the Reverse Split Certificate
Amendment with the Secretary of State. The Board of Directors reserves the
right, notwithstanding stockholder approval and without further action by the
stockholders, to decide not to proceed with the Reverse Stock Split, if at any
time prior to its effectiveness it determines, in its sole discretion, that the
Reverse Stock Split is no longer in the best interests of the Company and its
stockholders.
Purposes and Reasons for the Reverse Stock Split
The Board of Directors believes that the Reverse Stock Split is beneficial
to the Company and the stockholders. The principal reasons for the Reverse Stock
Split are to attempt to enhance investor interest in the Common Stock and to
attempt to enhance the Company's flexibility in the future for financing and
capitalization needs.
The Board of Directors believes that the current low per share price of the
Class A Common Stock as reported on the Nasdaq Stock Market's National Market
(the "Nasdaq National Market") has had a negative effect on the marketability,
and thus the price, of existing shares, the amount and percentage (relative to
share price) of transaction costs paid by individual stockholders, the ability
of the Company to raise capital by issuing additional shares of Common Stock,
and the ability to use its Class A Common Stock in merger or acquisition
transactions. Reasons for these effects include internal policies and practices
of certain institutional investors which prevent or tend to discourage the
purchase of low-priced stocks, Regulation T of the Board of Governors of the
Federal Reserve System which, until January 1, 1999, restricts the extension of
credit by brokers to customers for the purpose of purchasing the Class A Common
Stock, the fact that many brokerage houses do not permit low-priced stocks to be
used as collateral for margin accounts
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<PAGE> 16
or to be purchased on margin and a variety of brokerage house policies and
practices which tend to discourage individual brokers within those firms from
dealing in low-priced stocks.
In addition, since brokers' commissions on low-priced stocks generally
represent a higher percentage of the stock price than commissions on higher
priced stocks, the current share price of the Common Stock can result in
individual stockholders paying transaction costs which are a higher percentage
of the share price than would be the case if the share price were substantially
higher. The Board of Directors also believes that this factor limits the
willingness of certain institutional investors to purchase the Class A Common
Stock. The Board of Directors believes that the Reverse Stock Split, and the
expected resulting increased price level, may enhance investor interest in the
Common Stock and may enhance the Company's flexibility in the future for
financing, capitalization and merger and acquisition needs. There is, however,
no assurance that any of the foregoing effects will occur.
Further, a minimum per share price of $1.00 is one of several continued
maintenance requirements for the Class A Common Stock to remain authorized for
trading on the Nasdaq National Market, which the Board of Directors believes
enhances the market for the Class A Common Stock and improves the liquidity of
the Class A Common Stock. Any increase in trading price resulting from the
Reverse Stock Split will enhance the Company's ability to continue to maintain
its listing on the Nasdaq National Market.
If the Class A Common Stock is not listed on the Nasdaq Stock Market,
trading, if any, in the Class A Common Stock would thereafter be conducted in
the non-Nasdaq over-the-counter market in the so-called "pink sheets" or the
NASD's "Electronic Bulletin Board." Consequently, the liquidity of the Company's
securities could be impaired, not only in the number of shares of Class A Common
Stock that would be bought and sold, but also through delays in the timing of
transactions, reduction in security analyst coverage of the Company and lower
prices for the Class A Common Stock than might otherwise be attained.
Consequently, investors could find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of the Company's Class A Common
Stock. In addition, delisting could result, in certain circumstances, in the
Class A Common Stock becoming characterized as a low-priced or "penny" stock. In
such event, the market liquidity for the Company's securities could be severely
affected as the Class A Common Stock would be subject to compliance with The
Securities Enforcement and Penny Stock Reform Act of 1990. The regulations
governing low-priced, so-called "penny" stocks could limit the ability of
broker-dealers to sell the Company's Class A Common Stock and, in turn, the
ability of stockholders to sell their Class A Common Stock.
WHILE THE BOARD OF DIRECTORS BELIEVES THAT AFTER THE REVERSE STOCK SPLIT
THE SHARES OF COMMON STOCK WILL TRADE AT HIGHER PRICES THAN THOSE WHICH HAVE
PREVAILED IN RECENT MONTHS, THERE IS NO ASSURANCE THAT SUCH INCREASE IN THE
TRADING PRICE WILL OCCUR OR, IF IT DOES OCCUR, THAT IT WILL EQUAL OR EXCEED THE
DIRECT ARITHMETICAL RESULT OF THE REVERSE SPLIT SINCE THERE ARE NUMEROUS FACTORS
AND CONTINGENCIES WHICH COULD AFFECT SUCH PRICE. THERE IS NO ASSURANCE THAT THE
COMPANY WILL CONTINUE TO MEET LISTING REQUIREMENTS FOR THE NASDAQ NATIONAL
MARKET FOLLOWING THE REVERSE STOCK SPLIT.
Certain Effects of the Reverse Split
The principal effect of the Reserve Stock Split will be to decrease the
number of shares of Common Stock outstanding from 22,547,195 to approximately
11,273,598 before giving effect to the rounding up of fractional shares referred
to below. In addition, the Board of Directors will take appropriate action to
proportionately adjust the number of shares of Common Stock issuable upon
exercise of outstanding options, and to adjust the related exercise price, to
reflect the Reverse Stock Split. As a result, following the Effective Date, the
number of shares of Common Stock issuable upon the exercise of outstanding
options will be reduced from 5,297,454 to 2,648,727 shares. The authorized
number of shares of Class A Common Stock, Class B Common Stock and Class A
Preferred Stock will remain at 50,000,000 shares, 1,554,936 shares and 10,000
shares, respectively.
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<PAGE> 17
The shares of New Common Stock will be fully paid and nonassessable. The
relative voting and other rights of holders of the New Common Stock will not be
altered by the Reverse Stock Split, except for stockholders who would receive an
additional share of Common Stock in lieu of fractional shares. The Company does
not anticipate that the Reverse Stock Split will result in any material
reduction in the number of holders of Common Stock. Certain stockholders'
post-Reverse Stock Split holdings may include an "odd lot" number of shares. In
general, it is somewhat more difficult to purchase or sell an odd lot number of
shares, and transactions in odd lots are subject to higher commissions and other
transaction costs inapplicable to so-called round lots.
The Reverse Stock Split will not change the par value of shares of Common
Stock. However, under applicable Delaware Law, the total capital of the Company
will not be reduced as a result of the Reverse Stock Split, even though the
aggregate par value of all issued and outstanding shares will be reduced to one-
half of the aggregate par value prior to the Reverse Stock Split. Accordingly,
the Reverse Stock Split will not change surplus available for dividends.
The Reverse Stock Split itself would have no effect on the number of
authorized shares of Common Stock. However, because the number of shares of New
Common Stock that the Company is authorized to issue will not be decreased by
the Reverse Stock Split, the number of shares which are authorized but unissued
effectively will be increased two-fold. In addition, if shares of New Common
Stock are issued after the Reverse Stock Split, the dilution in the ownership
interests of the current stockholders would be diluted two-fold compared to the
issuance of shares of Old Common Stock.
The Board of Directors considered reducing the number of shares of
authorized Common Stock in connection with the Reverse Stock Split but
determined that the availability of additional shares may be beneficial to the
Company in the future. The availability of additional authorized shares will
allow the Board to issue shares for corporate purposes, if appropriate
opportunities should arise, without further action by stockholders or the time
delay involved in obtaining stockholder approval (unless required by law or
regulation). Such purposes could include effecting future acquisitions of other
businesses or meeting requirements for working capital or capital expenditures
through the issuance of shares. To the extent that any additional shares (or
securities convertible into Common Stock) may be issued on other than a pro rata
basis to current stockholders, the present ownership position of current
stockholders may be diluted. The Common Stock has no preemptive rights. In
addition, if another party should seek to acquire or take over control of the
Company, and the Board of Directors does not believe such transaction is in the
best interest of the Company and its stockholders, some or all of the authorized
shares could be issued to another party to try to block such transaction.
The consummation of the Reverse Stock Split without a corresponding
decrease in the authorized Common Stock may be viewed as having the effect of
discouraging or impeding hostile takeovers of the Company or of making it more
difficult to replace management because the issuance of additional shares of New
Common Stock could be made at the discretion of the Board of Directors. While
the Board of Directors is not aware of any proposals to acquire the Company and
this proposal is not being made as a means to deter or prohibit hostile
takeovers or to make it more difficult to remove current management, the Board
of Directors would be able to issue additional shares of New Common Stock
thereby, among other things, diluting stockholders ownership interests,
increasing the costs of a hostile takeover bid offer or placing shares of New
Common Stock with individuals and/or entities who would support management
positions. By potentially discouraging initiation of an unsolicited takeover
attempt, the effective increase of the authorized shares of Common Stock may
limit the opportunity for the stockholders to dispose of their shares at the
higher price generally available in takeover attempts or that may be available
under a merger proposal. The effective increase of the authorized shares of
Common Stock may also have the effect of permitting the Company's current
management, including the current Board of Directors, to retain its position,
and place it in a better position to resist changes that stockholders may wish
to make if they are dissatisfied with the conduct of the Company's business. For
a discussion of existing provisions of the Restated Certificate of Incorporation
and By-Laws of the Company which may have the effect of discouraging or impeding
certain types of transactions involving actual or threatened changes of control
of the Company, see "Existing Provisions of Restated Certificate of
Incorporation and By-Laws" below.
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Mechanics of Reverse Stock Split
If the Reverse Stock Split is approved by the requisite vote of the
stockholders, the Company will file the Reverse Split Certificate Amendment as
soon as the Board of Directors determines to effectuate the Reverse Stock Split
as described above. The Reverse Stock Split will be effective on the date of
such filing. Upon filing of the Reverse Split Certificate Amendment, every two
(2) issued and outstanding shares of Old Class A Common Stock will, effective
upon such filing, be automatically and without any action on the part of the
stockholders converted into and reconstituted as one (1) share of New Class A
Common Stock and every two (2) issued and outstanding shares of Old Class B
Common Stock will, effective upon such filing, be automatically and without any
action on the part of the stockholders converted into and reconstituted as one
(1) share of New Class B Common Stock.
As soon as practical after the Effective Date, the Company will forward, or
cause to be forwarded, a letter of transmittal to each holder of record of
shares of Old Common Stock outstanding as of the Effective Date. The letter of
transmittal will set forth instructions for the surrender of certificates
representing shares of Old Common Stock to the Company's transfer agent in
exchange for certificates representing the number of whole shares of New Common
Stock into which the shares of Old Common Stock have been converted as a result
of the Reverse Stock Split. CERTIFICATES SHOULD NOT BE SENT TO THE COMPANY OR
THE TRANSFER AGENT PRIOR TO RECEIPT OF SUCH LETTER OF TRANSMITTAL FROM THE
COMPANY.
Until a stockholder forwards a completed letter of transmittal together
with certificates representing his, her or its shares of Old Common Stock to the
transfer agent and receives a certificate representing shares of New Common
Stock, such stockholder's Old Common Stock shall be deemed equal to the number
of whole shares of New Common Stock to which each stockholder is entitled as a
result of the Reverse Stock Split.
No scrip or fractional certificates will be issued in the Reverse Stock
Split. Instead, the Company will issue one additional share of New Common Stock
to each affected stockholder at no cost to such stockholder. The ownership of a
fractional interest will not give the holder thereof any voting, dividend or
other rights except the right to receive an additional share therefor as
described herein. The number of shares of New Common Stock to be issued in
connection with settling such fractional interests is not expected to be
material.
Existing Provisions of Restated Certificate of Incorporation and By-Laws
The Company's Restated Certificate of Incorporation and By-laws currently
contain provisions which, like the consummation of the Reverse Stock Split
without a corresponding decrease in the authorized common stock, may have the
effect of discouraging or impeding certain types of transactions involving
actual or threatened changes of control of the Company.
Classified Board of Directors. Under the Restated Certificate of
Incorporation, the Company's Board of Directors is divided in to three classes.
A separate election is held for each class of Directors, and the classes have
three-year staggered terms so that no two classes are elected in the same year.
In the case of a classified board, Delaware Law provides that a director or the
entire Board of Directors may be removed by the shareholders only for cause. The
Restated Certificate of Incorporation provides that any director or the entire
Board of Directors may be removed at any time, but only for cause and only by
the affirmative vote of the holders of at least 80% of the voting power of the
outstanding Class A and Class B Common Stock. In addition, the affirmative vote
of the holders of at least 80% of the voting power of the outstanding Class A
and Class B Common Stock (with the Class B Common Stockholders having one vote
per share) is required to amend, alter or repeal the foregoing provisions.
Shareholder Action by Unanimous Written Consent. The Restated Certificate
of Incorporation provides that no action required to be taken or which may be
taken at either an annual or special meeting of shareholders may be taken by
written consent without a meeting. In addition, the affirmative vote of the
holders of at least 80% of the voting power of the outstanding Class A and Class
B Common Stock (with the Class B Common Stockholders having one vote per share)
is required to amend, alter or repeal the foregoing provision.
16
<PAGE> 19
Special Meetings of the Shareholders. The Restated Certificate of
Incorporation and By-Laws provide that special meetings of the shareholders may
only be called by the Board of Directors. Any action required or permitted to be
taken by the stockholders must be effected at a duly called annual or special
meeting and may not be effected by any consent in writing by such stockholders.
In addition, the affirmative vote of the holders of at least 80% of the voting
power of the outstanding Class A and Class B Common Stock (with the Class B
Common Stockholders having one vote per share) is required to amend, alter or
repeal the foregoing provisions.
