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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1999
OR
[ ] TRANSITION REPORT SUBJECT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO _______________.
Commission File Number: 0-11380
STAFF BUILDERS, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 11-2650500
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1983 MARCUS AVENUE, LAKE SUCCESS, NY 11042
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 358-1000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, $.01 PAR VALUE
CLASS B COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock (Class A and Class B Common
Stock, assuming conversions of Class B Common Stock into Class A Common Stock on
a share for share basis) held by non-affiliates of the registrant based on the
closing price of such stock on May 28, 1999, was $9,578,978.
The number of shares of Class A Common Stock and Class B Common Stock
outstanding on May 28, 1999 was 23,311,035 and 308,353 shares, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
ITEM 1. BUSINESS
GENERAL
Staff Builders, Inc. ("Staff Builders" or the "Company") is a Delaware
corporation which was incorporated in New York in 1978 and reincorporated in
Delaware in May 1983. Unless the context otherwise requires, all references to
the "Company" include the Company and its subsidiaries. The Company is a leading
national provider of home health care and supplemental staffing services.
SPIN-OFF TRANSACTION
On March 22, 1999, the Company's Board of Directors approved a plan to
separate its home health care business from its supplemental staffing business
and to create a separate, publicly-traded company engaged exclusively in
providing home health care services. To accomplish this separation of its
businesses, the Company's Board of Directors established a new, wholly-owned
subsidiary, Tender Loving Care Health Care Services, Inc. ("TLC"), which will
acquire 100% of the outstanding capital stock of the Staff Builders subsidiaries
engaged in the home health care business. The spin-off will be effected through
a pro rata distribution to Staff Builders' stockholders of all the shares of
common stock of TLC owned by Staff Builders. The distribution will be made by
issuing one share of TLC common stock for every two shares of Staff Builders
common stock outstanding on the record date of the spin-off. Based upon the
23,619,388 shares of Staff Builders common stock outstanding on May 28, 1999,
the Company estimates that 11,809,694 shares of TLC common stock will be
distributed to holders of Staff Builders common stock. Staff Builders'
supplemental staffing business will remain with Staff Builders. The completion
of the spin-off is subject to the satisfaction of certain conditions, including
obtaining certain regulatory approvals and bank financing for each of Staff
Builders and TLC.
The Board of Directors believes that the spin-off is in the best
interests of Staff Builders and its stockholders. One of the principal benefits
of the spin-off should be to create a separate and distinct identity for the
supplemental staffing business of Staff Builders. This separation should allow
financial analysts and institutional investors to better understand that
business. It also should enhance Staff Builders' ability to obtain financing
outside an environment of tighter government regulation of the home health care
industry and reduced government reimbursement for the provision of home health
care services.
On April 14, 1999, the Company caused TLC to file a Registration
Statement on Form 10 with the Securities and Exchange Commission to register the
shares of TLC common stock to be issued in the spin-off under the Securities
Exchange Act of 1934, as amended.
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HOME HEATH CARE BUSINESS
GENERAL
The Company is a leading national provider of home health care
services. The Company has 125 home health care locations in 26 states and the
District of Columbia, and has master franchise licenses in Japan, Spain and
Brazil. Staff Builders owns and operates 71 of its offices and 54 of these
offices are operated by 31 licensees.
OPERATIONS
The Company provides a wide range of home health care services. Its
licensed personnel provide skilled nursing services, including cardiac care,
pulmonary management, wound management, maternal health, behavioral health care,
infusion therapy administration, hospice support, and extensive patient and
family education. Additional professional services include physical therapy,
occupational therapy, speech therapy and medical social services. The Company
also provides paraprofessional home health aide services and other unlicensed
personnel services to assist patients with activities of daily living.
Home health care service revenues were $310.3 million, $451.1 million
and $436.6 million in the fiscal year ended February 28, 1999 ("fiscal 1999"),
the fiscal year ended February 28, 1998 ("fiscal 1998") and the fiscal year
ended February 28, 1997 ("fiscal 1997"), respectively. Approximately 69% of the
Company's home health care service revenues in fiscal 1999 were generated by
licensees as compared to 87% in fiscal 1998. As of February 1999, the portion of
revenues generated by licensees approximated 61%.
Clients' requests for home health care are typically received at a
local office and all skilled home health care services are provided pursuant to
the orders of the patient's physician. Generally, after a referral is received,
the director of clinical services will schedule a physical assessment in order
to identify the patient's care needs. Home care services are rendered in
accordance with the plan of care as prescribed by a physician.
During the intake process, the Company contacts third-party payors to
confirm the extent of Medicare or Medicaid eligibility or insurance coverage.
The primary payment sources for home health care are Medicare, Medicaid,
insurance, individuals, and state and local government health programs.
In five locations, the Company operates hospices in accordance with the
Federal Medicare program. Hospice services include a full range of medical and
nursing services as well as spiritual and emotional support, specialized pain
management and bereavement counseling with interdisciplinary support for
patients and their families, where patients are expected to live less than six
months.
The quality and reputation of the Company's health care personnel
and operations is critical to the Company's success. The Company
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maintains uniform quality assurance programs for its home health care
operations, including its consumer hotline and service evaluation system in
which patients are asked by the Company to rate the quality of care provided.
These programs are administered at the national and local levels. The Company's
clinical staff conduct periodic on-site reviews to determine compliance with all
regulations.
In addition to the on-site reviews conducted by Company personnel, the
Company seeks to maintain and improve the quality of its home health care
operations by seeking accreditation from the Joint Commission on Accreditation
of Healthcare Organizations ("JCAHO"). Currently, the Company has approximately
100 offices which have been accredited by JCAHO, of which 31 were accredited
with commendation.
The Company has developed the Staff Builders Clinical Outcomes and
Resource Evaluation System ("SCORES"TM). SCORES is a clinical management process
that identifies and analyzes patient potential for variances upon admission to
home care, customizes a transdisciplinary plan of care and quantifies clinical
outcomes and resource utilization.
The Company has developed a number of proprietary disease-specific
programs designed to be used in the home. These programs include the areas of
asthma, cardiac care, diabetes, hospice, maternity, behavioral health,
rehabilitative services, pain management and wound care.
The Company offers its home health care services on a national and
local basis. Each office seeks to retain strong local identification in order to
best respond to prevailing market conditions and cultivate local referrals. The
Company provides support including brochures, training seminars and materials to
assist in developing patient care programs as needed within each community.
Local efforts principally involve communicating with hospital discharge
planners, nursing management, physicians and other individuals at hospitals,
nursing homes and other health care facilities to advise them of the array of
services available from the Company.
Due to changes in health care reimbursement, insurance companies and
health maintenance organizations have become more involved in directing services
for those to whom they provide coverage. The Company has sought to adapt to the
increased role of these organizations in patient referrals. The Company provides
services to members of health maintenance organizations or policy holders of
insurance companies at negotiated rates. The Company believes that some of these
organizations, as a result of their strict guidelines, centralized
administration and geographic diversity, retain the Company because of its
ability to consistently offer quality services on a national basis. Moreover,
the Company believes that its ability to offer patients a wide variety of home
health care services will provide it with a competitive edge in obtaining
additional business from these organizations.
The Company's information systems provide for the input of information
at the branch office (including payroll, billing and other administrative
functions) for its home health care operations which connects directly to its
corporate headquarters in Lake Success, NY.
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Generally, bills are rendered, payroll is processed and collections are received
at the corporate headquarters or at lock-boxes.
REIMBURSEMENT
Revenues generated from the Company's home health care services are
paid by insurance carriers, health maintenance organizations, individuals,
Medicare, Medicaid and other state and local government health insurance
programs. During fiscal 1999, approximately 19% of the Company's home health
care revenues represented reimbursement from insurance carriers, health
maintenance organizations and individuals; 43% came from Medicare; and 36% came
from Medicaid and other local government health programs. Medicare is a
Federally funded program available to persons with certain disabilities and
persons of age 65 or older. Medicaid, a program jointly funded by Federal and
state governments, and other local government health care programs is designed
to pay for certain health care and medical services provided to low income
individuals without regard to age.
The Company has 87 offices in 26 states and the District of Columbia
which are certified to provide home health care services to Medicare patients.
Medicare reimburses the Company for covered items and services at the lower of
the Company's cost, as determined by Medicare regulations, or cost limits
established by the Federal government. The Company submits all Medicare claims
to a single insurance company acting as a fiscal intermediary which processes
claims on behalf of the Federal government. The Balanced Budget Act of 1997 (the
"BBA") resulted in significant changes to cost based reimbursement for Medicare
home health care providers. Although the BBA retains a cost based reimbursement
system, the cost limits were reduced and new per-beneficiary limits were set for
home health care providers. The BBA provides for an interim payment system
("IPS") which became applicable for the Company on March 1, 1998 and will remain
in effect until the adoption of a new prospective payment system scheduled to be
effective for all home health care agencies on October 1, 2000. The Health Care
Financing Administration ("HCFA") committed to this revised schedule in a report
presented to Congress dated February 4, 1999. The effect of the changes under
IPS is to reduce the limits for the amount of costs that are reimbursable to
home health care providers under the Medicare program. Recently, management
moved proactively to prepare the Company for the impact of IPS and for long-term
growth. As a result, the Company implemented a corporate-wide restructuring and
cost reduction program.
As of February 28, 1999, the Company has 50 offices which participate
in Medicare's periodic interim payments ("PIP") program. Under PIP, the Company
receives regular bi-weekly payments based on past Medicare activity of
participating offices, which are adjusted quarterly for actual levels of
activity. As presently amended by the BBA, the PIP program will terminate for
all home health care agencies on or after October 1, 2000. Offices which are not
participating in the PIP program receive payment for services upon submission of
individual claims.
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The Company is also reimbursed for covered items by Medicaid. The
Company has approximately 85 home health care offices in 22 states and the
District of Columbia which are approved to provide services to Medicaid
recipients. Medicaid reimbursement procedures vary from state to state.
GOVERNMENT REGULATION
The Company's home health care business is subject to extensive and
frequently changing regulation by Federal, state and local authorities. This
regulation includes state licensing, obtaining a Certificate of Need ("CON") in
certain states, and Federal and state eligibility standards for certification as
a Medicare and Medicaid provider. The imposition of more stringent regulatory
requirements or the denial or revocation of any license or permit necessary for
the Company to operate in a particular market could have a material adverse
effect on the Company's operations.
The Federal government and all states in which the Company currently
operates regulate various aspects of the Company's business. HCFA must certify
home health agencies that seek to receive reimbursement for services from
Medicare. As conditions of participation in the Medicare program, HCFA requires,
among other things, the satisfaction of certain standards with respect to:
personnel and their supervision; services and the documentation thereof; and the
establishment of a professional advisory group that includes at least one
physician, one registered nurse and other representatives from related
disciplines or consumer groups.
Certain states require a provider of home health care services to
obtain a license before rendering services. Some states, including many of the
states in which the Company presently operates, maintain CON legislation
requiring an office to file an application that must be approved by the
appropriate state authority before certain health care services can be provided
in an area. Approval is dependent upon, among other things, good character and
competence, financial capability and a demonstration that the need exists for
such services. In states having a CON requirement, HCFA will grant Medicare
certification to an office (so that the office may provide services covered by
Medicare) only if the office has obtained a CON.
New York State requires the approval by the Public Health Council of
the New York State Department of Health ("NYPHC") of any change in the
"controlling person" of an operator of a licensed health care services agency
(an "LHCSA"). Control of an entity is presumed to exist if any person owns,
controls or holds the power to vote 10% or more of the voting securities of such
entity. A person seeking approval as a controlling person of an operator of a
LHCSA must file an application for NYPHC approval within 30 days of becoming a
controlling person, and pending a decision by the NYPHC, such person may not
exercise control over the LHCSA. The Company has 10 offices in New York State
which are LHCSAs. Such offices accounted for approximately 11% of the Company's
revenues in fiscal 1999. If any person should become the owner or holder, or
acquire control, of the right to vote 10% or more of the common stock of the
Company, such person could not exercise control of
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the Company's LHCSAs until such ownership, control or holding has been approved
by the NYPHC.
The Company's home health care revenues generated from Medicare,
Medicaid and other local government programs were $247 million, $376 million and
$361 million in fiscal 1999, 1998 and 1997, respectively.
FRANCHISE PROGRAM
The Company's home health care business utilizes a unique form of
franchising whereby it licenses independent companies or contractors
("licensees") to represent the Company within a designated territory using the
Company's trade names and service marks. Of the Company's 125 field offices, 54
are operated by 31 home health care licensees pursuant to the terms of a
franchise agreement with the Company. The Company's franchise program has
permitted it to quickly penetrate new markets and realize economies of scale.
The program also has enabled the Company to maintain stable local management by
reducing personnel turnover.
The Company owns all necessary health care related permits and licenses
and, where required, CON's for operation of home health care franchise offices.
The Company employs all direct service employees. The licensees recruit direct
service personnel for the Company, solicit orders and assign Company personnel,
including registered nurses, therapists and home health aides, to service the
Company's clients. The Company pays and distributes the payroll for the
Company's direct service personnel, administers all payroll withholdings and
payments, bills the customers and receives and processes the accounts
receivable. The licensees are responsible for providing an office and paying
related expenses for administration including rent, utilities and costs for
administrative personnel. The Company includes all revenues and related direct
costs in its consolidated service revenues and operating costs.
Generally, the Company grants a ten year initial franchise term. A
licensee has the option to extend for an additional five-year term, subject to
the licensee adhering to the operating procedures and quality control standards
established by the Company. The initial license fee is currently $29,500. When
converting independently owned agencies into licensees, the Company negotiates
the terms of the conversion on a transaction-by-transaction basis depending on
the size of the agency, the nature of the agency's business and the location of
the agency.
The Company pays a distribution or commission to its domestic home
health care licensees based upon a defined formula of gross profit generated.
Generally, the Company pays the licensee 60% of the gross profit attributable to
the non-Medicare operations of the franchise. The Company adjusts the payment to
the licensees related to Medicare operations for cost limitations and
reimbursement of allowable Medicare costs. For fiscal 1999, 1998 and 1997, total
home health care licensee distributions of approximately $38.3 million, $84.1
million and $82.4 million, respectively, were included in the Company's general
and administrative expenses.
The Company has an international home health care franchise program
using the Staff Builders name and service marks. The Company has a
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master license agreement with licensees in Japan and Brazil under which
royalties are paid to the Company by the licensee for certain services provided
by the Company for the transfer of home health care technology from the Company
to the licensee. The term of the Japanese master license agreement is five years
with a five-year additional term which may be exercised by the Company. The
existing agreement in Japan will expire on October 27, 2002. The Company
received an initial license fee of $1.2 million under the terms of this
Agreement. In the case of the Brazilian master license agreement, it has a
25-year term with an additional ten-year renewal term exercisable by the
licensee. The Company received a master license fee of $80,000 from its
Brazilian licensee. The Company also has a separate master license in Spain.
The Company is currently not offering any home health care franchises.
However, if in the future the Company should offer and sell franchises, such
offers and sales will be subject to Federal and certain state franchise laws. If
the Company fails to comply with the franchise laws, rules and regulations of a
particular state relating to offers and sales of franchises, the Company will be
unable to engage in offering or selling franchises in or from such state. To
offer and sell franchises, the Federal Trade Commission requires the Company to
furnish to prospective licensees a current franchise offering disclosure
document. The Company has used a Uniform Franchise Offering Circular ("UFOC") to
satisfy this disclosure obligation. The Company must update its UFOC annually or
upon the occurrence of certain material events. If a material event occurs, the
Company must stop offering and selling franchises until the UFOC is updated. In
addition, certain states require the Company to register or file its UFOC with
such states and to provide prescribed disclosures. The Company is also subject
to a number of state laws that regulate certain substantive aspects of the
franchisor-franchisee relationship.
PERSONNEL; RECRUITING AND TRAINING
The Company's home health care division has approximately 30,000
individuals who render home health care services and employs approximately 1,600
full time administrative and management personnel. Approximately 1,200 of these
administrative employees are located at the branch offices and 400 are located
at the corporate headquarters in Lake Success, NY.
The Company screens caregivers to ensure that they meet all licensing
requirements and the Company's eligibility standards. This screening process
includes skills testing, reference checking, professional license verification,
personal interviews and a physical examination. In addition, new employees
receive an orientation on the Company's policies and procedures prior to their
initial assignment. The Company is not a party to any collective bargaining
agreement and considers its relationship with its employees to be satisfactory.
The home health care division and its licensees recruit home health
care principally through referrals from other personnel, newspaper
advertisements and direct mail solicitations to nursing, paramedical and other
recruiting sources. A large percentage of these personnel are employed only when
needed, and are paid for the actual number of hours worked or visits made.
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The Company has standardized procedures for recruiting, interviewing,
testing and reference checking prospective personnel. All nurses and therapists
must be licensed by the appropriate licensing authorities. Substantially all
unlicensed health care personnel must be certified either through a
state-approved certification program or must have had previous experience in
providing direct patient care in a hospital, nursing home or in the home. After
selection, applicants receive instruction in the Company's procedures and
policies. Subsequently, they are included on a list of personnel eligible for
placement. The Company has an in-service training program for its home health
personnel which satisfies the requirements for certification required by certain
states.
In addition to health care personnel recruited and trained by the
Company, the Company contracts with third parties to meet its personnel
requirements. These contracted personnel must meet the same qualifications
required of Company personnel.
INSURANCE
The Company maintains various insurance policies which cover its
businesses. The Company's employees make decisions which can have significant
medical consequences to the patients in their care. As a result, the Company is
exposed to substantial liability in the event of negligence or wrongful acts of
its personnel. The Company maintains medical professional and general liability
insurance providing for coverage in a maximum amount of up to $26 million per
claim, subject to a limitation of $26 million for all claims in any single year.
Also, the Company maintains errors and omissions and professional liability
insurance. In addition, franchisees are required to maintain general liability
insurance providing for coverage of at least $1 million.
COMPETITION
Although there are national home health care companies, the industry is
highly fragmented and competitors are often localized in particular geographical
markets. In general, there has been a trend toward consolidation in the health
care industry which is expected to continue, especially in light of the Federal
Medicare program's reductions in cost limits and establishment of per
beneficiary limits. The Company expects that it will continue to compete with
the national organizations as well as local providers including home health care
providers owned or otherwise controlled by hospitals. Some of the entities with
which the Company competes have substantially greater resources. In addition,
the Company's operations depend, to a significant degree, on its ability to
recruit qualified health care personnel and the Company faces competition from
other companies in recruiting. Generally, there is a shortage of qualified
health care personnel and, as a result, the Company, from time to time, has
experienced difficulties in obtaining health care personnel to meet demands for
services.
The Company believes that prompt service, price, quality and range of
services offered are the principal competitive factors which enable it to
compete effectively. The Company believes that its rate structure
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is competitive with others in the industry. During fiscal 1999, no single client
or group contract of the home health care business accounted for ten percent or
more of the Company's home health care revenues.
SERVICE MARKS
The Company believes that its service marks, Staff Builders(R),
Staffline(R), the stick figure logo and Tender Loving Care(R) have significant
value and are important to the marketing of its home health care services. These
names and marks are registered as service marks with the United States Patent
and Trademark Office. The registration of the Staff Builders(R) service mark
will remain in effect through February 14, 2009, with respect to home care and
hospital staff relief, and through June 28, 2006 with respect to temporary
personnel for business and industry. The registration of the Staffline(R)
service mark will remain in effect through August 1, 2009. The registration of
the stick figure logo service mark will remain in effect through August 16,
2008. The registration of the Tender Loving Care(R) service mark will remain in
effect through January 8, 2005. Each of these marks is renewable for additional
ten-year periods, provided the Company continues to use them in the ordinary
course of business. The Company also owns other federally registered marks for
names used in connection with its home health care business.
SUPPLEMENTAL STAFFING BUSINESS
GENERAL
The Company's supplemental staffing services are provided through its
wholly-owned subsidiary, ATC Healthcare Services, Inc. ("ATC"), which provides
medical staffing services (the "Medical Staffing Division"), and the Company's
81.8% owned subsidiary, Chelsea Computer Consultants, Inc. ("Chelsea"), which
provides information technology staffing services (the "IT Staffing Division").
The Company acquired ATC in July 1994. In September 1996, the Company
purchased 20.9% of the outstanding common stock of Chelsea and
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purchased an additional 60.9% in October 1997. ATC and Chelsea (together with
their subsidiaries) comprise the Company's supplemental staffing business.
OPERATIONS
Supplemental staffing revenues were $125.1 million, $74.5 million and
$42.8 million in fiscal 1999, 1998 and 1997, respectively. Revenue increased
because of acquisitions, granting of additional licenses and the consolidation
of revenues of the IT Staffing Division.
The Company provides medical supplemental staffing to health care
facilities through its network of 58 offices in 27 states, of which 54 are
operated by 41 licensees and four are owned and operated by the Company. The
Medical Staffing Division offers a skills list of qualified health care
associates in over 55 job categories ranging from the highest level of specialty
nurses including critical care, neonatal and labor and delivery, to medical
administrative staff, including third party billers, administrative assistants,
claims processors, collection personnel and medical records clerks. The nurses
provided to clients include registered nurses, licensed practical nurses and
certified nursing assistants. Allied health staffing includes mental health
technicians, a variety of therapists (including speech, occupational and
physical), radiology technicians and phlebotomists.
Clients rely on the Company to provide a flexible labor force to meet
fluctuation in census and business and help the facility acquire a specifically
needed skill. The Company's medical staffing professionals also fill in for
absent employees and enhance a client's core staff with temporary workers during
peak seasons.
Clients benefit from their relationship with the Company because of its
expertise in providing properly skilled medical staffing employees to a facility
in an increasingly tight labor market. The Medical Staffing Division has
developed a skills checklist to provide even more information concerning a
prospective employee's skill level. Clients also benefit from no longer having
to concern themselves with the payment of employee wages, benefits, payroll
taxes, workers compensation, and unemployment insurance.
The Medical Staffing Division also operates a Travel Nurse Program
whereby qualified nurses, physical therapists and occupational therapists are
recruited on behalf of clients who require such services on a long-term basis.
These individuals are recruited from foreign countries, primarily Great Britain,
to perform services on a long-term basis in the United States.
The Medical Staffing Division contracts with a management entity for
the recruitment of the foreign nurses. The management entity must arrange for
the nurses' and therapists' immigration, licensing certifications as well as
their living accommodations while employed in the United States.
Presently, there is a freeze on visa activity for foreign nurses
because the program for the admission of foreign nurses expired in the fall of
1995. Recently, the House of Representatives passed a bill to
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authorize work visas for up to 500 qualified foreign nurses annually for four
years and sent the bill to the Senate.
When the Company first acquired the Medical Staffing Division in 1994,
its client base was composed predominantly of hospitals. Currently, the Medical
Staffing Division has expanded its client base to include nursing homes,
physician practice management groups, managed care facilities, insurance
companies, surgery centers, community centers and schools. By diversifying its
client list, the Company lessens the risk that regulatory or industry sector
shifts in staffing usage will materially affect the Company's medical staffing
revenues.
Approximately 20% of the supplemental staffing revenues are
attributable to an ATC franchise operation located in Long Island, NY operated
by a corporation, the majority of the stock of which is owned by two family
members of one of the Company's executive officers.
The Company, through its IT Staffing Division, provides trained
information technology ("IT") professionals to clients who lack the in-house
personnel or skills necessary to accomplish IT objectives. The demand for those
professionals has increased dramatically due to rapid technological change,
substantial economic growth and mass change issues, such as the adoption of a
common currency in the European Union and the Year 2000 issue.
The IT Staffing Division provides flexible staff augmentation services,
generally for client-managed projects, to fill short and long-term or
specialized technology skill set needs. Because the IT Staffing Division has a
pool of full-time employees, it can generally provide qualified candidates to
clients within 24 hours of receiving requests for staffing. The Company provides
a "vendor-on-premises" at seven sites where large numbers of its IT
professionals are working, and plans to provide more in the future. The
"vendor-on-premises" acts as a liaison between the client and the Company, and
is trained to recognize areas where improvements could be made in the service to
the IT Staffing Division's clients, and to act quickly to effectuate the
improvements.
The IT Staffing Division's clients include financial service,
communications, manufacturing, consulting intermediaries and other clients that
outsource IT functions to third party vendors. The Company serves clients in
diverse industries which helps mitigate cyclical effects in any one industry or
market. The IT Staffing Division derives an additional level of diversification
by working with many different operating divisions within a given client.
During fiscal 1999, no single client of the supplemental staffing
business accounted for more than 10% of the revenues of the Company's
supplemental staffing business.
FRANCHISE PROGRAM
The Medical Staffing Division's franchise program is one of the core
differentiating factors between the Company and most of its
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competition. The program grants each franchisee, or licensee, a vested interest
in the success of both his or her individual branch as well as the Company as a
whole. After paying an initial franchise fee of $19,500 in exchange for his or
her own exclusive territory determined based on demographic, economic and
competitive studies, a franchise owner generally is paid a royalty effectively
equal to approximately 60% of gross profit. The licensee has the right to
develop the territory to its fullest potential. For example, a licensee can open
a satellite office in the area if he believes there will be an appropriate
return on the investment. The franchise owner also handles marketing and
recruiting within the assigned territory. The corporate office works closely
with the licensee to ensure the best approach and strategy for the franchise and
the profitability of the location. All locations must be approved by the Company
prior to signing a lease. Various management reports are provided to the offices
to assist them with ongoing analysis of their medical staffing operations.
For fiscal 1999, 1998 and 1997, total medical staffing licensee
distributions of approximately $12.3 million, $8.8 million and $6.2 million,
respectively, were included in the Company's general and administrative
expenses.
The Company grants a ten-year initial franchise term. The licensee has
an option to extend the term for two additional five-year renewal terms, subject
to the licensee adhering to the operating procedures and conditions for renewal
set forth in the franchise agreement. When the Company converts an independently
owned medical staffing business into a franchise, the Company negotiates the
terms of the conversion on a transaction-by-transaction basis, depending on the
size of the business and the location.
Sales of franchises are subject to compliance with Federal and certain
state franchise laws. If the Company fails to comply with the franchise laws,
rules and regulations of the particular state relating to offers and sales of
franchises, the Company will be unable to engage in offering or selling
franchises in or from such state. To offer and sell franchises, the Federal
Trade Commission requires the Company to furnish to prospective licensees a
current franchise offering disclosure document. The Company has used a UFOC to
satisfy this disclosure obligation. The Company must update its UFOC annually or
upon the occurrence of certain material events. If a material event occurs, the
Company must stop offering and selling franchises until the UFOC is updated. In
addition, certain states require the Company to register or file its UFOC with
such states and to provide prescribed disclosures. The Company is required to
obtain an effective registration of its franchise disclosure document in New
York State. Presently, the Company is filing a response to a comment letter sent
by the State of New York. The Company expects approval by New York immediately
upon its receipt and review of the Company's response to the comment letter.
Approval by New York State will enable the Company to offer the medical staffing
franchise in 38 states.
-13-
<PAGE> 14
PERSONNEL; RECRUITING AND TRAINING
The Company's supplemental staffing division employs approximately
4,000 individuals who render medical staffing services, approximately 380
individuals who render information technology staffing services and
approximately 140 full time administrative and management personnel.
Approximately 86 of these administrative employees are located at the branch
offices and 54 are located at the supplemental staffing administrative offices
in Atlanta, Georgia and New York City, New York.
The Company screens supplemental staffing personnel to ensure that they
meet all eligibility standards. This screening process includes skills testing,
reference checking, professional license verification, personal interviews and a
physical examination. In addition, new employees receive an orientation on the
Company's policies and procedures prior to their initial assignment. The Company
is not a party to any collective bargaining agreement and considers its
relationship with its supplemental staffing employees to be satisfactory.
It is essential to recruit and retain a qualified staff of medical
staffing associates who are available to be placed on assignment as needed.
Besides advertising in the local classifieds and conducting local public
relations projects, the Company's Medical Staffing Division offers a variety of
benefit programs to assist in recruiting high quality medical staffing
professionals. This package provides employees access to medical, dental, life
and disability insurance, a 401(k) plan, opportunities for Continuing Education
Credits ("CEUs"), partnerships with various vendors for discount programs (e.g.,
uniforms, vacations and cruises, credit cards, appliances and cars), recognition
programs and referral bonus programs. In addition, the Company provides its
Medical Staffing Division licensees a full-service human resources department to
support the Medical Staffing Division offices with policies and procedures as
well as the day-to-day issues of the field staff.
As of February 28, 1999, the IT Staffing Division employed
approximately 380 IT professionals in the United States, over 90% of whom were
recruited from the Philippines, Singapore, Australia, New Zealand and the Middle
East.
Because the Company's IT staffing business involves the delivery of
professional IT services, its success depends upon its ability to attract,
motivate and retain highly skilled individuals who possess the technical skills
and experience necessary to deliver the services. The Company's IT Staffing
Division recruits IT professionals globally, principally through traditional
advertising in newspaper and trade publications, the internet, job fairs,
networking through seminars, user group meetings, local recruiting symposia at
overseas hotels, referrals from other personnel and an ongoing data base of
applicants.
-14-
<PAGE> 15
Management from the IT Staffing Division's New York office makes
several international trips per year for recruiting purposes. The Company uses
its Manila office in the Philippines, and intends to use other foreign offices
when opened, to follow up on contacts initiated through the above-mentioned
methods. In addition, the Company employs a local agent in Manila as a
recruiting coordinator who helps to identify possible candidates and recruits
and interviews these individuals.
Once the IT professionals arrive in the U.S., they frequently train on
a work site (free of charge to the client) for a one to two week period before
commencing work at the site. In addition, the IT Staffing Division provides
training programs at the Company's offices in New York City using manuals and
the Company's staff. Through its Quality Management System, the IT Staffing
Division monitors its IT professionals' performance and aids their development
as necessary. Clients evaluate individual IT professionals three months after
they commence work, and after that, annually. If an IT professional gets a low
rating in, for example, communication skills, the IT Staffing Division may send
the IT professional to English language courses. The IT Staffing Division
employs an instructor to provide ongoing English training one to two times per
week after working hours.
In addition to their training, IT professionals receive a strong
benefits package from the Company (relocation expenses averaging $7,500,
including a $3,000 cash advance; medical, dental, long and short-term disability
and life insurance; legal representation; temporary housing; 401-K plan;
internet access; laptop computer; assistance procuring credit cards; and loans
to relocate families from their countries of origin). Management believes that
the hiring of foreign-born IT professionals leads to longer retention periods.
The retention period is longer because the Company obtains H-1B visas for its
employees, and if the foreign employees wish to work for another employer in the
United States they must obtain another visa, a lengthy and cumbersome process.
See "Immigration Laws".
-15-
<PAGE> 16
Qualified IT professionals are in great demand worldwide and are likely
to remain a limited resource for the foreseeable future. There can be no
assurance that qualified IT professionals will continue to be available to the
Company in sufficient numbers, that the Company will be successful in retaining
current or future employees, or that the cost of employing such IT professionals
will not increase due to shortages. Failure to attract or retain qualified IT
professionals in sufficient numbers could have a material adverse effect on the
IT Staffing Division's business, operating results and financial condition.
SALES AND MARKETING
The Company begins a marketing education program as soon as a new
medical staffing office becomes operational. This training details the entire
sales process. The program stresses sales techniques, account development and
retention as well as basic sales concepts and skills. Through interactive
lectures, role plays and sales scenarios, participants are immersed in the sales
program.
To provide ongoing sales support, the Company furnishes medical
staffing field offices with a variety of tools. A corporate representative is
continuously available to help with prospecting, customer identification and
retention, sales strategies, and developing a comprehensive office sales plan.
In addition, various guides and brochures have been developed to focus a
branch's attention to critical areas in the sales process. The Company has
developed a web page that provides information to clients, located at
www.atchealthcare.com.
Each licensee in the Medical Staffing Division is responsible for
generating sales in his or her territory. Licensees are taught to do this
through a variety of methods in order to diversify their sales conduits. The
primary method of seeking new business is to call on health care facilities in
the local area. Cold calls and referral are often used to generate leads.
Advertising in yellow page phone books is also utilized. Once granted an
interview, the licensee is instructed to emphasize the key highlights of the
Company.
The Company focuses its IT marketing efforts on businesses with
significant IT budgets and recurring software development needs. Sales methods
include an internet site containing pictures, voice recordings and resumes of IT
professionals (with the possibility for clients to set up interviews); weekly
facsimile transmittals of lists of available IT professionals to 100 users; and
direct calls to clients based on known client needs. Clients also sometimes
accompany the Company's personnel on international recruiting trips in order to
select IT professionals. These methods, along with the possibility for clients
to have telephone and videoconferenced interviews with IT professionals around
the world, allow the Company to "pre-sell" IT professionals to the clients. The
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<PAGE> 17
Company also believes that its pricing structure is lower than average for the
IT staffing industry, due in part to its low overhead, and that this pricing
structure aids the Company's marketing efforts.
The Company gathers market research by communicating with employees,
clients and consultants and by monitoring business and industry sources. These
resources also serve as a prospecting and networking mechanism for locating key
decision makers, securing quality referrals and introductions for the IT
Staffing Division's account team and assessing the competitive circumstances and
barriers to entry at prospective or established clients.
The Company generally employs a top-down approach to account
penetration and development of its IT Staffing Division. The Company endeavors
to establish contacts with Chief Contracting Officers, human resource directors
and other senior management through professional contacts of the Company's
senior management, through referrals by the Company's existing clients, and
through client contacts who move to new employers.
IMMIGRATION LAWS
The Company recruits its IT professionals on a global basis and,
therefore, must comply with the immigration laws in the countries in which it
operates, particularly the United States. Over 99% of the Company's IT
professionals are citizens of other countries.
Most of the IT professionals who provide services to the Company's
clients are present in the United States on an H-1B temporary work visa. The
Immigration and Naturalization Service ("INS") is authorized under current law
to approve no more than 115,000 new petitions for H-1B status in the Federal
government's fiscal year ending September 30, 1999. As of April 30, 1999,
103,753 petitions have been approved. It is expected that the cap will be
reached before the end of June 1999. After the ceiling is reached, no H-B1 visa
petitions will be approved by the INS until the beginning of the next Federal
fiscal year. If the IT Staffing Division were unable to obtain H-1B permits for
its employees in sufficient quantities or at a sufficient rate, its business,
operating results and financial condition could be materially adversely
affected.
Foreign nationals are only permitted to work in the United States on a
H-1B visa status for six consecutive years. After working in the United States
for that length of time, if the alien has not yet become a lawful permanent
United States resident, the alien must leave the United States. The total time
required for the process of permanent residency can vary significantly and may
take more than three years to complete. Since an alien on an H-1B visa may only
remain in the United States for six years, in those instances where the Company
may have hired an alien after he or she had worked for another company for
several years or where he or she did not pursue permanent residency of several
years, the consultant could reach the end of the allotted six years in H-1B visa
status before the permanent residency application process has been completed. In
addition, although the Company recruits
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<PAGE> 18
IT professionals in the Philippines, Singapore, Australia, New Zealand, and
Middle Eastern countries, residency applications by the sponsoring employer are
limited to national quotas. Therefore, if a high number of residency
applications have been granted for certain nationalities, additional residency
applications might not be available for those groups.
Furthermore, Congress and administrative agencies with jurisdiction
over immigration matters have periodically expressed concerns over the levels of
legal and illegal immigration into the United States. These concerns have often
resulted in proposed legislation, rules and regulations aimed at reducing the
number of work permits that may be issued. Any changes in such laws making it
more difficult to hire foreign nationals or limiting the ability of the Company
to retain foreign employees could require the Company to incur additional
unexpected labor costs and expenses and decrease the Company's number of IT
professionals available to its clients. Any such restrictions or limitations on
the Company's hiring practices could have a material adverse effect on the IT
Staffing Division's business, operating results and financial condition. To date
the Company has not experienced difficulties with the governments of the home
countries from which it recruits IT professionals with regards to emigration
matters. However, any such difficulties (for example, restrictions on
emigration), particularly in the Philippines or Singapore, could have a material
adverse effect on the IT Staffing Division's business.
INSURANCE
The Company maintains errors and omissions insurance for the
supplemental staffing division: medical professional and general liability
insurance providing for coverage in a maximum amount of $26 million per claim,
subject to a limitation of $26 million for all claims in any single year, and IT
staffing errors and omissions insurance of $1 million per claim and $1 million
in the aggregate.
The IT Staffing Division also carries general liability insurance with
aggregate coverage of $2.0 million and a $1.0 million limit per occurrence,
crime insurance including employee dishonesty, theft, disappearance and
destruction with aggregate coverage of $2.0 million, as well as umbrella
coverage of $5.0 million for each occurrence and $5.0 million dollars of
aggregate liability. The Company also maintains fidelity bonds covering general
liability, workers compensation claims, employee theft and in some cases errors
and omissions.
COMPETITION
The medical staffing industry is extremely fragmented, with numerous
local and regional providers nationwide providing nurses and other staffing
solutions to hospitals and other health care providers. As HMOs and other
managed care groups expand, so too must the medical staffing companies that
service those customers. In addition, momentum for consolidation is increasing
among smaller players, often venture capital-backed, who are trying to win
regional and even national accounts. Because the staffing industry is dominated
generally by large national providers that do not specialize in medical
staffing, the Medical Staffing Division management believes that its
specialization
-18-
<PAGE> 19
will give it a competitive edge. In addition, its franchise program gives each
franchisee or licensee an incentive to compete actively in his or her local
marketplace. In addition to the Medical Staffing Division's medical staffing
specialty which services the health care community exclusively, the Company
continues to diversify among the medical staffing services it offers, unlike
many of its small regional competitors who focus on nurse staffing only.
The IT services industry is highly competitive and served by numerous
international, national, regional and local firms, all of which are either
existing or potential competitors of the Company. Primary competitors of the
Company's IT Staffing Division include accounting firms, software consulting and
implementation firms, applications software firms, service groups of computer
equipment companies, general management consulting firms, programming companies
and temporary staffing firms and the internal IT staff of the Company's clients.
The Company believes that the principal competitive factors in the IT services
industry include the range of services offered, cost, technical expertise,
responsiveness to client needs, speed in delivering IT solutions, quality of
service and perceived value. Based on the Company's experience in competitive
situations, the Company believes that it competes favorably with respect to
these factors.
The management of the Company believes that the Company's IT Staffing
Division will distinguish itself from its competitors because of lower overhead,
client charges on a time and material, rather than on a fixed price-based basis.
This reduces the risk that the Company will incur large costs and expenses for
which it will not be paid. The Company further distinguishes itself by employing
all of the Company's IT professionals as the IT Staffing Division does not use
independent contractors, leading to stability in the IT Staffing Division's
workforce and the ability to rapidly fulfill client's requests for staffing.
SERVICE MARKS
The Company believes that its service marks Chelsea Computer
Consultants(R)' and the ATC(R) logo have significant value and are important to
the marketing of its supplemental staffing services. These trademarks are
registered with the United States Patent and Trademark Office. The Chelsea
trademark will remain in effect through April 14, 2008 for use with temporary
employment services providing computer consultants and computer technicians and
other temporary employees proficient with computers. The ATC trademark will
remain in effect through January 9, 2000 for use with nursing care services and
health care services. These marks are each renewable for an additional ten year
period, provided the Company continues to use it in the ordinary course of
business.
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<PAGE> 20
ITEM 2. PROPERTIES
The Company's corporate headquarters consists of approximately 65,000
square feet of leased office space and 8,100 square feet of storage space in
Lake Success, New York. The lease for the corporate headquarters expires on
September 30, 2005 and provides for current annual rent of approximately $1.5
million, which increases annually by three percent. The Company believes that
its headquarters office space is sufficient for its immediate needs and that it
will be able to obtain additional space as needed in the future.
The Company's supplemental staffing business leases its administrative
facilities in Atlanta, Georgia and New York City, New York. The Atlanta office
lease for approximately 11,300 square feet of office space expires on May 31,
2000 and provides for a current annual rent of approximately $156,000.
Approximately 6,000 square feet of office space is sublet to a subtenant
unaffiliated with the Company at an annual rental of approximately $73,000 with
annual increases of 4.5 percent. The New York City offices lease approximately
5,500 square feet of office space. These leases expire on May 31, 2000 and
September 30, 2000 and provide for a current annual rental of $140,000. The
Company believes that its supplemental staffing administrative facilities are
sufficient for its needs and that it will be able to obtain additional space as
needed.
The Company's home health care division leases all of its branch office
locations from landlords unaffiliated with the Company or any of its executive
officers or directors. Most of these are for a specified term although several
of them are month-to-month leases. There are currently 125 home health care
offices including 71 operated by the Company and 54 operated by 31 licensees.
Two of these licensee offices sublease the office space from the Company and the
remaining licensed offices are owned by licensees or are leased by the licensee
from third-party landlords. The Company believes that it will be able to renew
or find adequate replacement offices for leases which are scheduled to expire in
the next twelve months at comparable costs.
The Company's supplemental staffing division leases substantially all
of its branch office locations from landlords unaffiliated with the Company or
any of its executive officers or directors. There are currently 58 supplemental
staffing branch offices including 4 operated by the Company and 54 operated by
41 licensees. One of the supplemental staffing offices operated by the Company
subleases the office space from the home health care division and one licensee
office subleases the office space from the Company. The remaining licensed
offices are owned by licensees or are leased by the licensee from third-party
landlords. The Company believes that it will be able to renew or find adequate
replacement offices for all leases which are scheduled to expire in the next
twelve months at comparable costs.
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<PAGE> 21
ITEM 3. LEGAL PROCEEDINGS
On September 20, 1995, the United States Attorney for the Eastern
District of Pennsylvania alleged that (i) between 1987 and 1989, a corporation,
substantially all assets and liabilities of which were acquired by a subsidiary
of the Company in 1993, submitted false claims to Medicare totaling
approximately $1.5 million and (ii) officers and employees of that corporation
submitted false statements in support of such claims, and made a pre-complaint
civil settlement demand of approximately $4.5 million. The alleged false claims
and false statements were made before the Company acquired that corporation in
1993. There have been significant discussions with the office of the United
States Attorney which the Company believes are likely to lead to an arbitration
within specified parameters.
On June 18, 1998, 6100 Cleveland, Inc., Orsinger Enterprises, Inc., and
First Choice Medical Staffing, Inc., three former home care and staffing
licensees (franchisees) of the Company in Ohio, commenced an action in the
United States District Court for the Northern District of Ohio, Eastern Division
against the Company's subsidiary, Staff Builders International, Inc. The action
sought to recover damages and other relief alleging unpaid royalties, wrongful
termination by the Company of the Franchise Agreement between the Company and
the Plaintiffs, breach of contract and other damages. The Company answered the
complaint and moved for a change of venue. On December 1, 1998, Plaintiffs,
without the required permission of the Court, filed a Second Amended Complaint
alleging in addition to the allegations contained in the prior Complaint, claims
under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), claiming
a series of deliberate and illegal actions designed to put certain Staff
Builders franchisees out of business, as well as claims arising under New York
and Ohio loss of business opportunity statutes. The Second Amended Complaint
seeks money damages in excess of $25 million and a claim for treble damages on
the RICO claim. The Second Amended Complaint added as defendants Staff Builders
Services, Inc., and certain executive officers of the Company. The Company has
moved to dismiss the Second Amended Complaint challenging the legal sufficiency
of the RICO claims and other claims which allege a loss of business
opportunities under New York and Ohio laws. A companion case, 6100 Columbus,
Inc. v. Staff Builders International, Inc. was recently filed alleging breach of
contract only. This case will probably be consolidated with the previous case.
On December 21, 1998, H.L.N. Corporation, Frontlines Homecare, Inc.,
E.T.H.L., Inc., Phoenix Homelife Nursing, Inc., and Pacific Rim Health Care
Services, Inc., former home care licensees (franchisees) of the Company for the
territory comprising certain counties in and around Los Angeles, California and
their holding company, instituted an action against the Company's subsidiaries,
Staff Builders, Inc., Staff Builders International, Inc., Staff Builders
Services, Inc., and certain executive officers of the Company in the Superior
Court for the State of California, County of Los Angeles. The action was removed
to United States District Court for the Central District of California on
December 22, 1998. Plaintiffs filed a First Amended Complaint in the Central
District on January 8, 1999 to challenge the termination of the four franchise
agreements between the Company and certain of the named
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<PAGE> 22
plaintiffs, seeking damages for violations of California franchise law, breach
of contract, fraud and deceit, unfair trade practices, claims under the RICO,
negligence, intentional interference with contractual rights, declaratory and
injunctive relief and a request for an accounting. Plaintiffs seek an
unspecified amount of damages.
Discovery is currently in process.
On July 17, 1998, the Federal government ordered that a complaint filed
by Ali Waris, the former owner of a home health care agency purchased by the
Company in 1993, be unsealed and served upon Staff Builders, Inc. and Targa
Group, Inc., a former licensee (franchisee) of the Company. The government has
elected not to intervene in the action, in which Mr. Waris claimed damages for
alleged violations of the False Claims Act by the Company in connection with
payments made by the Company for consulting services. Following a motion to
dismiss, on March 4, 1999, the Court granted Mr. Waris leave to amend the
Complaint, the amended filing for which was served on the Company on March 31,
1999. The Company intends to file a motion to dismiss the Amended Complaint.
On April 30, 1999, Nursing Services of Iowa, Inc., Helen Kelly,
Geri-Care Home Health, Inc. and Jacquelyn Klooster, two former home health care
licensees (franchisees) of the Company and their principals in Des Moines and
Sioux City, Iowa, respectively, commenced an action in the United States
District Court for the Southern District of Iowa, Central Division against the
Company's subsidiaries Staff Builders International, Inc., Staff Builders
Services, Inc., Staff Builders, Inc., and certain executive officers of the
Company. The action alleges claims under the RICO, claiming a series of
deliberate and illegal actions designed to defraud Staff Builders' licensees, as
well as claims for negligence, breach of fiduciary duty, breach of contract,
fraudulent misrepresentation and violation of the Iowa franchise law. The
complaint seeks unspecified money damages, a claim for treble damages on the
RICO claims and punitive and exemplary damages.
The Company is a defendant in several civil actions which are routine
and incidental to its business. The Company purchases insurance in such amounts
which management believes to be reasonable and prudent.
Although the Company cannot estimate the ultimate cost of its open
legal matters with precision, it has recorded a loss accrual at February 28,
1999 for the aggregate, estimated amount to resolve such matters. The aggregate
balance of this accrual is $3.1 million at February 28, 1999 and was included in
restructuring costs incurred of $2.2 million and $1.2 million in fiscal 1999 and
1998, respectively, less $300 expended to date.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1999.
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<PAGE> 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
(A)
MARKET INFORMATION
The Company has outstanding two classes of common equity
securities: Class A Common Stock and Class B Common Stock. These two classes
were created by a recapitalization of the Company's Common Stock that was
completed in October 1995. The Company's Class A Common Stock is traded in the
over-the-counter market and quoted on the OTC Bulletin Board System under the
symbol "SBLI".
The following table sets forth, for the indicated fiscal
periods, the high and low sale prices for the Class A Common Stock for each
quarter during the fiscal year ended February 28, 1998 and February 28, 1999
(through January 29, 1999), as reported by the Nasdaq National Market. Effective
with the close of business on January 29, 1999, the Company's Class A Common
Stock was delisted from the Nasdaq National Market and was immediately
thereafter quoted on the OTC Bulletin Board. Between January 29, 1999 and
February 28, 1999, the bid price of the Class A Common Stock as quoted on the
OTC Bulletin Board did not exceed $.69 or fall below $.09.
<TABLE>
<CAPTION>
HIGH LOW
------ -------
<S> <C> <C>
Fiscal Year Ended February 28, 1998
1st quarter ended May 31, 1997 $ 2.94 $ 1.81
2nd quarter ended August 31, 1997 2.84 1.94
3rd quarter ended November 30, 1997 2.81 2.16
4th quarter ended February 28, 1998 2.75 1.53
Fiscal Year Ended February 28, 1999
1st quarter ended May 31, 1998 $ 2.47 $ 1.28
2nd quarter ended August 31, 1998 1.69 .50
3rd quarter ended November 30, 1998 .87 .34
4th quarter ended February 28, 1999 .69 .09
</TABLE>
There is no established public trading market for the
Company's Class B Common Stock, which has ten votes per share and upon transfer
is convertible automatically into one share of Class A Common Stock, which has
one vote per share.
(B) HOLDERS
As of May 28, 1999, there were approximately 307 holders of
record of Class A Common Stock (including brokerage firms holding stock in
"street name" and other nominees) and 468 holders of record of Class B Common
Stock.
(C) DIVIDENDS
Since its organization, the Company has not paid any dividends
on its shares of common stock. Management anticipates that for the foreseeable
future all earnings will be retained for use in its business and, accordingly,
it does not intend to pay cash dividends. The Company's current revolving credit
facility prohibits the payment of cash dividends on the common stock.
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<PAGE> 24
ITEM 6.
SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------------------------
FEBRUARY FEBRUARY FEBRUARY FEBRUARY FEBRUARY
28, 1999 28, 1998 28, 1997 29, 1996 28, 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATIONS DATA:
Revenues $ 437,588 $ 526,673 $ 480,355 $ 410,160 $ 325,111
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Operating costs 299,057 338,225 301,508 256,719 201,365
General and administrative expenses 148,642 177,761 170,290 146,382 113,893
Amortization of intangible assets 1,314 2,807 2,623 1,823 1,237
Interest expense 4,233 3,706 1,601 948 1,237
Interest income (1,061) (1,358) (896) (976) (796)
Other (income) expense, net 1,991 (419) (1,487) 1,791 (22)
Medicare and Medicaid audit adjustments 29,000 -- -- -- --
Restructuring costs 20,464 33,447 -- -- --
----------- ----------- ----------- ----------- -----------
Total costs and expenses 503,640 554,169 473,639 406,687 316,914
----------- ----------- ----------- ----------- -----------
Income (loss)
before income taxes (66,052) (27,496) 6,716 3,473 8,197
Provision (benefit) for income taxes 7,034 (5,864) 2,955 1,459 3,462
----------- ----------- ----------- ----------- -----------
Income (loss) applicable to
common stockholders $ (73,086) $ (21,632) $ 3,761 $ 2,014 $ 4,735
=========== =========== =========== =========== ===========
Income (loss) per common share:
Basic $ (3.16) $ (.90) $ .16 $ .09 $ .21
=========== =========== =========== =========== ===========
Diluted $ (3.16) $ (.90) $ .15 $ .08 $ .20
=========== =========== =========== =========== ===========
Weighted average common shares outstanding:
Basic 23,162 23,939 23,668 23,598 22,389
=========== =========== =========== =========== ===========
Diluted 23,162 23,939 24,577 25,504 24,053
=========== =========== =========== =========== ===========
CONSOLIDATED BALANCE SHEET DATA:
Total assets $ 146,505 $ 158,701 $ 156,172 $ 120,527 $ 103,486
Working capital (deficiency) (39,826) 16,085 27,245 12,007 22,038
Current portion of long-term debt 43,460 10,664 5,071 1,655 1,208
Long-term debt and other liabilities 59,082 40,508 37,998 9,611 9,186
Total liabilities 185,864 120,332 96,706 65,217 51,135
Stockholders' equity (deficit) (39,359) 38,369 59,466 55,310 52,351
</TABLE>
Staff Builders, Inc. did not pay any cash dividends on its common stock during
any of the periods set forth in the table above.
Certain prior period amounts have been reclassified to conform with the fiscal
1999 presentation.
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<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This discussion
should be read in conjunction with the consolidated financial statements and
notes thereto appearing elsewhere herein, particularly Note 5 which discusses
operating results by business segment.
RESULTS OF OPERATIONS
YEARS ENDED FEBRUARY 28, 1999 ("FISCAL 1999"), FEBRUARY 28, 1998 ("FISCAL 1998")
AND FEBRUARY 28, 1997 ("FISCAL 1997")
REVENUES. The Company's revenues consist of the following:
<TABLE>
<CAPTION>
($ in millions)
Years Ended
February 28,
---------------------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Home health care and other $310.3 $451.1 $436.6
Supplemental staffing 124.9 74.3 42.4
------ ------ ------
Total service revenues 435.2 525.4 479.0
------ ------ ------
Sales of licensees and fees 2.4 1.3 1.4
------ ------ ------
Total revenues $437.6 $526.7 $480.4
====== ====== ======
</TABLE>
Total revenues decreased to $437.6 million in fiscal 1999 compared to
$526.7 million in fiscal 1998. This decrease of $89.1 million, or 16.9%, was a
result of a decrease in the Company's home health care division service revenues
of $140.8 million to $310.3 million in fiscal 1999 from $451.1 million in fiscal
1998. This decrease was partially offset by a 68.0% increase in the Company's
staffing division service revenues of $50.6 million from $74.3 million in fiscal
1998 to $124.8 million in fiscal 1999.
Total revenues increased by $46.3 million to $526.7 million in fiscal
1998 from $480.4 million in fiscal 1997. This increase included an increase of
$14.5 million or 3.3% in the Company's home health care service revenues from
$436.6 million in fiscal 1997 to $451.1 million in fiscal 1998. Additionally,
the Company's supplemental staffing division service revenues increased by $31.9
million or 75.2% from $42.4 million in fiscal 1997 to $74.3 million in fiscal
1998.
HOME HEALTH CARE
The primary reason for the decrease of $140.8 million in the home
health care service revenues in fiscal 1999 over fiscal 1998 was a decrease in
Medicare revenues. This decrease resulted from the negative impact of the
Medicare Interim Payment System ("IPS")
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<PAGE> 26
enacted under the Balanced Budget Act of 1997 ("BBA"). The IPS reduced the
limits for the amount of costs which are reimbursable under the Medicare
program. See Note 2 to the consolidated financial statements.
The increase in home health care revenues of $14.5 million in fiscal
1998 over fiscal 1997 included $28.4 million primarily due to acquisitions made
during fiscal 1997 which were included in the full fiscal 1998 period offset by
a decrease in revenues of $13.9 million resulting from the closing or sale of
approximately 30 locations during fiscal 1998. Included in the Company's fiscal
1998 revenues under sales of licensees and fees, net, is $502 thousand for
license fees earned in connection with a master license agreement with a home
health care company based in Tokyo, Japan. Under the agreement, the Company
granted rights to develop home health care agencies throughout Japan using Staff
Builders' home health expertise and licensee model.
The Company receives payment for its home health care services from several
sources. The following are the Company's home health care division revenues by
payment source:
<TABLE>
<CAPTION>
Years Ended
February 28,
--------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Medicare 43.4% 60.1% 61.0%
Medicaid and other local
government programs 36.2 23.1 21.7
Insurance and individuals 19.3 15.1 15.4
Other 1.1 1.7 1.9
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
The home health care division has 125 locations as of May 31, 1999 as
compared to 198 and 228 locations as of February 28, 1998 and 1997,
respectively. Included in these locations are 54, 160 and 179 offices which were
operated by 31, 64 and 72 licensees, respectively. The percentage of home health
care division revenues attributable to licensees was 69%, 84% and 82% in fiscal
1999, 1998 and 1997, respectively. The decrease in the number of licensees and
their respective share of business is consistent with the industry as a whole
which has experienced a significant reduction in the number of providers as a
result of the BBA.
SUPPLEMENTAL STAFFING
Revenues for the supplemental staffing division grew to $124.9 million
in fiscal 1999 compared to $74.3 million in fiscal 1998. This increase of $50.6
million, or 68.0% was primarily due to the increase in the number of staffing
office locations from 46 at February 28, 1998 to 58 locations at February 28,
1999, including an increase in the number of licensees which increased from 35
to 41, respectively.
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<PAGE> 27
Also, fiscal 1999 was the first full year in which Chelsea Computer Consultants,
Inc. ("Chelsea") was included in the Company's consolidated results of
operations. Chelsea is the Company's information technology staffing subsidiary
in which the Company acquired a majority interest on October 30, 1997. Chelsea's
revenues were $31.1 million in fiscal 1999 and were $7.0 million from October
30, 1997 through February 28, 1998.
The increase in supplemental staffing revenues of $31.9 million in
fiscal 1998 over fiscal 1997 included $9.0 million resulting from the September
1996 acquisition of a provider in the metropolitan New York area which generated
revenues of $17.5 million and $8.5 million in fiscal 1998 and fiscal 1997,
respectively. Additionally, the increase in supplemental staffing revenues
included $4.5 million resulting from the September 1997 acquisition of a
provider of travel nursing services, whereby nursing professionals render
services in long-term assignments, away from the professional's permanent
domicile.
OPERATING COSTS. Operating costs were 68.7%, 64.4%, and 62.9% of
service revenues in fiscal 1999, 1998 and 1997, respectively. Operating costs
represent the direct costs of providing services to patients or clients,
including wages, payroll taxes, travel costs, insurance costs, medical supplies
and the cost of contracted services. The increases in operating costs as a
percentage of service revenues were primarily due to the increase in
supplemental staffing revenues which have higher direct operating costs as a
percentage of service revenues as compared to home health care revenues.
The payroll fringe costs, consisting primarily of payroll taxes and
workers compensation insurance, represents 15.3%, 16.0%, and 15.9% of direct
service wages in fiscal 1999, 1998 and 1997, respectively. These payroll fringe
costs as a percentage of direct service wages for the home health care division
were 16.9%, 16.8% and 16.3% and for the supplemental staffing division were
12.4%, 12.5% and 13.2%, respectively.
The cost of contracted services represents 6.6%, 6.5% and 8.1% of
related service revenues in fiscal 1999, 1998 and 1997, respectively. Contracted
services consist primarily of physical therapy, occupational therapy, speech
therapy and medical social services utilized in the home health care division.
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<PAGE> 28
The service revenues, operating costs and resultant gross margins
generated by the Company's licensee and company-owned locations are as follows
($ in millions):
<TABLE>
<CAPTION>
HOME HEALTH CARE
Years Ended
February 28,
------------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Total service revenues - Licensee $ 214 $ 379 $ 356
Total service revenues -
Company-Owned 96 72 81
--------- --------- ---------
Total service revenues $ 310 $ 451 $ 437
========= ========= =========
Operating costs - Licensee $ 136 $ 234 $ 216
Operating costs - Company-Owned 64 46 53
--------- --------- ---------
Operating costs $ 200 $ 280 $ 269
========= ========= =========
Gross margin - Licensee $ 78 $ 145 $ 140
Gross margin - Company-Owned 32 26 28
--------- --------- ---------
Gross margin $ 110 $ 171 $ 168
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL STAFFING
Years Ended
February 28,
---------------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Total service revenues - Licensee $ 90 $ 65 $ 1
Total service revenues -
Company-Owned 35 9 41
--------- --------- ---------
Total service revenues $ 125 $ 74 $ 42
========= ========= =========
Operating costs - Licensee $ 70 $ 51 $ 1
Operating costs - Company-Owned 29 7 32
--------- --------- ---------
Operating costs $ 99 $ 58 $ 33
========= ========= =========
Gross margin - Licensee $ 20 $ 14 $ --
Gross margin - Company-Owned 6 2 9
--------- --------- ---------
Gross margin $ 26 $ 16 $ 9
========= ========= =========
</TABLE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased by $29.2 million, or 16.4%, in fiscal 1999 to $148.6 million
as compared to $177.8 million in fiscal 1998 and increased by $7.6 million, or
4.5%, in fiscal 1998 as compared to $170.3 million in fiscal 1997. These costs
expressed as a percentage of service revenues were 34.2%, 33.9% and 35.5% in
fiscal 1999, 1998 and 1997, respectively.
The decrease of $29.2 million in fiscal 1999 as compared to fiscal 1998
was the result of a decrease in the general and administrative expenses of the
home health care division of $38.7 million which was partially offset by a $9.5
million increase in such expenses in the supplemental staffing division.
Included in general and administrative expenses is the Company's provision for
doubtful accounts which increased by $5.7 million in fiscal 1999 over fiscal
1998. The provision for doubtful accounts was $5.6 million and $2.5 million in
fiscal 1999 and fiscal 1998 for the home care business segment and $2.8 million
and $0.2 million in fiscal 1999 and fiscal 1998 for the supplemental staffing
business segment, respectively.
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<PAGE> 29
The decrease in the general and administrative expenses of the home
health care division was a result of a reduced number of operating locations and
management's efforts to address the revenue reductions associated with IPS. This
decrease was partially offset by re-engineering costs incurred in connection
with meeting the demands of IPS, including improvement of the home care
division's patient billing, scheduling and accounts receivable functions and
implementing other operating efficiencies.
The general and administrative expenses of the supplemental staffing
division increased from $13.3 million in fiscal 1998 to $22.8 million in fiscal
1999 due to an increase in the number of supplemental staffing licensees and the
increased expenses associated with the first full year of operation of Chelsea.
The increase in general and administrative expenses of $7.6 million in
fiscal 1998 over fiscal 1997 was primarily due to the increase in supplemental
staffing expenses of approximately $4.8 million, including $1.1 million
attributable to the consolidation of Chelsea's general and administrative
expenses from October 30, 1997 to February 28, 1998. The increase in the
supplemental staffing expenses is due to the expansion of that division. The
increase in these general and administrative expenses includes approximately
$900 thousand resulting from the September 1996 acquisition of a provider in the
metropolitan New York area and approximately $500 thousand resulting from the
September 1997 acquisition of a provider of travel nurse services. Additionally,
there was an increase in corporate and regional home health care expenses of
$2.4 million, or 6.2% over the prior year, due to increased support for
expansion of the Company's home health care services, primarily resulting from
acquisitions made in fiscal 1997 which were included in the full fiscal 1998
period.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
was approximately $1.3 million in fiscal 1999 as compared to $2.8 million in
fiscal 1998 and $2.6 million in fiscal 1997. The reduction of $1.5 million in
fiscal year 1999 compared to fiscal year 1998 was primarily the result of the
write-off of goodwill recorded in fiscal year 1998. The home health care
division amortization expense was $1.2 million, $2.5 million and $2.5 million
and the supplemental staffing division amortization expense was $100 thousand,
$300 thousand and $100 thousand in fiscal 1999, 1998 and 1997, respectively.
INTEREST EXPENSE. Interest expense was approximately $4.2 million in
fiscal 1999 as compared to $3.7 million in fiscal 1998 and $1.6 million in
fiscal 1997. The increases in interest expense in fiscal 1999 over fiscal 1998
and over fiscal 1997 was primarily due to an increase in the level of borrowings
under the Company's secured credit facility. On October 30, 1997, the Company
borrowed $12.6 million under the acquisition line of credit to purchase an
additional 60.9% of the outstanding common stock of Chelsea.
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<PAGE> 30
INTEREST INCOME. Interest income includes interest on franchise notes
receivable of $225 thousand, $481 thousand and $527 thousand in fiscal 1999,
1998 and 1997, respectively. Interest earned on franchise notes receivable is
generally at the prime rate plus three percent. Additionally, the Company earned
interest from funds on deposit for workers compensation premiums of $520
thousand, $564 thousand and $243 thousand in fiscal 1999, 1998 and 1997,
respectively.
OTHER (INCOME) EXPENSE, NET. Other expense of $2.0 million in fiscal
1999 primarily consists of approximately $1.0 million for the reserve for
uncollectible notes receivable, $600 thousand for the write-off of obsolete
fixed assets and $300 thousand to record minority interest expense incurred by
Chelsea. Other (income) expense, net in fiscal 1998 primarily includes
approximately $300 thousand of income from the Company's gain on the sale of
several offices. Fiscal 1997 income includes approximately $1.2 million
resulting from the sale of a Company division.
MEDICARE AND MEDICAID AUDIT ADJUSTMENTS. In the third quarter of fiscal
1999, the Company recorded a charge of $29.0 million to reflect audit
adjustments from both Medicare and Medicaid. Medicare and Medicaid audit
adjustments recorded in fiscal 1999 include Federal and state audit liabilities
arising from some completed audit examinations as well as estimated liabilities
for open audit periods through February 28, 1999. As a home health care
provider, the Company is subject to extensive and changing state and Federal
regulations relating to the licensing and certification of its offices and the
sale and delivery of its products and services. The Federal government and
Medicare fiscal intermediaries have become more vigilant in their review of
Medicare reimbursements to home health care providers generally, and have become
more restrictive in their interpretation of those costs for which reimbursement
will be allowed to such providers. These regulatory agencies have increased the
number of audits performed and have applied a more intensive degree of scrutiny
in the conduct of these audits.
During the quarter ended November 30, 1998, the Medicare fiscal
intermediary completed and issued the results of 88 audits for the fiscal year
ended February 28, 1997, including 25 audits conducted on site at branch
operating locations. These results together with the results of the home office
audit for the year ended February 28, 1997, indicated an aggregate liability of
approximately $9.5 million.
Additionally, the Company has recorded an accrual for third party
liability ("TPL") to state Medicaid agencies which have claimed that the Company
did not follow proper billing procedures in several locations. These state
Medicaid agencies have challenged the eligibility of individuals for whom
services were provided. The related claims are being reviewed by the state
agencies encompassing several prior years for which the Company has
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<PAGE> 31
been paid. The Company has reached a settlement for a portion of its TPL
liability and is continuing to negotiate to resolve amounts payable to these
state agencies. While the Company believes that it will ultimately prevail in
many of these cases, it has accrued for the anticipated losses for those cases
in which it will not prevail. To date, the Company has reached settlement on
$4.6 million of the $11.0 million of TPL provided for in the quarter ended
November 30, 1998. This amount is payable monthly at approximately $250 per
month. The other $6.4 million is a general reserve based upon preliminary
discussions with several states.