Supermajority Voting Requirements In Change of Control Transactions. The
Restated Certificate of Incorporation provides that the affirmative votes of the
holders of (i) at least 66% of the outstanding Class A Preferred Stock, and (ii)
at least 80% of the outstanding Class A and Class B Common Stock (with the Class
B Common Stockholders having one vote per share), are required before an
Interested Stockholder can consummate certain business combinations with the
Company if such transactions are not approved by a majority of the Continuing
Directors. The affirmative vote of the holders of at least 80% of the voting
power of the shares of Preferred Stock, Class A and Class B Common Stock, each
voting separately as a class, are required to amend, repeal or adopt any
provision inconsistent with the foregoing provision.
Federal Income Tax Consequences of the Reverse Stock Split
The following description of federal income tax consequences is based on
the Code, the applicable Treasury Regulations promulgated thereunder, judicial
authority and current administrative rulings and practices in effect on the date
of this Proxy Statement. This discussion is for general information only and
does not discuss the federal income tax consequences which may apply to
non-resident aliens, broker-dealers, stockholders who receive Common Stock in
compensatory transactions or insurance companies. This discussion does not
address any foreign, state or local tax consequences that may be relevant to the
Company's stockholders. Accordingly, stockholders are urged to consult their own
tax advisors to determine the particular consequences to them of the Reverse
Stock Split.
The exchange of shares of Old Common Stock for shares of New Common Stock
will not result in recognition of gain or loss. The holding period of the shares
of New Common Stock will include the stockholder's holding period for the shares
of Old Common Stock exchanged therefor, provided that the shares of Common Stock
were held as a capital asset. The adjusted basis of the shares of New Common
Stock will be the same as the adjusted basis of the Old Common Stock exchanged
therefor.
No Dissenter's Rights of Appraisal
Under Delaware Law, stockholders are not entitled to dissenter's rights of
appraisal with respect to the proposed Reverse Split Certificate Amendment to
effect the Reverse Stock Split.
VOTE REQUIRED
Approval of the Reverse Stock Split, including the related amendment to the
Restated Certificate of Incorporation, requires the affirmative vote of a
majority of the votes of the holders of shares of Class A and Class B Common
Stock outstanding as of the Record Date.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" APPROVAL TO EFFECT THE
REVERSE STOCK SPLIT AND THE RELATED AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION.
17
<PAGE> 20
PROPOSAL 3 -- 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, Bernard
J. Firestone and Donald Meyers, who are nominees of the Board of Directors. The
nominees for Class B Directors, if elected by a majority of the votes cast at
the Annual Meeting, will serve until the 2001 Annual Meeting and until their
successors are 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 a 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 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. Stephen Savitsky is a Class C Director whose term expires
at the 1999 Annual Meeting and David Savitsky and Jonathan J. Halpert are Class
A Directors whose terms expire at the 2000 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 the 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 Directors 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; (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 AGE COMPANY AND ANY OTHER DIRECTORSHIPS AS A DIRECTOR
---- --- --------------------------------------- ------------------
<S> <C> <C> <C>
Stephen Savitsky................... 52 A founder of the Company, Mr. Savitsky 1983
has served as Chairman of the Board,
Chief Executive Officer and a Director
of the Company since 1983 (and of its
predecessor from 1978 to 1983), and as
President of the Company since November
1991. Mr. Savitsky is the brother of
David Savitsky.
David Savitsky..................... 50 A founder of the Company, Mr. Savitsky 1983
has served as Secretary, Treasurer and
a Director of the Company since 1983
(and of its predecessor from 1978 to
1983), as Executive Vice President
since December 1987 and as Chief
Operating Officer since April 1991. Mr.
Savitsky is the brother of Stephen
Savitsky.
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING THE
PAST FIVE YEARS, ANY OFFICE HELD IN THE YEAR FIRST ELECTED
NAME AGE COMPANY AND ANY OTHER DIRECTORSHIPS AS A DIRECTOR
---- --- --------------------------------------- ------------------
<S> <C> <C> <C>
Jonathan J. Halpert, Ph.D.......... 53 Dr. Halpert was elected a Director by 1983
the Board of Directors in August 1987.
He previously served as a Director of
the Company from May 1983 until he
resigned from the Board in February
1985. Dr. Halpert is a consultant in
the area of deinstitutionalization of
the mentally retarded and Chief
Executive Officer of the Camelot
Community Residence Program.
*Bernard J. Firestone, Ph.D........ 49 Dr. Firestone was elected a Director by 1987
the Board of Directors in August 1987.
He is the dean of the College of
Liberal Arts and Sciences and professor
of political science at Hofstra
University, where he has been teaching
for 23 years.
*Donald Meyers..................... 69 Mr. Meyers was elected a Director by 1994
the Board of Directors in August 1994.
He has been an Associate Clinical
Professor, Health Policy and
Management, and the Director of the
Resident and Fellow Program in
administration in New York University's
Robert W. Wagner Graduate School of
Public Service since November 1991. Mr.
Meyers is also the President and sole
director and stockholder of RMR Health
& Hospital Management Consultants,
Inc., a health care consulting firm,
where he has been an executive officer,
director and stockholder since 1976.
Dale R. Clift...................... 47 Mr. Clift has been Executive Vice Not Applicable
President of Finance and Chief
Financial Officer of the Company since
February 1998. From January 1996
through February 1998, Mr. Clift
provided consulting services to a
number of companies, including several
in the health care industry. From April
1994 through January 1996, Mr. Clift
was Executive Vice President of Rock
Bottom Restaurants, Inc., a restaurant
operator, and, from January 1993
through April 1994, Mr. Clift was Vice
President of RMD Health Enterprises,
Inc.
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING THE
PAST FIVE YEARS, ANY OFFICE HELD IN THE YEAR FIRST ELECTED
NAME AGE COMPANY AND ANY OTHER DIRECTORSHIPS AS A DIRECTOR
---- --- --------------------------------------- ------------------
<S> <C> <C> <C>
Edward Teixeira.................... 55 Mr. Teixeira has been Senior Vice Not Applicable
President, Franchising of a principal
subsidiary of the Company since
December 1990.
Cynthia Nye........................ 46 Ms. Nye has been Senior Vice President, Not Applicable
Corporate Support of a principal
subsidiary of the Company since
November 1994. From January 1992
through November 1994, Ms. Nye served
as Vice President, Corporate Support of
a principal subsidiary of the Company.
Willard T. Derr.................... 41 Mr. Derr has been Senior Vice President Not Applicable
and Corporate Controller of a principal
subsidiary of the Company since March
1998. From February 1993 to March 1998,
Mr. Derr served as Vice President and
Controller of a principal subsidiary of
the Company.
Sandra Parshall.................... 51 Ms. Parshall has been the Senior Vice Not Applicable
President, National Field Operations,
of a principal subsidiary of the
Company since March 1998. From
September 1996 through March 1998, Ms.
Parshall served as the Vice President
of Operations of a principal subsidiary
of the Company. From June 1995 to
September 1996, Ms. Parshall served as
a regional director of operations of a
principal subsidiary of the Company.
From 1993 to 1995, Ms. Parshall was a
Divisional Vice President of
Nursefinders, Inc., a home healthcare
and medical staffing company.
Carla Perrotta..................... 38 Ms. Perrotta has been the Senior Vice Not Applicable
President and General Manager of a
principal subsidiary of the Company
since March 1995 and the Chief
Operating Officer since July 1998. From
September 1993 to March 1995, Ms.
Perrotta served as the Director of the
Company's medical staffing division.
</TABLE>
20
<PAGE> 23
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
six occasions during the fiscal year ended February 28, 1998.
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 and will, if they are approved, administer the 1998
Stock Option Plan and the 1998 Employee Stock Purchase Plan.
The Executive Committee held five meetings, the Audit Committee held one
meeting, and the Compensation and Stock Option Committee held one meeting and
acted by written consent on two occasions during the fiscal year ended February
28, 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation and Stock Option Committee is composed of
Bernard J. Firestone and Jonathan J. Halpert.
No member of the Compensation Committee of the Board of Directors of the
Company was, during 1997, an officer or employee of the Company or any of its
subsidiaries, or was formerly an officer of the Company or any of its
subsidiaries, or had any relationship requiring disclosure pursuant to
applicable rules and regulations of the Securities and Exchange Commission.
During 1997, no executive officer of the Company served as (i) a member of the
compensation committee (or other board committee performing equivalent
functions) of another entity, one of whose executive officers served on the
Compensation Committee of the Company, (ii) a director of another entity, one of
whose executive officers served on the Compensation Committee of the Company, or
(iii) a member of the compensation committee (or other board committee
performing equivalent functions) of another entity, one of whose executive
officers served as a director of the Company.
21
<PAGE> 24
COMPLIANCE WITH SECTION 16(a) OF THE 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 Class A Common Stock or Class B 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 Class A Common Stock
or Class B 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, 1998, 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,
except that reports of change of beneficial ownership were filed late by Stephen
Savitsky and David Savitsky with respect to two transactions during the 1998
fiscal year and Cynthia Nye did not file one such report with respect to one
transaction during the 1998 fiscal year.
22
<PAGE> 25
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation of 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
BONUS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS(#) COMPENSATION
--------------------------- ---- -------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Stephen Savitsky................. 1998 $520,571 -- 580,691 Not determinable(1)
Chairman, President and 1997 $474,704 -- -- --
Chief Executive Officer 1996 $423,453 -- -- --
David Savitsky................... 1998 $377,016 -- 580,691 Not determinable(1)
Executive Vice President, 1997 $343,705 -- -- --
Chief Operating Officer, 1996 $306,224 -- -- --
Secretary and Treasurer
Sandra Parshall.................. 1998 $148,105 $25,000 -- --
Senior Vice President of 1997 $118,640 $14,250 25,000 --
National Field Operations 1996 $ 68,939 $ 4,750 -- --
Gary Tighe(2).................... 1998 $173,116 -- -- $243,647(3)
Senior Vice President, Finance 1997 $169,726 -- -- --
and Chief Financial Officer 1996 $155,241 -- -- --
Edward Teixeira.................. 1998 $176,615 $19,375 -- --
Senior Vice President, 1997 $167,714 -- 10,000 --
Franchising 1996 $156,640 -- -- --
Cynthia Nye...................... 1998 $149,835 -- 10,000 --
Senior Vice President, 1997 $142,277 -- -- --
Corporate Support 1996 $132,585 -- -- --
</TABLE>
- ---------------
(1) On November 19, 1997, the Board of Directors granted to each of Stephen
Savitsky and David Savitsky a four-year option to purchase 83 shares of
Chelsea Computer Consultants, Inc., an 82% owned subsidiary of the Company
("Chelsea"), at an exercise price of $22,749.40 per share (the "Chelsea
Options"). The 83 shares underlying each Chelsea Option represents
approximately 9% of the issued and outstanding shares of Chelsea. The grant
of the Chelsea Options is subject to the approval of the holders of the 18%
of the outstanding common stock of Chelsea not owned by the Company, which
approval has not yet been obtained. If such approval is obtained, the
options may be exercised only following: (i) an initial public offering of
Chelsea securities; (ii) the consolidation or merger of Chelsea with or into
another entity; (iii) a transaction in which more than 50% of the voting
power of Chelsea is transferred; or (iv) a sale of all or substantially all
of the assets of Chelsea. The exercise price was determined based on the
estimated fair value of the Chelsea stock at the date of grant, $22,749.40
per share, which was the price per share paid by the Company for its
investment in Chelsea in October 1997.
(2) Effective February 20, 1998, Mr. Tighe resigned his employment as the Senior
Vice President of Finance and Chief Financial Officer and his employment
agreement was terminated.
(3) Reflects a payment made by the Company to Mr. Tighe in connection with his
resignation and termination of his employment agreement. See "Executive
Compensation and Other Information -- Employment Agreements."
23
<PAGE> 26
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, 1998. 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
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION GRANT DATE
NAME GRANTED FISCAL YEAR BASE PRICE DATE PRESENT VALUE(1)
---- ---------- ------------ ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Stephen Savitsky(2).................. 197,000 13% $2.31 7/01/07 $362,480
David Savitsky(2).................... 197,000 13% $2.31 7/01/07 $362,480
Stephen Savitsky(3).................. 383,691 25.3% $2.25 7/01/07 $709,828
David Savitsky(4).................... 383,691 25.3% $2.25 7/01/07 $709,828
Cynthia Nye(2)....................... 10,000 0.7% $2.28 10/20/07 $ 16,800
Edward Teixeira...................... -- -- -- -- --
Gary Tighe........................... -- -- -- -- --
Sandra Parshall...................... -- -- -- -- --
</TABLE>
- ---------------
(1) The values shown were calculated utilizing the Black-Scholes option pricing
model and are presented solely for the purpose of comparative disclosure in
accordance with certain regulations of the Securities and Exchange
Commission. This model is a mathematical formula used to value traded stock
price volatility. The actual value that an executive officer may realize, if
any, is dependent on the amount by which the stock price at the time of
exercise exceeds the exercise price. There is no assurance that the value
realized by an executive officer will be at or near the value estimated by
the Black-Scholes model. In calculating the grant date present values, the
Company used the following assumptions: (a) expected volatility of
approximately 55.8%; (b) risk-free rate of return of approximately 5.8%; (c)
no dividends payable during the relevant period; and (d) exercise at the end
of a 10 year period from the date of grant.
(2) Issued under the 1993 Stock Option Plan. All options are currently
exercisable.
(3) Issued under the 1994 Performance-Based Stock Option Plan on July 1, 1997. A
percentage of options may become exercisable in each of the four years
following the grant date if certain stock price targets are achieved. A
total of 95,923 options are currently exercisable.
(4) Issued under the 1994 Performance-Based Stock Option Plan on July 1, 1997. A
percentage of options may become exercisable in each of the four years
following the grant date if certain stock price targets are achieved. A
total of 95,923 options are currently exercisable.
24
<PAGE> 27
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
TABLE
The following table provides information concerning the number and value of
stock options exercised during the fiscal year ended February 28, 1998, 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.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONTH OPTIONS
ACQUIRED AT FEBRUARY 28, 1998 AT FEBRUARY 28, 1998
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Stephen Savitsky................ -- -- 1,466,193/787,768 $183,111/$27,050
David Savitsky.................. -- -- 1,452,193/787,768 174,795/ 27,050
Cynthia Nye..................... -- -- 44,000/ 15,000 2,591/ 0
Gary Tighe...................... -- -- 170,000/ 0 19,580/ 0
Edward Teixeira................. -- -- 74,467/ 28,333 9,705/ 0
Sandra Parshall................. -- -- 8,334/ 16,666 --
</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.
Savitskys' 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, 1998, Mr. Savitsky received a
base salary of $520,571. Mr. Savitskys' employment agreement provides that, upon
a "change of control" of the Company and his termination of employment other
than for his conviction of 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, 1998, was $377,016.
As of June 1, 1997, the Company entered into a three-year employment
agreement with Gary Tighe under which Mr. Tighe was employed as the Company's
Senior Vice President of Finance and Chief Financial Officer. Mr. Tighe's base
salary for the fiscal year ended February 28, 1998 was $173,116. He also
received a car allowance of $6,000. Effective February 20, 1998, Mr. Tighe
resigned his employment as the Senior Vice President of Finance and Chief
Financial Officer and his employment agreement was terminated. In connection
with his resignation, the Company agreed to make a payment of $243,647 to Mr.
Tighe in full satisfaction of the Company's obligations to him under the
employment agreement. The Company also agreed to pay for COBRA health insurance
coverage for Mr. Tighe through June 1, 2000, provided he has not otherwise
become eligible for other health insurance coverage.
On December 1, 1996, the Company entered into a three-year employment
agreement with Edward Teixeira to serve as Senior Vice President, Franchising of
a principal subsidiary of the Company under which Mr. Teixeira received an
initial base salary of $175,000 per year, which base salary increases by $10,000
per annum. Mr. Teixeira's base salary for the fiscal year ended February 28,
1998, was $175,615. In addition, Mr. Teixeira received a bonus of $19,375. He
also received an automobile allowance of $6,600 per annum.
25
<PAGE> 28
Under his employment agreement, Mr. Teixeira is obligated to devote his full
business time to the affairs of the Company. Further, if within 180 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 twelve months' salary. The
employment agreement prevents Mr. Teixeira from competing with the Company for
six months after his employment is terminated.
Effective September 1, 1996, a principal subsidiary of the Company entered
into a 30-month employment agreement with Sandra Parshall to serve as Vice
President of Operations until February 28, 1999. The employment agreement
provides for an annual base salary of $135,000, $140,000 and $150,000 for each
of the three years ending February 28, 1997, 1998 and 1999, respectively. In
addition, the Company leases an automobile for Ms. Parshall's use at an annual
cost of approximately $6,400. Ms. Parshall's base salary for the fiscal year
ended February 28, 1998 was $148,105. Ms. Parshall also received a $25,000
bonus. Further, if Ms. Parshall were terminated by the Company for any reason
(other than a breach of the employment agreement) she would then be entitled to
receive a severance payment equal to six months' salary. The employment
agreement requires Ms. Parshall to devote her full business time to the affairs
of the Company and prevents Ms. Parshall from competing with the Company for one
year after her employment is terminated.
As of February 9, 1998, a principal subsidiary of the Company entered into
a 37-month employment agreement with Dale R. Clift to serve as Executive Vice
President, Finance, and Chief Financial Officer until March 31, 2001. The
employment agreement provides for a base salary of $225,000 per annum.
Additionally, Mr. Clift received a bonus of $18,000, reimbursement of his moving
expenses up to $40,000, an automobile allowance of approximately $7,000 per
annum and options to purchase 333,332 shares of Class A Common Stock. Further,
if within 12 months after a "change of control" Mr. Clift is discharged, or he
resigns, for any reason (other than a breach of his employment agreement) he
would be entitled to receive a severance payment equal to 2.99 times his average
annual base salary to be paid weekly for the three-year period following such
discharge or resignation. Under his employment agreement, Mr. Clift is obligated
to devote his full business time to the affairs of the Company and he is
prevented from competing with the Company for six months after his employment is
terminated. Mr. Clift's base salary for the fiscal year ended February 28, 1998
was $9,272.
Effective October 1, 1997, a principal subsidiary of the Company entered
into a 38-month employment agreement with Cynthia Nye to serve as the Senior
Vice President, Corporate Support Services until November 30, 2000. Ms. Nye's
current base salary is $155,000 per annum, which base salary increases by no
less than 5% per year. She also received options to purchase 10,000 shares of
Class A Common Stock, and an automobile allowance of $3,600 per annum. Further,
if within 12 months of a "change of control" Ms. Nye is discharged, or she
resigns, for any reason (other than a breach of her employment agreement) she
would be entitled to receive a severance payment equal to one year's salary to
be paid weekly for one year following such discharge or resignation. The
employment agreement requires Ms. Nye to devote her full business time to the
affairs of the Company and prevents her from competing with the Company for one
year after her employment is terminated. Ms. Nye's base salary for the fiscal
year ended February 28, 1998 was $149,835.
Effective March 1, 1998, a principal subsidiary of the Company entered into
a three-year employment agreement with Willard T. Derr to serve as the Senior
Vice President-Corporate Controller until February 28, 2001. The employment
agreement provides for a base salary of $137,000 per annum and an automobile
allowance of $3,600 per annum. The employment agreement requires Mr. Derr to
devote his full business time to the affairs of the Company. Mr. Derr's base
salary for the fiscal year ended February 28, 1998 was $121,632.
If a "change of control" were to occur prior to the next anniversary date
of the respective employment agreements of Stephen Savitsky, David Savitsky,
Dale R. Clift, Edward Teixeira and Cynthia Nye and such officers' employment
relationships with the Company were to terminate for reasons triggering the
severance payments noted above, then the Company would be obligated to make lump
sum payments to them in the approximate amounts of $1,594,000, $1,228,000,
$673,000, $182,000 and $159,000, 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'
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compensation. The term "change of control" 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 and
will, if they are approved, administer the 1998 Stock Option Plan and the 1998
Employee Stock Purchase Plan. The Committee currently consists of Bernard J.
Firestone and Jonathan J. Halpert, each of whom is a non-employee director of
the Company (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. The Committee also considers
qualitative performance criteria such as the development of new business
strategies and resources, improvements in customer satisfaction and cost
management. During the Company's most recently completed fiscal year, the
Company increased revenues by 8.2% over the fiscal year ended February 28, 1997.
During the fourth quarter of fiscal 1998, the management moved proactively to
prepare the Company for the impact of the Interim Payment System ("IPS"), as set
forth in the Balance Budget Act of 1997 ("BBA"), and for long-term growth. As a
result, the Company implemented a corporate-wide restructuring and cost
reduction program. These actions, together with the Company's assessment of IPS,
resulted in a pre-tax, non-recurring charge in the fourth quarter of fiscal 1998
of $33.4 million. The Company's fiscal 1998 net income and earnings per common
share before the non-recurring charge was $3.3 million and $.14, respectively.
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
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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 enhances 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. During its most recently
completed fiscal year, the Company (or a subsidiary of the Company) entered into
an employment agreement with Gary Tighe and Dale R. Clift. Mr. Tighe's agreement
was terminated on February 20, 1998 upon his resignation from the Company. The
terms of these employment agreements are described in greater detail above under
the heading "Employment Agreements." In evaluating the terms of these employment
agreements, the Committee considered each of the factors described above,
without assigning any specific weight to such factors.
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 required under the Teamwork
Incentive Program in an aggregate amount equal to 10% of the amount by which
income from continuing operations before 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, 1998, such percentage was 2.5%. Any
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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, the Committee
considers the same factors as it considers in setting base salaries. For fiscal
1998, no amounts were paid under the Teamwork Incentive Program as the Company
did not meet its performance goals as required by the terms of the 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, 1998, the Committee awarded to each
of Stephen Savitsky and David Savitsky 383,691 stock options under the 1994
Performance-Based Stock Option Plan and 197,000 stock options under the 1993
Stock Option Plan. The Committee also awarded 333,332 stock options under the
1994 Performance-Based Stock Option Plan to Dale R. Clift and 10,000 stock
options under the 1993 Stock Option Plan to Cynthia Nye. It is the philosophy of
the Committee that stock options 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. 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 favored the granting of
stock options over 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 Savitskys'
compensation that it applies to the Company's other executive officers and key
employees. Mr. Savitskys' five-year employment agreement establishes his annual
minimum base salary, including the amount of his minimum annual salary
adjustment. 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, 1998, the
Committee neither gave notice of termination nor awarded Mr. Savitsky any
additional base salary and he accordingly received a base salary of $520,571
under the terms of his employment agreement. During the last year, Mr.
Savitskys' efforts contributed to the Company's 8.2% increase in revenues to
$519.7 million and the strategic positioning of the Company to meet the
challenges presented by health care reform. As Chief Executive Officer, Mr.
Savitsky was responsible for proactively preparing the Company for the
significant impact IPS will have on its health care operations. Such
preparations included restructuring and cost-cutting initiatives and the
continuation of the Company's efforts to increase profit margins by diversifying
into other business areas.
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Grant of Chelsea Options
The Compensation Committee granted the Chelsea Options to Stephen and David
Savitsky to reward them for their efforts in the Company's acquisition of 62.8%
of the outstanding common stock of Chelsea for $12.4 million and in positioning
Chelsea for sale or for an initial public offering of its securities. See Note
(1) to "Summary Compensation Table" for a description of the Chelsea Options.
The Committee considered the grant of a cash bonus, in lieu of the Chelsea
Options, to reward Messrs. Savitsky for their efforts relating to Chelsea, but
decided that the grant of the Chelsea Options was preferable, principally
because the Chelsea Options align the interest of Messrs. Savitsky with that of
the Company in maximizing the Company's return on its investment in Chelsea.
Moreover, the Compensation Committee did not wish to pay a cash bonus to Messrs.
Savitsky without the assurance that the Company would realize a significant
return on its investment in Chelsea.
Compensation and Stock Option
Committee
Bernard J. Firestone
Jonathan J. Halpert
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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, 1998, with the cumulative return on the
Nasdaq Market Index and a Peer Group Index, assuming investment of $100 in the
Company's Common Stock, the Nasdaq Market Index and the Peer Group Index at
closing stock prices on February 29, 1993. The Peer Group selected by the
Company consists of The Olsten Corporation, In Home Health Inc., Hospital
Staffing Services, Inc., The Care Group, Inc., Caretenders Health Corp. and U.S.
Home Care, Inc. The Peer Group consists of a representative group of companies
whose common stock has been publicly-traded during the five years ended February
28, 1998, and each of which, like the Company, engages in providing home health
care and temporary personnel services.
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
AMONG STAFF BUILDERS, INC., NASDAQ MARKET
INDEX AND PEER GROUP INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD STAFF NASDAQ
(FISCAL YEAR COVERED) BUILDERS, INC. COMPOSITE PEER GROUP
<S> <C> <C> <C>
FEB93 100 100 100
FEB94 166.68 114.96 108.52
FEB95 148.75 116.60 114.24
FEB96 120.52 162.45 147.70
FEB97 120.52 184.68 89.29
FEB98 96.18 272.79 80.66
</TABLE>
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CERTAIN TRANSACTIONS
Effective April 1, 1992, the Company approved the sale by CTR Management
Corp. ("CTR") of a home care franchise for Nassau County, New York to Bayit Care
Corp. ("BCC"). The shareholders, officers and directors of BCC are Stuart
Savitsky, son of Stephen Savitsky, Samuel Schreier, the son-in-law of Stephen
Savitsky, and Julie Schreier, the daughter of Stephen Savitsky. The terms and
conditions of the franchise agreement between the Company and BCC, entered into
at the time of the sale, are substantially similar to 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, 1998, the Company
retained $59,881 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 $687,073 at February 28, 1998.
Effective March 1, 1998, Boro Care Corp. ("Boro") acquired a home care
franchise for Bronx, Kings, New York and Queens counties in New York. Stuart
Savitsky and Samuel Schreier each own 45% of the capital stock of Boro. To
acquire the franchise, Boro agreed to pay a $29,500 franchise fee, payable in 12
consecutive monthly payments of $2,458 commencing March 1, 1998. As part of the
franchise transaction, Boro purchased certain assets for $50,000 and issued a
$50,000 promissory note (the "First Boro Note") to the Company with respect to
such purchase. Boro also received a $200,000 line of credit and issued a
$200,000 promissory note (the "Second Boro Note") to the Company with respect to
such line of credit. The terms of the First Boro Note require repayment of the
$50,000 in 108 consecutive monthly payments of principal plus interest, computed
at 3% over prime, commencing March 1, 1999. The terms of the Second Boro Note
require monthly payments of interest, computed at 3% over prime, commencing 30
days after the first withdrawal of funds on the available line of credit.