The Company continues to appeal many audit issues and has engaged
outside professional advisors to support its positions on these issues. The
Company anticipates that any resolution of these appeals may require up to
several years. The settlement of Medicare and Medicaid liabilities for specific
periods provides a basis for reasonably estimating the liability that may exist
for periods not yet examined or where the examination is in process. The Company
was able to consider the scope of audits being performed by the fiscal
intermediary and the issues raised for such periods, and then use this
information as a basis to estimate the accrual required for audits not yet
performed, or not yet completed. The $29.0 million charge to operations in the
quarter ended November 30, 1998, together with the balance of liabilities
previously established, less amounts expended during the fourth quarter of
fiscal 1999, results in an aggregate liability of $28.1 million for Federal and
state audit adjustments as of February 28, 1999 which includes $17.1 million and
$11.0 million for Federal and state liabilities, respectively.
HEALTH CARE REFORM AND RELATED RESTRUCTURING COSTS.
The BBA resulted in significant changes to cost based reimbursement for
Medicare home health care providers. Although a cost based reimbursement system
remains, the BBA reduced the cost limits and created new per-beneficiary limits.
The BBA provides two payment systems -- IPS which became applicable for the
Company on March 1, 1998 until the adoption of prospective payment system
scheduled to be effective for all home health care agencies after October 1,
2000. The Federal Health Care Financing Administration committed to the revised
schedule in a report presented to Congress dated February 4, 1999. The effect of
the changes under IPS is to reduce the limits for the amount of costs that are
reimbursable to home health care providers under the Medicare program.
Accordingly, the Company together with many of its licensees have modified their
operations as needed to meet the demands of IPS, including taking steps to
reduce costs and maximize operational efficiencies within the constraints of the
IPS.
During the fourth quarter of fiscal 1998, management prepared the home
health care business segment of the Company for the impact
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<PAGE> 32
of IPS 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 the impact of health care reform legislation,
resulted in a pre-tax charge in the fourth quarter of fiscal 1998 of $33.4
million. During the quarter ended November 30, 1998, as a result of the
Company's further operating modifications, including the additional closure and
conversion of many locations from licensed to company-owned operations, the
Company has written off or reserved approximately $4.5 million.
In fiscal 1999, management further evaluated the carrying value of the
Company's goodwill and intangible assets in light of current home health care
industry conditions and its impact on the Company's operations. Such valuation
resulted in an additional write-off of home health care goodwill of $15.3
million leaving a remaining net carrying value of goodwill and intangible assets
as of February 28, 1999 of $5.1 million in its home health care business
segment. The fiscal 1998 write-off of goodwill and intangible assets included
$21.5 million for the home health care segment and $3.0 million for the
supplemental staffing segment. The write-off of goodwill and intangible assets
is required under SFAS No. 121.
In addition to the fiscal 1999 write-off of goodwill, the Company
recorded other home health care restructuring costs aggregating $5.2 million.
These costs included $0.9 million for the closure and reduction in size of some
of the Company's operating locations including the write-off of fixed assets and
the accrual for employee severance payments. Further, restructuring costs
include $2.2 million of litigation related costs, $1.1 million for the write-off
of receivables from converted licensee locations and $0.9 million for the
write-off of home care related investments and receivables. These restructuring
costs reflect the Company's operating modifications in order to meet the demands
of IPS as well as its assessment of the carrying value of goodwill and
intangible assets in light of the deterioration within the home health care
industry and the resultant effect on reduced profitability.
PROVISION (BENEFIT) FOR INCOME TAXES. The provision (benefit) for
income taxes reflects an effective rate of (10.6%), 21.3% and 44.0% in fiscal
1999, 1998 and 1997, respectively.
The provision for income taxes in fiscal 1999 consists of a valuation
allowance of $28.9 million offset by potential tax benefits of $20.2 million
resulting from losses incurred in that period. Such valuation allowance was
recorded because management does not believe that the utilization of the tax
benefits from operating losses and other temporary differences are "more likely
than not" to be realized, as required by SFAS 109. The Company has recorded an
income tax receivable of $1.7 million resulting from the carryback of net
operating losses.
NET INCOME (LOSS). Net (loss) for fiscal 1999 was $(73.1) million, or
$(3.16) per share, compared to net (loss) in fiscal 1998 of $(21.6) million, or
$(.90) per share, and net income of $3.7 million, or $.16 per share, in fiscal
1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $13.0 million for the
fiscal year ended February 28, 1999 which consisted primarily of periodic
interim payments received from Medicare of $14.4 million, a net increase in
accounts payable and accrued expenses of $2.4 million and a decrease in trade
accounts receivable of $2.0 million. Offsetting these sources of cash was the
loss from operations requiring cash payments of $5.8 million. The fiscal 1999
loss of $(73.1) million included non-cash items consisting primarily of the
write-off of goodwill, deferred income taxes and other assets aggregating $27.5
million; depreciation, amortization and a net increase to the allowance for
doubtful accounts aggregating $8.6 million; an increase in Medicare and Medicaid
audit liabilities of $29.0 million and an increase in accrued litigation costs
of $2.2 million.
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<PAGE> 33
Net cash used in investing activities was $7.3 million in fiscal 1999,
which consisted of the purchase of fixed assets of $5.0 million and $2.9 million
of cash used to acquire businesses, offset by $0.6 million of proceeds from the
sale of five home health care franchise businesses.
Net cash used in financing activities of $6.5 million in fiscal 1999
included the payment of notes payable and other long-term liabilities of $11.1
million which consisted primarily of $3.1 million paid on the Company's
acquisition line of credit under its secured credit facility, $2.9 million of
capital lease payments, a net reduction of $1.0 million in the line of credit
under which Chelsea borrowed on its accounts receivable and a reduction of $1.9
million in a term loan which matures in December 1999. Additionally, the Company
purchased and retired 5.1 million shares of its common stock at a cost of $4.8
million. Offsetting these items was $9.1 million of cash provided from the
Company's revolving line of credit.
Net cash provided by operating activities was $13.5 million for the
fiscal year ended February 28, 1998, which consisted primarily of an increase in
accounts payable and accrued expenses of $10.4 million and periodic interim
payments received from Medicare of $4.3 million. Net cash used in investing
activities of $16.4 million in fiscal 1998 consisted primarily of cash used for
business acquisitions of $16.2 million, including $12.7 million for the
purchase of 60.9% of the outstanding common stock of Chelsea. Net cash provided
by financing activities of $3.7 million in fiscal 1998 includes proceeds of
$12.6 million from the acquisition line of credit, less $4.0 million of a
decrease in borrowings under the Company's revolving line of credit and $6.1
million for the payment of notes payable and other long-term liabilities. These
payments include $2.3 million of capital lease payments, a reduction of $1.8
million in a term loan and $0.8 million of repayments of the acquisition line
of credit.
Net cash used in operating activities was $19.4 million for the fiscal
year ended February 28, 1997, which consisted primarily of an increase in trade
accounts receivable of $23.8 million offset by net income of $3.8 million. Net
cash used in investing activities of $11.9 million in fiscal 1997 consisted
primarily of cash used for business acquisitions of $10.3 million, including
$2.1 million for the purchase of 20.9% of the outstanding common stock of
Chelsea. Net cash provided by financing activities in fiscal 1997 was $24.6
million, which consisted primarily of an increase in the level of borrowings
under the Company's revolving line of credit of $21.6 million and proceeds from
a term loan of $5.7 million, offset by the payment of notes payable and other
long-term liabilities of $3.1 million.
The Company has a secured credit facility which consists of a revolving
line of credit, an acquisition line of credit and a standby letter of credit
facility. On January 14, 1999, the bank provided the Company with written
notification that, in its opinion, the Company's non-compliance with certain
financial covenants constitutes an event of default under the terms of the
credit facility agreement. Those covenants require the Company to maintain a
minimum level of net worth and a maximum ratio of senior debt to net worth,
failures of which resulted from losses incurred for the three and nine months
ended November 30, 1998. At the time that the bank declared its opinion as to an
event of default, the Company had borrowed $39.4 million under the credit
facility, including $29.7 million and $9.7 million under the revolving line of
credit and the acquisition line of credit, respectively. The bank has advised
Staff Builders that while it has no obligation to provide additional advances as
a result of the non-compliance with certain financial covenants, it is willing
to consider making additional advances to Staff Builders under such conditions
as it may determine. As of May 28, 1999, the Company had borrowed $38.9 million
under the credit facility, including $30.5 million and $8.4 million under the
revolving line of credit and the acquisition line of credit, respectively.
In connection with the bank's notice of default, the maximum aggregate
amount which can be borrowed under the credit facility was reduced from $50
million to $40 million. Additionally, the bank increased the rate of interest on
all borrowings to 2.0% over the prevailing prime lending rate on its revolving
line of credit and 2.75% over the prevailing prime lending rate on its
acquisition line of credit (such prime lending rate being 7.75% as of February
28, 1999). The Company's primary sensitivity to changes in interest rates
results from its secured credit facility. Based on outstanding borrowings at
February 28, 1999, an increase of 1% in the prime rate would have the effect of
increasing annual interest expense by approximately $400 thousand. The Company
has classified its outstanding borrowings as a current liability as of February
28, 1999 because the bank has the option to declare all borrowings under the
credit facility to become immediately due and payable. At February 28, 1999 and
1998, the Company borrowed $35.4 million and $29.4 million, respectively, under
the credit facility.
The Company's working capital deficiency was $(39.8) million at
February 28, 1999. Current liabilities at February 28, 1999 include $22.7
million for Medicare and Medicaid liabilities, $35.4 million of outstanding
borrowings under the secured credit
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<PAGE> 34
facility and $8.1 million for the current portion of other debt obligations.
While the Company cannot accurately determine the required payment dates for its
total Medicare and Medicaid audit liabilities, it has included $34.6 million of
such liabilities in other long term liabilities based upon its current estimate
of when payments would likely become due. In order to pay its current
liabilities in the normal course of business as well as to pay its liabilities
to the Medicare and Medicaid agencies as they become due, the Company is
investigating alternative sources of funding.
The above conditions raise substantial doubt about the ability of the
Company to continue as a going concern. As a result, management of the Company
is pursuing various strategies, including but not limited to, negotiating with
alternative lending sources, deferred payment terms for Medicare and Medicaid
audit liabilities as well as for any repayments of Medicare periodic interim
payment(s) ("PIP") and deferred payment terms for other creditors. Further,
management is implementing an intensified collection effort and has obtained a
deferred payment schedule for the repayment of $19.0 million of excess PIP
payments made to the Company by the Federal government as well as for $6.8
million of audit liabilities assessed to date. Such payment schedule requires
these amounts to be paid in 24 equal monthly installments of approximately $1.1
million beginning in May 1999. As of June 1, 1999 no payments have been made
pursuant to this schedule. Additionally, the Company has obtained favorable
extended payment terms with some of its trade creditors and is continuing to
negotiate extended payment terms with other vendors. Further, the spin-off
described in Note 1 will be completed only if the bank or another lender creates
a separate credit facility for the home health care business under TLC and the
supplemental staffing business retained by Staff Builders, and allocates the
aggregate pre-spin-off debt between those two entities. However, there can be no
assurance that these actions will be successful to provide adequate funds for
the Company's current level of operations and to pay the Company's past-due
obligations.
From March 6, 1998 through October 16, 1998, the Company purchased and
retired a total of 5,088,060 shares of its common stock at a cost of
approximately $4.8 million. No repurchases have been made since October 16,
1998.
YEAR 2000
Many computer systems, applications, information technologies and
equipment containing computer related components (generally "computer systems
and equipment") are unable to differentiate
between the year 2000 and the year 1900 because they were programmed with
two-digit, rather than four digit, date fields. Accordingly, older computer
systems that have time-sensitive applications may not properly recognize the
year 2000 and beyond ("Year 2000 issue"). This could cause system or equipment
shut
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<PAGE> 35
downs, failures or miscalculations resulting in inaccuracies in computer output
or disruptions of operations, including, among other things, inaccurate
processing of financial information and/or temporary inabilities to process
transactions, manufacture products, or engage in similar normal business
activities.
The Company has made upgrades to its computer systems and equipment
controlling its general ledger, accounts payable, payroll and human resources
systems and believes that these systems are largely Year 2000 compliant. The
Company is continuing its upgrades with respect to the front end systems, which
include clinical, scheduling and billing. The Company expects to complete such
upgrades by October 31, 1999. The Company believes that with these upgrades, the
Year 2000 issue will not pose significant operational problems for its computer
systems and equipment. However, if such upgrades are not made or are not
completed in a timely fashion, the Year 2000 issue might have an adverse impact
on the operations of the Company, the precise degree of which cannot be known at
this time.
In addition to risks associated with the Company's own computer systems
and equipment, the Company has relationships with, and is to varying degrees
dependent upon, a large number of third party vendors that provide information,
goods and services to the Company and third party customers to which the Company
provides its services. These include financial institutions, companies in
industry, and Federal and state government agencies. If significant numbers of
these third parties experience failures in their computer systems or equipment
due to the Year 2000 issue and if, in particular, the Federal government is not
Year 2000 compliant these failures could adversely affect the Company's ability
to process transactions or engage in similar normal business activities. While
some of these risks are outside of the Company's control, it has instituted
programs, including internal records review to identify key third parties,
assess their level of Year 2000 compliance, update contracts and address any
non-compliance issues.
The total cost of the Year 2000 systems assessment and upgrades is
funded through operating cash flows and leases and the Company is expensing
certain items and capitalizing others. The estimated cost to replace existing
software applications consisting of Lawson software and HBO Corporation systems,
including modifications to accommodate the Year 2000, is approximately $25
million, including the cost of implementation. The actual cost could, however,
exceed this estimate. The Company has not established a contingency plan to deal
with major year 2000 failures, if any, and does not intend to establish a
contingency plan because it is comfortable with progress made to date, although
no assurances can be made.
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<PAGE> 36
EFFECT OF INFLATION
The rate of inflation was immaterial during fiscal 1999. In the past,
the effects of inflation on salaries and operating expenses have been offset by
the Company's ability to increase its charges for services rendered. The Company
anticipates that it will be able to continue to do so in the future, subject to
applicable restrictions with respect to services provided to clients eligible
for Medicare and Medicaid reimbursement. The Company continually reviews its
costs in relation to the pricing of its services.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, FASB adopted Statement of Position No. 98-5, "Reporting
on the Costs of Start-Up Activities" ("SOP No. 98-5") which requires that costs
previously capitalized as start-up costs will be expensed as incurred. SOP No.
98-5 becomes effective for fiscal years beginning after December 15, 1998, with
earlier application encouraged. The adoption of SOP No. 98-5 will not have a
material effect on the Company's consolidated financial statements.
During 1998, FASB issued Statement of Financial Accounting Standards
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
The Company does not expect the adoption of this new accounting pronouncement to
have a material effect, if any, on its financial condition or results of
operations.
FORWARD-LOOKING STATEMENTS
Certain statements in this report on Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are typically identified by the
inclusion of phrases such as "the Company anticipates", "the Company believes"
and other phrases of similar meaning. These forward-looking statements are based
on the Company's current expectations. Such forward-looking statements involve
known and unknown risks, uncertainties, and other factors that may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. The potential risks and
uncertainties which could cause actual results to differ materially from the
Company's expectations include the impact of further changes in the Medicare
reimbursement system, including any changes to the current interim payment
system and/or the ultimate implementation of a prospective payment system;
government regulation; health care reform; pricing pressures from third-party
payors, including managed care organizations; retroactive Medicare audit
adjustments; year 2000
-36-
<PAGE> 37
failures; changes in laws and interpretations of laws or regulations relating to
the health care industry; and inability to obtain financing on satisfactory
terms.
GOVERNMENT REGULATION. As a home health care provider, the Company is subject to
extensive and changing state and Federal regulations relating to the licensing
and certification of its offices and the sale and delivery of its products and
services. The Federal government and Medicare fiscal intermediaries have become
more vigilant in their review of Medicare reimbursements to home health care
providers generally, and are becoming more restrictive in their interpretation
of those costs for which reimbursement will be allowed to such providers.
Changes in the law and regulations as well as new interpretations enforced by
the relevant regulatory agencies could have an adverse effect on the Company's
operations and the cost of doing business.
THIRD-PARTY REIMBURSEMENT AND MANAGED CARE. Because the Company is reimbursed
for its services primarily by the Medicare/Medicaid programs, insurance
companies, managed care companies and other third-party payors, the
implementation of alternative payment methodologies for any of these payors
could have an impact on revenues and profit margins. Generally, managed care
companies have sought to contain costs by reducing payments to providers.
Continued cost reduction efforts by managed care companies could adversely
affect the Company's results of operations.
HEALTH CARE REFORM. The BBA resulted in significant changes to cost based
reimbursement for Medicare home health care providers. Although the BBA retains
a cost based reimbursement system, the cost limits have been reduced and a
per-beneficiary limit has been implemented. The BBA provides for IPS which
became applicable for the Company on March 1, 1998 and will remain in effect
until the adoption of a new prospective payment system scheduled to be effective
for all home health care agencies beginning on October 1, 2000. The effect of
the changes under IPS is to reduce the limits for the amount of costs that are
reimbursable to home health care providers under the Medicare program. The
Company cannot quantify the full effect of IPS on the Company's future
performance because certain components of health care reform legislation, such
as the per-beneficiary limit, require annual data which will not be known until
a final assessment by Medicare and/or its fiscal intermediary is completed for
each annual period.
As Congress and state reimbursement entities assess alternative health
care delivery systems and payment methodologies, the Company cannot predict
which additional reforms may be adopted or what impact they may have on the
Company. Additionally, uncertainties relating to the nature and outcomes of
health care reforms have also generated numerous realignments, combinations and
consolidations in the health care industry which may also have an
-37-
<PAGE> 38
adverse impact on the Company's business strategy and results of operations. The
Company expects that in addition to industry consolidation generally, there may
be consolidations within the Company's company-owned and licensed locations,
with the likely result that there will be fewer offices by the end of the next
fiscal year.
BUSINESS CONDITIONS. The Company must continue to establish and maintain close
working relationships with physicians and physician groups, managed care
organizations, hospitals, clinics, nursing homes, social service agencies and
other health care providers. There can be no assurance that the Company will
continue to establish or maintain such relationships. The Company expects
additional competition will develop in future periods given the increasing
market demand for the type of services offered.
ATTRACTION AND RETENTION OF LICENSEES AND EMPLOYEES. Maintaining quality
licensees, managers and branch administrators will play a significant part in
the future success of the Company. The Company's professional nurses and other
health care personnel are also key to the continued provision of quality care to
the Company's patients. The possible inability to attract and retain qualified
licensees, skilled management and sufficient numbers of credentialed health care
professionals and para-professionals and information technology personnel could
adversely affect the Company's operations and quality of service.
SATISFACTORY FINANCING. Staff Builders' working capital deficiency as of
February 28, 1999 was $39.8 million and it has received notice from its bank
that it is in non-compliance with certain financial covenants constituting an
event of default under the terms of its credit facility agreement. Further, the
Company is at or near its borrowing limit under such credit facility. In order
to pay its current liabilities in the normal course of business and its
liabilities to the Medicare and Medicaid agencies as they become due, management
believes that the Company needs a new credit facility. Although the Company is
in the process of seeking a new facility, there can be no assurance that a new
credit facility will be available on favorable terms, if at all.
YEAR 2000. The Company believes that because of the upgrades it has
made and is making to its computer systems, the Year 2000 issue will not pose
significant operational problems for it. However, if the upgrades are not
completed on time, the Year 2000 issue might have an adverse effect. The Company
has no contingency plans to address major Year 2000 failures. The total cost of
the Company's Year 2000 systems assessments and upgrades is funded through
operating cash flows and leases. If the financial condition of Staff Builders
deteriorates, it may be unable to fund these systems assessments and upgrades.
-38-
<PAGE> 39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STAFF BUILDERS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of
February 28, 1999 and February 28, 1998 F-2
Consolidated Statements of Operations
for the Years ended February 28, 1999,
February 28, 1998 and February 28, 1997 F-3
Consolidated Statements of Stockholders' Equity
for the Years ended February 28, 1999,
February 28, 1998 and February 28, 1997 F-4
Consolidated Statements of Cash Flows
for the Years ended February 28, 1999,
February 28, 1998 and February 28, 1997 F-5
Notes to Consolidated Financial Statements F-6
FINANCIAL STATEMENT SCHEDULE FOR THE YEARS ENDED
FEBRUARY 28, 1999, FEBRUARY 28, 1998
AND FEBRUARY 28, 1997
II - Valuation and Qualifying Accounts F-35
</TABLE>
All other schedules were omitted because they are not required, not applicable
or the information is otherwise shown in the financial statements or the notes
thereto.
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
of Staff Builders, Inc.:
We have audited the accompanying consolidated balance sheets of Staff Builders,
Inc. and subsidiaries (the "Company") as of February 28, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended February 28,
1999. Our audits also included the financial statement schedule listed in the
Table of Contents. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Staff Builders, Inc. and
subsidiaries at February 28, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended February
28, 1999 in conformity with generally accepted accounting principles. Also, in
our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
The accompanying consolidated financial statements for the year ended February
28, 1999 have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 4 to the consolidated financial statements, the
Company's losses from operations, working capital deficiency and non-compliance
with the terms of its secured credit facility raise substantial doubt about its
ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 4. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Deloitte & Touche, LLP
Jericho, New York
May 25, 1999
F-1
<PAGE> 41
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 28,
------------------------------
ASSETS 1999 1998
- ------ ------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,007 $ 2,757
Accounts receivable, net of allowance
for doubtful accounts of $7,000
and $3,660, respectively 79,662 85,123
Deferred income taxes -- 3,176
Income tax refund receivable 1,733 --
Prepaid expenses and other current assets 3,554 4,853
------------- -------------
Total current assets 86,956 95,909
FIXED ASSETS, net 27,987 11,622
INTANGIBLE ASSETS, net 27,091 40,295
OTHER ASSETS 4,471 10,875
------------- -------------
TOTAL $ 146,505 $ 158,701
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 20,379 $ 17,107
Accrued expenses 14,520 11,976
Accrued payroll and payroll related expenses 25,750 28,152
Current portion of Medicare and Medicaid liabilities 22,673 11,925
Current portion of long-term debt 43,460 10,664
------------- -------------
Total current liabilities 126,782 79,824
------------- -------------
LONG-TERM DEBT 19,749 36,508
------------- -------------
LONG-TERM MEDICARE AND MEDICAID LIABILITIES 34,608 --
------------- -------------
OTHER LIABILITIES 4,725 4,000
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDERS' EQUITY:
Common stock -
Class A Common Stock - $.01 par value; 50,000,000 shares authorized;
23,307,129 and 23,009,247 outstanding at February 28, 1999
and 1998, respectively 236 230
Class B Common Stock - $.01 par value;
1,554,936 shares authorized; 312,251 and
1,056,356 outstanding at February 28, 1999
and 1998, respectively -- 10
Preferred stock, 10,000 shares authorized;
Class A - $1.00 par value; 666 2/3 shares
outstanding at February 28, 1998 -- 1
Additional paid-in capital 69,055 73,692
Accumulated deficit (108,650) (35,564)
------------- -------------
Total stockholders' equity (deficit) (39,359) 38,369
------------- -------------
TOTAL $ 146,505 $ 158,701
============= =============
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE> 42
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
FEBRUARY FEBRUARY FEBRUARY
28, 1999 28, 1998 28, 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Service revenues:
Home health care $ 310,297 $ 451,098 $ 436,599
Supplemental staffing 124,867 74,300 42,430
------------ ------------ ------------
Total service revenues 435,164 525,398 479,029
Sales of licensees and fees, net 2,424 1,275 1,326
------------ ------------ ------------
Total revenues 437,588 526,673 480,355
------------ ------------ ------------
COSTS AND EXPENSES:
Operating costs 299,057 338,225 301,508
General and administrative expenses 148,642 177,761 170,290
Amortization of intangible assets 1,314 2,807 2,623
Interest expense 4,233 3,706 1,601
Interest income (1,061) (1,358) (896)
Other (income) expense, net 1,991 (419) (1,487)
Medicare and Medicaid audit adjustments 29,000 -- --
Restructuring costs 20,464 33,447 --
------------ ------------ ------------
Total costs and expenses 503,640 554,169 473,639
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (66,052) (27,496) 6,716
PROVISION (BENEFIT) FOR INCOME TAXES 7,034 (5,864) 2,955
------------ ------------ ------------
NET INCOME (LOSS) $ (73,086) $ (21,632) $ 3,761
============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE:
Basic $ (3.16) $ (.90) $ .16
============ ============ ============
Diluted $ (3.16) $ (.90) $ .15
============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 23,162 23,939 23,668
============ ============ ============
Diluted 23,162 23,939 24,577
============ ============ ============
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 43
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Additional
Common Stock
------------------- Stock Paid-In Accumulated
Shares Amount Class A Capital Deficit Total
---------- ------- --------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances, March 1, 1996 23,537,320 $ 235 $ 1 $ 72,767 $ (17,693) $ 55,310
Additional common stock in
connection with a 1987 acquisition 4,870 - -
Common stock issued - exercise of
stock options, net of 15,232 shares
used to pay for shares 23,768 - 29 29
Exercise of common stock warrants 160,680 2 193 195
Common stock issued-employee
stock purchase plan 234,693 2 579 581
Purchase and retirement of common stock (155,000) (1) (409) (410)
Net Income 3,761 3,761
---------- ------ ------ ---------- ---------- ---------
Balances, February 28, 1997 23,806,331 238 1 73,159 (13,932) 59,466
Additional common stock in
connection with a 1987 acquisition 171 - -
Exercise of common stock warrants 5,000 - 11 11
Common stock issued-employee
stock purchase plan 254,101 2 522 524
Net (Loss) (21,632) (21,632)
---------- ------ ------ ---------- ---------- ---------
Balances, February 28, 1998 24,065,603 240 1 73,692 (35,564) 38,369
Additional common stock in
connection with a 1987 acquisition 26,935 - - -
Exercise of stock options 20,000 - 35 35
Purchase and retirement of
common stock (5,088,060) (50) (4,719) (4,769)
Conversion of preferred
stock into common stock 4,269,820 43 (1) (242) (200)
Common stock issued-employee
stock purchase plan 325,082 3 289 292
Net (Loss) (73,086) (73,086)
---------- ------ ------ ---------- ---------- ---------
Balances, February 28, 1999 23,619,380 $ 236 $ - $ 69,055 $ (108,650) $ (39,359)
========== ====== ====== ========== ========== =========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 44
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED
FEBRUARY FEBRUARY FEBRUARY
28, 1999 28, 1998 28, 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (73,086) $ (21,632) $ 3,761
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operations:
Depreciation and amortization of fixed assets 3,991 3,805 2,757
Amortization of intangibles and other assets 1,314 2,807 2,623
Write-off of goodwill and intangible assets 16,327 24,540 --
Write-off of investments and other assets 1,724 1,198 --
Write-off of fixed assets 911 -- --
Increase (decrease) in other long term liabilities 5,100 424 (758)
Allowance for doubtful accounts 3,340 800 600
Deferred income taxes 8,540 (7,101) 548
Gain on sale of assets (1,148) (290) (1,247)
Change in operating assets and liabilities:
Accounts receivable 1,972 (6,391) (23,718)
Prepaid expenses and other current assets (1,216) 415 (1,193)
Accounts payable 3,271 2,646 4,977
Accrued expenses (918) 7,719 (6,525)
Increase in Medicare and Medicaid audit liabilities 28,092 -- --
Increase in periodic interim payment liability 14,364 4,320 275
Other assets 451 211 (1,529)
----------- ----------- -----------
Net cash provided by (used in)
operating activities 13,029 13,471 (19,429)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (2,876) (16,226) (10,327)
Purchase of fixed assets (5,020) (1,029) (2,334)
Proceeds from disposal of assets 576 855 775
----------- ----------- -----------
Net cash used in investing activities (7,320) (16,400) (11,886)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Employee Stock Purchase Plan 292 524 581
Proceeds from exercise of stock options 35 11 29
Proceeds from exercise of warrants -- -- 195
Purchase and retirement of common stock (4,770) -- (410)
Increase (decrease) in borrowings
under revolving line of credit 9,094 (3,978) 21,565
Proceeds from acquisition line of credit -- 12,625 --
Proceeds from other notes payable -- 581 5,727
Payment of notes payable and other
long-term liabilities (11,110) (6,083) (3,076)
----------- ----------- -----------
Net cash provided by (used in) financing
activities (6,459) 3,680 24,611
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (750) 751 (6,704)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,757 2,006 8,710
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,007 $ 2,757 $ 2,006
=========== =========== ===========
SUPPLEMENTAL DATA:
Cash paid for:
Interest $ 3,963 $ 3,449 $ 1,081
=========== =========== ===========
Income taxes, net $ 2,287 $ 2,344 $ 1,867
=========== =========== ===========
Fixed assets purchased through
capital lease agreements $ 16,323 $ 2,351 $ 4,770
=========== =========== ===========
Acquisition of businesses through
issuance of notes payable $ 760 $ -- $ 3,113
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 45
STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1999 ("FISCAL 1999"), FEBRUARY 28, 1998 ("FISCAL 1998")
AND FEBRUARY 28, 1997 ("FISCAL 1997")
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT WHERE INDICATED OTHERWISE AND, FOR PER SHARE
AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Staff Builders, Inc. ("Staff Builders" or the "Company") is
a national provider of home health care services and supplemental
staffing, including medical services provided through its wholly-owned
subsidiary, ATC Healthcare Services, Inc. ("ATC") and information
technology services provided through its 81.8% owned subsidiary,
Chelsea Computer Consultants, Inc. ("Chelsea").
On March 22, 1999, the Company's Board of Directors approved a
plan to separate its home health care business from its supplemental staffing
business and to create a separate, publicly-traded company engaged exclusively
in providing home health care services. To accomplish this separation of its
businesses, the Company's Board of Directors established a new, wholly-owned
subsidiary, Tender Loving Care Health Care Services, Inc. ("TLC") which will
acquire 100% of the outstanding capital stock of the Staff Builders subsidiaries
engaged in the home health care business. The spin-off will be effected through
a pro rata distribution to Staff Builders' stockholders of all the shares of
common stock of TLC owned by Staff Builders. The distribution will be made by
issuing one share of TLC common stock for every two shares of Staff Builders
common stock outstanding on the record date of the spin-off. Based upon the
23,619,388 shares of Staff Builders common stock outstanding on May 28, 1999,
the Company estimates that 11,809,694 shares of TLC common stock will be
distributed to holders of Staff Builders common stock. Staff Builders'
supplemental staffing business will remain with Staff Builders. The completion
of the spin-off is subject to the satisfaction of certain conditions, including
obtaining certain regulatory approvals and bank financing for each of the home
health care company and the supplemental staffing company.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Staff Builders, its wholly-owned subsidiaries and its majority owned
subsidiary. The Company maintains its records on a fiscal year ending the last
day in February. All material intercompany accounts and transactions have been
eliminated. Certain prior period amounts have been reclassified to conform with
the fiscal 1999 presentation.
F-6
<PAGE> 46
A substantial portion of the Company's service revenues are
derived under a unique form of franchising which is a license agreement under
which independent companies or contractors represent the Company within a
designated territory. These licensees assign Company personnel including
registered nurses, therapists and home health aides to service the Company's
clients using the Company's trade names and service marks. The Company pays and
distributes the payroll for the direct service personnel who are all employees
of the Company, administers all payroll withholdings and payments, bills the
customers and receives and processes the accounts receivable. The licensees are
responsible for providing an office and paying related expenses for
administration including rent, utilities and costs for administrative personnel.
The Company owns all necessary health care related permits and
licenses and, where required, certificates of need for operation of licensee
offices. The revenues generated by the licensees along with the related accounts
receivable belong to the Company. The revenues and related direct costs are
included in the Company's consolidated service revenues and operating costs.
The Company pays a distribution or commission to the licensees
based on a defined formula of gross profit generated. Generally, the Company
pays the licensees 60% of the gross profit attributable to the non-Medicare
operations of the licensee. The payment to the Company's licensees related to
Medicare operations is adjusted for cost limitations and reimbursement of
allowable Medicare costs. There is no payment to the licensees based solely on
revenues.