Monthly principal payments are required commencing 24 months after the first
withdrawal of funds on the available line of credit, through the expiration date
of the line of credit on March 1, 2006. The outstanding balance of the Second
Boro Note was $36,756 at June 30, 1998. The terms and conditions of the
franchise agreement between the Company and Boro are substantially similar to
those for other franchises of the Company, except that the Boro franchise
agreement provides the franchise with two additional five-year renewal options.
Effective September 8, 1996, DSS Staffing Corp. ("DSS") acquired a medical
staffing services franchise from the Company for Nassau, Suffolk, Queens, Kings,
New York, Bronx and Richmond counties in New York. Stuart Savitsky and Samuel
Schreier each owns one third of the outstanding capital stock of DSS. As part of
the franchise transaction, DSS paid a $75,000 franchise fee, agreed to make
monthly payments of $10,500 for a period of five years and entered into a
franchise agreement with the Company. The terms and conditions of the franchise
agreement between the Company and DSS are substantially similar to those for
other franchisees of the Company, except that the DSS franchise agreement
provides the franchise with two additional five-year renewal options.
Effective August 23, 1993, Home Care Plus, Inc. ("Home Care") acquired a
home care franchise from the Company for Bristol and Barnstable counties in
Massachusetts. Edward Teixeira and his wife each owns 25% of the outstanding
capital stock of Home Care. In purchasing the franchise, Home Care paid a
$23,000
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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. The terms of the Home Care Note required repayment of the
$75,000 in 60 consecutive monthly payments of principal and interest, computed
at 3% over prime, through August 1999. Effective April 1, 1998, the Home Care
Note was amended to provide for a three month payment deferral through June 1998
and monthly principal and interest payments of $1,280 from July 1998 through
November 1999. 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, 1998, the Company retained $3,333 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 $21,144 at February 28, 1998.
Effective February 6, 1995, Home Care Plus Two, Inc. ("Home Care Two")
acquired a home care franchise from the Company for Worcester, Hampden and
Franklin counties in Massachusetts. Edward Teixeira and his wife each owns 25%
of the outstanding capital stock of Home Care Two. During fiscal 1996, Home Care
Two paid $29,500 for the purchase of this franchise. 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. On November 27, 1996, Home Care Two
received a $50,000 advance for expenses for which a promissory note was issued
to the Company (the "Home Care Two Note"). The terms of the Home Care Two Note
required repayment of the $50,000 in 36 consecutive monthly payments of
principal and interest, computed at 3% over prime, through December 1999.
Effective April 1, 1998, the Home Care Two Note was amended to provide for a
three month payment deferral through June 1998 and monthly principal and
interest payments of $1,425 from July 1998 through March 2000. Mr. Teixeira has
guaranteed payment of all amounts due under the Home Care Two Note. During the
fiscal year ended February 28, 1998, the Company retained $3,992 from the
amounts otherwise due Home Care Two under the terms of its franchise agreement
as interest payments on the Home Care Two Note. The outstanding balance of the
Home Care Two Note was $29,167 at February 28, 1998.
Effective February 20, 1998, ViTex, Inc. ("VTI") acquired a medical
staffing services franchise from the Company for Worcester County and
surrounding areas in Massachusetts. Edward Teixeira's wife owns 50% of the
capital stock of VTI. VTI agreed to pay a franchise fee of $10,000 in one
installment of $5,000, which was paid in February 1998, and the balance in five
consecutive monthly payments of $1,000 commencing June 1998. The terms and
conditions of the franchise agreement between the Company and VTI are
substantially similar to those for other franchisees of the Company including
the term of ten years with a five-year renewal option.
Effective July 20, 1995, Cynthia Nye, Senior Vice President, Corporate
Support of a principal subsidiary of the Company, acquired 9% of the outstanding
stock of Partners Two Management Corp. ("Partners"), an existing home care
franchise for Suffolk County, New York. 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. Prior to Ms. Nye's purchase of her stock in
Partners, Partners had assumed the obligations of a promissory note issued by a
predecessor franchise in the remaining principal amount of $300,000 (the
"Partners Note"). As of April 1, 1997, the terms of the Partners Note were
amended to provide for monthly payments of interest only in the amount of $2,105
from May 1997 through February 1998 and payments of principal and interest in
the amount of $6,612 from March 1998 through October 2001. On February 16, 1998,
the terms of the Partners Note were further amended to provide for monthly
principal payments of $250 from March 1998 through March 1999, monthly principal
and interest payments of $2,611 from April 1999 through October 2003 and a
balloon payment of $50,000 on October 25, 2003. The Partners Note continues to
bear annual interest at 2% over the prime rate. As described in greater detail
below, during the fiscal year ended February 28, 1998, the Company retained
$25,237 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 $240,625 at February 28, 1998.
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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, 1998, the Company paid (i) BCC
$236,994 under the terms of its franchise agreement, representing a 60% gross
margin of $1,617,788 less $59,881 and $42,000 of interest and principal,
respectively, withheld on the BCC Note and $1,278,913 withheld for
administrative expenses; (ii) DSS $485,708 under the terms of its franchise
agreement, representing a 60% gross margin of $1,846,838 less $1,361,130
withheld for administrative expenses; (iii) Home Care $1,383,935 under the terms
of its franchise agreement, representing a 60% gross margin of $1,789,196 less
$3,333 and $14,925 of interest and principal, respectively, withheld on the Home
Care Note and $387,102 withheld for administrative expenses; (iv) Home Care Two
$531,178 under the terms of its franchise agreement, representing a 60% gross
margin of $875,606 less $3,992 and $16,667 of interest and principal,
respectively, withheld on the Home Care Two Note and $323,769 withheld for
administrative expenses; and (v) Partners $370,273 under the terms of its
franchise agreement, representing a 60% gross margin of $2,442,769 less $25,237
and $3,375 of interest and principal, respectively, withheld on the Partners
Note and $2,043,884 withheld for administrative expenses.
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, DSS, Home Care, Home Care Two, VTI, Boro and Partners
described above are consistent with this business purpose and with
accommodations which have been granted to other, unaffiliated franchisees.
Although the Company has no formal policy regarding transactions with
affiliates, it does not intend to enter into a transaction with any affiliate on
terms less favorable to the Company than those it would receive in an arm's
length transaction with an unaffiliated party.
PROPOSAL 4 -- APPROVAL OF THE 1998 STOCK OPTION PLAN
On July 27, 1998, the Board of Directors adopted resolutions adopting the
Staff Builders, Inc. 1998 Stock Option Plan (the "1998 Stock Option Plan"),
subject to approval by the Company's stockholders pursuant to Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). The Board of Directors
believes that the 1998 Stock Option Plan will provide a strong incentive to key
employees, directors and consultants of the Company and its Subsidiaries (within
the meaning of Section 424 of the Code) to improve operating results, to remain
in the employ or service of the Company or its Subsidiaries and to have a
greater financial interest in the Company through ownership of shares of Class A
Common Stock, while also aligning their interests with those of the stockholders
of the Company. The number of shares of Class A Common Stock which are reserved
for issuance upon the exercise of options granted under the 1998 Stock Option
Plan is 2,000,000 shares or, if the Reverse Stock Split is approved by the
shareholders and effected by the Board of Directors, 1,000,000 shares. The
maximum number of shares which may be subject to options granted under the 1998
Stock Option Plan to any individual in any fiscal year of the Company shall not
exceed 350,000 shares or, if the Reverse Stock Split is approved by the
shareholders and effected by the Board of Directors, 175,000 shares. The 1998
Stock Option Plan is intended to replace the Company's 1993 Stock Option Plan.
The 1998 Stock Option Plan will terminate on the tenth anniversary of the date
it is approved by the stockholders, unless terminated earlier by the Board of
Directors.
The following summary of the 1998 Stock Option Plan is qualified in its
entirety by express reference to the text of the 1998 Stock Option Plan which is
annexed as Exhibit D to this Proxy Statement. The 1998 Stock Option Plan
contemplates the issuance of "incentive stock options" within the meaning of
Section 422 of the Code, as well as "non-statutory stock options."
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Purpose and Eligibility
The primary purpose of the 1998 Stock Option Plan is to attract and retain
capable key employees, directors and consultants by offering such persons a
greater personal interest in the Company's business through stock ownership. Key
employees, directors and consultants of the Company and its Subsidiaries are
eligible for grants of stock options under the 1998 Stock Option Plan. Mr.
Stephen Savitsky, Mr. David Savitsky and members of the Company's Compensation
and Stock Option Committee are not eligible to receive options under the 1998
Stock Option Plan.
Administration
The 1998 Stock Option Plan will be administered by the Committee. The
Committee, in its sole discretion, has the authority, among other things, to
prescribe the form of the agreement embodying awards of options made under the
1998 Stock Option Plan, to construe the terms of the 1998 Stock Option Plan, to
determine all questions arising thereunder and to adopt and amend such rules and
regulations for the administration of the 1998 Stock Option Plan as it may deem
desirable; provided, however, the terms, provisions and conditions of the
agreement embodying awards of options made under the 1998 Stock Option Plan
shall include, but not be limited to, such terms, provisions and conditions as
may be necessary to provide the Company with a compensation deduction if the
optionee is required to recognize ordinary income from the exercise or any
disposition of the option or underlying stock. Decisions of the Committee shall
be final, conclusive and binding upon all parties.
Terms and Conditions of Options
Any options shall become exercisable in such amounts, at such intervals and
upon such terms and conditions as the Committee shall provide, except that
optionees must hold options granted to them under the 1998 Stock Option Plan for
at least six months prior to exercise.
Generally, optionees may exercise options while they are employees of, or
providing services to, the Company or a Subsidiary, or within a period of three
months thereafter. If the Company or a Subsidiary has terminated the optionee
for cause, all unexercised options shall automatically lapse. In the event of
the death of the optionee, the option must be exercised within nine months of
the date of the optionee's death unless the option otherwise expires prior to
the end of such nine-month period.
Options granted under the 1998 Stock Option Plan are exercisable until the
earlier of (i) a date set by the Committee at the time of grant, or (ii) ten
years from their respective dates of grant. An incentive stock option granted to
an individual who owns, at the time of grant, stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company or a Subsidiary (a "Ten Percent Shareholder") is exercisable for up to
five years after the date of grant unless a shorter period is designated by the
Committee.
The aggregate fair market value (determined at the time an option is
granted) of stock with respect to which incentive stock options are exercisable
for the first time by an optionee during any calendar year (under all such plans
of the Company or its Subsidiaries) shall not exceed $100,000. The maximum
number of shares which may be subject to options granted under the 1998 Stock
Option Plan to any individual in any fiscal year of the Company shall not exceed
350,000.
The exercise price of non-statutory stock options granted under the 1998
Stock Option Plan shall be determined by the Committee. In no event, however,
may the exercise price be less than the fair market value of the shares covered
by non-statutory stock options on the date of grant. The exercise price of
incentive stock options shall not be less than the fair market value of the
shares covered by the options on the date of grant. In the case of an incentive
stock option granted to a Ten Percent Shareholder, the exercise price cannot be
less than 110% of such fair market value on the date of grant. The Committee
will determine the exercise price of each option and the manner in which it may
be exercised.
Payment for shares of Class A Common Stock purchased upon exercise of an
option granted under the 1998 Stock Option Plan must be made in full at the time
of exercise. Upon the exercise of any option, the
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<PAGE> 38
optionee will be required to pay to the Company an amount to pay all federal,
state and local withholding taxes applicable to the exercise of the option.
No award of options, or any right or interest therein, is assignable or
transferable except by will or the laws of descent and distribution. During the
lifetime of the optionee, options are exercisable only by the optionee or his
guardian or legal representative.
Adjustment for Changes in Capitalization, Merger, Etc.
Subject to any required action by the Company's stockholders, the aggregate
number of shares of Class A Common Stock which may be purchased pursuant to
options granted under the 1998 Stock Option Plan, the number of shares of Class
A Common Stock covered by each outstanding option and the per share option
exercise price shall be adjusted by the Committee for any increase or decrease
in the number of outstanding shares of Class A Common Stock if there is a change
in the capital structure of the Company.
Upon a sale of all or substantially all of the assets of the Company, the
discontinuance of business operations, the dissolution or liquidation of the
Company or a merger or consolidation in which the Company is not the surviving
corporation, the Company's Board of Directors may amend or adjust the 1998 Stock
Option Plan and the outstanding options thereunder so as to terminate the 1998
Stock Option Plan, or to continue the 1998 Stock Option Plan with respect to the
exercise of options which were exercisable at the date the Board of Directors
adopted the plan of sale, merger, consolidation or liquidation or may take other
actions as it deems desirable and appropriate. In any such case, however, each
optionee will be given either (i) a reasonable time in which to exercise his
options (to the extent possible under the options' terms) before the
effectiveness of the sale and discontinuation, merger, consolidation or
liquidation, or (ii) the right to obtain, upon payment of the option price, an
equivalent amount of any securities such optionee would have been entitled to
obtain in consequence of that event, had the optionee exercised the options (to
the extent possible under the options' terms) immediately before the plan of
sale and discontinuation, merger, consolidation or liquidation was adopted.
Termination or Amendment
The Committee or the Board of Directors may from time to time amend, and
the Board of Directors may terminate, the 1998 Stock Option Plan at any time
without the approval of stockholders, provided that no such action shall
adversely affect options already granted thereunder without the consent of the
optionees and, provided further, that no amendment may be made without the
approval of the Company's stockholders if such stockholder approval of the
amendment is in order to comply with applicable law.
Federal Income Tax Considerations
The following is a summary of the federal income tax consequences of the
issuance and exercise of non-statutory stock options and incentive stock options
under the 1998 Stock Option Plan to optionees and to the Company under the Code.
THE FOLLOWING DISCUSSION DOES NOT PURPORT TO BE COMPLETE AND DOES NOT COVER,
AMONG OTHER THINGS, STATE AND LOCAL TAX TREATMENT OF PARTICIPATION IN THE 1998
STOCK OPTION PLAN. FURTHERMORE, DIFFERENCES IN OPTIONEES' FINANCIAL SITUATIONS
MAY CAUSE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATION IN THE 1998
STOCK OPTION PLAN TO VARY. THEREFORE, EACH OPTIONEE IN THE 1998 STOCK OPTION
PLAN IS URGED TO CONSULT HIS OWN ACCOUNTANT, LEGAL COUNSEL OR OTHER FINANCIAL
ADVISOR REGARDING THE PARTICULAR TAX CONSEQUENCES TO HIM OF PARTICIPATION IN THE
1998 STOCK OPTION PLAN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE OR
LOCAL TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.
Non-statutory Stock Options. The grant of a non-statutory stock option will
not result in the recognition of taxable income to the optionee for federal
income tax purposes or in deduction to the Company. Upon the exercise of a
non-statutory stock option, the optionee will recognize ordinary income for
federal income tax purposes in an amount equal to the excess of the fair market
value of the shares of Class A Common Stock
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over the option exercise price. Such amount may be deductible by the Company if
it complies with applicable withholding requirements and the non-statutory stock
option qualifies, if necessary, as "performance-based" compensation under
Section 162(m) of the Code as discussed below.
If an optionee disposes of any shares of Class A Common Stock received upon
the exercise of a non-statutory stock option, such optionee will recognize a
capital gain or loss for federal income tax purposes equal to the difference
between the amount realized on the disposition of such shares and the fair
market value of such shares at the time the option was exercised. The gain or
loss will be either long-term or short-term, depending on the holding period.
The Company will not be entitled to any tax deduction in connection with such
disposition of shares.
Incentive Stock Options. In general no income will be recognized, for
federal income tax purposes, by the optionee and no deduction will be allowed to
the Company at the time of the grant or the time of exercise of an incentive
stock option.
When the share of Class A Common Stock received upon the exercise of an
incentive stock option is sold, the optionee will recognize long-term capital
gain or loss for federal income tax purposes equal to the difference between the
amount realized and the option exercise price of the incentive stock option
relating to such shares, provided that the shares are not sold earlier than two
years from the date of grant of the option and one year from the date the shares
are transferred to the optionee. If the above-mentioned holding period
requirements of the Code are not met, the subsequent sale of the shares of Class
A Common Stock received upon the exercise of an incentive stock option is a
"disqualifying disposition". In general, an optionee will recognize taxable
income for federal income tax purposes at the time of a disqualifying
disposition as follows: (i) ordinary income in an amount equal to the difference
between the option exercise price and the lesser of (a) the fair market value of
the shares of Class A Common Stock on the date the incentive stock option was
exercised and (b) the amount realized on such disqualifying disposition and (ii)
capital gain or loss to the extent of any difference between the amount realized
on such disqualifying disposition and the fair market value of the shares of
Class A Common Stock on the date the incentive stock option was exercised. Any
capital gain or loss will be long-term or short-term depending upon the holding
period of the shares that are sold. Under these circumstances, the Company may
be entitled to claim a deduction at the time of the disqualifying disposition
equal to the amount taxable to the optionee as ordinary income.
The difference between the option exercise price and the fair market value
of the shares of Class A Common Stock on the date the option is exercised will
constitute an adjustment to taxable income for the year of exercise for purposes
of the alternative minimum tax imposed under the Code. In computing alternative
minimum taxable income in the year of disposition of the shares acquired through
the exercise of an incentive stock option, the tax basis of such shares will be
the fair market value on the date of exercise.
Section 162(m) Limitation
In general, under Section 162(m) of the Code, compensation expense
deductions of publicly-held corporations may be limited to the extent total
compensation (including base salary, annual bonus, stock option exercises and
non-qualified benefits paid) for certain executive officers exceeds $1 million
in any one year. However, under Section 162(m), the deduction limit does not
apply to certain "performance-based compensation" established by an independent
compensation committee which is adequately disclosed to, and approved by, the
Company's stockholders.
The Company has attempted to structure the 1998 Stock Option Plan in such a
manner that, subject to obtaining stockholder approval of the 1998 Stock Option
Plan, the remuneration attributable to such plan which meet the other
requirements of Section 162(m) will not be subject to the $1,000,000 limitation.
The Company has not, however, requested a ruling from the IRS or an opinion of
counsel regarding this issue.
No Dissenters' Rights of Appraisal
Rights of appraisal will not be available under Delaware law with respect
to the proposed adoption of the 1998 Stock Option Plan.
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VOTE REQUIRED
Approval of the 1998 Stock Option Plan requires the affirmative vote of a
majority of the votes of holders of shares of Class A Common Stock and Class B
Common Stock, voting as one class, represented at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" APPROVAL OF THE 1998 STOCK
OPTION PLAN.
PROPOSAL 5 -- APPROVAL OF THE 1998 EMPLOYEE
STOCK PURCHASE PLAN
On July 27, 1998, the Board of Directors adopted resolutions adopting the
Staff Builders, Inc. 1998 Employee Stock Purchase Plan (the "1998 Employee Stock
Purchase Plan"), subject to approval by the Company's stockholders pursuant to
Section 423 of the Code. The Board of Directors believes that the purchase of
shares of Class A Common Stock by employees of the Company and its Subsidiaries
through the 1998 Employee Stock Purchase Plan will provide employees with a
strong incentive to improve operating results by aligning the interests of
employees with those of the stockholders of the Company. The maximum number of
shares of Class A Common Stock that may be issued under the 1998 Employee Stock
Purchase Plan is 1,000,000 shares or, if the Reverse Stock Split is approved by
the shareholders and effected by the Board of Directors, 500,000 shares. The
1998 Employee Stock Purchase Plan is designed to provide economic incentives for
eligible employees to purchase shares of Class A Common Stock. The 1998 Employee
Stock Purchase Plan is intended to replace the Company's 1993 Employee Stock
Purchase Plan. The 1998 Employee Stock Purchase Plan will terminate on the tenth
anniversary of the date it is approved by the stockholders, unless terminated
earlier by the Company's Board of Directors.
The following summary of the 1998 Employee Stock Purchase Plan is qualified
in its entirety by express reference to the text of the 1998 Employee Stock
Purchase Plan, which is annexed as Exhibit E to this Proxy Statement.
Purpose and Eligibility
The primary purpose of the 1998 Employee Stock Purchase Plan is to provide
employment incentive and to encourage stock ownership by eligible employees of
the Company and its Subsidiaries in order to increase their proprietary interest
in the Company's success. All employees of the Company and its Subsidiaries who
were employed by the Company or a Subsidiary for 500 or more hours during the
12-month period immediately preceding their initial Enrollment Date as defined
below are eligible to participate in the 1998 Employee Stock Purchase Plan.
Administration
The 1998 Employee Stock Purchase Plan is administered by the Committee. The
Committee shall have full power and authority to construe and interpret the 1998
Employee Stock Purchase Plan and may, from time to time, adopt such rules and
regulations of carrying out the 1998 Employee Stock Purchase Plan as it may deem
appropriate. Decisions of the Committee shall be final, conclusive and binding
upon all parties.
Terms and Conditions of Grants of Purchase Rights
An eligible employee elects to participate in the 1998 Employee Stock
Purchase Plan by signing a Subscription Agreement ("Agreement" or "Agreements")
with the Company which provides for the purchase of shares on the last trading
day of an offering period (as described below). Each Agreement shall provide
that an employee may elect to purchase, with respect to any offering period, the
appropriate number of shares of Class A Common Stock as determined by the
Committee utilizing up to 10% of the employee's compensation (as defined in the
1998 Employee Stock Purchase Plan) earned during the offering period (i.e.,
approximate three-month periods running consecutively commencing on or about
October 1, 1998.) In no event can an employee elect to purchase shares in any
single calendar year under all such plans of the
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Company or its Subsidiaries which have a fair market value (as measured by the
closing stock price on the applicable Enrollment Dates) in excess of $25,000.
The purchase price per share shall be the lesser of 90% of the closing price as
reported on the Nasdaq National Market on the date on which purchase rights are
granted under the 1998 Employee Stock Purchase Plan ("Enrollment Date") or the
last trading day of such offering period ("Exercise Date"). In addition, no
employee can purchase shares if such employee, immediately after an Enrollment
Date, owns stock possessing 5% or more of the total combined voting power or
value of all classes of stock of the Company or a Subsidiary.
The 1998 Employee Stock Purchase Plan provides that the employees will pay
for their stock through periodic payroll deductions. No interest shall accrue on
such payroll deductions.
An employee will not have rights as a stockholder, including rights to
dividends or voting, until the stock is fully paid and issued. In addition, an
employee's rights under the 1998 Employee Stock Purchase Plan may not be
transferred or assigned.
If an employee terminates his employment during an offering period, his
accumulated payroll deductions during such period will be used to purchase
shares of Class A Common Stock on the applicable Exercise Date and his
participation in the 1998 Employee Stock Purchase Plan shall cease.
Adjustments for Changes in Capitalization, Merger, Etc.
Subject to any required action by the Company's stockholders, the Committee
shall make proportional adjustments to the number of shares subject to the 1998
Employee Stock Purchase Plan and outstanding Agreements if there is a change in
the capital structure of the Company.
Unless otherwise provided by the Company's Board of Directors or the
Committee, in the event of the discontinuance of business operations or the
dissolution or liquidation of the Company, the offering period then in progress
will terminate prior to any such action.
In the event of a sale of all or substantially all of the assets of the
Company, or a merger or consolidation in which the Company is not the surviving
corporation, unless the Company's Board of Directors or the Committee determines
to shorten the offering period then in progress, the rights granted to employees
under the 1998 Employee Stock Purchase Plan shall be assumed or equivalent
rights shall be substituted by the successor corporation.
Amendment and Termination
The Committee or the Board of Directors may from time to time amend, and
the Board of Directors may terminate, the 1998 Employee Stock Purchase Plan,
provided that no such action shall adversely affect purchase rights already
granted thereunder without the consent of the employees and, provided further,
that no amendment may be made without the approval of the Company's stockholders
if such stockholder approval of the amendment is necessary in order to comply
with applicable law.
Federal Income Tax Considerations
The following is a summary of the federal income tax consequences of the
issuance and exercise of purchase rights under the 1998 Employee Stock Purchase
Plan to employees and to the Company under the Code. THE FOLLOWING DISCUSSION
DOES NOT PURPORT TO BE COMPLETE AND DOES NOT COVER, AMONG OTHER THINGS, STATE
AND LOCAL TAX TREATMENT OF PARTICIPATION IN THE 1998 EMPLOYEE STOCK PURCHASE
PLAN. FURTHERMORE, DIFFERENCES IN EMPLOYEES' FINANCIAL SITUATIONS MAY CAUSE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATION IN THE 1998 EMPLOYEE
STOCK PURCHASE PLAN TO VARY. THEREFORE, EACH EMPLOYEE PARTICIPATING IN THE 1998
EMPLOYEE STOCK PURCHASE PLAN IS URGED TO CONSULT HIS OWN ACCOUNTANT, LEGAL
COUNSEL OR OTHER FINANCIAL ADVISOR REGARDING THE PARTICULAR TAX CONSEQUENCES TO
HIM OF PARTICIPATION IN THE 1998 EMPLOYEE STOCK PURCHASE
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PLAN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE OR LOCAL TAX LAWS, AND
OF CHANGES IN APPLICABLE TAX LAWS.
In general, no income will be recognized, for federal income tax purposes,
by the employee and no deduction will be allowed to the Company on the
Enrollment Dates or the Exercise Dates.
When shares of Class A Common Stock received upon the exercise of purchase
rights are sold, the difference between the purchase price and the lesser of the
fair market value of the shares on the applicable Enrollment Date and the fair
market value at the time of sale will be ordinary income, and any additional
gain will be long-term capital gain, provided that the shares are not sold
earlier than two years from the applicable Enrollment Date and one year from the
applicable Exercise Date. If the above-mentioned holding period requirements of
the Code are not met, the subsequent sale of shares of Class A Common Stock
received upon the exercise of purchase rights is a "disqualifying disposition".
In general, an employee will recognize taxable income for federal income tax
purposes at the time of a disqualifying disposition as follows: (i) ordinary
income in an amount equal to the difference between the purchase price and the
fair market value of the shares of Class A Common Stock on the applicable
Exercise Date and (ii) capital gain or loss to the extent of any difference
between the amount realized on such disqualifying disposition and the fair
market value of the shares of Class A Common Stock on the applicable Exercise
Date. Any capital gain or loss will be long-term or short-term depending upon
the holding period of the shares that are sold. Under these circumstances, the
Company may be entitled to claim a deduction at the time of the disqualifying
disposition equal to the amount taxable to the employee as ordinary income.
No Dissenters' Rights of Appraisal
Rights of appraisal will not be available under Delaware law with respect
to the proposed adoption of the 1998 Employee Stock Purchase Plan.
VOTE REQUIRED
Approval of the 1998 Employee Stock Purchase Plan requires the affirmative
vote of a majority of the votes of holders of shares of Class A Common Stock and
Class B Common Stock, voting as one class, represented at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" APPROVAL OF THE 1998
EMPLOYEE STOCK PURCHASE PLAN.
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 1999
must submit the same in writing so as to be received at the executive offices of
the Company on or before February 20, 1999. 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, 1999. A
representative of Deloitte & Touche, LLP, which also audited the accounts of the
Company for the fiscal year ended February 28, 1998, 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.