For fiscal 1999, 1998 and 1997, total distributions or
commissions paid to licensees of approximately $50.6 million, $92.9 million and
$88.6 million, respectively, were included in the Company's general and
administrative expenses. These amounts consist of $38.3 million, $84.1 million
and $82.4 million for home health care licensees and $12.3 million, $8.8 million
and $6.2 million for supplemental staffing licensees, respectively.
In October 1997, the Company purchased 60.9% of the
outstanding common stock of Chelsea. Together with the 20.9% of the common stock
of Chelsea purchased in September 1996, the Company owns 81.8% of the
outstanding common stock of Chelsea. In connection with the Company's plans to
spin-off its home health care business, management has decided to retain its
investment in Chelsea by combining the Chelsea operations with its existing
supplemental staffing business. Accordingly, the accounts of Chelsea, which were
previously accounted for on the equity basis, are now included in the Company's
consolidated financial statements within the supplemental staffing business
segment, with prior years reclassified on a consistent basis. Earnings
attributable to the minority interest in Chelsea, the amounts of which are not
significant, are included in other (income) expense in the accompanying
statements of operations and accrued expenses in the accompanying balance
sheets.
F-7
<PAGE> 47
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
revenues and expenses as well as the disclosure of contingent assets and
liabilities in the financial statements. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include certificates of deposit and
commercial paper purchased with a maturity of less than three months.
FIXED ASSETS
Fixed assets, consisting of equipment (primarily computer
hardware and software), furniture and fixtures, and leasehold improvements, are
stated at cost and depreciated from the date placed into service over the
estimated useful lives of the assets using the straight-line method. The
estimated useful lives of the related assets are generally five to seven years.
GOODWILL AND INTANGIBLE ASSETS
The excess of the purchase price and related acquisition costs
over the fair market value of the net assets of the businesses acquired is
amortized on a straight-line basis over periods ranging from five to forty
years. Intangible assets include customer lists, which are being amortized over
five years on a straight-line basis.
In fiscal 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." This Statement
requires that certain assets be reviewed for impairment and, if impaired,
remeasured at fair value, whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. In the fourth
quarter of fiscal 1999 and 1998, the Company wrote off $15.3 million and $24.5
million, respectively, of goodwill and intangible assets. These amounts
primarily resulted from the Company's assessment of the adverse change in health
care reform (See Note 2).
REVENUE RECOGNITION
The Company recognizes revenue on the accrual basis as the
related services are provided to customers. Revenues are recorded net of
contractual or other allowances to which customers are entitled. Employees
assigned to particular customers may be changed at the customer's request or at
the Company's initiation. In addition, for financial reporting purposes, a
provision for uncollectible and
doubtful accounts is provided for amounts billed to customers which
F-8
<PAGE> 48
may ultimately be uncollectible due to billing errors, documentation disputes or
the customer's inability to pay.
Revenues generated from the sales of licensees and initial
licensee fees are recognized upon signing of the domestic license agreement, if
collectibility of such amounts is reasonably assured, since the Company has
performed substantially all of its obligations under its license agreements by
such date. In circumstances where a reasonable basis does not exist for
estimating collectibility of the proceeds of the sales of license and initial
license fees, such amounts are deferred and recognized as collections are made,
utilizing the cost recovery method (see Note 6), or until such time that
collectibility is reasonably assured.
Medicare reimburses the Company for covered items and services
at the lower of the Company's cost as determined by Medicare, cost limits
established by the Federal government, or the amount charged by the Company.
Revenues generated from Medicare services are recorded when services are
provided at an estimated reimbursement rate. Certain factors used to develop
these rates are subject to review and adjustment by the appropriate governmental
authorities and may result in additional amounts due to or due from the Company.
Management reduces revenues by its estimate of the amount of net adjustments
which should ultimately occur. Adjustments, if any, are recorded to these
estimates in the period during which they arise.
INCOME TAXES
Deferred income taxes result from timing differences between
financial and income tax reporting which primarily include the deductibility of
certain expenses in different periods for financial reporting and income tax
purposes. A valuation allowance is provided against net deferred tax assets
unless, in management's judgment, it is more likely than not that such deferred
tax asset will be realized.
EARNINGS (LOSS) PER SHARE
The basic net earnings (loss) per share is computed using
weighted average number of common shares outstanding for the applicable period.
The diluted earnings (loss) per share is computed using the weighted average
number of common shares plus common equivalent shares outstanding, except if the
effect on the per share amounts of including equivalents would be anti-dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, notes
receivable from licensees, long-term debt and other liabilities related to
acquisitions approximate fair value.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
In fiscal 1999, the Company adopted Statement of Financial
F-9
<PAGE> 49
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 provides standards which require
publicly held companies to report about operating segments in annual financial
statements together with related disclosures about products and services, major
customers and geographic areas (see Note 5).
NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the FASB adopted Statement of Position No.
98-5, "Reporting on the Costs of Start-Up Activities" ("SOP No. 98-5") which
requires that costs previously capitalized as start-up costs will be expensed as
incurred. SOP No. 98-5 becomes effective for fiscal years beginning after
December 15, 1998, with earlier application encouraged. The adoption of SOP No.
98-5 will not have a material effect on the Company's consolidated financial
statements.
During 1998, the FASB issued Statement of Financial Accounting
Standards (SFAS No. 133), "Accounting for Derivative Instruments and Hedging
Activities". The Company does not expect the adoption of this new accounting
pronouncement to have a material effect, if any, on its financial condition or
results of operations.
2. HEALTH CARE REFORM AND RELATED RESTRUCTURING COSTS
The Federal Balanced Budget Act of 1997 ("BBA") resulted in
significant changes to cost based reimbursement for Medicare home health care
providers. Although a cost based reimbursement system remains, the BBA reduced
the cost limits and created new per-beneficiary limits. The BBA provides for an
interim payment system ("IPS") which became applicable for the Company on March
1, 1998 and will remain in effect until the adoption of a new prospective
payment system which is scheduled to be effective for all home health care
agencies on October 1, 2000. The Federal Health Care Financing Administration
committed to the revised schedule in a report presented to Congress dated
February 4, 1999. The effect of the changes under IPS is to reduce the limits
for the amount of costs that are reimbursable to home health care providers
under the Medicare program. Accordingly, the Company together with many of its
licensees have modified their operations as needed to meet the demands of IPS,
including taking steps to reduce costs and maximize operational efficiencies
within the constraints of the IPS.
During the fourth quarter of fiscal 1998, management prepared
the home health care business segment of the Company for the impact of IPS and
for long term growth. As a result, the Company implemented a corporate-wide
restructuring and cost reduction program.
These actions, together with the Company's assessment of the impact of health
care reform legislation, resulted in a pre-tax charge in the fourth quarter of
fiscal 1998 of $33.4 million. During the quarter ended November 30, 1998, as a
result of the Company's further operating modifications, including the
additional closure and
F-10
<PAGE> 50
conversion of many locations from licensed to company-owned operations, the
Company wrote off or reserved approximately $4.5 million.
In fiscal 1999, management further evaluated the carrying
value of the Company's goodwill and intangible assets in light of current home
health care industry conditions and its impact on the Company's operations. Such
valuation resulted in an additional write-off of home health care goodwill of
$15.3 million leaving a remaining net carrying value of goodwill and intangible
assets as of February 28, 1999 of $5.1 million in the Company's home health care
business segment. The fiscal 1998 write-off of goodwill and intangible assets
included $21.5 million for the home health care segment and $3.0 million for the
supplemental staffing segment. The write-off of goodwill and intangible assets
is required under SFAS No. 121.
A summary of restructuring costs is as follows (in millions of
dollars):
<TABLE>
<CAPTION>
YEARS ENDED
FEBRUARY 28,
--------------
1999 1998
---- ----
<S> <C> <C>
Write-off of goodwill and
intangible assets $15.3 $24.5
Employee severance and
reduction in size 0.9 1.0
Write-down of home health care
related investments and receivables 0.9 6.3
Accrued litigation related costs 2.2 1.2
Receivables from converted
licensee locations 1.1 -
Other 0.1 0.4
----- -----
Total restructuring costs $20.5 $33.4
===== =====
</TABLE>
As of February 28, 1999, all amounts provided have either been
recorded as direct write-downs of assets or expended from the reserves, except
for the remaining accrued litigation related costs described in Note 16.
3. MEDICARE AND MEDICAID AUDIT ADJUSTMENTS
As a home health care provider, the Company is subject to
extensive and changing state and Federal regulations relating to the licensing
and certification of its offices and the sale and delivery of its products and
services. The Federal government and Medicare fiscal intermediaries have become
more vigilant in their review of Medicare reimbursements to home health care
providers generally, and have become more restrictive in their interpretation of
those costs for which reimbursement will be allowed to such providers. These
regulatory agencies have increased the number of audits performed and have
applied a more intensive degree of scrutiny in the conduct of these audits.
F-11
<PAGE> 51
During the quarter ended November 30, 1998, the Medicare
fiscal intermediary completed and issued the results of 88 audits for the fiscal
year ended February 28, 1997, including 25 audits conducted on site at branch
operating locations. These results together with the results of the home office
audit for the year ended February 28, 1997, indicated an aggregate liability of
approximately $9.5 million.
Additionally, the Company has recorded an accrual for third
party liability ("TPL") to state Medicaid agencies which have claimed that the
Company did not follow proper billing procedures in several locations. These
state Medicaid agencies have challenged the eligibility of individuals for whom
services were provided. The related claims are being reviewed by the state
agencies encompassing several prior years for which the Company has been paid.
The Company has reached a settlement for a portion of its TPL liability and is
continuing to negotiate to resolve amounts payable to these state agencies.
While the Company believes that it will ultimately prevail in
many of these cases, it has accrued for the anticipated losses for those cases
in which it will not prevail. Based upon the Company's consideration of the
scope of audits being performed by the fiscal intermediary, the issues raised
for such periods, the effect of the these issues on periods yet to be audited,
and the balance of liabilities previously provided, the company recorded
aggregate expense of $29.0 million in the quarter ended November 30, 1998. The
resultant liability together with the balance of liabilities previously
established, less amounts expended during the fourth quarter of fiscal 1999,
results in an aggregate audit liability of $28.1 million as of February 28, 1999
for Federal and state audit adjustments which includes $17.1 million and $11.0
million for Federal and state liabilities, respectively. (See Note 12). The
Company continues to appeal many audit issues and has engaged outside
professional advisors to support the Company's positions on these issues. The
Company anticipates that any resolution of the appeals may take up to several
years.
4. BANK DEFAULT AND GOING CONCERN MATTERS
As described more fully in Note 13, the Company has a secured
credit facility with a bank. On January 14, 1999, the bank provided the Company
with written notification that, in its opinion, the Company's non-compliance
with certain financial covenants as of November 30, 1998 constitutes an event of
default under the terms of the credit facility agreement. Those covenants
require the Company to maintain a minimum level of net worth and a maximum ratio
of senior debt to net worth, failures of which resulted from losses incurred in
connection with the recording of Medicare and Medicaid audit adjustments (Note
3). At the time that the bank declared its opinion as to an event of default,
the Company had borrowed $39.4 million under the credit facility, including
$29.7 million and $9.7 million under the revolving line of credit and the
acquisition line of credit, respectively. The bank has advised the Company that
while it has no obligation to provide additional advances as a result of the
non-compliance with certain financial covenants, it is willing to consider
making additional advances to the Company under such conditions as it may
determine.
F-12
<PAGE> 52
In connection with the bank's notice of default, the maximum
aggregate amount which can be borrowed under the credit facility was reduced
from $50 million to $40 million. Additionally, the bank increased the rate of
interest on all borrowings to 2.0% over the prevailing prime lending rate on its
revolving line of credit and 2.75% over the prevailing prime lending rate on its
acquisition line of credit (such prime lending rate being 7.75% as of February
28, 1999). The Company has classified its outstanding borrowings as a current
liability as of February 28, 1999 because the bank has the option to declare all
borrowings under the credit facility to become immediately due and payable. At
February 28, 1999 and 1998, the Company borrowed $35.4 million and $29.4
million, respectively, under the credit facility. A commitment fee on the unused
portion of the credit facility is payable at the rate of .375% per annum,
together with an annual collateral management fee of $85. The Company's working
capital deficiency was $(39.8) million at February 28, 1999. Current liabilities
at February 28, 1999 include $22.7 million for Medicare and Medicaid audit
liabilities, $35.4 of outstanding borrowings under the secured credit facility
and $8.1 million for the current portion of other debt obligations. While the
Company cannot accurately determine the required payment dates for its total
Medicare and Medicaid audit liabilities, it has included $34.6 million thereof
in other long-term liabilities based upon its current estimate of when payments
would likely become due. In order to pay its current liabilities in the normal
course of business as well as to pay its liabilities to the Medicare and
Medicaid agencies as they become due, the Company is investigating alternative
sources of funding.
The above conditions raise substantial doubt about the ability
of the Company to continue as a going concern. As a result, management of the
Company is pursuing various strategies, including but not limited to,
negotiating with alternative lending sources, deferred payment terms for
Medicare and Medicaid audit liabilities as well as for any repayments of
Medicare periodic interim payments(s) ("PIP") and deferred payment terms for
other creditors. Further, management is implementing an intensified collection
effort and has obtained a deferred payment schedule for the repayment of excess
PIP payments made to the Company by the Federal government as well as for audit
liabilities assessed to date. Such payment schedule requires these amounts to be
paid in 24 equal monthly installments beginning in May 1999, as of June 1, 1999
no payments have been made pursuant to this schedule. As of February 28, 1999,
the total amount of excess PIP amounts received and settled Medicare audit
liabilities were approximately $19.0 million and $6.8 million, respectively. In
addition, the spin-off described in Note 1 will be completed only if the bank or
another lender creates separate credit facilities for the home health care
business under TLC and the supplemental staffing business retained by Staff
Builders, and allocates the aggregate pre-spin-off debt between those two
entities. However, there can be no assurance that these actions will be
successful to provide adequate funds for the Company's current level of
operations and to pay the Company's past-due obligations.
F-13
<PAGE> 53
5. SEGMENT REPORTING
The Company operates in two reportable business segments, home health care
and supplemental staffing. Reportable segments have been identified based upon
how management has organized the business, the planned spin-off of the home
health care business, and the criteria in SFAS #131, "Disclosures about Segments
of an Enterprise and Related Information." Segment revenue consists of only
sales to outside customers. Segment gross margin consists of segment revenues
reduced by the direct costs of generating such revenues. Segment operating
profit consists of segment gross margin less general and administrative
expenses. General and administrative expenses incurred at the corporate level
have been allocated to segments based on the utilization of such services by
each segment.
The following table sets forth the selected results of
operations by business segment (in millions of dollars):
<TABLE>
<CAPTION>
Home Health Care
-------------------------------------
Year Ending February 28,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Service revenues $ 310.3 $ 451.1 $ 436.6
Sales of licensees and fees, net 2.2 1.1 1.0
----------- ----------- -----------
Total revenues 312.5 452.2 437.6
----------- ----------- -----------
Gross margin 112.5 172.1 169.0
General & administrative
expenses 122.1 161.0 159.2
Interest expense 2.6 2.8 1.4
Depreciation and amortization
expense 4.9 6.1 5.1
Other (income) expense 50.0 28.4 (2.3)
----------- ----------- -----------
Income (loss) before
income taxes $ (67.1) $ (26.2) $ 5.6
Provision (benefit) for
income taxes $ 6.6 $ (5.3) $ 2.5
----------- ----------- -----------
Net income (loss) $ (73.7) $ (20.9) $ 3.1
=========== =========== ===========
Total assets $ 94.4 $ 116.8 $ 139.6
=========== =========== ===========
</TABLE>
F-14
<PAGE> 54
<TABLE>
<CAPTION>
Supplemental Staffing
----------------------------------
Year Ending February 28,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Service revenues $ 124.9 $ 74.3 $ 42.4
Sales of licensees and
fees, net 0.2 0.2 0.4
--------- --------- ---------
Total revenues 125.1 74.5 42.8
--------- --------- ---------
Gross margin 26.0 16.3 9.9
General & administrative
expenses 22.6 13.0 8.4
Interest expense 1.6 0.9 0.2
Depreciation and amortization
expense 0.4 0.5 0.3
Other (income) expense 0.4 3.2 (0.1)
--------- --------- ---------
Income (loss) before
income taxes 1.0 (1.3) 1.1
Provision (benefit) for
income taxes 0.4 (0.6) 0.4
--------- --------- ---------
Net income (loss) $ 0.6 $ (0.7) $ 0.7
========= ========= =========
Total assets $ 52.1 $ 41.9 $ 16.6
========= ========= =========
</TABLE>
F-15
<PAGE> 55
<TABLE>
<CAPTION>
Consolidated
-----------------------------------
Year Ending February 28,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Service revenues $ 435.2 $ 525.4 $ 479.0
Sales of licensees and
fees, net 2.4 1.3 1.4
--------- --------- ---------
Total revenues 437.6 526.7 480.4
--------- --------- ---------
Gross margin 138.5 188.4 178.9
General & administrative
expenses 144.7 174.0 167.6
Interest expense 4.2 3.7 1.6
Depreciation and amortization
expense 5.3 6.6 5.4
Other (income) expense 50.4 31.6 (2.4)
--------- --------- ---------
Income (loss) before
income taxes (66.1) (27.5) 6.7
Provision (benefit) for
income taxes 7.0 (5.9) 2.9
--------- --------- ---------
Net income (loss) $ (73.1) $ (21.6) $ 3.8
========= ========= =========
Total assets $ 146.5 $ 158.7 $ 156.2
========= ========= =========
</TABLE>
6. LICENSEE OPERATIONS
Notes receivable from licensees generally bear interest at the
prevailing prime lending rate plus three percent and are generally payable over
a term of ten years. The balance of these notes receivable at February 28, 1999
and February 28, 1998 amounted to $726 and $1,734, net of deferred income
reflected as a valuation reserve for financial reporting purposes of $2,482 and
$4,387, respectively. The net balances of these notes at February 28, 1999 and
February 28, 1998 include $118 and $306 in Prepaid Expenses and Other Current
Assets and $608 and $1,428 in Other Assets, respectively.
The decrease in the foregoing balances reflect a reduction in
the number of licensees during fiscal 1999. The Company acquired the rights to
operate 34 home health care locations and sold or closed 38 other home health
care locations previously operated by licensees. Licensee notes receivable from
acquired locations had been substantially offset by valuation allowances and
therefore no charge to operations was required as a result of the transactions.
Additional consideration, if any, paid to acquire licensee operations is
included in the acquisitions described in Note 7.
F-16
<PAGE> 56
The remaining balance of notes receivable from licensees
related to the home health care and supplemental staffing business segments are
as follows:
<TABLE>
<CAPTION>
February 28, 1999 February 28, 1998
----------------------------------------- ------------------------------------------
Home Home
Health Supplemental Health Supplemental
Care Staffing Total Care Staffing Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Notes receivable $ 2,845 $ 363 $ 3,208 $ 5,800 $ 321 $ 6,121
Deferred income (2,182) (300) (2,482) (4,086) (301) (4,387)
----------- ----------- ----------- ----------- ----------- -----------
Net $ 663 $ 63 726 $ 1,714 $ 20 1,734
=========== =========== =========== ===========
Less current portion (118) (306)
----------- -----------
Long term notes receivable $ 608 $ 1,428
=========== ===========
</TABLE>
Sales of licensees and fees, net were $2,424, $1,275 and
$1,326 for fiscal 1999, 1998 and 1997, respectively. The home health care
portion of these amounts were $2,234, $1,119 and $987, for fiscal 1999, 1998 and
1997, and the supplemental staffing portion of these amounts were $190, $156 and
$339, respectively.
During fiscal 1999, fiscal 1998 and fiscal 1997, $228, $473
and $444, respectively, of home health care notes receivable previously not
recognized as income were collected and included in revenues. Additionally, the
initial franchise fees received in fiscal 1999, 1998 and 1997 for home health
care franchises were $182, $135 and $488, respectively. Sales of licensees and
fees, net for the fiscal 1999 period includes $1,223 from the sale of five home
health care franchise businesses. Further, license fees generated from the
Company's international franchise program were $601 and $512 in fiscal 1999 and
fiscal 1998, respectively. Included in the international fees were initial
franchise fees of $441 and $502 for fiscal 1999 and 1998, respectively, from the
Company's master license agreement with a home health care company based in
Tokyo, Japan. As of March 1998, the Company received the entire balance of the
master license fee totalling $1.2 million and is recording the related income as
it is earned through September 30, 1999. Under its revised agreement which
expires in October 2002 with a five-year renewable term, the Company will
receive periodic royalty payments based upon the Japanese company's service
revenues. Also included in the fiscal 1999 international franchise fees is $101
of such periodic royalties. Although the contract life has changed to expire in
October 2002, the $1.2 million franchise fee has not changed. Also included in
the fiscal 1999 international franchise fees was $59 pursuant to a master
license fee agreement with a Brazilian company.
The Company has performed substantially all of its
obligations as required under the terms of its franchise agreements. Interest
income on franchise notes receivable is included in other income.
In September 1996, in connection with the acquisition of a
supplemental staffing business, a corporation acquired the rights to operate
this business as a franchise and paid a fee of $75 to the Company. A majority of
the stock of this corporation is owned by two family members of one of the
Company's executive officers.
F-17
<PAGE> 57
In April 1992, one of the Company's franchises was acquired
by a corporation owned by a family member of one of the Company's executive
officers. The purchase price for the franchise included the assumption of a note
payable to the Company of $845 of which $645 remains outstanding at February 28,
1999. The note bears interest at the prevailing prime lending rate and matures
in 2009.
7. ACQUISITIONS
During fiscal 1999, 1998 and 1997, the Company made numerous
acquisitions for which consideration was paid in cash, the issuance of notes
payable and the assumption of certain liabilities. The transactions were
accounted for as purchases and, accordingly, the results of operations of the
acquired businesses are included in the accompanying consolidated financial
statements from their respective dates of acquisition.
In fiscal 1999, the Company acquired the rights to 18 home
health care locations previously operated by licensees for aggregate
consideration of $3.7 million which included cash paid of $2.1 million,
liabilities assumed of $800 and the write-off of notes receivable of $800.
Additionally, the Company acquired ten home health care businesses for aggregate
consideration of approximately $800, including cash paid of $600 and liabilities
assumed of $200.
In fiscal 1998, the Company acquired the assets of nine
businesses, consisting of seven home health care and two supplemental staffing
operations, which added six locations. The aggregate consideration included cash
paid of approximately $3.7 million and liabilities assumed of approximately $1.3
million.
In fiscal 1997, the Company acquired the assets of 19
businesses, consisting of 17 home health care and two supplemental staffing
operations, which added 33 locations. The aggregate consideration included net
cash paid of $8.2 million, the issuance of notes payable of $3.1 million and
liabilities assumed of $1.0 million.
The effect of the fiscal 1999 and 1998 acquisitions on
revenue, net loss and net loss per share on an unaudited pro forma basis for
fiscal 1999 and 1998 is not material. Revenues, net income and earnings per
share, on an unaudited pro forma basis for the year ended February 28, 1997, if
the fiscal 1998 and fiscal 1997 acquisitions had occurred on March 1, 1996,
would have approximated $500 million, $4.9 million and $.20, respectively.
Revenues, net income and earnings per share on an unaudited pro forma basis for
the year ended February 29, 1996, if the fiscal 1997 and 1996 acquisitions had
occurred on March 1, 1995, would have approximated $448 million, $2.6 million
and $.10, respectively.
F-18
<PAGE> 58
In connection with the fiscal 1999 and fiscal 1998
acquisitions, assets acquired and consideration paid was as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Fair value of assets acquired, net $ 4,498 $ 4,904
Net cash paid for acquired
assets and stock (2,844) (3,724)
Liabilities assumed and notes ------- -------
payable issued for acquisitions $ 1,654 $ 1,180
======= =======
</TABLE>
The fair value of assets acquired is net of the write-off of notes
receivable from ex-licensees of approximately $800.
8. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------
1999 1998
------- -------
<S> <C> <C>
Computer equipment and
software (see Note 13) $23,897 $11,196
Office equipment, furniture
and fixtures 12,177 7,490
Leasehold improvements 1,303 1,106
Land and buildings 106 106
------- -------
Total, at cost 37,483 19,898
Less accumulated depreciation
and amortization 9,496 8,276
------- -------
Fixed assets, net $27,987 $11,622
======= =======
</TABLE>
Computer equipment and software includes $13.7 million for computer
equipment and year 2000 compliant software. Such amount is pursuant to a
six-year lease agreement which requires payments through December 2004 (See Note
13). Additionally, office equipment includes the cost of year 2000 compliant
systems in other areas aggregating $3.2 million. The combined cost of these
systems will be amortized over the life of the software from the dates placed
into service.
During fiscal 1999, the Company wrote off fixed assets relating to closed
locations and obsolete computer equipment which is included in restructuring
costs. During fiscal 1999 and fiscal 1998, the Company wrote off fully
depreciated fixed assets of approximately $1.4 million and $1.7 million,
respectively.
9. INTANGIBLE ASSETS, NET
Intangible assets consist of the following amounts by business segment:
<TABLE>
<CAPTION>
February 28,
----------------------------------------------------------------------------------
1999 1998
---------------------------------------- ---------------------------------------
Gross Accumulated Gross Accumulated
Cost Amortization Net Cost Amortization Net
---------- ------------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Home health care $ 14,052 $ (8,926) $ 5,126 $ 27,648 $ (9,064) $ 18,584
---------- ------------- ---------- ---------- ------------ ----------
Supplemental staffing 24,141 (2,176) 21,965 23,168 (1,457) 21,711
---------- ------------- ---------- ---------- ------------ ----------
Intangible assets: $ 38,193 $ (11,102) $ 27,091 $ 50,816 $ (10,521) $ 40,295
========== ============= ========== ========== ============ ==========
</TABLE>
F-19
<PAGE> 59
The above amounts are net of the cumulative write-offs of goodwill and
intangibles which were approximately $39.8 million and $24.5 million at February
28, 1999 and February 28, 1998, respectively.
10. ACCRUED EXPENSES
Accrued expenses include $4,384 and $6,877 at February 28, 1999 and
February 28, 1998, respectively, of accrued distributions payable to licensees.
11. ACCRUED PAYROLL AND PAYROLL RELATED EXPENSES
Accrued payroll and payroll related expenses consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
-------------------
1999 1998
------- -------
<S> <C> <C>
Accrued payroll $ 7,602 $ 9,006
Accrued insurance 12,503 11,807
Accrued payroll taxes 4,072 5,882
Other 1,573 1,457
------- -------
Total $25,750 $28,152
======= =======
</TABLE>
12. MEDICARE AND MEDICAID LIABILITIES
Medicare and Medicaid liabilities include amounts payable or estimated to
be payable to Federal or state government agencies as a result of the Company's
participation in Medicare and Medicaid programs. These amounts consist of the
following:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Medicare:
Periodic interim payment
liability ("PIP")(a) $ 18,959 $ 4,595
Completed audits (b) 10,220 -
Audits in process or
net yet conducted (c) 17,155 7,330
-------- --------
46,334 11,925
Medicaid:
Completed assessments (d) 4,600 -
Assessments in process or
not yet conducted (e) 6,347 -
-------- --------
10,947 -
-------- --------
Total 57,281 -
Less current portion (22,673) (11,925)
-------- --------
Long term Medicare and
Medicaid liabilities $ 34,608 $ -
======== ========
</TABLE>
F-20
<PAGE> 60
(a) PIP liability represents amounts received from Medicare in excess of
current volume of business which are scheduled to be repaid in 24
equal monthly installments beginning in May 1999.
(b) The fiscal intermediary has completed audits for which the Company has
received a Notice of Provider Reimbursement.
(c) The fiscal intermediary has not yet commenced an audit or is currently
conducting audits for which no Notice of Provider Reimbursement has
been received.
(d) The Company has obtained payment terms which require repayment equal
to 25% of current remittances.
(e) The state Medicaid agencies have not yet commenced an audit or are
currently conducting audits for which no notice of repayment has yet
been received.
The above amounts have been classified as current liabilities unless a
formal or informal agreement has been reached to defer certain payments beyond
February 29, 2000 or, based upon audit timetables, management does not expect
that the audit will be completed and a request for payment received until after
February 29, 2000.
13. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
-------------------
1999 1998
------- -------
<S> <C> <C>
Borrowings under a secured revolving
line of credit(a) $26,681 $17,587
Borrowings under acquisition
line of credit (a) 8,680 11,836
Obligations under capital leases(b) 20,000 6,606
Notes payable and other liabilities
related to acquisitions(c) 5,043 5,225
Other note payable (d) 1,707 3,635
Chelsea notes payable (e) 1,098 2,283
------- -------
Total 63,209 47,172
Less current portion 43,460 10,664
------- -------
Long-term debt(f) $19,749 $36,508
======= =======
</TABLE>
As described in Note 4, the bank has advised the Company that in its
opinion the Company is presently in default of its bank agreement.
Accordingly, at February 28, 1999 such bank debt is shown as a current
liability. The following information provides relevant detail about the specific
terms of the outstanding debt.
F-21
<PAGE> 61
(a) The Company has a secured credit facility which consists of a revolving line
of credit, an acquisition line of credit and a standby letter of credit
facility, under which the Company can borrow up to an aggregate amount of $40
million. Amounts borrowed under the revolving line of credit are collateralized
by a pledge of all the stock of the Company's subsidiaries, by all accounts
receivable and by liens on substantially all other assets of the Company and its
subsidiaries. The agreement contains certain financial covenants which, among
other things, (i) require the maintenance of a specified minimum defined level
of book net worth, a minimum ratio of net income before depreciation and
amortization to the sum of payments made for long term debt, unfunded capital
expenditures, stock repurchases and permitted acquisitions, and a maximum ratio
of senior debt to book net worth, (ii) limit the amount of unfunded capital
expenditures, and (iii) prohibit the declaration or payment of cash dividends.
Based upon the non-recurring charge recorded in the fourth quarter of fiscal
1998 which primarily consisted of the write-down of goodwill (See Note 2), the
Company obtained an amendment with its bank to provide some relief from the
terms of those covenants which required a specified level of net worth and net
income before depreciation and amortization.
At February 28, 1999 and 1998, the amounts available for borrowing under
the credit facility were $2.3 million and $18.6 million, respectively. The
maximum amounts borrowed under the credit facility for fiscal 1999 and 1998 were
$40.1 million and $37.0 million, respectively. The maximum amount outstanding
under the revolving line of credit portion of the facility was $30.4 million and
$28.1 million in fiscal 1999 and 1998, respectively.
The Company is permitted to borrow up to 75% of eligible accounts
receivable, up to the maximum amount of the credit facility less amounts
outstanding under the acquisition line of credit and any outstanding letters of
credit. No additional borrowings are permitted under the acquisition line of
credit.
Effective March 25, 1999, the bank established a separate and distinct
borrowing base calculation which limited the maximum amount of borrowings for
each of the home health care operations and the supplemental staffing operations
to approximately $16.1 million and $15.5 million, respectively. Together with
the current outstanding balance of $8.4 million under the acquisition line of
credit, the aggregate maximum level of borrowings permitted remains at $40
million. From February 28, 1999 through May 28, 1999, the average outstanding
balance under the secured credit facility was $38.1 million.
(b) At February 28, 1999, the Company had capital lease agreements for computers
and other equipment through December 2004. The Company's capital lease
obligations includes a six-year lease agreement in the
F-22
<PAGE> 62
amount of $13.7 million which requires monthly installments through December
2004. The net carrying value of the assets under capital leases was
approximately $19.7 million and $7.1 million at February 28, 1999 and February
28, 1998, respectively, and such amounts are included in Fixed Assets.
(c) At February 28, 1999, the Company had a balance of notes payable related to
acquisitions of $5.0 million. The notes payable bear annual interest from zero
to 10.50% and have maturity dates through September 2010.
(d) The Company has a secured term loan which bears annual interest at 6.69% and
requires monthly payments of $176 through December 1999.
(e) The Chelsea notes payable consists of two types of debt instruments, one of
which is a secured financing arrangement and two unsecured loans. The secured
financing arrangement provides for borrowings on lines of credit up to 90% of
Chelsea's eligible accounts receivable, not to exceed a maximum line of credit
of $4 million. This financing arrangement bears interest at the prevailing prime
lending rate plus two percent and includes an annual facility fee of $30. The
balance outstanding was $333 at February 28, 1999. Such lines of credit are
collateralized by a security interest in Chelsea's trade accounts receivable.