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INCORPORATION BY REFERENCE
The Company's February 28, 1998 Financial Statements, the Company's May 31,
1998 Financial Statements, the Management's Discussion and Analysis of Financial
Condition and Results of Operations for the fiscal year ended February 28, 1998
and for the fiscal quarter ended May 31, 1998 contained in the Annual Report and
the Quarterly Report have been incorporated by reference in this Proxy
Statement. See "Proposal 1 -- 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 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 FISCAL YEAR ENDED FEBRUARY 28, 1998 FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. ALL SUCH REQUESTS SHOULD BE DIRECTED TO MR.
WILLARD T. DERR, SENIOR VICE PRESIDENT, 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: August , 1998
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EXHIBIT A
August , 1998
Mr. Stephen Savitsky
Mr. David Savitsky
c/o Staff Builders, Inc.
1983 Marcus Avenue
Lake Success, NY 11042
Dear Stephen and David:
This letter sets forth our understanding by which you will (i) each
exchange all of your shares of Class A Preferred Stock, $1.00 par value per
share, for 2,134,910 shares of Class A Common Stock, $.01 par value per share,
and (ii) convert all of your shares of Class B Common Stock, $.01 par value per
share, into an equal number of shares of Class A Common Stock (the
"Transaction"). The Transaction shall constitute a recapitalization of Staff
Builders, Inc. ("SBI") pursuant to Section 368(a)(1)(E) of the Internal Revenue
Code of 1986, as amended. The consummation of the Transaction is conditioned
upon and subject to approval, prior to December 31, 1998, of holders of a
majority of the voting power of the Class A Common Stock and Class B Common
Stock of SBI, voting as a single class, in person or by proxy at a meeting of
the common stockholders of SBI.
If this letter correctly sets forth our understanding, please so indicate
by signing this letter on the appropriate line below whereupon this letter will
constitute an agreement among us.
Very truly yours,
STAFF BUILDERS, INC.
By:
------------------------------------
AGREED:
- ------------------------------------------------------
Stephen Savitsky
- ------------------------------------------------------
David Savitsky
A-1
<PAGE> 45
EXHIBIT B
[LETTERHEAD OF CAIN BROTHERS]
August , 1998
The Independent Members of the
Board of Directors
Staff Builders, Inc.
1983 Marcus Avenue
Lake Success, New York 11042
Gentlemen:
Staff Builders, Inc. (the "Company") is proposing to exchange a total of
4,269,820 shares of its Class A Common Stock for 666 2/3 shares of the Company's
Class A Preferred Stock held by Messrs. Stephen Savitsky, Chairman of the Board,
Chief Executive Officer and President, and David Savitsky, Executive Vice
President, Chief Operating Officer, Secretary, Treasurer and Director. Messrs.
Savitsky each owns 333 1/3 shares of Class A Preferred Stock, and each of the
will receive 2,134,910 shares of Class A Common Stock in exchange therefor.
There are no other shares of Class A Preferred Stock outstanding. As part of the
exchange of their Class A Preferred Stock for shares of Class A Common Stock,
Messrs. Savitsky have each agreed to convert their shares of the Company's Class
B Common Stock into an equal number of shares of Class A Common Stock.
You have asked us whether, in our opinion, the exchange of 666 2/3 shares
of the Class A Preferred Stock for 4,269,820 shares of Class A Common Stock
together with the conversion of Messrs. Savitskys' 720,275 shares of Class B
Common Stock into an equal number of shares of Class A Common Stock, is fair
from a financial point of view to the holders of the Class A and Class B Common
Stock of the Company.
In arriving at the opinion set forth below, we have, among other things:
1. Reviewed the Company's Certificate of Incorporation and noted in
Article Eighth in particular
(a.) that, in certain circumstances, the approval of 2/3 of the
Class A Preferred Stock, voting as a class, is required for the sale or
merger of the Company; and
(b.) that the Classes A and B Common Stock vote as a class on the
sale or merger of the Company, and that, in certain circumstances,
because of the 10-for-1 voting power of the Class B Common Stock,
Messrs. Savitsky can exercise substantial voting power in approving or
disapproving a sale or merger of the Company, based upon their ownership
of Classes A and B Common Stock;
2. Discussed with you and senior members of the Company's management
the reasons for the establishment of the Class A Preferred Stock and the
Class B Common Stock and certain issues that arise as a result of the
matters described in clauses 1.(a.) and 1.(b.) above;
3. Considered the number of shares and the indicated value of the
Class A Common Stock that will be received by Messrs. Savitsky upon
exchange of their Class A Preferred Stock and the share dilution that will
be experienced by the existing Common Stock holders upon such exchange;
4. Reviewed certain information relating to the business, earnings,
cash flow, assets, liabilities and prospects of the Company furnished to us
by the Company;
5. Compared certain financial and operating characteristics of the
Company to those of the Company's competitors;
6. Considered the rationale for purchase premiums paid in change of
control situations, such as sales or mergers of businesses, and studied
empirical data relating to actual change of control premiums paid in the
health care services industry; and
B-1
<PAGE> 46
The Independent Members of the
Board of Directors
August , 1998
Page 3
7. Considered elements of value to be derived from the exchange in
addition to the elimination of the Class A Preferred Stock blocking rights.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us or
publicly available, and we have not assumed any responsibility for independently
verifying such information or undertaken an independent evaluation or appraisal
of any of the assets or liabilities of the Company. Our opinion is necessarily
based upon market, economic and other conditions as they exist and can be
evaluated on the date hereof.
We are acting as financial advisor to the Independent Members of the Board
of Directors of the Company and will receive a fee from the Company for our
services. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement.
This opinion is for the use and benefit of the Independent Members of the
Board of Directors of the Company. Our opinion does not constitute a
recommendation to any common stockholder as to how such stockholder should vote
on the proposed exchange. We are not expressing any opinion herein as to the
prices at which the Company's Class A Common Stock will trade following the
announcement or consummation of the exchange.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the proposed exchange of Class A Preferred Stock for
Class A Common Stock, together with Messrs. Savitskys' agreement to exchange
their shares of Class B Common Stock for an equal number of shares of Class A
Common Stock, is fair from a financial point of view to the holders of the
Company's Class A and Class B Common Stock.
Very truly yours,
CAIN BROTHERS & COMPANY, LLC
B-2
<PAGE> 47
EXHIBIT C
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF STAFF BUILDERS, INC.
The undersigned, the President and Secretary of Staff Builders, Inc., a
Delaware corporation (the "Corporation"), do hereby certify as follows:
8. The Board of Directors of Staff Builders, Inc. duly adopted a
resolution, in accordance with Section 242 of the General Corporation Law
of the State of Delaware, to amend the Certificate of Incorporation of
Staff Builders, Inc. to effect a two-for-one reverse stock split on the
Common Stock and declaring the advisability thereof.
9. At the Annual Meeting of Stockholders held on October , 1998,
duly called and held in accordance with the provisions of Section 222 of
the General Corporation Law of the State of Delaware, a majority of the
shares of the outstanding stock entitled to vote thereon, were voted in
favor of such amendment in accordance with Section 242 of the General
Corporation Law of the State of Delaware.
10. Article FOURTH of the Certificate of Incorporation of the
Corporation is hereby amended by inserting the following after the first
sentence of such Article FOURTH:
Simultaneously with the effective date of this amendment (the "Effective
Date"), each share of the Corporation's Class A Common Stock, par value
$0.01 per share, issued and outstanding immediately prior to the
Effective Date (the "Old Class A Common Stock") shall automatically and
without any action on the part of the holder thereof be reclassified as
and changed, pursuant to a reverse stock split, into one-half of a share
of the Company's outstanding Class A Common Stock, par value $0.01 per
share (the "New Class A Common Stock") and each share of the
Corporation's Class B Common Stock, par value $0.01 per share, issued
and outstanding immediately prior to the Effective Date (the "Old Class
B Common Stock' and, collectively with the Old Class A Common Stock, the
"Old Common Stock") shall automatically and without any action on the
part of the holder thereof be reclassified as and changed, pursuant to a
reverse stock split, into one-half of a share of the Company's
outstanding Class B Common Stock, par value $0.01 per share (the "New
Class B Common Stock" and, collectively with the New Class A Common
Stock, the "New Common Stock") subject to the treatment of fractional
share interests as described below. Each holder of a certificate or
certificates which immediately prior to the Effective Date represented
outstanding shares of Old Common Stock (the "Old Certificates," whether
one or more) shall be entitled to receive upon surrender of such Old
Certificates to the Corporation's Transfer Agent for cancellation, a
certificate or certificates (the "New Certificates," whether one or
more) representing the number of whole shares of the New Common Stock
into which and for which the shares of the Old Common Stock formerly
represented by such Old Certificates so surrendered, are reclassified
under the terms hereof. From and after the Effective Date, Old
Certificates shall represent only the right to receive New Certificates
pursuant to the provisions hereof. No certificates or scrip representing
fractional share interests in New Common Stock will be issued, and no
such fractional share interest will entitle the holder thereof to vote,
or to any rights of a shareholder of the Corporation. Any fraction of a
share of New Common Stock to which the holder would otherwise be
entitled will be adjusted upward to the nearest whole share. If more
than one Old Certificate shall be surrendered at one time for the
account of the same stockholder, the number of full shares of New Common
Stock for which New Certificates shall be issued shall be computed on
the basis of the aggregate number of shares represented by the Old
Certificate so surrendered. In the event that the Corporation's Transfer
Agent determines that a holder of Old Certificates has not tendered all
his certificates for exchange, the Transfer Agent shall carry forward
any fractional share until all
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certificates of that holder have been presented for exchange such that
payment for fractional shares to any one person shall not exceed the
value of one share. If any new Certificate is to be issued in a name
other than that in which the Old Certificates surrendered for exchange
are issued, the Old Certificates so surrendered shall be properly
endorsed and otherwise in proper form for transfer, and the person or
persons requesting such exchange shall affix any requisite stock
transfer tax stamps to the Old Certificates surrendered, or provide
funds for their purchase, or establish to the satisfaction of the
Transfer Agent that such taxes are not payable. From and after the
Effective Date the amount of capital represented by the shares of the
New Common Stock into which and for which the shares of the Old Common
Stock are reclassified under the terms hereof shall be the same as the
amount of capital represented by the shares of Old Common Stock so
reclassified, until thereafter reduced or increased in accordance with
applicable law.
IN WITNESS WHEREOF, we have signed this Certificate as of October , 1998.
STAFF BUILDERS, INC.
By:
------------------------------------
Stephen Savitsky, President
ATTEST:
By:
- ------------------------------------
David Savitsky, Secretary
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EXHIBIT D
STAFF BUILDERS, INC.
1998 STOCK OPTION PLAN
1. Purpose. Staff Builders, Inc., a Delaware corporation (the "Company"),
intends that this 1998 Stock Option Plan (the "Plan") will provide incentive to
key employees, directors and consultants of the Company or its Subsidiaries to
continue and increase their efforts to improve operating results, to remain in
the employ or service of the Company or its Subsidiaries, and to have a greater
financial interest in the Company through ownership of its Common Stock.
2. Administration. The Compensation and Stock Option Committee of the
Company appointed by the Board of Directors of the Company (the "Committee"),
and consisting of no fewer than two directors, shall administer the Plan. Each
member of the Committee must be a "non-employee director" as defined by Rule
16b-3 of the Securities Exchange Act of 1934 and an "outside director" for
purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Committee shall have full power to construe and interpret the Plan,
to establish and amend rules and regulations for its administration and to
determine those persons to whom options shall be granted, subject to the
limitations set forth in the Plan. All action taken and decisions made by the
Committee pursuant to the Plan shall be final and conclusive.
3. Eligibility. Persons eligible to receive options shall be key employees
and non-employee directors of and consultants regularly providing services to
the Company or any Subsidiary of the Company; provided, however, Mr. Stephen
Savitsky, Mr. David Savitsky and members of the Committee shall not be eligible
to receive options under the Plan and, provided, further, that non-employee
directors and consultants shall not be eligible to receive incentive stock
options hereunder. Nothing contained in the Plan shall be deemed to require the
Company to continue the employment of, or any other contractual arrangement
with, any optionee. For purposes of the Plan, the term "Subsidiary" shall mean
any subsidiary corporation as defined in Section 424 of the Code.
4. Stock Subject to the Plan.
(a) Stock to be offered under the Plan shall be shares of the
Company's Class A Common Stock, par value $.01 per share, which may be
authorized but unissued shares or shares acquired by the Company and held
in its treasury, as the Board of Directors may determine. Subject to
Section 6 of the Plan, not more than 2,000,000 shares of Common Stock shall
be sold on exercise of options granted under the Plan. If the Board of
Directors determines that it is in the best interest of the Company to do
so, an optionee may surrender all or part of his options and be granted in
lieu thereof new options for the purchase of a greater or lesser number of
shares, whether or not the option price is lower or higher than the option
price applicable to the options surrendered.
For purposes of the Plan, the term "Common Stock" includes any stock
into which such Common Stock shall have been changed or any stock resulting
from any reclassification of such Common Stock.
(b) The maximum number of shares which may be subject to options
granted under the Plan to any individual in any fiscal year of the Company
shall not exceed 350,000. To the extent required by Section 162(m) of the
Code, shares subject to options which are canceled continue to be counted
against the maximum number of shares an individual may receive and if,
after grant of an option, the price of shares subject to such option is
reduced, the transaction is treated as a cancellation of the option and a
grant of a new option and both the option deemed to be canceled and the
option deemed to be granted are counted against the maximum number of
shares an individual may receive.
5. Award of Options. The Committee may, in its discretion, grant options
under the Plan from time to time prior to the expiration of ten years from the
date on which the Company's Board of Directors adopts the Plan. The Committee
may grant options effective as of any date within such ten-year period as is
specified by the Committee in the Stock Option Agreement (defined in Section
7(k)) relating to such options. However,
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the Committee may not grant an incentive stock option, as described in Section
8, if the grant of such option would violate the requirement of Section 8(a).
The shares covered by the unexercised portion of any terminated or expired
options shall become available again for the grant of options under the Plan,
subject to the limitations of Section 4(b).
6. Adjustments.
(a) Subject to any required action by the stockholders of the Company,
in the event that the outstanding shares of Common Stock are hereafter
increased or decreased or changed into or exchanged for a different number
or kind of shares or other securities of the Company or of another
corporation by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split, combination of shares or
share dividends, the Committee shall adjust the number and kind of shares
for the purchase of which options may be granted under the Plan and the
number and kind of shares as to which outstanding options, or portions
thereof then unexercised shall be exercisable. In any such case, the
Committee shall make such adjustment in outstanding options without change
in the total price applicable to the unexercised portion of the option and
with a corresponding adjustment in the option price per share. In the event
that the number of shares of Common Stock is increased by sale of
additional shares or conversion of securities convertible into such shares
or any other similar event not referred to in the first sentence of this
Section, the Committee may in its discretion, but shall not be obligated
to, adjust the number or kind of shares for the purchase of which options
have been granted under the Plan.
(b) Should the Company sell all or substantially all of its assets and
discontinue its business, or merge or consolidate with another entity, or
liquidate or dissolve in connection with those events, then, in lieu of its
obligation under Section 6(a), the Company's Board of Directors may amend
or adjust both the Plan and outstanding options so as to terminate the Plan
completely, or to continue the Plan with respect to the exercise of options
which were exercisable at the date the Board of Directors adopted the plan
of sale, merger, consolidation, or liquidation, or may take other actions
as it deems desirable and appropriate. In any such case, however, each
optionee will be given either (i) a reasonable time in which to exercise
his options (to the extent possible under the options' terms as set forth
in Section 7(c)) before the effectiveness of the sale and discontinuation,
merger, consolidation or liquidation, or (ii) the right to obtain, for his
payment of the option price, an equivalent amount of any securities such
optionee would have been entitled to obtain in consequence of that event,
had he exercised his options (to the extent possible under the options'
terms as set forth in Section 7(c)) immediately before the plan of sale and
discontinuation, merger, consolidation, or liquidation was adopted.
(c) Should the Company be recapitalized in a transaction not covered
by Section 6(a) by the issuance of any class or classes of securities in
exchange for Common Stock, the Board of Directors shall amend the Plan and
outstanding options to reflect an equivalent number of such securities as
being subject to the Plan and such options and to reflect an adjusted
option price per unit of such securities as would equitably be obtained in
accordance with the terms otherwise applicable to the actual exchange.
(d) Neither Section 6(b) nor 6(c) will require the Company to issue
any fractional share under the Plan or upon exercise of outstanding
options; and any amount payable for option exercise will be appropriately
reduced in respect of any such fractional shares otherwise required by
operation of those Sections, but not issued by reason of this Section 6(d).
7. Terms of Option. Except to the extent Section 8(b) hereof may otherwise
require with respect to incentive stock options to be granted to any person who
immediately before the grant of such option owns shares representing more than
10% of the total combined voting power of all classes of shares of the Company
or of any parent corporation or Subsidiary, all options under the Plan shall be
subject to the following conditions and to such other conditions as the
Committee and the optionee may agree:
(a) Option Term. No option granted under the Plan will be exercisable
earlier than the date six months following the date on which the option is
granted or after the expiration of ten years from the date on which the
option is granted.
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(b) Option Price. The Committee shall determine the option price per
share, which shall not be less than the Fair Market Value of such share
with respect to incentive stock options or nonstatutory stock options
intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code and which shall not be less than the par
value of such share with respect to nonstatutory stock options, and shall
be set forth in the Stock Option Agreement. For the purposes of the Plan,
"Fair Market Value" means, on a per share basis, the closing price reported
on the Nasdaq Stock Market's National Market for Common Stock on the date
of grant, or if the date of grant is not a trading day, on the trading day
immediately preceding the date on which the Committee granted the options
(or if no sale was quoted on the Nasdaq Stock Market's National Market on
such date, on the next preceding day on which there was such a sale).
(c) Vesting Schedule. Options granted on a given date shall become
exercisable at such times and in such amounts as the Committee shall
determine.
Notwithstanding the preceding sentence, no incentive stock option may be
granted that would cause the limits of Section 8(a) to be exceeded with respect
to an optionee. The Committee, in its sole discretion, may prescribe a different
vesting schedule for any incentive stock option granted under the Plan if
necessary to prevent the option from violating the requirements of Section 8(a).
However, in no event shall any option become exercisable earlier than the date
six months following the date on which the option is granted.
When an installment of options has become exercisable, the optionee may
exercise that installment, in whole or in part, at any time prior to the
expiration or termination of the options. Subject to Section 7(a) of the Plan,
and, in the case of incentive stock options, subject to Section 8(a), the
Committee may accelerate the time at which outstanding options may be exercised.
Notwithstanding any schedule for vesting stated above or other exercise
schedule or entitlement which effectively precludes full and immediate exercise
of the related option, any option will become immediately exercisable in full
upon the occurrence of particular events or as the Board of Directors may
thereafter determine to be advisable, provided that, (i) at the time of such
occurrence or determination, the optionee has remained continuously employed by
the Company or any Subsidiary for at least six months from the date of grant of
such option, and (ii) in the case of an incentive stock option, such
acceleration would not cause the limits of Section 8(a) to be violated. Without
limitation, those particular events include the following: (i) a change in
control of the Company in a transaction or occurrence, or a related series of
transactions or occurrences, resulting from a material change in ownership of
Common Stock and evidenced by cessation in service as directors of a majority of
those persons theretofore serving as members of the Board; (ii) the sale by the
Company of all or substantially all of its assets and the discontinuance of its
business, or the merger or consolidation of the Company with another entity, or
the liquidation of the Company in connection with those events, any of which
results in a change in control described in (i); or (iii) a determination by the
Board of Directors that immediate exercisability would be in the best interests
of the Company and advisable for protection of the rights intended to be granted
under the option.
(d) Exercise of Options. Only the optionee to whom the Company has
granted such rights or his guardian or legal representative may exercise
options. Shares may be purchased from time to time on the exercise of stock
options only by sending a written notice of election to exercise in the
form attached to the Stock Option Agreement, together with full payment of
the option price therefor, to the Secretary of the Company (i) in cash (or
an equivalent check or other form of payment acceptable to the Company), or
(ii) if the Committee shall approve in its sole discretion, other Common
Stock of the Company currently registered in the name of, or beneficially
owned by, the holder and surrendered in due form for transfer to the
Company. In the case of payment in the Company's Common Stock, such stock
shall be valued at its Fair Market Value (as defined in Section 7(b) of the
Plan) as of the date of surrender of the Common Stock.
(e) Termination of Options. If an optionee ceases to be employed by or
to provide services to the Company or a Subsidiary for any reason, such
optionee may exercise the options theretofore granted to him within a
period of three months after his employment or service terminates, for not
more than the
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number of shares as to which options were exercisable by him on the date he
ceased to be employed or to serve, except that:
(i) if the Company has terminated his employment or service for
cause, all options granted to him and theretofore unexercised shall
terminate automatically on notice of termination; and
(ii) if the optionee's employment or service shall have terminated
because of his death; or if the optionee shall have died during three
months immediately following termination of his employment or service
(other than because of an event referred to in clause (i) above), the
options theretofore granted to him may be exercised by the estate of the
decedent, or by a person who acquired the right to exercise such options
by bequest or inheritance, or by reason of the death of the decedent, at
any time within nine months after the optionee's death, for up to the
number of shares as to which options were exercisable by the optionee on
the date he ceased to be employed or to provide services.
Notwithstanding the provisions of this Section 7(e), nothing herein
will extend the terms of the options specified in Section 7(a) of the Plan.
(f) Payment of Taxes. Upon settlement of any options, it shall be a
condition to the obligation of the Company that the optionee pay to the
Company such amount as the Company may request for the purpose of
satisfying its liability to withhold federal, state or local income or
other taxes.
(g) Applicable Regulations. The Company shall not be obligated to sell
or issue any shares upon exercise of any option if the exercise thereof or
the delivery of shares thereunder would constitute a violation of any
federal or state securities law or listing requirements of any national
securities exchange or automated quotation system of a registered
securities association on which the Common Stock may be listed or quoted.
(h) Purchase for Investment. In the event that the Company has not
registered the shares with respect to which options are being exercised
under the Securities Act of 1933, as amended, each optionee electing to
purchase such shares will be required to represent that he is acquiring
such shares for investment purposes only and not with a view to the sale or
distribution thereof, and to make such other representations as are deemed
necessary by counsel to the Company. Stock certificates evidencing such
unregistered shares acquired upon exercise of options shall bear a
restrictive legend stating as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE PLEDGED OR HYPOTHECATED AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SHARES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT, UNLESS IN THE OPINION OF COUNSEL FOR THE COMPANY SUCH A LEGEND IS
NOT NECESSARY.
(i) Rights as a Stockholder. The optionee shall have no rights as a
stockholder with respect to any shares covered by an option until the date
of issuance of a stock certificate for such shares. Without limiting the
foregoing, the Company shall make no adjustment for dividends or other
rights for which the record date is prior to the date such stock
certificate is issued.
(j) Transfer of Option. A stock option shall not be transferrable,
otherwise than by will or by the laws of descent and distribution.
(k) Form of Option. Options shall be evidenced by Stock Option
Agreements ("Stock Option Agreements") in such form as shall not be
inconsistent with the Plan. Any Stock Option Agreement entered into
pursuant thereto may contain such other terms, provisions and conditions
not inconsistent herewith as shall be determined by the Committee;
provided, however, the terms, provisions and conditions of Stock Option
Agreements evidencing options intended to qualify as performance-based
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compensation under Section 162(m)(4)(C) of the Code shall include, but not
be limited to, such terms, provisions and conditions as may be necessary to
meet the applicable provisions of Section 162(m)(4)(C) of the Code.
8. Incentive Stock Options. Options granted under the Plan to an employee
of the Company, its parent or any Subsidiary may be incentive stock options (as
defined under Section 422 of the Code) or nonstatutory stock options, as
determined by the Committee at the time of grant of an option and subject to the
applicable provisions of Section 422 of the Code and the regulations promulgated
thereunder.
(a) Limit. No incentive stock option may be granted to an optionee if
the Fair Market Value at the date of grant of shares with respect to which
such option would first become exercisable in any calendar year, when added
to the Fair Market Value at the date of grant of any other shares with
respect to which an incentive stock option granted to such optionee under
this plan (or any other incentive stock option plan maintained by the
Company, its parent or any Subsidiary) first becomes exercisable in such
calendar year, would exceed $100,000.
(b) 10% Stockholder. In the case of an incentive stock option granted
to an optionee who, immediately before the grant of such option, owns
shares representing more than 10% of the total combined voting power of all
classes of the shares of the Company, in no event shall the per share
option price be less than 110% of the Fair Market Value (as defined in
Section 7(b) of the Plan) per share of Common Stock on the date of grant,
nor shall the option by it terms be exercisable more than 5 years after the
date such option is granted.
9. Use of Proceeds. Proceeds from the sale of Common Stock under the Plan
shall be added to the general funds of the Company.
10. Indemnification of Committee. In addition to such other rights of
indemnification as they may have as members of the Board of Directors or as
members of the Committee, the Company shall indemnify the members of the
Committee against all costs and expenses reasonably incurred by them in
connection with any action, suit or proceeding to which they or any of them may
be party by reason of any action taken or failure to act under or in connection
with the Plan or any award made under the Plan, and against all amounts paid by
them in satisfaction of a judgment in any such action, suit or proceeding,
except a judgment based upon a finding of bad faith. Upon the institution of any
such action, suit or proceeding, a Committee member shall notify the Company in
writing, giving the Company an opportunity, at its own expense, to handle and
defend the same before such Committee member undertakes to handle it on his own
behalf.
11. Successors in Interest. The Plan may be adopted and continued by any
successor or successors of the Company, whether by merger, consolidation, sales
of assets or otherwise. Whether or not the Plan is so adopted and continued, the
obligations of the Company under the Plan shall be binding upon any such
successor or successors, and for this purpose reference in the Plan to the
Company shall be deemed to include any such successors.
12. Amendment or Termination of the Plan. The Board of Directors may in its
discretion terminate the Plan with respect to any shares for which options have
not theretofore been granted. The Board of Directors and the Committee shall
have the right to alter or amend the Plan or any part thereof from time to time;
provided, however, no change which would impair the right of an optionee may be
made in any options theretofore granted, without consent of such optionee; and
provided, further, that the Board of Directors or the Committee may not, without
appropriate approval of not less than a majority of the shares of Common Stock
(or other voting stock entitled to vote thereon at the time outstanding) present
in person or by proxy at a meeting of holders of such shares, alter or modify
the Plan so as to increase the maximum amount of Common Stock which may be
issued under the Plan, extend the term of the Plan or of options granted
thereunder, reduce the price at which options may be granted or exercised,
change the eligibility requirements for participation in the Plan, or change the
eligibility requirements for, or permit the granting of options to, members of
the Committee.