The unsecured loans consist of certain related party transactions within
Chelsea. In January 1998, Chelsea borrowed $500 from its Chief Executive
Officer. This demand note bears interest at 15% with payments of interest only
beginning February 15, 1998. In November 1997, Chelsea borrowed $500 from its
Chief Operating Officer which loan bears annual interest at 10% and is payable
in ten quarterly installments of $57 beginning February 15, 1998. The aggregate
balance of these unsecured loans outstanding was $765 at February 28, 1999.
(f) Repayments of long-term debt at February 28, 1999 are due as follows:
<TABLE>
<CAPTION>
OBLIGATIONS
UNDER
CAPITAL OTHER
YEARS ENDING FEBRUARY LEASES DEBT TOTAL
------------------------ ------- ------- -------
<S> <C> <C> <C>
2000 $ 4,686 $38,774 $43,460
2001 4,689 370 5,059
2002 3,632 419 4,051
2003 2,996 386 3,382
2004 2,506 320 2,826
Thereafter 1,491 2,940 4,431
------- ------- -------
Total $20,000 $43,209 $63,209
======= ======= =======
</TABLE>
F-23
<PAGE> 63
14. OTHER LIABILITIES
Other liabilities consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------
1999 1998
------ ------
<S> <C> <C>
Accrued litigation (a) $3,105 $1,168
Accrued acquisition cost (b) - 700
Rent escalation liability (c) 751 883
Other 869 1,249
------ ------
Total $4,725 $4,000
====== ======
</TABLE>
(a) At February 28, 1999, the Company has recorded a loss accrual for the
aggregate, estimated amount to settle or litigate open legal matters.
(b) In connection with the Company's supplemental staffing division's September
1997 acquisition of a provider of travel nurse services, the Company is liable
to pay additional amounts based upon the attainment of certain gross margin
levels. As of February 28, 1999, the remaining amount payable was $1,005 which
is included in accrued expenses. The Company's estimate of such amounts at
February 28, 1998 was $1,124, of which $424 was included in accrued expenses.
(c) The lease on the Company's corporate headquarters requires scheduled rent
increases through September 30, 2005. A rent escalation liability is recorded
for the amounts required to record the expense of this lease on a straight-line
basis over the life of the lease, in excess of payments made. The balance of
this liability was $883 and $982 at February 28, 1999 and 1998 of which $132 and
$99, respectively, was included in accrued expenses.
15. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------
FEBRUARY FEBRUARY FEBRUARY
28, 1999 28, 1998 28, 1997
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $(1,733) $ 1,051 $1,709
State 554 377 558
Deferred 8,213 (7,292) 688
------- ------- ------
Total $ 7,034 $(5,864) $2,955
======= ======= ======
</TABLE>
F-24
<PAGE> 64
The provision for income taxes in fiscal 1999 consists of a valuation
allowance of $28.9 million offset by potential tax benefits of $20.2 million
resulting from losses incurred in that period. Such valuation allowance was
recorded because management does not believe that the utilization of the tax
benefits resulting from operating losses and other temporary differences are
"more likely than not" to be realized, as required by SFAS 109. The Company has
recorded an income tax receivable of $1.7 million resulting from the carryback
of net operating losses.
The deferred tax assets (liabilities) at February 28, 1999 and February
28, 1998 are comprised of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Current:
Allowance for doubtful
accounts receivable $ 2,595 $ 1,215
Accruals not currently
deductible 8,492 1,961
------------ ------------
11,087 3,176
Valuation allowance (11,087) --
------------ ------------
Current 0 3,176
------------ ------------
Non-Current:
Goodwill and intangible assets 7,905 5,696
Revenue recognition 324 409
Accelerated depreciation (888) (972)
Accruals not currently deductible 8,474 225
Other assets (liabilities) 35 7
Net operating loss carryforward 1,975 --
------------ ------------
17,825 5,365
Valuation allowance (17,825) --
------------ ------------
Non-current 0 5,365
------------ ------------
Total $ 0 $ 8,541
============ ============
</TABLE>
The non-current deferred tax assets are included in Other Assets on the
accompanying balance sheet at February 28, 1998.
F-25
<PAGE> 65
The following is a reconciliation of the effective income tax rate to
the Federal statutory rate:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
FEBRUARY FEBRUARY FEBRUARY
28, 1999 28, 1998 28, 1997
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
State and local income taxes,
net of Federal income
tax benefit 3.4 3.8 7.6
Write-off of goodwill and
intangible assets (3.9) (12.3) (0.2)
Tax credits -- -- (0.4)
Goodwill amortization (0.3) (1.1) 4.6
Reversal of prior year
accrual -- (1.8) (2.3)
Valuation allowance (43.8) -- --
Other -- (1.3) 0.7
--------- --------- ---------
Effective rate (10.6)% 21.3% 44.0%
========= ========= =========
</TABLE>
The Company has a Federal net operating loss carryover of $4,550 which
will expire in 2019.
16. COMMITMENTS AND CONTINGENCIES
Approximate minimum annual rental commitments for the remaining terms
of the Company's noncancellable operating leases relating to office space and
equipment rentals are as follows:
<TABLE>
<CAPTION>
YEARS ENDING HOME HEALTH SUPPLEMENTAL
FEBRUARY CARE STAFFING TOTAL
------------- ------------ ------------ ---------
<S> <C> <C> <C>
2000 $ 4,532 $ 388 $ 4,920
2001 3,365 192 3,557
2002 2,433 17 2,450
2003 2,168 4 2,172
2004 2,023 - 2,023
Thereafter 2,918 - 2,918
------- ----- -------
Total $17,439 $ 601 $18,040
======= ===== =======
</TABLE>
Certain leases require additional payments based upon property tax and
maintenance expense escalations.
Aggregate rental expense for fiscal 1999, 1998 and 1997 approximated
$5,899, $4,862 and $3,967, respectively. These rent expense amounts include home
health care of $5,519, $4,598 and $3,789 and supplemental staffing of $380, $264
and $178 for fiscal 1999, 1998 and 1997, respectively.
The Company has entered into employment or consulting agreements with
several officers and other individuals which require minimum aggregate payments
of approximately $3,510, $2,924,
F-26
<PAGE> 66
$2,031, $1,466 and $1,582 over the next five fiscal years. Agreements with two
executives provide, in the event of their death, for the continued payment of
their compensation to their beneficiaries for the duration of their agreements.
Additionally, certain officers have entered into agreements which provide that
in the event of change in control of, and the discontinuance of such employee's
employment, the Company will pay a lump sum amount of 2.99 times the average
annual compensation paid to the employee during the five-year period immediately
preceding the date of the discontinuance of employment.
On September 20, 1995, the United States Attorney for the Eastern
District of Pennsylvania alleged that (i) between 1987 and 1989, a corporation,
substantially all assets and liabilities of which were acquired by a subsidiary
of the Company in 1993, submitted false claims to Medicare totaling
approximately $1.5 million and (ii) officers and employees of that corporation
submitted false statements in support of such claims, and made a pre-complaint
civil settlement demand of approximately $4.5 million. The alleged false claims
and false statements were made before the Company acquired that corporation in
1993. There have been significant discussions with the office of the United
States Attorney which the Company believes are likely to lead to an arbitration
within specified parameters.
On June 18, 1998, 6100 Cleveland, Inc., Orsinger Enterprises,Inc., and
First Choice Medical Staffing, Inc., three former home care and staffing
licensees (franchisees) of the Company in Ohio, commenced an action in the
United States District Court for the Northern District of Ohio, Eastern Division
against the Company's subsidiary, Staff Builders International, Inc. The action
sought to recover damages and other relief alleging unpaid royalties, wrongful
termination by the Company of the Franchise Agreement between the Company and
the Plaintiffs, breach of contract and other damages. The Company answered the
complaint and moved for a change of venue. On December 1, 1998, Plaintiffs
without the required permission of the Court, filed a Second Amended Complaint
alleging in addition to the allegations contained in the prior Complaint, claims
under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), claiming
a series of deliberate and illegal actions designed to put certain Staff
Builders franchisees out of business, as well as claims arising under New York
and Ohio loss of business opportunity statutes. The Second Amended Complaint
seeks money damages in excess of $25 million and a claim for treble damages on
the RICO claim. The Second Amended Complaint added as defendants Staff Builders
Services, Inc., and certain executive officers of the Company. The Company has
moved to dismiss the Second Amended Complaint challenging the legal sufficiency
of the RICO claims and other claims which allege a loss of business
opportunities under New York and Ohio laws. A companion case, 6100 Columbus,
Inc. v. Staff Builders International, Inc. was recently filed alleging breach of
contract
F-27
<PAGE> 67
only. This case will probably be consolidated with the previous case.
On December 21, 1998, H.L.N. Corporation, Frontlines Homecare, Inc.,
E.T.H.L., Inc., Phoenix Homelife Nursing, Inc., and Pacific Rim Health Care
Services, Inc., former home care licensees (franchisees) of the Company for the
territory comprising certain counties in and around Los Angeles, California and
their holding company, instituted an action against the Company's subsidiaries,
Staff Builders, Inc., Staff Builders International, Inc. and Staff Builders
Services, Inc., and certain executive officers of the Company in the Superior
Court for the State of California, County of Los Angeles. The action was removed
to United States District Court for the Central District of California on
December 22, 1998. Plaintiffs filed a First Amended Complaint in the Central
District on January 8, 1999 to challenge the termination of the four franchise
agreements between the Company and certain of the named plaintiffs, seeking
damages for violations of California franchise law, breach of contract, fraud
and deceit, unfair trade practices, claims under the RICO, negligence,
intentional interference with contractual rights, declaratory and injunctive
relief and a request for an accounting. Plaintiffs seek an unspecified amount of
damages. Discovery is currently in process.
On July 17, 1998, the Federal government ordered that a complaint filed
by Ali Waris, the former owner of a home health care agency purchased by the
Company in 1993, be unsealed and served upon Staff Builders, Inc. and Targa
Group, Inc., a former licensee (franchisee) of the Company. The government has
elected not to intervene in the action, in which Mr. Waris claimed damages for
alleged violations of the False Claims Act by the Company in connection with
payments made by the Company for consulting services. Following a motion to
dismiss, on March 4, 1999, the Court granted Mr. Waris leave to amend the
Complaint, the amended filing for which was served on the Company on March 31,
1999. The Company intends to file a motion to dismiss the Amended Complaint.
On April 30, 1999, Nursing Services of Iowa, Inc., Helen Kelly,
Geri-Care Home Health, Inc. and Jacquelyn Klooster, two former home health care
franchisees of the Company and their principals in Des Moines and Sioux City,
Iowa, respectively, commenced an action in the United States District Court for
the Southern District of Iowa, Central Division against the Company's
subsidiaries Staff Builders International, Inc., Staff Builders Services, Inc.,
Staff Builders, Inc., and certain executive officers of the Company. The action
alleges claims under the RICO claiming a series of deliberate and illegal
actions designed to defraud Staff Builders' franchisees, as well as claims for
negligence, breach of fiduciary duty, breach of contract, fraudulent
misrepresentation and violation of the Iowa franchise law. The complaint seeks
unspecified money damages, a claim for treble damages on the RICO claims and
punitive and exemplary damages.
F-28
<PAGE> 68
The Company is a defendant in several civil actions which are routine
and incidental to its business. The Company purchases insurance in such amounts
which management believes to be reasonable and prudent.
Although the Company cannot estimate the ultimate cost of its open
legal matters with precision, it has recorded a loss accrual at February 28,
1999 and February 28, 1998 for the aggregate, estimated amount to litigate or
resolve such matters. In the opinion of management, the outcome of pending
litigation will not have a material adverse effect on the Company's consolidated
financial position or results of operations. However, unfavorable resolutions of
these actions could have an adverse impact on liquidity.
17. STOCKHOLDERS' EQUITY
COMMON STOCK - RECAPITALIZATION AND VOTING RIGHTS
During fiscal 1996, the shareholders approved a plan of
recapitalization by which the existing Common Stock, $.01 par value, was
reclassified and converted into either Class A Common Stock, $.01 par value per
share, or Class B Common Stock, $.01 par value per share. Prior to the
recapitalization, shares of common stock that were held by the beneficial owner
for at least 48 consecutive months were considered long-term shares, and, were
entitled to ten votes for each share of stock. Pursuant to the recapitalization,
long-term shares were converted into Class B Common Stock and short-term shares
(beneficially owned for less than 48 months) were converted into Class A Common
Stock. As a result of the recapitalization, 1,554,936 shares of Class B common
stock were issued.
A holder of Class B Common Stock is entitled to ten votes for each
share and each share is convertible into one share of Class A Common Stock (and
will automatically convert into one share of Class A Common Stock upon any
transfer subject to certain limited exceptions). Except as otherwise required by
the Delaware General Corporation Law, all shares of common stock vote as a
single class on all matters submitted to a vote by the stockholders.
The recapitalization included all outstanding options and warrants to
purchase shares of common stock which were converted automatically into options
and warrants, to purchase an equal number of shares of Class A Common Stock.
STOCK OPTIONS
The Company has adopted the disclosure provisions of the
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"). Accordingly, no compensation
expense has been recognized for the stock option plans. Had the
F-29
<PAGE> 69
Company recorded compensation expense for the stock options based on the fair
value at the grant date for awards in fiscal years ended 1999, 1998 and 1997
consistent with the provisions of SFAS 123, the Company's net income (loss) and
net income (loss) per share would have reflected the following pro forma
amounts:
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY FEBRUARY
28, 1999 28, 1998 28, 1997
-------- -------- --------
<S> <C> <C> <C>
Net income (loss)
-as reported $(73,086) $(21,632) $ 3,761
Net income (loss)
-pro forma (73,099) (22,075) 3,708
Basic earnings (loss)
per share as reported (3.16) ( 0.90) .16
Basic earnings (loss)
per share pro forma (3.16) ( 0.92) .16
Diluted earnings (loss)
per share as reported (3.16) ( 0.90) .15
Diluted earnings (loss)
per share pro forma (3.16) ( 0.92) .15
</TABLE>
Because the SFAS 123 method of accounting has not been applied to
options granted prior to March 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The fair value of each option grant is estimated on the date of grant
using the Black Scholes option pricing model with the following weighted-average
assumptions used for grants in fiscal years 1999, 1998 and 1997, respectively:
expected volatility of 142%, 56% and 48%; risk-free interest rate averaging
5.5%, 5.8% and 7.1%; and expected lives of 10 years for all.
During the year ended February 28, 1994 ("fiscal 1994"), the Company
adopted a stock option plan (the "1993 Stock Option Plan") under which an
aggregate of one million shares of common stock are reserved for issuance upon
exercise of options thereunder. Options granted under this plan may be incentive
stock options ("ISO's") or non-qualified options ("NQSO's"). This plan replaces
the 1986 NonQualified Plan ("1986 NQSO Plan") and the 1983 Incentive Stock
Option Plan ("1983 ISO Plan") which terminated in 1993 except as to options then
outstanding. Employees, officers, directors and consultants are eligible to
participate in the plan. Options are granted at not less than the fair market
value of the common stock at the date of grant.
A total of 2,227,750 stock options were granted under the 1993 Stock
Option Plan, at prices ranging from $.50 to $3.87, of which 924,750 remain
outstanding at February 28, 1999. Effective December 1, 1998, 914,750 of these
options issued to certain employees under the 1993 Stock Option Plan were
rescinded and the same number of new options at an option price of $.50 reissued
to these employees.
During the year ended February 28, 1999 ("fiscal 1999"), the Company
adopted a stock option plan ("the "1998 Stock Option Plan") under which an
aggregate of two million shares of common stock are
F-30
<PAGE> 70
reserved for issuance upon exercise of options thereunder. Options granted under
this plan may be incentive stock options ("ISO's") or non-qualified options
("NQSO's"). Employees, officers, directors and consultants are eligible to
participate in the plan. Stephen Savitsky and David Savitsky are not eligible to
receive options under the plan. Options are granted at not less than fair market
value of the common stock at the date of grant.
A total of 960,583 stock options were granted under the 1998 Stock
Option Plan, at a price of $.50, all of which remain outstanding at February 28,
1999. Effective December 1, 1998, 117,550 options issued to certain employees
under the 1983 ISO Plan and 31,250 options issued to certain employees under the
1986 NQSO Plan were rescinded and 148,800 options at an option price of $.50
were issued to these employees under the 1998 Stock Option Plan.
A summary of activity under the 1998 Stock Option Plan, the 1993 Stock
Option Plan, the 1986 NQSO Plan and the 1983 ISO Plan is as follows:
<TABLE>
<CAPTION>
OPTIONS
FOR SHARES PRICE PER SHARE
----------- ---------------
<S> <C> <C>
Options outstanding at
February 29, 1996 2,503,030 $1.63 to $6.38
Granted 222,500 $2.50 to $3.19
Exercised (39,000) $2.27
Terminated (213,500) $2.19 to $6.38
----------
Options outstanding at
February 28, 1997 2,473,030 $1.63 to $6.13
Granted 414,000 $2.28 to $2.50
Exercised (5,000) $2.19
Terminated (392,750) $2.19 to $4.00
----------
Options outstanding at
February 28, 1998 2,489,280 $1.63 to $6.13
Granted 1,880,333 $ .50 to $2.06
Exercised (20,000) $1.75
Terminated (1,474,840) $1.75 to $6.13
----------
Options outstanding at
February 28, 1999 2,874,773 $ .50 to $3.00
==========
</TABLE>
Included in the outstanding options are 148,169 ISO's and 900,440
NQSO's which were exercisable at February 28, 1999. The remaining options to
purchase 1,826,164 shares become exercisable at various dates through December
2004.
F-31
<PAGE> 71
The following tables summarize information about stock options
outstanding at February 28, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------
WEIGHTED
AVERAGE WEIGHTED
RANGE OF REMAINING AVERAGE
EXERCISE NUMBER CONTRACTUAL LIFE EXERCISE
PRICES OUTSTANDING (IN YEARS) PRICE
-------------- ----------- ----------------- --------
<S> <C> <C> <C>
$ .50 to $1.50 1,875,333 7.6 $ .50
$1.51 to $2.50 939,440 3.2 $1.84
$2.51 to $3.00 60,000 3.2 $3.00
---------- ------ -----
2,874,773 6.1 $ .99
========== ====== =====
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
-------------------
WEIGHTED
AVERAGE WEIGHTED
RANGE OF REMAINING AVERAGE
EXERCISE NUMBER CONTRACTUAL LIFE EXERCISE
PRICES EXERCISABLE (IN YEARS) PRICE
-------------- ----------- ----------------- --------
<S> <C> <C> <C>
$ .50 to $1.50 49,169 9.8 $ .50
$1.51 to $2.50 939,440 3.2 $1.84
$2.51 to $3.00 60,000 3.2 $3.00
---------- ------ -----
1,048,609 3.5 $1.84
========== ====== =====
</TABLE>
During the year ended February 28, 1995, the Company adopted a stock
option plan (the "1994 Performance-Based Stock Option Plan") which provides for
the issuance of up to 3,400,000 shares of its common stock. Executive officers
of the Company and its wholly-owned subsidiaries are eligible for grants.
Performance-based stock options are granted for periods of up to ten years and
the exercise price is equal to the average of the closing price of the common
stock for the twenty consecutive trading days prior to the date on which the
option is granted. Vesting of performance based options is during the first four
years after the date of grant, and is dependent upon increases in the market
price of the common stock.
Since inception a total of 7,712,563 stock options were granted under
the 1994 Performance-Based Stock Option Plan, at option prices ranging from $.53
to $3.14, of which 3,396,849 remain outstanding at February 28, 1999. Effective
December 1, 1998, 3,150,714 of these options issued to certain employees under
the plan were rescinded and new options at option prices ranging from $.53 to
$.59 were issued to these employees. Of the 3,396,849 options outstanding as of
February 28, 1999, 30,000 options were terminated in March 1999, 25,000 options
are exercisable through September, 2004 and the remaining 3,341,849 options will
become exercisable on, or before, December 1, 2004.
A summary of activity under the 1994 Performance-Based Stock Option
Plan is as follows:
<TABLE>
<CAPTION>
OPTIONS
FOR SHARES PRICE PER SHARE
---------- ---------------
<S> <C> <C>
Options outstanding at
February 28, 1996 2,230,000 $3.14
Granted 0 --
Exercised 0 --
Terminated 0 --
---------
Options outstanding at
February 28, 1997 2,230,000 $3.14
Granted 1,100,714 $1.81 to $2.25
Exercised 0 --
Terminated (50,000) $3.14
---------
Options outstanding at
February 28, 1998 3,280,714 $1.81 to $3.14
Granted 4,381,849 $ .53 to $2.16
Exercised 0 --
Terminated (4,265,714) $1.81 to $3.14
---------
Options outstanding at
February 28, 1999 3,396,849 $ .53 to $3.14
=========
</TABLE>
The following tables summarize information about stock options
issued under the 1994 Performance-Based Stock Option Plan outstanding at
February 28, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------
WEIGHTED
AVERAGE WEIGHTED
RANGE OF REMAINING AVERAGE
EXERCISE NUMBER CONTRACTUAL LIFE EXERCISE
PRICES OUTSTANDING (IN YEARS) PRICE
-------------- ----------- ----------------- --------
<S> <C> <C> <C>
$ .53 to $ .59 3,341,849 9.8 $ .58
$ .60 to $2.15 0 -- --
$2.16 to $3.14 55,000 6.5 $2.90
---------- ------ -----
3,396,849 9.7 $ .62
========== ====== =====
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
-------------------
WEIGHTED
AVERAGE WEIGHTED
RANGE OF REMAINING AVERAGE
EXERCISE NUMBER CONTRACTUAL LIFE EXERCISE
PRICES EXERCISABLE (IN YEARS) PRICE
-------------- ----------- ----------------- --------
<S> <C> <C> <C>
$ .53 to $ .59 0 -- --
$ .60 to $2.15 0 -- --
$2.16 to $3.14 40,000 5.6 $3.10
------ --- -----
40,000 5.6 $3.10
====== === =====
</TABLE>
During fiscal 1994, the Company adopted an employee stock purchase plan
(the "1993 Employee Stock Purchase Plan") which provided for the issuance of up
to one million shares of its common stock. The purchase price of the shares is
the lesser of 90 percent of the fair market value at the enrollment date, as
F-32
<PAGE> 72
defined, or the exercise date. All one million shares have been issued and the
1993 Employee Stock Purchase Plan has been terminated.
During fiscal 1999, the Company adopted an employee stock purchase plan
(the "1998 Stock Purchase Plan") which provides for the issuance of up to one
million shares of its common stock. This plan replaces the 1993 Employee Stock
Purchase Plan. The purchase price of the shares is the lesser of 90 percent of
the fair market value at the enrollment date, as defined, or the exercise date.
Since inception of this plan, a total of 96,634 shares were issued. The 1998
Employee Stock Purchase Plan has been indefinitely suspended and no further
shares will be issued during the suspension.
PREFERRED STOCK, CLASS A
During fiscal 1999, the holders of all issued and outstanding shares of
Class A Preferred Stock (the "Preferred Stock") exchanged their Preferred Stock
for 4,269,820 shares of Class A Common Stock. There are currently no outstanding
shares of Preferred Stock.
COMMON SHARES RESERVED
The following represents common shares reserved and available for
issuance, at February 28, 1999, for options granted and outstanding warrants and
employee stock purchases:
<TABLE>
<CAPTION>
AVAILABLE
RESERVED FOR ISSUANCE
---------- ------------
<S> <C> <C>
1994 Performance-Based Stock
Option Plan 3,396,849 3,151
1998, 1993, 1986 and 1983 Stock
Option Plans 2,874,773 1,039,417
1998 Employee Stock Purchase Plan - 903,366
Other 12,894 -
--------- ---------
Total 6,284,516 1,945,934
========= =========
</TABLE>
PURCHASE AND RETIREMENT OF COMMON STOCK
From March 6, 1998 through October 16, 1998, the Company purchased and
retired a total of 5,088,060 shares of its common stock at a cost of $4.8
million. No repurchases have been made since October 16, 1998 and no repurchases
were made in fiscal 1998. During fiscal 1997, the Company purchased and retired
a total of 155,000 shares of its common stock at a cost of $410.
F-33
<PAGE> 73
18. EARNINGS (LOSS) PER COMMON SHARE
The following table sets forth the computation of the basic and diluted
earnings (loss) per share (In thousands, except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------
FEBRUARY FEBRUARY FEBRUARY
28, 1999 28, 1998 28, 1997
------------ ------------ ------------
<S> <C> <C> <C>
Numerator:
Net income (loss) $ (73,086) $ (21,632) $ 3,761
============ ============ ============
Denominator:
Share reconciliation:
Shares used for basic earnings
(loss) per share 23,162 23,939 23,668
Effect of dilutive items:-
Stock options -- -- 864
Other -- -- 45
------------ ------------ ------------
Shares used for dilutive earnings
(loss) per share 23,162 23,939 24,577
============ ============ ============
Earnings (loss) per share:
Basic $ (3.16) $ (0.90) $ 0.16
============ ============ ============
Diluted $ (3.16) $ (0.90) $ 0.15
============ ============ ============
</TABLE>
19. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized unaudited quarterly financial data for fiscal 1999 and 1998
are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal 1999
Revenues $ 111,281 $ 111,670 $ 107,883 $ 106,754
Gross profit $ 34,897 $ 37,484 $ 35,301 $ 30,849
Net income (loss) $ (99) $ 135 $ (45,370) $ (27,752)
Income (loss) per common share:
Basic $ 0.00 $ .01 $ (1.99) $ (1.18)
Diluted $ 0.00 $ .01 $ (1.99) $ (1.18)
Weighted average number of common shares:
Basic 23,647 22,526 22,846 23,577
Diluted 23,647 22,563 22,846 23,577
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal 1998
Revenues $ 130,501 $ 131,617 $ 133,075 $ 131,480
Gross profit $ 46,525 $ 47,548 $ 47,494 $ 46,881
Net income $ 849 $ 989 $ 975 $ (24,445)
Income per common share:
Basic $ .04 $ .04 $ .04 $ (1.02)
Diluted $ .04 $ .04 $ .04 $ (1.02)
Weighted average number of common shares:
Basic 23,842 23,910 23,970 24,035
Diluted 24,080 24,246 24,388 24,035
</TABLE>
During the third quarter of fiscal 1999, the Company recorded pre-tax
charges including $29.0 million for Medicare and Medicaid audit adjustments and
$4.5 million for restructuring costs. During the fourth quarter of fiscal 1999,
the Company wrote-off goodwill and intangible assets aggregating $15.3 million
and recorded other restructuring costs of $0.7 million. During the fourth
quarter of fiscal 1998, the Company recorded a pre-tax non-recurring charge of
$33.4 million.
F-34
<PAGE> 74
SCHEDULE II
STAFF BUILDERS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------
FEBRUARY FEBRUARY FEBRUARY
28, 1999 28, 1998 28, 1997
----------- ----------- -----------
<S> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Balance, beginning of period $ 3,660 $ 2,800 $ 2,200
Charged to costs and expenses 9,109 4,800 2,740
Addition from consolidation of
majority-owned business -- 60 --
Deductions (5,769) (4,000) (2,140)
----------- ----------- -----------
Balance, end of period $ 7,000 $ 3,660 $ 2,800
=========== =========== ===========
ACCUMULATED AMORTIZATION OF
INTANGIBLE ASSETS:
Balance, beginning of period $ 10,521 $ 9,126 $ 7,282
Charged to costs and expenses 581 2,601 2,503
Write-off of fully
amortized assets -- (1,206) (659)
----------- ----------- -----------
Balance, end of period $ 11,102 $ 10,521 $ 9,126
=========== =========== ===========
DEFERRED INCOME (NETTED AGAINST
FRANCHISE NOTES RECEIVABLE):
Balance, beginning of period $ 4,387 $ 5,600 $ 5,735
Charged to notes receivable 428 89 341
Deductions (2,333) (1,302) (476)
----------- ----------- -----------
Balance, end of period $ 2,482 $ 4,387 $ 5,600
=========== =========== ===========
</TABLE>
F-35
<PAGE> 75
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no such changes or disagreements.
<PAGE> 76
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth as to each director and each executive
officer of the Company: (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 Year First
Held in the Elected
Company and Any Other as a
NAME Age Directorships Director
- ---- --- ------------- --------
<S> <C> <C> <C>
Stephen Savitsky 53 A founder of the Company, Mr. 1983
Savitsky 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 from November
1991 until November 30, 1998. Mr. Savitsky
is the brother of David Savitsky.
David Savitsky 51 A founder of the Company, Mr. 1983
Savitsky 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 from
December 1987 until November
30, 1998 and as Chief Operating
Officer from April 1991 until
November 30, 1998. On December
1, 1998, Mr. Savitsky became
President of the Company. Mr.
Savitsky is the brother of
Stephen Savitsky.
</TABLE>
<PAGE> 77
<TABLE>
<CAPTION>
Principal Occupation During the
Past Five Years, Any Office Year First
Held in the Elected
Company and Any Other as a
NAME Age Directorships Director
- ---- --- ------------- --------
<S> <C> <C> <C>
Jonathan J. 54 Dr. Halpert was elected a 1983
Halpert, Ph.D. Director by 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. 50 Dr. Firestone was elected a 1987
Firestone, Ph.D. Director by the Board of
Directors in August 1987. He is an
associate dean for curriculum and
personnel in the College of Liberal Arts
and Sciences and professor of political
science at Hofstra University where he has
been teaching for 24 years.
Donald Meyers 70 Mr. Meyers was elected a 1994
Director by 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.
</TABLE>
<PAGE> 78
<TABLE>
<CAPTION>
Principal Occupation During the
Past Five Years, Any Office Year First
Held in the Elected
Company and Any Other as a
NAME Age Directorships Director
- ---- --- ------------- --------
<S> <C> <C> <C>
Dale R. Clift 48 Mr. Clift has been Executive Not
Vice President of Finance and Applicable
Chief Financial Officer of the
Company since February 1998.
On December 1, 1998, Mr. Clift
became the Chief Operating
Officer of the Company. 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.
Edward Teixeira 56 Mr. Teixeira has been the Not
Executive Vice President and Applicable
Chief Operating Officer of a
principal subsidiary of the
Company since April, 1999. From December
1990 to April, 1999, Mr. Teixeira served
as the Senior Vice President, Franchising
of a principal subsidiary of the Company.
Willard T. Derr 42 Mr. Derr has been Senior Vice Not
President and Corporate Applicable
Controller 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.
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
Principal Occupation During the
Past Five Years, Any Office Year First
Held in the Elected
Company and Any Other as a
NAME Age Directorships Director
- ---- --- ------------- --------
<S> <C> <C> <C>
Sandra Parshall 51 Ms. Parshall has been the Not
Senior Vice President, Applicable
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.
</TABLE>
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 the fiscal year ended February 28, 1999 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 the fiscal year ended February 28, 1999, 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.
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 Company's
Class A Common Stock, $.01 par value per share (the "Class A Common Stock"), or
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"), 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, 1999,
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 initial reports of
ownership were filed late by Willard T. Derr and Sandra Parshall and reports of
change of beneficial ownership
<PAGE> 80
were filed late by Stephen Savitsky, David Savitsky and Ed Teixeira with respect
to one transaction during the 1999 fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation of the Company's Chief Executive Officer and four other
executive officers (the "Named Executive Officers") for services as executive
officers of the Company for the last three fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------------------------------------- LONG-TERM
NAME AND PRINCIPAL COMPENSATION
POSITION AWARDS
- -------- ------
SECURITIES
BONUS OTHER ANNUAL UNDERLYING
YEAR SALARY COMPENSATION COMPENSATION OPTIONS(#)
---- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Stephen Savitsky.................... 1999 $594,991 --- --- 1,383,691
Chairman and Chief 1998 $520,571 --- --- 580,691
Executive Officer 1997 $474,704 --- --- ---
David Savitsky...................... 1999 $426,131 --- --- 1,383,691
President, Secretary and 1998 $377,016 --- --- 580,691
Treasurer 1997 $343,705 --- --- ---
Sandra Parshall..................... 1999 $170,654 --- --- 75,000
Senior Vice President, 1998 $148,105 $25,000 --- ---
Operations of a Principal 1997 $118,640 $14,250 --- 25,000
Subsidiary
Dale R. Clift....................... 1999 $244,781 $143,665(1) --- 700,000
Executive Vice President, 1998 $ 13,599 $ 18,000(2) --- ---
Finance, Chief Financial 1997 --- --- --- ---
Officer and Chief Operating
Officer
Edward Teixeira..................... 1999 $178,684 $30,625 --- 102,800
Executive Vice President and 1998 $176,615 $19,375 --- ---
Chief Operating Officer 1997 $167,714 --- --- 10,000
of a Principal Subsidiary
</TABLE>
<PAGE> 81
(1) Bonus was paid to compensate for additional cost of living in the New York
metropolitan area as part of relocation.
(2) Sign on-bonus
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, 1999. 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").