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13. Expenses. The Company shall bear the expenses of administering the
Plan, other than taxes or similar charges payable by any optionee.
14. Effective Date. Options may be granted under the Plan after the Plan
has been adopted by the Board of Directors. However, the Plan shall be effective
only if approved by the stockholders of the Company within 12 months of the date
the Plan is adopted by the Board of Directors, and options granted prior to the
date of such stockholder approval shall lapse, and be of no further force or
effect, if such approval is not obtained.
15. Funding. Anything herein contained to the contrary notwithstanding, the
Company shall not be required to set aside any amount at any time to fund any
obligations of the Company to make any payments to any optionee.
16. Right to Discharge Reserved. Nothing in the Plan shall confer upon an
optionee or any other person the right to continue in the employment of the
Company or any Subsidiary or affect any right which the Company or such
Subsidiary may have to terminate the employment of the optionee or any other
person.
17. Governing Law. All questions pertaining to the construction, validity
and effect of the Plan, or to the rights of any person under the Plan, shall be
determined in accordance with the laws of the State of New York.
18. Code Section 162(m) Limitations. Notwithstanding any other provision of
this Plan, any option which is intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall be subject
to any additional limitations set forth in Section 162(m) of the Code (including
any amendment to Section 162(m) of the Code) or any regulations or rulings
issued thereunder that are requirements for qualification as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, and this Plan
shall be deemed amended to the extent necessary to conform to such requirements.
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EXHIBIT E
STAFF BUILDERS, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1998 Employee Stock Purchase
Plan of Staff Builders, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the Company
and its Subsidiaries with an opportunity to purchase Common Stock of the Company
through accumulated payroll deductions. It is the intention of the Company to
have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of
the Internal Revenue Code of 1986, as amended. The provisions of the Plan,
accordingly, shall be construed so as to extend and limit participation in a
manner consistent with the requirements of that section of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Compensation and Stock Option Committee
of the Company.
(d) "Common Stock" shall mean the Class A Common Stock of the Company,
par value $.01 per share.
(e) "Company" shall mean Staff Builders, Inc., a Delaware corporation.
(f) "Compensation" shall mean regular base salary, plus overtime
payments and bonuses.
(g) "Employee" shall mean any individual who is a full-time or
part-time employee of the Company or any Subsidiary for purposes of tax
withholding under the Code and who was employed by the Company or a
Subsidiary for 500 or more hours during the twelve (12) month period
immediately preceding the employee's initial Enrollment Date.
Notwithstanding anything contained herein to the contrary, no employee
shall be excluded from participating in the Plan if he or she is eligible
to participate in the Plan in accordance with the provisions of Section
423(b)(4) of the Code. For purposes of the Plan, the employment
relationship shall be treated as continuing intact while the individual is
on sick leave or other leave of absence approved by the Company.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
(i) "Exercise Date" shall mean the last day of each Offering Period.
(j) "Fair Market Value", shall mean, as of any date, the closing price
for Common Stock as reported on the Nasdaq Stock Market's National Market
(or, if no sales were reported on such date, the closing price on the last
day on which the Common Stock was traded).
(k) "Offering Period" shall mean the period of approximately three (3)
months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or immediately following
the January 1, April 1, July 1, and October 1 of each year and terminating
on the last Trading Day in the period ending approximately three (3) months
later, except that the first Offering Period under the Plan shall commence
on October 1, 1998 and terminate on December 31, 1998. The Committee shall
have the power to change the duration of Offering Periods (including the
commencement dates thereof) with respect to future offerings without
stockholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be
affected thereafter.
(l) "Plan" shall mean this 1998 Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 90% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
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(n) "Reserves" shall mean the number of shares of Common Stock covered
by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance
under the Plan but not yet placed under option.
(o) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which the Nasdaq Stock Market's
National Market is open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately
after the grant, such Employee (or any other person whose stock would be
attributed to such Employee pursuant to Section 424(d) of the Code) would
own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) if such option would permit his or
her rights to purchase stock under all employee stock purchase plans of the
Company and its Subsidiaries to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) worth of stock (determined at the fair market
value of the shares at the time such option is granted) for each calendar
year in which such option is outstanding at any time.
4. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions on the
form provided by the Company and filing it with the Company's payroll
office at least ten (10) business days prior to the applicable Enrollment
Date or such other period as the Committee shall determine.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable.
5. Payroll Deductions.
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in whole percentages in an amount not less than
one percent (1%) and not exceeding ten percent (10%) of the Compensation
which he or she receives on each pay day during the Offering Period, and
the aggregate of such payroll deductions during the Offering Period shall
not exceed ten percent (10%) of the participant's Compensation during said
Offering Period.
(b) All payroll deductions made for a participant under the Plan shall
be credited to his or her account. A participant may not make any
additional payments into such account.
(c) A participant may discontinue or change his or her participation
in the Plan by giving notice to the Company of such discontinuance or by
completing or filing with the Company a new subscription agreement
authorizing a change in payroll deduction rate. The change in rate shall be
effective with the first full payroll period following the beginning of the
next Offering Period following ten (10) business days after the Company's
receipt of the new subscription agreement unless otherwise determined by
the Committee in its sole discretion. A participant's subscription
agreement shall remain in effect for successive Offering Periods unless
discontinued or changed as provided by this Section.
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(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to 0% at such time during any Offering
Period which is scheduled to end during the current calendar year (the
"Current Offering Period") that the aggregate of all payroll deductions
which were previously used to purchase stock under the Plan in prior
Offering Periods which ended during that calendar year plus all payroll
deductions accumulated with respect to the Current Offering Period equal
$22,500. Payroll deductions shall commence at the rate provided in such
participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year.
(e) The Company may provide for, to the extent applicable, the
withholding of any federal, state or local taxes with respect to the
options granted to participants hereunder.
6. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than a
number of shares determined by dividing $6,250 by the Fair Market Value of a
share of the Company's Common Stock on the Enrollment Date, and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 11 hereof. Exercise of the option shall occur as provided in Section 7
hereof and the option shall expire on the last day of the Offering Period.
7. Exercise of Option. A participant's option for the purchase of shares
will be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period. During a participant's lifetime, a participant's option to
purchase shares hereunder is nontransferable and exercisable only by him or her.
8. Delivery. Delivery of the shares purchased upon the exercise of options
granted hereunder shall be effectuated by (i) registering the shares in street
name with Salomon Smith Barney (or such other stock brokerage firm selected by
the Committee in its sole discretion) which shall establish accounts for
participants under the Plan indicating their ownership in the Plan or (ii) such
other means as determined by the Committee in its sole discretion.
9. Termination of Employment. Upon a participant's ceasing to be an
Employee for any reason, he or she will be deemed to have elected to receive the
whole number of shares that can be purchased at the applicable Purchase Price
with the payroll deductions credited to such participant's account during the
Offering Period but not yet used to exercise the option together with any
remaining cash in such participant's account. In the case of his or her death,
such shares and/or cash shall be given to the person or persons entitled thereto
under Section 13 hereof.
10. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
11. Stock.
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 1,000,000 shares,
subject to adjustment upon changes in capitalization of the Company as
provided in Section 17 hereof. If on a given Exercise Date the number of
shares with respect to which options are to be exercised exceeds the number
of shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be equitable.
(b) The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.
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12. Administration. The Plan shall be administered by the Committee. The
Committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility under the
Plan, to adjudicate all disputed claims filed under the Plan and to make all
other determinations necessary or advisable for the administration of the Plan.
Every finding, decision and determination made by the Committee shall, to the
full extent permitted by law, be final and binding upon all parties.
13. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to
such participant of such shares and cash. In addition, a participant may
file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant
and in the absence of a beneficiary validly designated under the Plan who
is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the
estate of the participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such shares and/or cash to the spouse or to any one
or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as
the Company may designate.
14. Transferability. Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and distribution
or as provided in Section 13 hereof) by the participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect.
15. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
16. Reports. Individual accounts will be maintained for each participant in
the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amount of payroll deductions
during the period covered by the statement, the Purchase Price of shares of
Common Stock purchased during the period covered by the statement, the number of
shares purchased during the period covered by the statement and the remaining
cash balance, if any.
17. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the Reserves as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in
the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company. Such
adjustment shall be made by the Committee, whose determination in that
respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation, Etc. In the event of the proposed
dissolution, liquidation or discontinuance of business operations of the
Company, the Offering Period then in progress will terminate
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immediately prior to the consummation of such proposed action, unless
otherwise provided by the Board or the Committee.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger or
consolidation of the Company with or into another corporation, each option
under the Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board or the Committee determines, in the
exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Offering Period then in progress by setting a
new Exercise Date (the "New Exercise Date"). If the Board or the Committee
shortens the Offering Period then in progress in lieu of assumption or
substitution in the event of a merger, consolidation or sale of assets, the
Committee shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, unless otherwise provided by
the Committee, that the Exercise Date for his option has been changed to
the New Exercise Date and that his option will be exercised automatically
on the New Exercise Date. For purposes of this paragraph, an option granted
under the Plan shall be deemed to be assumed if, following the sale of
assets, merger or consolidation, the option confers the right to purchase,
for each share of option stock subject to the option immediately prior to
the sale of assets, merger or consolidation, the consideration (whether
stock, cash or other securities or property) received in the sale of
assets, merger or consolidation by holders of Common Stock for each share
of Common Stock held on the effective date of the transaction (and if such
holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding shares of Common
Stock); provided, however, that if such consideration received in the sale
of assets, merger or consolidation was not solely common stock of the
successor corporation or its parent (as defined in Section 424(e) of the
Code), the Committee may, with the consent of the successor corporation and
the participant, provide for the consideration to be received upon exercise
of the option to be solely common stock of the successor corporation or its
parent equal in fair market value to the per share consideration received
by holders of Common Stock in the sale of assets, merger or consolidation.
18. Amendment or Termination.
(a) The Board or the Committee may at any time and for any reason
amend the Plan. The Board may at any time and for any reason terminate the
Plan. Except as provided in Section 17 hereof, no such termination can
affect options previously granted, provided that an Offering Period may be
terminated by the Board on any Exercise Date if the Board determines that
the termination of the Plan is in the best interests of the Company and its
stockholders. Except as provided in Section 17 hereof, no amendment may
make any change in any option theretofore granted which adversely affects
the rights of any participant. To the extent necessary under Section 423 of
the Code (or any successor provision or any other applicable law or
regulation), the Company shall obtain stockholder approval in such a manner
and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board or the Committee shall be entitled to change the Offering Periods,
limit the frequency and/or number of changes in the amount withheld during
an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding
in excess of the amount designated by a participant in order to adjust for
delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied
toward the purchase of Common Stock for each participant properly
correspond with amounts withheld from the participant's Compensation, and
establish such other limitations or procedures as the Board or the
Committee determines in its sole discretion advisable which are consistent
with the Plan.
19. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
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<PAGE> 60
20. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all provisions of
applicable law.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares.
21. Indemnification of Committee. In addition to such other rights of
indemnification as they may have as members of the Board or as members of the
Committee, the Company shall indemnify the members of the Committee against all
costs and expenses reasonably incurred by them in connection with any action,
suit or proceeding to which they or any of them may be party by reason of any
action taken or failure to act under or in connection with the Plan, and against
all amounts paid by them in satisfaction of a judgment in any such action, suit
or proceeding, except a judgment based upon a finding of bad faith. Upon the
institution of any such action, suit or proceeding, a Committee member shall
notify the Company in writing, giving the Company an opportunity, at its own
expense, to handle and defend the same before such Committee member undertakes
to handle it on his own behalf.
22. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board or its approval by the stockholders of the Company.
It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 18 hereof.
23. Right of Discharge Reserved. Nothing in the Plan shall confer upon a
participant or any other person the right to continue in the employment of the
Company or any Subsidiary or affect any right which the Company or such
Subsidiary may have to terminate the employment of the participant or any other
person.
24. Governing Law. All questions pertaining to the construction, validity
and effect of the Plan, or to the rights of any person under the Plan, shall be
determined in accordance with the laws of the State of New York.
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PROXY STAFF BUILDERS, INC. PROXY 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 Class A Common Stock, $.01 par value per share (the
"Class'A Common Stock"), and Class'B Common Stock, $.01 par value per share (the
"Class'B 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' , 1998 and at any
adjournment thereof. Each holder of shares of Class'A Common Stock is entitled
to one vote for each share held by such holder. Each holder of shares of Class'B
Common Stock is entitled to ten votes for each share held by such holder.
Please mark your votes as in this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1-5.
1. Approval of the issuance of 4,269,820 shares of Class A Common Stock to
Stephen Savitsky and David Savitsky in exchange for all of their shares of Class
A Preferred Stock.
FOR AGAINST ABSTAIN
2. Approval of an amendment to the Company's Restated Certification of
Incorporation to effect a one-for-two Reverse Stock Split on the outstanding
shares of Class A and Class B Common Stock.
FOR AGAINST
3. ELECTION OF CLASS B DIRECTORS
WITHHOLD AUTHORITY
FOR NOMINEES FOR NOMINEES
NOMINEES FOR CLASS B DIRECTORS: BERNARD J. FIRESTONE AND DONALD MEYERS
(Instruction: To withhold authority to vote for any individual
nominee, write the nominee's name on the space below)
------------------------
4. Approval of the 1998 Stock Option Plan
FOR AGAINST ABSTAIN
5. Approval of the 1998 Employee Stock Purchase Plan
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 1-5.
SIGNATURE(S) DATE
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.
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