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
% OF
TOTAL
OPTIONS
GRANTED
NUMBER OF TO
SECURITIES EMPLOYEES GRANT
UNDERLYING IN EXERCISE DATE
OPTIONS FISCAL OR EXPIRATION PRESENT
NAME GRANTED YEAR BASE PRICE DATE VALUE(1)
---- ------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Stephen Savitsky.............. 397,000(2) 7.6% $.55 12/01/03 $166,740
Stephen Savitsky.............. 1,383,691(3) 26.4% $.59 12/01/08 636,498
David Savitsky................ 397,000(2) 7.6% $.55 12/01/03 166,740
David Savitsky................ 1,383,691(3) 26.4% $.59 12/01/08 636,498
Dale R. Clift................. 333,333(4) 6.4% $.50 12/01/08 153,333
Dale R. Clift................. 366,667(3) 7.0% $.53 12/01/08 168,667
Sandra Parshall............... 25,000(2) 0.5% $.50 12/01/08 11,500
Sandra Parshall............... 50,000(3) 1.0% $.53 12/01/08 23,000
Edward Teixeira............... 10,000(2) 0.2% $.50 12/01/08 4,600
Edward Teixeira............... 77,800(3) 1.5% $.53 12/01/08 35,788
Edward Teixeira............... 15,000(4) 0.3% $.50 12/01/08 6,900
</TABLE>
<PAGE> 82
(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 142%;
(b) risk-free rate of return of approximately 5.5%; (c) no dividends
payable during the relevant period; and (d) exercise at the end of a 10
year period from the date of grant.
(2) Issued under the 1993 Stock Option Plan. Effective December 1, 1998,
all options previously issued to the Named Executive Officers under the
1993 Stock Option Plan were rescinded and new options issued. Options
become exercisable pursuant to the terms of the individual option
agreements. A total of 11,668 options were exercisable as of February
28, 1999.
(3) Issued under the 1994 Performance-Based Stock Option Plan. On March 19,
1998 options to purchase 500,000 shares issued to each of Stephen
Savitsky and David Savitsky and options to purchase 25,000 shares
issued to Edward Teixeira were rescinded and new options issued.
Effective December 1, 1998 all options previously issued to the Named
Executive Officers were rescinded and new options issued. A percentage
of options may become exercisable in each of the four years following
the grant date if
<PAGE> 83
certain stock price targets are achieved. All options automatically
become exercisable on December 1, 2004. A total of 15,000 options were
exercisable as of February 28, 1999.
(4) Issued under the 1998 Stock Option Plan. Options become exercisable
pursuant to the terms of the individual option agreements. No options
were exercisable as of February 28, 1999.
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, 1999,
and held at the end of such
fiscal year, by the Named Executive Officers. No SARs were
exercised during such fiscal year, and no SARs are held by any
Named Executive Officer, because the Company does not have any
plans providing for SARs.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS OPTIONS
ACQUIRED AT FEBRUARY 28, 1999 AT FEBRUARY 28, 1999
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- -------- -------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Stephen Savitsky........... --- --- 334,000/1,780,691 0/0
David Savitsky............. --- --- 320,000/1,780,691 0/0
Dale R. Clift.............. --- --- 0/700,000 0/0
Sandra Parshall............ --- --- 8,334/66,666 0/0
Edward Teixeira............ --- --- 3,334/99,466 0/0
</TABLE>
EMPLOYMENT AGREEMENTS
On June 1, 1987, the Company entered into a five-year employment
agreement with Stephen Savitsky under which Mr. Savitsky received an initial
base salary (beginning in June 1987) of $200,000 per year, which base salary
increases annually at the rate of ten percent plus any increase in the cost of
living. Mr. Savitsky's employment agreement is automatically extended at the end
of each year for an additional year and is terminable by the Company upon five
years' notice. For the
<PAGE> 84
fiscal year ended February 28, 1999, Mr. Savitsky received a base salary of
$594,991. Mr. Savitsky's employment agreement provides that, upon a "change of
control" of the Company and his termination of employment other than for his
conviction 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. Upon consummation of the spin-off described earlier,
Mr. Savitsky's current employment agreement will be amended to among other
things, reduce his base salary and eliminate his post-termination consulting
fee.
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, 1999, was $426,131. Upon consummation of
the spin-off described earlier, Mr. Savitsky's current employment agreement will
be amended to among other things, reduce his base salary and eliminate his
post-termination consulting fee.
Effective April 15, 1999, the Company entered into a three-year
employment agreement with Edward Teixeira to serve as Executive Vice President
and Chief Operating Officer of a principal subsidiary of the Company. The
employment agreement provides for an annual base salary of $200,000, $210,000
and $220,500 for each of the three years ending April 14, 2000, 2001 and 2002,
respectively. Mr. Teixeira also received options to purchase 60,000 shares of
Class A Common Stock of the Company and an automobile allowance of approximately
$6,700 per annum. In addition, Mr. Teixeira is entitled to receive a yearly
bonus provided certain pre-tax profit levels are achieved. Further, if within
twelve months 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 a severance payment equal to
twelve months' salary, payable in weekly installments. Under his employment
agreement, Mr. Teixeira is obligated to devote his full business time to the
affairs of the Company and is prevented from competing with the Company for six
months after his employment is terminated. Mr. Teixeira's base salary for the
fiscal year ended February 28, 1999 was $178,684. In addition, Mr. Teixeira
received a bonus of $30,625.
Effective March 1, 1999, a principal subsidiary of the Company entered
into an employment agreement with Sandra Parshall to serve as the Senior Vice
President-Operations. The employment agreement, which will terminate upon the
effective date of the spin-off transaction discussed previously, provides
<PAGE> 85
for an annual base salary of $204,000. In addition, the Company leases an
automobile for Ms. Parshall's use at an annual cost of approximately $6,400.
Further, if within 12 months after a "change of control" Ms. Parshall is
discharged, or she resigns, for any reason (other than breach of his employment
agreement) she would be entitled to receive a severance payment equal to 2.99
times her average annual base salary for the past five years to be paid in
weekly installments for the three-year period following such discharge or
resignation. The employment agreement requires Ms. Parshall to devote her full
business time to the affairs of the Company and prevents her from competing with
the Company for six months after her employment is terminated. Ms. Parshall's
base salary for the fiscal year ended February 28, 1999 was $170,654.
As of February 9, 1998, 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. Effective December 1, 1998, Mr.
Clift assumed the position of Chief Operating Officer and his employment
agreement was amended and extended to February 28, 2002. The employment
agreement provides for a base salary of $300,000 per annum. Additionally, Mr.
Clift received bonuses totaling $161,665, reimbursement of his moving expenses
up to $40,000, an automobile allowance of approximately $8,700 per annum and
options to purchase 700,000 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 for the past 3 years to be paid in weekly installments 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, 1999 was $244,781. Upon consummation of the
spin-off described earlier, Mr. Clift's current employment agreement will be
amended to among other things, reduce his base salary, change his position and
eliminate certain benefits.
<PAGE> 86
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 Sandra Parshall 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
$1,756,000, $1,345,000, $1,096,000, $207,000 and $466,000, respectively. The
lump sum severance payments payable after the end of the calendar year or the
anniversary dates of the respective employment agreements, as the case may be,
would change as a result of changes in such individuals' compensation. The term
"change of control" 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.
DIRECTOR COMPENSATION
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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of May 28, 1999 with
respect to the beneficial ownership of the Company's Class A Common Stock and
Class B Common 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 Named Executive Officers, and (iv) all
directors and executive officers of the Company as a group.
<PAGE> 87
<TABLE>
<CAPTION>
CLASS A AND CLASS B COMMON STOCK
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
-----------------------------------------------------------------------------------------
PERCENTAGE PERCENTAGE
NUMBER OF OUTSTANDING NUMBER OF OUTSTANDING PERCENTAGE
SHARES OF SHARES OF SHARES OF SHARES OF 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).................. 3,130,179(5)(6)(7) 13.1 --- --- 11.6
David Savitsky (4).................... 3,171,977(6)(8)(9) 13.6 1,000(10) * 11.8
Bernard J. Firestone (11)............. --- --- 2,100(12) * *
Jonathan J. Halpert (11).............. --- --- --- --- ---
Donald Meyers (11).................... 2,000(13) * --- --- *
Dale R. Clift(11)..................... 111,111(14) * --- --- *
Edward Teixeira (11).................. 52,334(15) * --- --- *
Sandra Parshall (11).................. 20,733(16) * --- --- *
S Squared Technology
Corp. (17).......................... 2,614,500 11.2 --- --- 9.9
Dimensional Fund
Advisors, Inc. (18)................. 1,372,460 5.9 --- --- 5.2
All executive
officers and directors
as a group (10 persons)............... 6,266,844(6)(19) 26.0 3,100 1.0 23.0
</TABLE>
*Less than one percent
(1) "Beneficial ownership" is determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934, as amended. In general, a
person is treated as the "beneficial owner" of stock under Rule 13d-3
if such person has (or shares) (i) either investment power or voting
power over such stock which may be by means of a contract, arrangement,
understanding, relationship or otherwise, or (ii) the right to acquire
such stock within 60 days, including by means of the exercise of an
option or the conversion of a convertible security. Each beneficial
owner's percentage of ownership and percentage of votes is determined
by assuming that options that are held by such person (but not those
held by any other person) and which are exercisable within 60 days of
the date of this table have been exercised. Except as indicated in the
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.
<PAGE> 88
(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.
(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 2,844,739 shares of Class A Common 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 2,635,287
shares of Class A 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 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 60,000 shares of Class A Common Stock held by Mr. Savitsky's
wife as trustee for the benefit of one of their children. Mr. Savitsky
disclaims beneficial ownership of these shares.
(8) Includes options to purchase 320,000 shares of Class A Common Stock
under the 1986 Non-Qualified Stock Option
Plan.
(9) Includes 7,450 shares of Class A Common Stock held by Mr. Savitsky's
wife, 202,600 shares of Class A Common Stock held by Mr. Savitsky's
wife as trustee for the benefit of their children and 101,200 shares of
Class A Common Stock held by one of Mr. Savitsky's children. Mr.
Savitsky disclaims beneficial ownership of these shares.
<PAGE> 89
(10) Includes 1,000 shares of Class B Common Stock held by Mr. Savitsky's
wife as trustee for the benefit of their three children. Mr. Savitsky
disclaims beneficial ownership of these shares.
(11) 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.
(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 111,111 shares of Class A Common Stock
under the 1998 Stock Option Plan.
(15) Includes options to purchase 3,334 shares of Class A Common Stock under
the 1993 Stock Option Plan and options to purchase 20,000 shares of
Class A Common Stock under the 1998 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 2,402,500 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, 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.
<PAGE> 90
Dimensional Fund Advisors Inc. serves as investment manager of these
entities and disclaims beneficial ownership of all such shares.
(19) Includes options to purchase 20,001 shares of Class A Common Stock
under the 1993 Stock Option Plan, options to purchase 131,111 shares of
Class A Common Stock under the 1998 Stock Option Plan, and options to
purchase 654,000 shares of Class A Common Stock under the 1986
Non-Qualified Stock Option Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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 licensees 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 licensee'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 licensee's ability to operate the franchise. As described in greater
detail below, during the fiscal year ended February 28, 1999, the Company
retained $55,144 from the amount otherwise due to BCC under the terms of its
franchise agreement as interest payments on the BCC Note.
<PAGE> 91
The outstanding balance of the BCC Note was $645,073 at February 28, 1999.
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 required repayment of the
$50,000 in 108 consecutive monthly payments of principal plus interest, computed
at 3% over prime, commencing March 1, 1999. The terms of the Second Boro Note
required monthly payments of interest, computed at 3% over prime, commencing 30
days after the first withdrawal of funds on the available line of credit.
Monthly principal payments were 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 terms and conditions of the
franchise agreement between the Company and Boro are substantially similar to
those for other licensees of the Company, except that the Boro franchise
agreement provided the licensee with two additional five-year renewal options.
Effective February 1, 1999, the Company repurchased the franchised territories
from Boro and the franchise agreement was terminated in an arm's length
transaction. The purchase price paid by the Company was $1.00 plus the
forgiveness of $286,548 in debt owed by Boro to the Company, including amounts
owed as of February 1, 1999 pursuant to the First Boro Note and the Second Boro
Note noted above. The terms of the termination agreement, including the
forgiveness of debt, are substantially similar to those for other recently
terminated licensees.
Effective September 8, 1996, DSS Staffing Corp. ("DSS") acquired a
medical staffing services license 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 licensees of the Company, except that the DSS franchise agreement provides
the licensee with two additional five-year renewal options.
<PAGE> 92
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 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
licensees of the Company, including the term of ten years with a five-year
renewal option. During the fiscal year ended February 28, 1999, the Company
retained $1,488 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 $12,798 at February 28, 1999.
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 licensees 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
guaranteed payment of all amounts due under the Home Care Two Note. During the
fiscal year ended February 28, 1999, the Company retained $1,946 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 $18,535 at February 28, 1999.
<PAGE> 93
Effective March 1, 1999, the Company repurchased the franchised
territories from Home Care and Home Care Two and the franchise agreements were
terminated in an arm's length transaction. The purchase price paid by the
Company was $495,605, which included the assumption by the Company of certain
liabilities totaling $25,000 the forgiveness of $160,605 in debt owed by Home
Care and Home Care Two to the Company and the issuance by the Company of two
$155,000 promissory notes. Each promissory note bears interest at 8% per annum
and provides for 60 monthly payments of $3,142.84 commencing on April 1, 1999
and terminating on March 1, 2004. The terms of the termination agreement are
substantially similar to those for other recently terminated franchises.
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
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 licensees of the Company including the term of ten years with a
five-year renewal option. In connection with the termination of the Home Care
and Home Care Two franchise agreements noted above, Vitex relinquished its
franchise territories and the franchise agreement was terminated effective March
1, 1999.
<PAGE> 94
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 licensee 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 licensee's
business for the prior month's activity. Licensees are responsible for their
general and administrative expenses, including office payroll. If the licensee
elects, the Company will process payment of the licensee's office payroll and
some or all of the licensee's other administrative expenses, and withhold the
amount so expended from the 60% gross margin otherwise due the licensee.
During the fiscal year ended February 28, 1999, the Company paid (i) BCC
$162,301 under the terms of its franchise agreement, representing a 60% gross
margin of $1,236,575 less $55,144 and $42,000 of interest and principal,
respectively, withheld on the BCC Note and $977,130 withheld for administrative
expenses; (ii) DSS $961,956 under the terms of its franchise agreement,
representing a 60% gross margin of $2,591,522 less $1,629,566 withheld for
administrative expenses; (iii) Home Care $1,017,248 under the terms of its
franchise agreement, representing a 60% gross margin of $1,048,657 less $1,488
and of $11,519 of interest and principal, respectively, withheld on the Home
Care Note and $18,403 withheld for administrative expenses; (iv) Home Care Two
$117,932 under the terms of its franchise agreement, representing a 60% gross
margin of $923,594 less $1,946 and $11,405 of interest and principal,
respectively, withheld on the Home Care Two Note and $792,311 withheld for
administrative expenses; (v) Vitex $57,654 under the terms of its franchise
agreement, representing a 60% gross margin of $60,284 less $2,630 withheld for
administrative expenses and (v) Partners $492,900 under the terms of its
franchise agreement, representing a 60% gross margin of $1,321,822 less $2,105
and $250 of interest and principal, respectively, withheld on the Partners Note
and $826,567 withheld for administrative expenses.
In order to facilitate the acquisition of a franchise by a willing
prospective licensee, the Company will frequently accept a promissory note as
consideration for the purchase from the Company of an existing branch location
and will
<PAGE> 95
occasionally advance expenses to a licensee. 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 licensees.
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 unaffilitated party.
<PAGE> 96
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The financial statements, including the supporting schedules, filed as part of
the report, are listed in the Table of Contents to the Consolidated Financial
Statements.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Registrant for the quarter ended
February 28, 1999.
<PAGE> 97
(C) EXHIBITS
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Restated Certificate of Incorporation of the
Company, filed July 11, 1988. (A)
3.2 Certificate of Amendment to the Restated Certificate
of Incorporation of the Company, filed August 22,
1991. (B)
3.3 Certificate of Amendment to the Restated Certificate
of Incorporation of the Company, filed September 3,
1992. (A)
3.4 Certificate of Retirement of Stock of the Company,
filed February 28, 1994.
3.5 Certificate of Retirement of Stock of the Company,
filed June 3, 1994. (A)
3.6 Certificate of Designation, Rights and Preferences
of the Class A Preferred Stock of the Company, filed
June 6, 1994. (A)
3.7 Certificate of Amendment of Restated Certificate of
Incorporation of the Company, filed August 23,
1994. (A)
3.8 Certificate of Amendment of Restated Certificate
of Incorporation of the Company, filed October 26,
1995. (C)
3.9 Certificate of Amendment of Restated Certificate
of Incorporation of the Company, filed December
19, 1995. (D)
3.10 Plan Of Recapitalization dated as of May 12,
1995. (D)
3.11 Amended and Restated By-Laws of the Company. (A)
4.1 Specimen Class A Common Stock Certificate. (E)
- ---------------------
See Notes to Exhibits
<PAGE> 98
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.2 Specimen Class B Common Stock Certificate. (F)
4.3 Non-Qualified Option Agreement, dated March 27, 1998
between the Company and Ephraim Koschitzki. (G)
10.1 1983 Incentive Stock Option Plan (incorporated by
reference to Exhibit 18.1 to the Company's
Registration Statement on Form S-18, (File No.
1-83939NY), filed with the Commission on
September 15, 1983).
10.2 Amendment to the 1983 Incentive Stock Option Plan
(adopted on May 15, 1986). (A)
10.3 Amendment to the 1983 Incentive Stock Option Plan,
dated January 1, 1987. (A)
10.4 Amendment to the 1983 Incentive Stock Option Plan,
dated as of December 1, 1987. (A)
10.5 Amendment to the 1983 Incentive Stock Option Plan,
dated as of August 3, 1988. (A)
10.6 Amendment to the 1983 Incentive Stock Option Plan,
dated as of August 8, 1990. (A)
10.7 Amendment to the 1983 Incentive Stock Option Plan,
dated as of October 27, 1995. (H)
10.8 1986 Non-Qualified Stock Option Plan of the
Company. (I)
10.9 First Amendment to the 1986 Non-Qualified Stock
Option Plan, effective as of May 11, 1990. (A)
10.10 Amendment to the 1986 Non-Qualified Stock Option
Plan, dated as of October 27, 1995. (J)
10.11 Resolutions of the Company's Board of Directors
amending the 1983 Incentive Stock Option Plan and the
1986 Non-Qualified Stock Option Plan, dated as of
June 3, 1991. (A)
- ---------------------
See Notes to Exhibits
<PAGE> 99
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.12 1993 Stock Option Plan of the Company. (A)
10.13 1998 Stock Option Plan of the Company (incorporated
by reference to Exhibit C to the Company?s Proxy
Statement dated August 27, 1998, filed with the
Commission on August 27, 1998).
10.14 Amended and Restated 1993 Employee Stock Purchase
Plan of the Company. (K)
10.15 1998 Employee Stock Purchase Plan of the Company
(incorporated by reference to Exhibit D to the
Company's Proxy Statement dated August 27, 1998,
filed with the Commission on August 27, 1998).
10.16 Executive Deferred Compensation Plan, effective as
of March 1, 1994.
10.17 Form of Split-Dollar Life Insurance Agreement.
10.18 1994 Performance-Based Stock Option Plan of the
Company (incorporated by reference to Exhibit B to
the Company's Proxy Statement, dated July 18, 1994,
filed with the Commission on July 27, 1994.)
10.19 Stock Option Agreement, dated as of March 28, 1990,
under the Company's 1986 Non-Qualified Stock Option
Plan between the Company and Stephen Savitsky. (A)
10.20 Stock Option Agreement, dated as of June 17, 1991,
under the Company's 1986 Non-Qualified Stock Option
Plan between the Company and Stephen Savitsky. (A)
10.21 Stock Option Agreement, dated December 1, 1998,
under the Company's 1993 Stock Option Plan between
the Company and Stephen Savitsky. (L)
- ---------------------
See Notes to Exhibits
<PAGE> 100
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.22 Stock Option Agreement, dated December 1, 1998, under
the Company's 1994 Performance-Based Stock Option
Plan between the Company and Stephen Savitsky. (L)
10.23 Stock Option Agreement, dated as of March 28, 1990,
under the Company's 1986 Non-Qualified Stock Option
Plan between the Company and David Savitsky. (A)
10.24 Stock Option Agreement, dated as of June 17, 1991,
under the Company's 1986 Non-Qualified Stock Option
Plan between the Company and David Savitsky. (A)
10.25 Stock Option Agreement, dated December 1, 1998, under
the Company's 1993 Stock Option Plan between the
Company and David Savitsky. (L)
10.26 Stock Option Agreement, dated December 1, 1998, under
the Company's 1994 Performance-Based Stock Option
Plan between the Company and David Savitsky. (L)
10.27 Stock Option Agreement, dated December 1, 1998, under
the Company's 1993 Stock Option Plan, between the
Company and Edward Teixeira. (L)
10.28 Stock Option Agreement, dated December 1, 1998 under
the Company's 1994 Performance-Based Stock Option
Plan, between the Company and Edward Teixeira. (L)
10.29 Stock Option Agreement, dated December 1, 1998,
under the Company's 1994 Performance-Based Stock
Option Plan, between the Company and Edward
Teixeira. (L)
10.30 Stock Option Agreement, dated December 1, 1998,
under the Company's 1998 Stock Option Plan,
between the Company and Edward
Teixiera. (L)
- ---------------------
See Notes to Exhibits
<PAGE> 101
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.31 Stock Option Agreement, dated December 1, 1998,
under the Company's 1994 Performance-Based
Stock Option Plan, between the Company and Dale
Clift. (L)
10.32 Stock Option Agreement, dated December 1, 1998,
under the Company's 1994 Performance-Based
Stock Option Plan, between the Company and Dale
Clift. (L)
10.33 Stock Option Agreement, dated December 1, 1998,
under the Company's 1998 Stock Option Plan,
between the Company and Dale R. Clift.
10.34 Stock Option Agreement, dated December 1, 1998,
under the Company's 1993 Stock Option Plan,
between the Company and Sandra Parshall. (L)
10.35 Stock Option Agreement, dated December 1, 1998,
under the Company's 1994 Performance-Based Stock
Option Plan between the Company and Sandra
Parshall. (L)
10.36 Stock Option Agreement, dated December 1, 1998,
under the Company's 1994 Performance-Based Stock
Option Plan, between the Company and Willard T.
Derr.
10.37 Stock Option Agreement, dated December 1, 1998,
under the Company's 1994 Performance-Based Stock
Option Plan, between the Company and Willard T. Derr.
10.38 Stock Option Agreement, dated December 1, 1998,
under the Company's 1998 Stock Option Plan,
between the Company and Willard T. Derr.
10.39 Employment Agreement, dated as of June 1, 1987,
between the Company and Stephen Savitsky. (A)
- ---------------------
See Notes to Exhibits
<PAGE> 102
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.40 Amendment, dated as of October 31, 1991, to the
Employment Agreement between the Company and Stephen
Savitsky. (A)
10.41 Amendment, dated as of December 7, 1992, to the
Employment Agreement between the Company and Stephen
Savitsky. (A)
10.42 Employment Agreement, dated as of June 1, 1987,
between the Company and David Savitsky. (A)
10.43 Amendment, dated as of October 31, 1991, to the
Employment Agreement between the Company and David
Savitsky. (A)
10.44 Amendment, dated as of January 3, 1992, to the
Employment Agreement between the Company and David
Savitsky. (A)
10.45 Amendment, dated as of December 7, 1992, to the
Employment Agreement between the Company and David
Savitsky. (A)
10.46 Employment Agreement, dated as of April 15, 1999,
between the Company and Edward Teixeira.
10.47 Employment Agreement, dated as of February 9,
1998, between the Company and Dale R. Clift. (G)
10.48 First Amendment to Employment Agreement, dated
as of December 1, 1998, to the Employment Agreement
between the Company and Dale R. Clift. (L)
10.49 Employment Agreement, dated as of March 1, 1998,
between Staff Builders, Inc. (NY) and Willard T.
Derr. (O)
- ---------------------
See Notes to Exhibits
<PAGE> 103
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.50 Employment Agreement, dated as of March 1, 1999,
between Staff Builders, Inc. (NY) and Sandra
Parshall.
10.51 Employment Agreement, dated as of October 1, 1997,
between Staff Builders, Inc. (NY) and Cynthia
Nye. (P)
10.52 Agreement and Release, dated as of December 24, 1998,
between Staff Builders, Inc. (NY) and Cynthia
Nye. (L)
10.53 Agreement and Release, dated as of February 28, 1997,
between Staff Builders, Inc. (NY) and Larry
Campbell. (N)
10.54 Amended and Restated Loan and Security Agreement,
dated as of January 8, 1997, between the Company,
its subsidiaries and Mellon Bank, N.A. (N)
10.55 First Amendment to Amended and Restated Loan and
Security Agreement dated as of April 27, 1998,
between the Company, its subsidiaries and Mellon
Bank, N.A. (G)
10.56 Master Lease Agreement dated as of December 4, 1996,
between the Company and Chase Equipment Leasing,
Inc. (N)
10.57 Premium Finance Agreement, Disclosure Statement
and Security Agreement dated as of December 26, 1996,
between the Company and A.I. Credit Corp. (N)
10.58 Agreement of Lease, dated as of October 1, 1993,
between Triad III Associates and Staff Builders, Inc.
(NY). (A)
10.59 First Lease Amendment, dated October 25, 1998,
between Matterhorn USA, Inc. and Staff Builders,
Inc. (NY)
- -----------------------
See Notes to Exhibits
<PAGE> 104
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.60 Supplemental Agreement, dated as of January 21, 1994,
between General Electric Capital Corporation, Triad
III Associates and Staff Builders, Inc. (NY) (A)
10.61 Agreement of Lease, dated as of June 19, 1995,
between Triad III Associates and Staff Builders,
Inc. (NY). (D)
10.62 Agreement of Lease, dated as of February 12, 1996,
between Triad III Associates and Staff Builders,
Inc. (NY). (D)
10.63 License Agreement, dated as of April 23, 1996,
between Matterhorn One, Ltd. and Staff Builders,
Inc. (NY). (N)
10.64 License Agreement, dated as of January 3, 1997,
between Matterhorn USA, Inc. and Staff Builders,
Inc. (NY) (N)
10.65 License Agreement, dated as of January 16, 1997,
between Matterhorn USA, Inc. and Staff Builders,
Inc. (NY). (N)
10.66 License Agreement, dated as of December 16, 1998,
between Matterhorn USA, Inc. and Staff Builders,
Inc. (NY)
10.67 Lease Agreement, dated as of November 4, 1996,
between Airport Landing Center, L.L.C. and Staff
Builders Home Health Care, Inc. (N)
10.68 Asset Purchase Agreement dated as of June 22, 1993,
between Albert Gallatin Home Care, Inc and Albert
Gallatin Visiting Nurse Association, Inc.
10.69 Stock Purchase Agreement, dated as of August 30,
1995, between Staff Builders Services, Inc.,
MedVisit, Inc. and Roger Jack Pleasant. (D)
- ---------------------
See Notes to Exhibits
<PAGE> 105
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.70 Asset Purchase and Sale Agreement, dated as of
September 1, 1995, between Staff Builders
Services, Inc. and Accredicare, Inc. (D)
10.71 Asset Purchase and Sale Agreement, dated as of
September 6, 1996, by and among ATC Healthcare
Services, Inc. and Staff Builders, Inc. and William
Halperin and All Care Nursing Service, Inc. (Q)
10.72 Stock Redemption Agreement, dated as of March 18,
1997, between the Company and American HomeCare
Management Corp. (N)
10.73 Stock Purchase Agreement by and among the Company
and Raymond T. Sheerin, Michael Altman, Stephen
Fleischner and Chelsea Computer Consultants, Inc.,
dated September 24, 1996. (M)
10.74 Amendment No. 1 to Stock Purchase Agreement by and
among the Company and Raymond T. Sheerin, Michael
Altman, Stephen Fleischner and Chelsea Computer
Consultants, Inc., dated October 30, 1997. (M)
10.75 Shareholders Agreement between Raymond T. Sheerin
and Michael Altman and Stephen Fleischner and the
Company and Chelsea Computer Consultants, Inc.,
dated September 24, 1996. (M)
10.76 Amendment No. 1 to Shareholders Agreement among
Chelsea Computer Consultants, Inc., Raymond T.
Sheerin, Michael Altman and the Company, dated
October 30, 1997. (M)
10.77 Indemnification Agreement, dated as of September 1,
1987, between the Company and Stephen Savitsky. (A)
- ---------------------
See Notes To Exhibits
<PAGE> 106
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.78 Indemnification Agreement, dated as of September 1,
1987, between the Company and David Savitsky. (A)
10.79 Indemnification Agreement, dated as of September 1,
1987, between the Company and Bernard J.
Firestone. (A)
10.80 Indemnification Agreement, dated as of September 1,
1987, between the Company and Jonathan Halpert. (A)
10.81 Indemnification Agreement, dated as of May 2, 1995,
between the Company and Donald Meyers. (N)
10.82 Indemnification Agreement, dated as of May 2, 1995,
between the Company and Edward Teixeira. (A)
10.83 Form of Home Health Care Services Franchise
Agreement. (B)
10.84 Form of Medical Staffing Services Franchise
Agreement (D)
21 Subsidiaries of the Company.
24 Powers of Attorney.
- ---------------------
See Notes to Exhibits
<PAGE> 107
EXHIBIT NO. DESCRIPTION
- ----------- -----------
NOTES TO EXHIBITS
-----------------
(A) Incorporated by reference to the Company's exhibit booklet to
its Form 10-K for the fiscal year ended February 28, 1995
(File No. 0-11380), filed with the
Commission on May 5, 1995.
(B) Incorporated by reference to the Company's Registration
Statement on Form S-1 (File No. 33-43728), dated January 29,
1992.
(C) Incorporated by reference to the Company's Form 8-K filed
with the Commission on October 31, 1995.
(D) Incorporated by reference to the Company?s exhibit booklet to
its Form 10-K for the fiscal year ended February 28, 1996
(File No. 0-11380), filed with the Commission on May 13, 1996.
(E) Incorporated by reference to the Company's Form 8-A filed with
the Commission on October 24, 1995.
(F) Incorporated by reference to the Company's Form 8-A filed with
the Commission on October 24, 1995.
(G) Incorporated by reference to the Company?s exhibit booklet to
its Form 10-K for the fiscal year ended February 28, 1998
(File No. 0-11380), filed with the Commission on May 28, 1998.
(H) Incorporated by reference to the Company's Registration
Statement on Form S-8 (File No. 33-63941), filed with the
Commission on November 2, 1995.
(I) Incorporated by reference to the Company's Registration
Statement on Form S-4, as amended (File No. 33-9261), dated
April 9, 1987.
(J) Incorporated by reference to the Company's Registration
Statement on Form S-8 (File No. 33-63939), filed with the
Commission on November 2, 1995.
<PAGE> 108
EXHIBIT NO. DESCRIPTION
- ----------- -----------
NOTES TO EXHIBITS
-----------------
(K) Incorporated by reference to the Company's Registration
Statement on Form S-1 (File No. 33-71974), filed with the
Commission on November 19, 1993.
(L) Incorporated by reference to the Company?s Form 10-Q for the
quarterly period ended November 30, 1998 (File No. 0-11380),
filed with the Commission on January 19 1999.
(M) Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended November 30, 1997 (File No. 0-11380),
filed with the Commission on January 14, 1998.
(N) Incorporated by reference to the Company?s exhibit booklet to
its Form 10-K for the fiscal year ended February 28, 1997
(File No. 0-11380), filed with the Commission on May 27, 1997.
(O) Incorporated by reference to the Company?s Form 10-Q for the
quarterly period ended August 31, 1998 (File No. 0-11380),
filed with the Commission on October 15, 1998.
(P) Incorporated by reference to the Company?s Form 10 for the
quarterly period ended May 31, 1998 (File No. 0-11380), filed
with the Commission on July 15, 1998.
(Q) Incorporated by reference to the Company?s Form 10-Q for the
quarterly period ended November 30, 1996 (File No. 0-11380),
filed with the Commission on January 14, 1997.
<PAGE> 109
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
STAFF BUILDERS, INC.
By: /S/ STEPHEN SAVITSKY
--------------------------
Stephen Savitsky
Chairman of the Board,
President and Chief
Executive Officer
Dated: June 11, 1999
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------- ---------------------
<S> <C> <C>
/S/ STEPHEN SAVITSKY Chairman of the Board, June 11, 1999
- ------------------------------ President and Chief
Stephen Savitsky Executive Officer
(Principal Executive
Officer) and Director
/S/ DAVID SAVITSKY President, Secretary, June 11, 1999
- ------------------------------ Treasurer and Director
David Savitsky
/S/ DALE R. CLIFT Executive Vice President, June 11, 1999
- ------------------------------ Finance, Chief Operating
Dale R. Clift Officer and Chief Financial
Officer (Principal Financial
Officer)
/S/ WILLARD T. DERR Sr. Vice President- June 11, 1999
- ------------------------------ Corporate Controller
Willard T. Derr (Principal Accounting
Officer)
* Director June 11, 1999
- ------------------------------
Bernard J. Firestone,
Ph.D.
* Director June 11, 1999
- ------------------------------
Jonathan Halpert,
Ph.D.
* Director June 11, 1999
- ------------------------------
Donald Meyers
* By: /S/ STEPHEN SAVITSKY
-----------------------
(Stephen Savitsky,
Attorney-in-Fact)
</TABLE>
<PAGE> 110
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Restated Certificate of Incorporation of the
Company, filed July 11, 1988. (A)
3.2 Certificate of Amendment to the Restated Certificate
of Incorporation of the Company, filed August 22,
1991. (B)
3.3 Certificate of Amendment to the Restated Certificate
of Incorporation of the Company, filed September 3,
1992. (A)
3.4 Certificate of Retirement of Stock of the Company,
filed February 28, 1994.
3.5 Certificate of Retirement of Stock of the Company,
filed June 3, 1994. (A)
3.6 Certificate of Designation, Rights and Preferences
of the Class A Preferred Stock of the Company, filed
June 6, 1994. (A)
3.7 Certificate of Amendment of Restated Certificate of
Incorporation of the Company, filed August 23,
1994. (A)
3.8 Certificate of Amendment of Restated Certificate
of Incorporation of the Company, filed October 26,
1995. (C)
3.9 Certificate of Amendment of Restated Certificate
of Incorporation of the Company, filed December
19, 1995. (D)
3.10 Plan Of Recapitalization dated as of May 12,
1995. (D)
3.11 Amended and Restated By-Laws of the Company. (A)
4.1 Specimen Class A Common Stock Certificate. (E)
- ---------------------
See Notes to Exhibits
<PAGE> 111
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.2 Specimen Class B Common Stock Certificate. (F)
Non-Qualified Option Agreement, dated March 27, 1998 between the Company and
Ephraim Koschitzki. (G)
10.1 1983 Incentive Stock Option Plan (incorporated by
reference to Exhibit 18.1 to the Company's
Registration Statement on Form S-18, (File No.
1-83939NY), filed with the Commission on
September 15, 1983).
10.2 Amendment to the 1983 Incentive Stock Option Plan
(adopted on May 15, 1986). (A)
10.3 Amendment to the 1983 Incentive Stock Option Plan,
dated January 1, 1987. (A)
10.4 Amendment to the 1983 Incentive Stock Option Plan,
dated as of December 1, 1987. (A)
10.5 Amendment to the 1983 Incentive Stock Option Plan,
dated as of August 3, 1988. (A)
10.6 Amendment to the 1983 Incentive Stock Option Plan,
dated as of August 8, 1990. (A)
10.7 Amendment to the 1983 Incentive Stock Option Plan,
dated as of October 27, 1995. (H)
10.8 1986 Non-Qualified Stock Option Plan of the
Company. (I)
10.9 First Amendment to the 1986 Non-Qualified Stock
Option Plan, effective as of May 11, 1990. (A)
10.10 Amendment to the 1986 Non-Qualified Stock Option
Plan, dated as of October 27, 1995. (J)
10.11 Resolutions of the Company's Board of Directors
amending the 1983 Incentive Stock Option Plan and the
1986 Non-Qualified Stock Option Plan, dated as of
June 3, 1991. (A)
- ---------------------
See Notes to Exhibits
<PAGE> 112
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.12 1993 Stock Option Plan of the Company. (A)
10.13 1998 Stock Option Plan of the Company (incorporated
by reference to Exhibit C to the Company?s Proxy
Statement dated August 27, 1998, filed with the
Commission on August 27, 1998).
10.14 Amended and Restated 1993 Employee Stock Purchase
Plan of the Company. (K)
10.15 1998 Employee Stock Purchase Plan of the Company
(incorporated by reference to Exhibit D to the
Company?s Proxy Statement dated August 27, 1998,
filed with the Commission on August 27, 1998).
10.16 Executive Deferred Compensation Plan, effective as
of March 1, 1994.
10.17 Form of Split-Dollar Life Insurance Agreement.
10.18 1994 Performance-Based Stock Option Plan of the
Company (incorporated by reference to Exhibit B to
the Company's Proxy Statement, dated July 18, 1994,
filed with the Commission on July 27, 1994.)
10.19 Stock Option Agreement, dated as of March 28, 1990,
under the Company's 1986 Non-Qualified Stock Option
Plan between the Company and Stephen Savitsky. (A)
10.20 Stock Option Agreement, dated as of June 17, 1991,
under the Company's 1986 Non-Qualified Stock Option
Plan between the Company and Stephen Savitsky. (A)
10.21 Stock Option Agreement, dated December 1, 1998,
under the Company's 1993 Stock Option Plan between
the Company and Stephen Savitsky. (L)
- ---------------------
See Notes to Exhibits
<PAGE> 113
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.22 Stock Option Agreement, dated December 1, 1998, under
the Company's 1994 Performance-Based Stock Option
Plan between the Company and Stephen Savitsky. (L)
10.23 Stock Option Agreement, dated as of March 28, 1990,
under the Company's 1986 Non-Qualified Stock Option
Plan between the Company and David Savitsky. (A)
10.24 Stock Option Agreement, dated as of June 17, 1991,
under the Company's 1986 Non-Qualified Stock Option
Plan between the Company and David Savitsky. (A)
10.25 Stock Option Agreement, dated December 1, 1998, under
the Company's 1993 Stock Option Plan between the
Company and David Savitsky. (L)
10.26 Stock Option Agreement, dated December 1, 1998, under
the Company's 1994 Performance-Based Stock Option
Plan between the Company and David Savitsky. (L)
10.27 Stock Option Agreement, dated December 1, 1998, under
the Company's 1993 Stock Option Plan, between the
Company and Edward Teixeira. (L)
10.28 Stock Option Agreement, dated December 1, 1998 under
the Company's 1994 Performance-Based Stock Option
Plan, between the Company and Edward Teixeira. (L)
10.29 Stock Option Agreement, dated December 1, 1998,
under the Company's 1994 Performance-Based Stock
Option Plan, between the Company and Edward
Teixeira. (L)
10.30 Stock Option Agreement, dated December 1, 1998,
under the Company's 1998 Stock Option Plan,
between the Company and Edward
Teixiera. (L)
- ---------------------
See Notes to Exhibits
<PAGE> 114
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.31 Stock Option Agreement, dated December 1, 1998,
under the Company's 1994 Performance-Based
Stock Option Plan, between the Company and Dale
Clift. (L)
10.32 Stock Option Agreement, dated December 1, 1998,
under the Company's 1994 Performance-Based
Stock Option Plan, between the Company and Dale
Clift. (L)
10.33 Stock Option Agreement, dated December 1, 1998,
under the Company's 1998 Stock Option Plan,
between the Company and Dale R. Clift.
10.34 Stock Option Agreement, dated December 1, 1998,
under the Company's 1993 Stock Option Plan,
between the Company and Sandra Parshall. (L)
10.35 Stock Option Agreement, dated December 1, 1998,
under the Company's 1994 Performance-Based Stock
Option Plan between the Company and Sandra
Parshall. (L)
10.36 Stock Option Agreement, dated December 1, 1998,
under the Company's 1994 Performance-Based Stock
Option Plan, between the Company and Willard T.
Derr.
10.37 Stock Option Agreement, dated December 1, 1998,
under the Company's 1994 Performance-Based Stock
Option Plan, between the Company and Willard T. Derr.
10.38 Stock Option Agreement, dated December 1, 1998,
under the Company's 1998 Stock Option Plan,
between the Company and Willard T. Derr.
10.39 Employment Agreement, dated as of June 1, 1987,
between the Company and Stephen Savitsky. (A)
- ---------------------
See Notes to Exhibits
<PAGE> 115
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.40 Amendment, dated as of October 31, 1991, to the
Employment Agreement between the Company and Stephen
Savitsky. (A)
10.41 Amendment, dated as of December 7, 1992, to the
Employment Agreement between the Company and Stephen
Savitsky. (A)
10.42 Employment Agreement, dated as of June 1, 1987,
between the Company and David Savitsky. (A)
10.43 Amendment, dated as of October 31, 1991, to the
Employment Agreement between the Company and David
Savitsky. (A)
10.44 Amendment, dated as of January 3, 1992, to the
Employment Agreement between the Company and David
Savitsky. (A)
10.45 Amendment, dated as of December 7, 1992, to the
Employment Agreement between the Company and David
Savitsky. (A)
10.46 Employment Agreement, dated as of April 15, 1999,
between the Company and Edward Teixeira.
10.47 Employment Agreement, dated as of February 9,
1998, between Staff Builders, Inc. (NY) and Dale
R. Clift. (G)
10.48 First Amendment to Employment Agreement, dated
as of December 1, 1998, to the Employment Agreement
between the Company and Dale R. Clift. (L)
10.49 Employment Agreement, dated as of March 1, 1998,
between Staff Builders, Inc. (NY) and Willard T.
Derr. (O)
- ---------------------
See Notes to Exhibits
<PAGE> 116
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.50 Employment Agreement, dated as of March 1, 1999,
between Staff Builders, Inc. (NY) and Sandra
Parshall.
10.51 Employment Agreement, dated as of October 1, 1997,
between Staff Builders, Inc. (NY) and Cynthia
Nye. (P)
10.52 Agreement and Release, dated as of December 24, 1998,
between Staff Builders, Inc. (NY) and Cynthia
Nye. (L)
10.53 Agreement and Release, dated as of February 28, 1997,
between Staff Builders, Inc. (NY) and Larry
Campbell. (N)
10.54 Amended and Restated Loan and Security Agreement,
dated as of January 8, 1997, between the Company,
its subsidiaries and Mellon Bank, N.A. (N)
10.55 First Amendment to Amended and Restated Loan and
Security Agreement dated as of April 27, 1998,
between the Company, its subsidiaries and Mellon
Bank, N.A. (G)
10.56 Master Lease Agreement dated as of December 4, 1996,
between the Company and Chase Equipment Leasing,
Inc. (N)
10.57 Premium Finance Agreement, Disclosure Statement
and Security Agreement dated as of December 26, 1996,
between the Company and A.I. Credit Corp. (N)
10.58 Agreement of Lease, dated as of October 1, 1993,
between Triad III Associates and Staff Builders, Inc.
(NY). (A)
10.59 First Lease Amendment, dated October 25, 1998,
between Matterhorn USA, Inc. and Staff Builders,
Inc. (NY)
- -----------------------
See Notes to Exhibits
<PAGE> 117
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.60 Supplemental Agreement, dated as of January 21, 1994,
between General Electric Capital Corporation, Triad
III Associates and Staff Builders, Inc. (NY) (A)
10.61 Agreement of Lease, dated as of June 19, 1995,
between Triad III Associates and Staff Builders,
Inc. (NY). (D)
10.62 Agreement of Lease, dated as of February 12, 1996,
between Triad III Associates and Staff Builders,
Inc. (NY). (D)
10.63 License Agreement, dated as of April 23, 1996,
between Matterhorn One, Ltd. and Staff Builders,
Inc. (NY). (N)
10.64 License Agreement, dated as of January 3, 1997,
between Matterhorn USA, Inc. and Staff Builders,
Inc. (NY) (N)
10.65 License Agreement, dated as of January 16, 1997,
between Matterhorn USA, Inc. and Staff Builders,
Inc. (NY). (N)
10.66 License Agreement, dated as of December 16, 1998,
between Matterhorn USA, Inc. and Staff Builders,
Inc. (NY)
10.67 Lease Agreement, dated as of November 4, 1996,
between Airport Landing Center, L.L.C. and Staff
Builders Home Health Care, Inc. (N)
10.68 Asset Purchase Agreement dated as of June 22, 1993,
between Albert Gallatin Home Care, Inc and Albert
Gallatin Visiting Nurse Association, Inc.
10.69 Stock Purchase Agreement, dated as of August 30,
1995, between Staff Builders Services, Inc.,
MedVisit, Inc. and Roger Jack Pleasant. (D)
- ---------------------
See Notes to Exhibits
<PAGE> 118
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.70 Asset Purchase and Sale Agreement, dated as of
September 1, 1995, between Staff Builders
Services, Inc. and Accredicare, Inc. (D)
10.71 Asset Purchase and Sale Agreement, dated as of
September 6, 1996, by and among ATC Healthcare
Services, Inc. and Staff Builders, Inc. and William
Halperin and All Care Nursing Service, Inc. (Q)
10.72 Stock Redemption Agreement, dated as of March 18,
1997, between the Company and American HomeCare
Management Corp. (N)
10.73 Stock Purchase Agreement by and among the Company
and Raymond T. Sheerin, Michael Altman, Stephen
Fleischner and Chelsea Computer Consultants, Inc.,
dated September 24, 1996. (M)
10.74 Amendment No. 1 to Stock Purchase Agreement by and
among the Company and Raymond T. Sheerin, Michael
Altman, Stephen Fleischner and Chelsea Computer
Consultants, Inc., dated October 30, 1997. (M)
10.75 Shareholders Agreement between Raymond T. Sheerin
and Michael Altman and Stephen Fleischner and the
Company and Chelsea Computer Consultants, Inc.,
dated September 24, 1996. (M)
10.76 Amendment No. 1 to Shareholders Agreement among
Chelsea Computer Consultants, Inc., Raymond T.
Sheerin, Michael Altman and the Company, dated
October 30, 1997. (M)
10.77 Indemnification Agreement, dated as of September 1,
1987, between the Company and Stephen Savitsky. (A)
- ---------------------
See Notes To Exhibits
<PAGE> 119
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.78 Indemnification Agreement, dated as of September 1,
1987, between the Company and David Savitsky. (A)
10.79 Indemnification Agreement, dated as of September 1,
1987, between the Company and Bernard J.
Firestone. (A)
10.80 Indemnification Agreement, dated as of September 1,
1987, between the Company and Jonathan Halpert. (A)
10.81 Indemnification Agreement, dated as of May 2, 1995,
between the Company and Donald Meyers. (N)
10.82 Indemnification Agreement, dated as of May 2, 1995,
between the Company and Edward Teixeira. (A)
10.83 Form of Home Health Care Services Franchise
Agreement. (B)
10.84 Form of Medical Staffing Services Franchise
Agreement. (D)
21 Subsidiaries of the Company.
24 Powers of Attorney.
27 Financial Data Schedule.
- ---------------------
See Notes to Exhibits
<PAGE> 120
EXHIBIT NO. DESCRIPTION
- ----------- -----------
NOTES TO EXHIBITS
-----------------
(A) Incorporated by reference to the Company's exhibit booklet to
its Form 10-K for the fiscal year ended February 28, 1995
(File No. 0-11380), filed with the
Commission on May 5, 1995.
(B) Incorporated by reference to the Company's Registration
Statement on Form S-1 (File No. 33-43728), dated January 29,
1992.
(C) Incorporated by reference to the Company's Form 8-K filed
with the Commission on October 31, 1995.
(D) Incorporated by reference to the Company?s exhibit booklet to
its Form 10-K for the fiscal year ended February 28, 1996
(File No. 0-11380), filed with the Commission on May 13, 1996.
(E) Incorporated by reference to the Company's Form 8-A filed with
the Commission on October 24, 1995.
(F) Incorporated by reference to the Company's Form 8-A filed with
the Commission on October 24, 1995.
(G) Incorporated by reference to the Company?s exhibit booklet to
its Form 10-K for the fiscal year ended February 28, 1998
(File No. 0-11380), filed with the Commission on May 28, 1998.
(H) Incorporated by reference to the Company's Registration
Statement on Form S-8 (File No. 33-63941), filed with the
Commission on November 2, 1995.
(I) Incorporated by reference to the Company's Registration
Statement on Form S-4, as amended (File No. 33-9261), dated
April 9, 1987.
(J) Incorporated by reference to the Company's Registration
Statement on Form S-8 (File No. 33-63939), filed with the
Commission on November 2, 1995.
<PAGE> 121
EXHIBIT NO. DESCRIPTION
- ----------- -----------
NOTES TO EXHIBITS
-----------------
(K) Incorporated by reference to the Company's Registration
Statement on Form S-1 (File No. 33-71974), filed with the
Commission on November 19, 1993.
(L) Incorporated by reference to the Company?s Form 10-Q for the
quarterly period ended November 30, 1998 (File No. 0-11380),
filed with the Commission on January 19 1999.
(M) Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended November 30, 1997 (File No. 0-11380),
filed with the Commission on January 14, 1998.
(N) Incorporated by reference to the Company?s exhibit booklet to
its Form 10-K for the fiscal year ended February 28, 1997
(File No. 0-11380), filed with the Commission on May 27, 1997.
(O) Incorporated by reference to the Company?s Form 10-Q for the
quarterly period ended August 31, 1998 (File No. 0-11380),
filed with the Commission on October 15, 1998.
(P) Incorporated by reference to the Company?s Form 10 for the
quarterly period ended May 31, 1998 (File No. 0-11380), filed
with the Commission on July 15, 1998.
(Q) Incorporated by reference to the Company?s Form 10-Q for the
quarterly period ended November 30, 1996 (File No. 0-11380),
filed with the Commission on January 14, 1997.
<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF RETIREMENT OF STOCK
OF
STAFF BUILDERS, INC.
Staff Builders, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter referred to as the
?Corporation?),
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors (the ?Board?) of the Corporation, by
the unanimous written consent of its members, filed with the minutes of the
Board, duly adopted a resolution retiring shares of the capital stock of the
Corporation, which were issued but not outstanding, to the extent hereinafter
set forth, and which retired shares had capital applied in connection with their
acquisition.
SECOND: The shares of capital stock of the Corporation, which are
retired, are identified as being all 1,000 issued shares of ?$1.00 Preferred
Stock, Class B?, $1.00 par value per share (the ?Class B Preferred Stock?).
THIRD: That in accordance with the provisions of Section 243 of the
Delaware General Corporation Law and in accordance with the provisions of the
Restated Certificate of Incorporation of the Corporation, the capital stock of
the Corporation which is hereby retired shall resume the status of authorized
and unissued shares of Preferred Stock, without designation as to series until
such shares are once more designated as part of a particular series by the Board
of Directors of the Corporation and, upon the effective date of the filing of
this Certificate, the Restated Certificate of Incorporation of the Corporation
shall be amended so as to delete therefrom all reference to said Class B
Preferred Stock.
<PAGE> 2
IN WITNESS WHEREOF, said Staff Builders, Inc. has caused this
Certificate to be signed by Stephen Savitsky, its President and attested by
David Savitsky, this 16th day of February, 1994.
STAFF BUILDERS, INC.
By: /s/ Stephen Savitsky
-----------------------
Stephen Savitsky
President
ATTEST:
By: /s/ David Savitsky
-------------------------
David Savitsky
Secretary
<PAGE> 1
EXHIBIT 10.16
STAFF BUILDERS, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
<PAGE> 2
STAFF BUILDERS, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
WHEREAS, Staff Builders, Inc. (the "Company") desires to
establish a deferred compensation plan to provide supplemental retirement
income benefits for a select group of management and highly compensated
employees through deferrals of salary and bonuses, effective March 1, 1994; and
WHEREAS, it is believed that the adoption of this plan
providing for deferred compensation at the election of each executive will be
in the best interests of the Company;
NOW, THEREFORE, it is hereby declared as follows:
ARTICLE I
TITLE AND DEFINITIONS
1.1 Title. This Plan shall be known as the Staff Builders,
Inc. Executive Deferred Compensation Plan.
1.2 Definitions. Whenever the following words and phrases are
used in this Plan, with the first letter capitalized, they shall have the
meanings specified below.
"Account" shall mean a Participant's Deferral Account.
"Beneficiary" or "Beneficiaries" shall mean the person or
persons, including a trustee, personal representative or other fiduciary, last
designated in writing by a Participant in accordance with procedures
established by the Committee to receive the benefits specified hereunder in the
event of the Participant's death. If there is no valid Beneficiary designation
in effect, or if there is no surviving designated Beneficiary, then the
Participant's surviving spouse shall be the Beneficiary. If there is no
surviving spouse to receive any benefits payable in accordance with the
preceding sentence, the duly appointed and currently acting personal
representative of the participant's estate (which shall include either the
Participant's probate estate or living trust) shall be the Beneficiary. In any
case where there is no such personal representative of the Participant's estate
duly appointed and acting in that capacity within 90 days after the
Participant's death (or such extended period as the Committee determines is
reasonably necessary to allow such personal representative to be appointed, but
not to exceed 180 days after the Participant's death), then Beneficiary shall
mean the person or persons who can verify by affidavit or court order to the
satisfaction of the Committee that they are legally entitled to receive the
benefits specified hereunder. In the event any amount is payable under the Plan
to a minor, payment shall not be made to the minor, but instead by paid (a) to
that person's living parent(s) to act as custodian, (b) if that person's
parents are then divorced, and one parent is the sole custodial parent, to such
custodial parent, or (c) if no parent of that person is then living, to a
custodian selected by the Committee to hold the funds for the minor under the
<PAGE> 3
Uniform Transfers or Gifts to Minors Act in effect in the jurisdiction in which
the minor resides. If no parent is living and the Committee decides not to
select another custodian to hold the funds for the minor, then payment shall be
made to the duly appointed and currently acting guardian of the estate for the
minor or, if no guardian of the estate for the minor is duly appointed and
currently acting within 60 days after the date the amount becomes payable,
payment shall be deposited with the court having jurisdiction over the estate
of the minor.
"Board of Directors" or "Board" shall mean the Board of
Directors of the Company.
"Bonus" shall mean any incentive compensation payable to a
Participant in addition to the Participant's Salary after reduction for any
salary deferral contributions to a plan qualified under Section 125 or Section
401(k) of the Code.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Committee" shall mean the Committee appointed by the Board
to administer the Plan in accordance with Article VIII.
"Company" shall mean Staff Builders, Inc., a Delaware
corporation, any successor corporation and each corporation which is a member
of a controlled group of corporations (within the meaning of Section 1563(a) of
the Code, determined without regard to Section 1563(a)(4) and (e)(3)(C) thereof
and by substituting the phrase "at least 50 percent" for the phrase "at least
80 percent" each time it appears in Section 1563(a)(1)) of which Staff
Builders, Inc. is a component member.
"Compensation" shall mean the Salary and Bonus that the
Participant is entitled to for services rendered to the Company.
"Deferral Account" shall mean the bookkeeping account
maintained by the Committee for each Participant that is credited with amounts
equal to (1) the portion of the Participant's Salary that he or she elects to
defer, (2) the portion of the Participant's Bonus that he or she elects to
defer, and (3) interest pursuant to Section 4.1.
"Effective Date" shall mean March 1, 1994.
"Eligible Employee" shall mean each member of a group of
select management or highly compensated employees of the Company designated by
the Board to participate in the Plan.
"Fiscal Year" shall mean the 12 consecutive month period
beginning on March 1 and ending on February 28 or February 29, as the case may
be.
"Fund" or "Funds" shall mean one or more of the mutual funds
or contracts selected by the Company pursuant to Section 3.2(b).
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<PAGE> 4
"Initial Election Period" for an Eligible Employee shall mean
the 24-day period following the later of March 1, 1994 or the Eligible
Employee's date of hire.
"Interest Rate" shall mean, for each Fund, an amount equal to
the gross rate of gain or loss on the assets of such Fund during each month (1)
reduced by administrative and investment fees charged to investors in such Fund
and (2) further reduced by one-twelfth of one and one-half percentage points.
"Loan Account" shall mean the bookkeeping account maintained
by the Committee for each Participant who obtains a hardship loan from the
Company in accordance with Article VII that is credited with (1) an amount
equal to the amount of the loan and (2) interest pursuant to Section 7.1(d).
"Participant" shall mean any Eligible Employee who elects to
defer Compensation in accordance with Section 3.1.
"Payment Eligibility Date" shall mean the first day of the
month following the end of the quarter following the quarter in which a
Participant terminates employment or dies.
"Plan" shall mean the Staff Builders, Inc. Executive Deferred
Compensation Plan set forth herein, now in effect, or as amended from time to
time.
"Plan Year" shall mean the 12 consecutive month period
beginning on January 1.
"Salary" shall mean the Participant's base pay after
reduction for any salary deferral contributions to a plan qualified under
Section 125 or Section 401(k) of the Code.
"Tax Adjustment Factor" shall mean a number, determined by
the Committee, which is equal to one minus the sum of (1) the highest marginal
federal personal income tax rate then in effect and (2) the effective highest
marginal state income tax rate in the state in which the Participant resides,
net after the effect of the deduction for such state income tax for federal
income tax purposes.
ARTICLE II
PARTICIPATION
2.1 Participation. An Eligible Employee shall become a
Participant in the Plan by electing to defer all or a portion of his or her
Compensation in accordance with Section 3.1.
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<PAGE> 5
ARTICLE III
DEFERRAL ELECTIONS
3.1 Elections to Defer Compensation.
(a) Initial Election Period. Each Eligible Employee may
elect to defer Compensation by filing with the Committee an election that
conforms to the requirements of this Section 3.1, on a form provided by the
Committee, no later than the last day of his or her Initial Election Period.
(b) General Rule. Subject to the limitations set forth
in paragraph (c) below, the
amount of Compensation which an Eligible Employee may elect
to defer is as follows:
(1) Any percentage of Salary up to 50%; and/or
(2) Any percentage or dollar amount of Bonus up to
100%; provided, however, that no election shall be effective to reduce the
Compensation payable to an Eligible Employee for a calendar year to an amount
which is less than the amount that the company is required to withhold from
such Eligible Employee for such calendar year for purposes of income tax and
employment tax (including Federal Insurance Contributions Act (FICA) tax)
withholding.
(c) Minimum Deferrals. For each of the first four Plan
Years during which the Eligible Employee is a Participant, the minimum
percentage which may be elected under paragraph (b)(1) of this Section 3.1 is
5%. This 5% minimum deferral for any Plan Year may be reduced to a lesser
percentage (but not below zero percent) if the Participant deferred any portion
of his or her Bonus paid in the preceding Plan Year. The amount of such
reduction shall be the number of percentage points determined by (1) dividing
the amount of the Bonus deferred in such preceding Plan. Year by the amount of
the Participant's annual Salary at the beginning of the Plan Year to which the
minimum deferral applies and (2) multiplying by 100.
(d) Effect of Initial Election. An election to defer
Compensation during an Initial Election period shall be effective with respect
to Salary earned during the first pay period beginning after the election is
made and to the Bonus payable for the first Fiscal Year beginning after the
election is made.
(e) Duration of Salary Deferral Election. Any Salary
deferral election made under paragraph (a) or paragraph (g) of this Section 3.1
shall remain in effect, notwithstanding any change in the Participant's Salary,
until changed or terminated in accordance with the terms of this paragraph (e);
provided, however, that such election shall terminate for any Plan Year for
which the Participant is not an Eligible Employee. Subject to the minimum
deferral requirement of Section 3.1(c) and the limitations of Section 3.1(b), a
Participant may increase, decrease or
4
<PAGE> 6
terminate his or her Salary deferral election, effective for Salary earned
during pay periods beginning after any January 1, by filing a new election, in
accordance with the terms of this Section 3.1, with the Committee on or before
the preceding December 15.
(f) Duration of Bonus Deferral Election. Any Bonus
deferral election made under paragraph (a) or paragraph (g) of this Section 3.1
shall be irrevocable and shall apply only to the Bonus payable with respect to
services performed during the Fiscal Year for which the election is made. For
each subsequent Fiscal Year, an Eligible Employee may make a new election,
subject to the limitations set forth in this Section 3.1, to defer a percentage
of his or her Bonus. Such election shall be on forms provided by the Committee
and shall be made on or before the February 28 immediately preceding the Fiscal
Year for which the election is to apply.
(g) Elections other-than Elections during the Initial
Election Period. Subject to the limitations of paragraph (c) above, any
Eligible Employee who fails to elect to defer Compensation during his or her
Initial Election period may subsequently become a participant, and any Eligible
Employee who has terminated a prior Salary deferral election may elect to again
defer Salary, by filing an election, on a form provided by the Committee, to
defer Compensation as described in paragraph (b) above. An election to defer
Salary must be filed on or before December 15 and will be effective for Salary
earned during pay periods beginning after the following January 1. An election
to defer Bonus for a Fiscal Year must be filed on or before the February 28
immediately preceding such Fiscal Year.
3.2 Investment Elections.
(a) At the time of making the deferral elections
described in Section 3.1, the Participant shall designate, on a form provided
by the Committee, which of the following types of mutual funds or contracts the
Participant's Account will be deemed to be invested in for purposes of
determining the amount of earnings to be credited to that Account:
1) High Yield Fund;
2) Balanced Assets Fund;
3) Common Stock Fund;
4) Government Securities Fund;
5) Growth Fund; or
6) Money Market Fund.
In making the designation pursuant to this Section 3.2, the
Participant may specify that all or any 10% multiple of his Deferral Account be
deemed to be invested in one or more of the types of mutual funds or contracts
listed above. Effective as of the end of any calendar quarter, a Participant
may change the designation made under this Section 3.2 by filing an election,
on a form provided by the Committee, at least 30 days prior to the end of such
quarter. If a Participant fails to elect a type of fund under this Section 3.2,
he or she shall be deemed to have elected the Money Market Fund.
5
<PAGE> 7
(b) Although the Participant may designate the type of
mutual funds or contacts in paragraph (a) above, the Company shall select from
time to time, in its sole discretion, a commercially available fund or contract
of each of the types described in paragraph (a) above to be the Funds. The
Interest Rate of each such commercially available fund or contract shall be
used to determine the amount of earnings to be credited to Participants'
Accounts under Article IV.
ARTICLE IV
DEFERRAL ACCOUNT
4.1 Deferral Account. The Committee shall establish and
maintain a Deferral Account for each Participant under the Plan. Each
Participant's Deferral Account shall be further divided into separate
subaccounts ("mutual fund subaccounts"), each of which corresponds to a mutual
fund or contract elected by the Participant pursuant to Section 3.2(a). A
Participant's Deferral Account shall be credited as follows:
(a) As of the last day of each month, the Committee
shall credit the mutual fund subaccounts of the Participant's Deferral Account
with an amount equal to Salary deferred by the Participant during each pay
period ending in that month in accordance with the Participant's election under
Section 3.2(a); that is, the portion of the Participant's deferred Salary that
the Participant has elected to be deemed to be invested in a certain type of
mutual fund shall be credited to the mutual fund subaccount corresponding to
that mutual fund;
(b) As of the last day of the month in which the Bonus
or partial Bonus would otherwise have been paid, the Committee shall credit the
mutual fund subaccounts of the Participant's Deferral Account with an amount
equal to the portion of the Bonus deferred by the Participant's election under
Section 3.2(a); that is, the portion of the Participant's deferred Bonus that
the Participant has elected to be deemed to be invested in a particular type of
mutual fund shall be credited to the mutual fund subaccount corresponding to
that mutual fund; and
(c) As of the last day of each month, each mutual fund
subaccount of a Participant's Deferral Account shall be credited with earnings
in an amount equal to that determined by multiplying the balance credited to
such mutual fund subaccount as of the last day of the preceding month by the
Interest Rate for the corresponding Fund selected by the Company pursuant to
Section 3.2(b).
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<PAGE> 8
ARTICLE V
VESTING
5.1 Deferral Account. A Participant's Deferral Account shall
be 100% vested at all times.
ARTICLE VI
DISTRIBUTIONS
6.1 Amount and Time of Distribution. Each Participant (or, in
the case of his or her death, Beneficiary) shall be entitled to receive a
distribution of benefits under this Plan as soon as practicable following his
or her Payment Eligibility Date. The amount payable to the Participant shall be
the amount credited to his or her Deferral Account as of his or her Payment
Eligibility Date. No amount credited to a Participant's Loan Account
established under Article VII shall be distributed to the Participant, but such
amount shall instead be forfeited as provided in Section 7.1(f).
6.2 Form of Distribution. The form of the distribution of
benefits to a Participant (or his or her Beneficiary) shall be a cash lump sum
payment.
ARTICLE VII
PARTICIPATION LOANS
7.1 Hardship Loans to Participants.
(a) Subject to the approval of the Committee, each
Participant may borrow from the Company in order to meet (1) a financial
hardship to the Participant resulting from an illness or accident of the
Participant or a dependent of the Participant, (2) loss of the Participants
property due to casualty, or (3) other similar circumstances arising as a
result of events beyond the control of the Participant. Each loan made pursuant
to this Section 7.1 shall be evidenced by a note from the Participant on a form
provided by the Committee. Such note shall bear interest at a rate equal to
that necessary to avoid imputed interest under sections 7872 and 1274(d) of the
Code and have such other terms as the Committee shall determine.
(b) The Committee may make a loan under this Section 7.1
only if the amount of the loan does not exceed the amount required to meet the
immediate financial need created by such hardship and the loan or loans
outstanding immediately after the making of the loan would not exceed 65% of
the sum of the balances credited to the Participant's Deferral Account and Loan
Account as of the first day of the month next following the Committee's
acceptance of the Participant's written application for a hardship loan.
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<PAGE> 9
(c) The Committee shall, upon making a loan to a
Participant, establish and maintain a Loan Account for the Participant. The
Committee shall debit the mutual fund subaccounts, maintained under the
Participant's Deferral Account on a pro-rata basis or on such other basis as
the Committee deems appropriate or desirable and shall credit the Participant's
Loan Account in an amount equal to the amount of the loan. The amount credited
to a Participants Loan Account shall not be deemed to be invested as directed
by the Participant under Section 3.2(a) but shall be deemed to be invested in
the note given to the Company by the Participant under this Section 7.1.
(d) As of the last day of each month, the Participant's
Loan Account will be credited with interest for the period since the last day
of the preceding month, calculated on the balance of the Loan Account as of
such date, at the rate of interest on the note as specified in paragraph (a)
above.
(e) Upon any payment of principal and/or interest on a
loan made pursuant to this Section 7.1, the Committee shall debit the
Participant's Loan Account and shall credit the mutual fund subaccounts
maintained under the Participant's Deferral Account with the amount of such
payment on a pro-rata basis or on such other basis as the Committee deems
appropriate or desirable.
(f) If any amount is credited to a Participant's Loan
Account on the Participant's Payment Eligibility Date, such amount shall be
forfeited, and the obligation to repay the hardship loan shall be canceled.
ARTICLE VIII
ADMINISTRATION
8.1 Committee Members. A committee consisting of one or more
members shall be appointed by, and serve at the pleasure of, the Board of
Directors. The number of members comprising the Committee shall be determined
by the Board which may from time to time vary the number of members. A member
of the Committee may resign by delivering a written notice of resignation to
the Board. The Board may remove any member at any time. Vacancies in the
membership of the Committee shall be filled promptly by the Board.
8.2 Committee Action. The Committee shall act at meetings by
affirmative vote of a majority of the members of the Committee. Any action
permitted to be taken at a meeting may be taken without a meeting if, prior to
such action, a written consent to the action is signed by all members of the
Committee and such written consent is filed with the minutes of the proceedings
of the Committee. A member of the Committee shall not vote or act upon any
matter which relates solely to himself or herself as a Participant. The
Chairman or any other member or members of the Committee designated by the
Chairman may execute any certificate or other written direction on behalf of
the Committee.
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<PAGE> 10
8.3 Powers and Duties of the Committee.
(a) The Committee, on behalf of the Participants and
their Beneficiaries, shall enforce the Plan in accordance with its terms, shall
be charged with the general administration of the Plan, and shall have all
powers necessary to accomplish its purposes, including, but not by way of
limitation, the following:
(1) To construe and interpret the terms and
provisions of this Plan;
(2) To compute and certify to the amount and kind of
benefits payable to Participants and their Beneficiaries;
(3) To maintain all records that may be necessary
for the administration of the Plan;
(4) To make and publish such rules for the
regulation of the Plan and procedures for the administration of the Plan as are
not inconsistent with the terms hereof, and
(5) To appoint a plan administrator or any other
agent, and to delegate to them such powers and duties in connection with the
administration of the Plan as the Committee may from time to time prescribe.
8.4 Construction and Interpretation. The Committee shall have
full discretion to construe and interpret the terms and provisions of this
Plan, which interpretation or construction shall be final and binding on all
parties, including but not limited to the Company and any Participant or
Beneficiary.
8.5 Compensation, Expenses and Indemnity.
(a) The members of the Committee shall serve without
compensation for their services hereunder.
(b) The Committee is authorized at the expense of the
Company to employ such legal counsel as it may deem advisable to assist in the
performance of its duties hereunder. Expenses and fees in connection with the
administration of the Plan shall be paid by the Company.
(c) To the extent permitted by applicable state law, the
Company shall indemnify and save harmless the Committee and each member
thereof, the Board of Directors and any delegate of the Committee who is an
employee of the Company against any and all expenses, liabilities and claims,
including legal fees to defend against such liabilities and claims arising out
of their discharge of their responsibilities under or incident to the Plan,
other than expenses and liabilities arising out of willful misconduct. This
indemnity shall not preclude such further indemnities as may be available under
insurance purchased by the Company or provided
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<PAGE> 11
by the Company under any bylaw, agreement or otherwise, as such indemnities are
permitted under state law.
8.6 Quarterly Statements. A Participant shall receive
quarterly statements with respect to such Participant's Account as of the last
day of each calendar quarter.
ARTICLE IX
MISCELLANEOUS
9.1 Unsecured General Creditor. Participants and their
Beneficiaries, heirs, successors, and assigns shall have no legal or equitable
rights, claims, or interest in any specific property or assets of the Company.
No assets of the Company shall be held under any trust, or held in any way as
collateral security for the fulfilling of the obligations of the Company under
this Plan. Any and all of the Company's assets shall be, and remain, the
general unpledged, unrestricted assets of the Company. The Company's obligation
under the Plan shall be merely that of an unfunded and unsecured promise of the
Company to pay money in the future, and the rights of the Participants and
Beneficiaries shall be no greater than those of unsecured general creditors.
9.2 Restriction Against Assignment. The company shall pay all
amounts payable hereunder only to the person or persons designated by the Plan
and not to any other person or corporation. No part of a Participant's Account
shall be liable for the debts, contracts, or engagements of any Participant,
his or her Beneficiary, or successors in interest, nor shall a Participant's
Account be subject to execution by levy, attachment or garnishment or by any
other legal or equitable proceeding, nor shall any such person have any right
to alienate, anticipate, commute, pledge, encumber, or assign any benefits or
payments hereunder in any manner whatsoever. If any Participant, Beneficiary or
successor in interest is adjudicated bankrupt or purports to anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge any distribution
or payment from the Plan, voluntarily or involuntarily, the Committee, in its
discretion, may cancel such distribution or payment (or any part thereof) to or
for the benefit of such Participant, Beneficiary or successor in interest in
such manner as the Committee shall direct
9.3 Witholding. There shall be deducted from each payment
made under the Plan all taxes which are required to be withheld by the Company
in respect to such payment. The Company shall have the right to reduce any
payment by the amount of cash sufficient to provide the amount of said taxes.
9.4 Amendment, Modification, Suspension or Termination. The
Board of Directors may amend, modify, suspend or terminate the Plan in whole or
in part, except that no amendment, modification, suspension or termination
shall have any retroactive effect to reduce any amounts allocated to a
Participant's Account. In the event that this Plan is terminated, the amounts
credited to a Participant's Deferral Account shall be distributed to the
Participant or, in the event of his or her death, his or her Beneficiary in a
lump sum within thirty (30) days following the date of termination.
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<PAGE> 12
9.5 Governing Law. This Plan shall be construed, governed and
administered in accordance with the laws of the State of New York.
9.6 Receipt or Release. Any payment to a Participant or the
Participant's Beneficiary in accordance with the provisions of the Plan shall,
to the extent thereof, be in full satisfaction of all claims against the
Committee and the Company. The Committee may require such Participant or
Beneficiary, as a condition precedent to such payment, to execute a receipt and
release to such effect.
9.7 Payments on Behalf of Persons Under Incapacity. In the
event that any amount becomes payable under the Plan to a person who, in the
sole judgment of the Committee, is considered by reason of physical or mental
condition to be unable to give a valid receipt therefore, the Committee may
direct that such payment be made to any person found by the Committee, in its
sole judgment, to have assumed the care of such person. Any payment made
pursuant to such determination shall constitute a full release and discharge of
the Committee and the Company.
9.8 Headings, etc. Not Part of Agreement. Headings and
subheadings in this Plan are inserted for convenience of reference only and are
not to be considered in the construction of the provisions hereof.
ARTICLE X
BENEFIT OFFSET
10.1 Offset for Certain Benefits Payable Under Split-Dollar
Life Insurance Policies.
(a) Notwithstanding anything contained herein to the
contrary, any benefits payable under this Plan shall be offset by the value of
benefits received by the Participants under certain life insurance policies as
set forth in this Section. Participants in this Plan may own life insurance
policies (the "Policies") purchased on their behalf by the Company. The
exercise of ownership rights under these Policies by each Participant is,
however, subject to certain conditions (set forth in a 'Split-Dollar Life
Insurance Agreement' between each Participant and the Company, pursuant to
which the Company holds a security interest on the Policy) and, if the
Participant fails to meet the conditions set forth in the Split-Dollar Life
Insurance Agreement, the Company may exercise its security interest in the
Policy and cause the Participant to lose certain benefits under the Policy. In
the event that a Participant satisfies the conditions specified in Section 4 or
5 of the Split-Dollar Life Insurance Agreement, so that the Participant or his
or her beneficiary under the Policy becomes entitled to exercise rights free
from the Company's security interest under one of those sections, the value of
those benefits shall constitute an offset to any benefits otherwise payable
under this Plan. As the case may be, this offset (the "Offset Value") shall be
equal to the value of benefits payable under the Split-Dollar Life Insurance
Agreement, that is, the cash surrender value of the Policy or, in the case of
Participant's death, the death benefit payable to the beneficiary under the
Policy. The Offset
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<PAGE> 13
Value shall then be compared to the Participant's Account, and the amounts
credited to the Account shall be reduced, but not to less than zero, by the
Offset Value.
(b) If the Policy in subsection (a) is not on the life
of the Participant and the insured dies prior to distribution of benefits under
this Plan, then the value of the benefits received by the participant under the
Policy will offset the Participant's Account under this Plan. This offset
('Offset Value') shall be equal to the amount of death benefit payable to the
Participant divided by the Tax Adjustment Factor. This Offset Value shall then
be compared to the Participant's Account, and the amounts credited to the
Account shall be reduced, but not to be less than zero, by the Offset Value.
12
<PAGE> 1
EXHIBIT 10.17
[For use without
spousal consent]
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
This Agreement is entered into as of ___________19___ by and between
Staff Builders, Inc., a Delaware corporation, (the "Company") and _____________
("Employee") in reference to the following facts:
1. Employee is a key employee of the Company or a subsidiary of the
Company.
2. The Company has simultaneously with the execution of this Agreement
caused the Equitable Variable Life Insurance Company (the "Insurance Company")
to issue policy number _____________ (the "Policy") on the life of Employee and
delivered the Policy to Employee. A portion of the first annual premium has
been paid by the Company as of the date of this Agreement.
3. For purposes of this Agreement, the Company and its subsidiaries
shall constitute the "Employer". For this purpose, a subsidiary is a
corporation which is a member of a controlled group of corporations (within the
meaning of Section 1563(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), determined without regard to Section 1563(a)(4) and (e)(3)(C)
thereof and by substituting the phrase "at least 50 percent" for the phrase "at
least 80 percent" each time it appears in Section 1563(a)(1)) of which the
Company is a member. If Employee is employed by a corporation which, as a
result of a sale or other corporate reorganization, ceases to be a member of
such controlled group, such sale or other corporate reorganization shall be
treated as a termination of Employee by Employer without Cause (as defined in
Section 8) unless immediately following the event and without any break in
employment the Employee remains employed by the Company or another corporation
which is a member of the controlled group of corporations.
NOW THEREFORE, in consideration of the facts set forth above and the
various promises and covenants set forth below, the parties to this Agreement
agree as follows:
1. Ownership of Policy.
The Company acknowledges that Employee is the owner of the Policy and
that Employee is entitled to exercise all of his or her ownership rights
granted by the terms of the Policy, except to the extent that the power of the
Employee to exercise those rights is specifically limited by this Agreement.
Except as so limited, it is the expressed intention of the parties to reserve
to Employee all rights in and to the Policy granted to its owner by the terms
thereof, including, but not limited to, the right to change the beneficiary and
the right to exercise settlement options.
2. The Company's Security Interest.
The Company's security interest in the Policy is conditioned upon its
satisfactorily performing all of the covenants under this Agreement. Each
period covered by any individual
<PAGE> 2
premium payment described in Section 3 shall be considered a discrete extension
of the Company's security interest in the Policy. The Company shall not have
nor exercise any right in and to the Policy which could, in any way, endanger,
defeat, or impair any of the rights of Employee in the Policy, including by way
of illustration any right to collect the proceeds of the Policy in excess of
the amount due the Company as provided in this Agreement and in the Policy. The
only rights in and to the Policy granted to the Company in this Agreement shall
be limited to the Company's security interest in and to the cash value of the
Policy, as defined herein, (the "Security Interest"). The Company shall not
assign any of its Security Interest in the Policy to anyone other than
Employee.
3. Premium payments.
For so long as Employee is employed by the Employer and the Company's
Security Interest has not been released, the Company agrees to pay an annual
premium (which may be pre-paid in installments) on the Policy on or before the
last day of each "policy year" (as such term is used in the Policy) in an
amount equal to the sum of (a) the compensation deferred by Employee under the
Staff Builders, Inc. Executive Deferred Compensation Plan (the "Plan") during
the pay periods ending during such policy year plus (b) the "cost of insurance"
(as defined in the Policy) for the excess, if any, of (i) the minimum death
benefit required under Section 4 hereof (determined in compliance with the
7-pay test set forth in Section 7702A of the Code) over (ii) the minimum death
benefit (determined in compliance with such 7-pay test) which could be provided
by that portion of the accumulated ( premiums actually paid under the Policy
which were paid pursuant to clause (a) of this sentence. The premium payment
shall be transmitted directly by the Company to the Insurance Company.
Consistent with the preceding sentences, prior to the release of the Company's
Security Interest in the Policy, Employee and the Company agree that the
Company shall from time to time designate one or more individuals (the
"Designee"), who may be officers of the Company, who shall be entitled to
adjust the death benefit under the Policy and to direct the investments under
the Policy; provided, however, that the Designee may only increase, but not
decrease, the death benefit in effect on the date that the Policy is issued;
provided further, that the Designee may only direct the investments under the
Policies in funds offered by the Insurance Company under the Policy. During the
period of time that this Agreement is in effect, Employee irrevocably agrees
that all dividends paid on the Policy shall be applied to purchase from the
Insurance Company additional paid-up life insurance on the life of Employee.
4. Death of Employee while employed by Employer.
If Employee dies prior to termination of employment with Employer and
prior to his or her Security Release Date (as defined in Section 10 below),
Employee's designated beneficiary shall be entitled to receive the entire death
benefit under the Policy, which shall be at least equal to the greater of (1)
50% of Employee's annual base salary at the time of death, up to a maximum of
$100,000 (adjusted as described herein), or (2) the following multiple of the
sum of the amounts credited to Employee's Deferred Account under the Plan
depending on the Employee's insurance age at death: (A) if under 60, 2.0 or (B)
if 60 or older, 1.75. The $100,000 death benefit described in the preceding
sentence shall be adjusted for changes in the cost of living commencing on
January 1, 1995 on the basis of the relationship between the U.S. Consumer
Price Index for Urban Wage Earners and Clerical Workers, as published by the
U.S. Department
-2-
<PAGE> 3
of Labor (or, if there is no such index, then a comparable substitute selected
by the Committee) for the preceding calendar year and the same index for the
calendar year 1993.
5. Employee's attaining his or her Security Release Date or termination
of Employee's employment on account of a Qualifying Termination.
(a) By timely payment of the premiums described in Section 3, the
Company may renew its Security Interest in the Policy for the period commencing
with the due date of such payment until the later of (1) the due date of the
next annual premium described in Section 3, or (2) the date that Employee
attains his or her Security Release Date or terminates employment with the
Employer on account of a Qualifying Termination (either of which events
described in this clause 2 is referred to herein as a "Qualifying Event"). The
Company may not extend its Security Interest in the Policy under the Collateral
Security Assignment Agreement attached as Exhibit A after the occurrence of a
Qualifying Event. After such Qualifying Event, Employee shall be entitled to
exercise all of his or her ownership rights in the Policy without any
limitation, and this Agreement and its accompanying Collateral Security
Assignment Agreement shall no longer constitute a restriction on Employee's
rights.
(b) Notwithstanding paragraph (a), the Company shall continue to have
its Security Interest in the Policy to the extent required to satisfy its
withholding obligations as described in Section 12 and to recover any amounts
owed by Employee as described in paragraph (c) below.
(c) Employee agrees that if at the time of the occurrence of a
Qualifying Event, Employee has any outstanding balances on any loans made by
the Company to Employee, then, unless Employee otherwise repays such
outstanding balances, Employee shall cause, either by withdrawing from or
borrowing on a nonrecourse basis against the Policy, to be transferred to the
Company that portion of the cash value of the Policy which is equal to the sum
of the outstanding balances on all such loans.
6. Termination of an Employee for a reason other than a Qualifying
Termination.
If the employment of Employee with Employer is terminated prior to his
or her Security Release Date for a reason other than a Qualifying Termination
(as described below), Employee shall cause, either by withdrawing from or
borrowing against the Policy, on a nonrecourse basis, to be transferred to the
Company an amount equal to the maximum amount that may then be obtained under
the Policy; provided that, the amount to be transferred to the Company shall be
reduced to the extent the Employee has previously transferred to the Company an
amount equal to any difference that then exists between the cash value of the
Policy and the amount that may be borrowed against the Policy. In no event
shall Employee's voluntary resignation prior to attaining his or her Security
Release Date (as such concept is further defined below) ever constitute a
Qualifying Termination, except in certain situations following a Change in
Control (see Section 9).
7. Definition of a Qualifying Termination.
A Qualifying Termination is either of the following events: the
termination of Employee by Employer for any reason other than "Cause," as
described in Section 8; or the termination of
-3-
<PAGE> 4
Employee after a Change in Control under the circumstances described in Section
9(a). Both of these concepts are further defined below.
8. Qualifying Termination because Employee is terminated for a reason
other than "Cause".
For purposes of this Section, "Cause" shall mean (1) Employee's
material breach of his or her employment agreement (if any), (2) Employee's
willful and continued failure to substantially perform assigned duties with the
Employer, (3) Employee's commission of an act of fraud or embezzlement against
the Employer, or (4) Employee's conviction of a felony or other crime involving
moral turpitude.
9. Qualifying Termination on account of termination after a Change in
Control.
(a) A Qualifying Termination shall be treated as occurring after a
"Change in Control" (as defined below) if there is first a "Change in Control"
and then, within three years following such Change in Control, either (1)
Employee's employment with the Employer is terminated by the Employer without
"Cause" (as defined in Section 8) or (2) Employee terminates his or her
employment with the Employer for "Good Reason" (as defined in subsection (c)
below).
(b) For purposes of this Section, a "Change in Control" shall be
deemed to have occurred if a person, corporation, partnership, association or
entity (1) acquires a majority of the Company's outstanding voting securities,
(2) acquires securities of the Company bearing a majority of voting power with
respect to the election of directors of the Company or (3) acquires all or
substantially all of the Company's assets.
(c) For purposes of this Section, "Good Reason" shall mean the
occurrence of one of the following events without Employee's consent:
(1) An adverse and significant change in the Employee's position,
duties, responsibilities, or status with the Employer, or a
change in business location to a point which is more than 50
miles from his or her location prior to the Change in
Control, except for required travel on Employer business to
an extent substantially consistent with his or her business
travel obligations prior to the Change in Control.
(2) A reduction by the Employer in Employee's base salary; and
(3) The taking of any action by the Employer to eliminate benefit
plans without providing substitutes therefor, to reduce
benefits thereunder or to substantially diminish the
aggregate value of incentive awards or other fringe benefits
including insurance and vacation days.
(d) A termination of employment by Employee within the 36-month period
following a Change in Control shall be for Good Reason if one of the
occurrences specified in paragraph (c) shall have occurred, notwithstanding
that Employee may have other reasons for terminating employment including
employment by another employer which Employee desires to accept.
-4-
<PAGE> 5
10. Employee's attaining his or her Security Release Date.
(a) Employee's "Security Release Date" shall mean the date which is
two years following the date on which the Company receives from Employee a
completed notice in the form attached hereto as Exhibit B, provided that
Employee continues to be employed by Employer until such date. Employee's
election of a Security Release Date shall be irrevocable.
(b) Employee shall attain his or her Security Release Date upon
becoming disabled while employed by the Employer. Employee shall be considered
"disabled" at the time that the Administrator (as defined in Section 13(a)
below) determines, based upon competent medical advice, that an Employee is
incapable of rendering substantial services to the Employer by reason of mental
or physical disability.
(c) The Company's Security Interest in the Policy is contingent upon
the timely payment of premiums under Section 3 of this Agreement. Each period
covered by any individual premium payment shall be considered an independent
extension of the Company's Security Interest in the Policy. In the event that
the Company waives its rights by reason of failure to make payments under
Section 3 of this Agreement, Employee shall immediately attain his or her
Security Release Date. The Company's failure to extend its rights in no way
affects the Company's duties and obligations under this Agreement.
11. Limitation on Employee's rights prior to a Qualifying Event.
In order to protect the Company's Security Interest and
notwithstanding any other provisions in this Agreement, prior to a Qualifying
Event, Employee agrees that he or she will not modify the death benefit under
the Policy, direct the investment of the cash surrender value of the Policy,
borrow against the Policy, assign the Policy, or obtain any portion of the cash
value of the Policy. Notwithstanding the preceding sentence, if Section 6
applies to a termination, Employee may borrow or withdraw from the Policy, so
long as the borrowing or withdrawal request is submitted to the Insurance
Company along with a directive that the borrowed or withdrawn amount be
transferred directly to the Company.
12. Tax Withholding.
It is recognized by the parties that the rights of Employee in the
Policy (as modified by the Agreement) may cause Employee to be treated under
certain circumstances as in receipt of gross income. These circumstances may
also impose upon the Company an obligation to deduct and withhold federal,
state or local taxes. Unless Employee otherwise provides the Company the
amounts it is required to withhold, Employee shall cause, either by withdrawing
from or borrowing on a nonrecourse basis against the Policy, to be transferred
to the Company that portion of the cash value of the Policy which is equal to
the amount of any federal, state or local taxes required to be withheld.
13. Administration.
(a) The Compensation and Stock Option Committee of the Board of
Directors (the "Administrator") shall administer this Agreement. The
Administrator (either directly or through
-5-
<PAGE> 6
its designees) will have power and authority to interpret, construe, and
administer this Agreement (for the purpose of this section, the Agreement shall
include the Collateral Security Assignment Agreement).
(b) Neither the Administrator, its designee nor its advisors, shall be
liable to any person for any action taken or omitted in connection with the
interpretation and administration of this Agreement.
14. Collateral Security Assignment of Policy to the Company.
In consideration of the promises contained herein, the Employee has
contemporaneously herewith granted the Security Interest in the Policy to the
Company as collateral under the form of Collateral Security Assignment attached
hereto as Exhibit A, which Collateral Security Assignment gives the Company the
limited power to enforce its rights to recover the cash value of the Policy
under the circumstances defined herein. The Company's Security Interest in the
Policy shall be specifically limited to the rights set forth above in this
Agreement, notwithstanding the provisions of any other documents including the
Policy. Employee agrees to execute any notice prepared by the Company
requesting a withdrawal or non-recourse loan in an amount equal to the amount
to which the Company is entitled under Sections 5, 6 or 12 of this Agreement.
15. Employee's beneficiary rights and security interest.
(a) The Company and Employee intend that in no event shall the Company
have any power or interest related to the Policy or its proceeds, except as
provided herein and in the Collateral Security Assignment. In the event that
the Company ever receives or may be deemed to have received any right or
interest in the Policy or its proceeds beyond the limited rights described
herein and in the Collateral Security Assignment, such right or interest shall
be held in trust for the benefit of Employee and be held separate from the
property of the Company.
(b) In order to further protect the rights of the Employee, the
Company agrees that its rights to the Policy and proceeds thereof shall serve
as security for the Company's obligations as provided in this Agreement to
Employee. The Company grants to Employee a security interest in and
collaterally assigns to Employee any and all rights the Company has in the
Policy, and products and proceeds thereof whether now existing or hereafter
arising pursuant to the provisions of the Policy, this Agreement, the
Collateral Security Assignment or otherwise, to secure any and all obligations
owed by the Company to Employee under this Agreement. In no event shall this
provision be interpreted to reduce Employee's rights to the Policy or expand in
any way the rights or benefits of the Company under this Agreement, the Policy
or the Collateral Security Assignment. This security interest granted to
Employee from the Company shall automatically expire and be deemed waived if
Employee terminates employment with Employer prior to a Qualifying Event.
16. Amendment of Agreement.
Except as provided in a written instrument signed by the company and
Employee, this Agreement may not be cancelled, amended, altered, or modified.
-6-
<PAGE> 7
17. Notice under Agreement.
Any notice, consent, or demand required or permitted to be given under
the provisions of this Agreement by one party to another shall, be in writing
signed by the party giving or making it, and may be given either by delivering
it to such other party personally or by mailing it, by United States Certified
mail postage prepaid, to such party, addressed to its last known address as
shown on the records of the Company. The date of such mailing shall be deemed
the date of such mailed notice, consent, or demand.
18. Binding Agreement.
This Agreement shall bind the parties hereto and their respective
successors, heirs, executor, administrators, and transferees, and any Policy
beneficiary.
19. Controlling law and characterization of Agreement.
(a) To the extent not governed by federal law, this Agreement and the
right to the parties hereunder shall be controlled by the laws of the State of
New York.
(b) If this Agreement is considered a "plan" under the Employee
Retirement Income Security Act of 1974 (ERISA), both the Company and Employee
acknowledge and agree that for all purposes the Agreement shall be treated as a
"welfare plan" within the meaning of section 3(1) of ERISA. Consistent with the
preceding sentence, Employee further acknowledges that his or her rights to the
Policy and the release of the Company's Security Interest are strictly limited
to those rights set forth in this Agreement. In furtherance of this
acknowledgment and in consideration of the Company's payment of the initial
premiums for this Policy, Employee voluntarily and irrevocably relinquishes and
waives any additional rights in the Policy or any different restrictions on the
release of the Company's Security Interest that he or she might otherwise argue
to exist under either state, federal, or other law. Employee further agrees
that he or she will not argue that any such additional rights or different
restrictions exist in any judicial or arbitration proceeding. Similarly, the
Company acknowledges that its Security Interest is strictly limited as set
forth in this Agreement and voluntarily and irrevocably relinquishes and waives
any additional interests or different interests or advantages that the Company
would have or enjoy if the Agreement were not treated as a "welfare plan"
within the meaning of section 3(1) of ERISA.
-7-
<PAGE> 8
20. Execution of Documents.
The Company and Employee agree to execute any and all documents necessary to
effectuate the terms of this Agreement.
STAFF BUILDERS, INC.
By:
------------------------------
Its:
-----------------------------
EMPLOYEE
---------------------------------
<PAGE> 9
EXHIBIT A
COLLATERAL SECURITY ASSIGNMENT AGREEMENT
This Collateral Security Assignment is made and entered into effective
as of __________, 19______, by the undersigned as the owner (the "Owner") of
Life Insurance Policy Number___________ (the "Policy") issued by the Equitable
Variable Life Insurance Company (the "Insurer") upon the life of Owner and by
Staff Builders, Inc., a Delaware corporation (the "Assignee").
WHEREAS, the Owner is a key employee of Assignee or a subsidiary of
Assignee, and the Assignee wishes to retain him or her in its or its
subsidiary's employ; and
WHEREAS, as an inducement to the Owner's continued employment the
Assignee wishes to pay premiums on the Policy, as more specifically provided
for in that certain Split-Dollar Life Insurance Agreement dated as of
__________, 19___, and entered into between the Owner and the Assignee as such
agreement may be hereafter amended or modified (the "Agreement") (unless
otherwise indicated the terms herein shall, have the definitions ascribed
thereto in the Agreement);
WHEREAS, in consideration of the Assignee agreeing to make the premium
payments, the Owner agrees to grant the Assignee a security interest in the
Policy as collateral security; and
WHEREAS, the Owner and Assignee intend that the Assignee have no
greater interest in the Policy than that prescribed herein and in the Agreement
and that if the Assignee ever obtains any right or interest in the Policy or
the proceeds thereof, except as provided herein and in the Agreement, such
right or interest shall be held in trust for the Owner to satisfy the
obligations of Assignee to Owner under the Agreement and the Assignee
additionally agrees that its rights to the Policy shall serve as security for
its obligations to the Owner under the Agreement;
NOW, THEREFORE, the Owner hereby assigns, transfers and sets over to
the Assignee for security the following specific rights in the Policy, subject
to the following terms, agreements and conditions:
1. This Collateral Security Assignment is made, and the Policy is to
be held, as collateral security for all liabilities of the Owner to the
Assignee pursuant to the terms of the Agreement, whether now existing or
hereafter arising (the "Secured Obligations"). The Secured Obligations include:
(i) the obligation of the Owner to transfer an amount equal to the entire cash
value in the event that the Owner terminates employment with Employer for a
reason other than a Qualifying Termination and before attaining his or her
Security Release Date; (ii) the obligation of the Owner to pay an amount of
cash to the Assignee or transfer to the Assignee that portion of the cash
surrender value of the Policy which is equal to the sum of the outstanding
balances on any loans made by Assignee to the Owner in the event of a
Qualifying Event (as set forth in section 5(a) of the Agreement); and (iii) the
obligation of the Owner to pay an amount of cash to the Assignee or transfer to
the Assignee that portion of the cash value which is equal to
Ex. A-1
<PAGE> 10
any federal, state or local taxes that Assignee may be required to withhold and
collect (as set forth in Section 12 of the Agreement).
2. The Owner hereby grants to Assignee a security interest in and
collaterally assigns to Assignee the Policy and the cash value to secure the
Secured Obligations. However, the Assignee's interest in the Policy shall be
strictly limited to:
(a) The right to receive an amount equal to the entire cash value of
the Policy (which right may be realized by Owner's causing such amount to be
transferred to Assignee (through withdrawing from or borrowing against the
Policy), in accordance with the terms of the Agreement) if the Owner terminates
employment with Employer for a reason other than a Qualifying Termination
(unless he or she has previously attained his or her Security Release Date);
(b) The right to receive an amount equal to the sum of the outstanding
balances on any loans made by Assignee to the Owner in the event of a
Qualifying Event (as set forth in section 5(a) of the Agreement); and
(c) The right to receive an amount equal to any federal, state or
local taxes that Assignee may be required to withhold and collect (as set forth
in Section 12 of the Agreement).
3. (a) Owner shall retain all incidents of ownership in the Policy,
and may exercise such incidents of ownership except as otherwise limited by the
Agreement and hereunder. The Insurer is only authorized to recognize (and is
fully protected in recognizing) the exercise of any ownership rights by Owner
if the Insurer determines that the Assignee has been given notice of Owner's
purported exercise of ownership rights in compliance with the provisions of
Section 3(b) hereof and, as of the date thirty days after such notice is given,
the Insurer has not received written notification from the Assignee of
Assignee's objection to such exercise; provided that, the designation of the
beneficiary to receive the death benefits pursuant to Section 4 of the
Agreement may be changed by the Owner without prior notification of Assignee.
The Insurer shall not be responsible to ensure that the actions of the Owner
conform to the Agreement.
(b) Assignee hereby acknowledges that for purposes of this Collateral
Security Assignment, Assignee shall be conclusively deemed to have been
properly notified of Owner's purported exercise of his or her ownership rights
as of the third business day following either of the following events: (1)
Owner mails written notice of such exercise to Assignee by United States
certified mail, postage paid, at the address below and provides the Insurer
with a copy of such notice and a copy of the certified mail receipt or (2) the
Insurer mails written notice of such exercise to Assignee by regular United
States mail, postage paid, at the address set forth below:
Staff Builders, Inc.
1981 Marcus Avenue, Suite C115
Lake Success, New York 11042
ATTN: Corporate Secretary
Ex. A-2
<PAGE> 11
The foregoing address shall be the appropriate address for such notices to be
sent unless and until the receipt by both Owner and the Insured of a written
notice from Assignee of a change in such address.
(c) Notwithstanding the foregoing, Owner and Assignee hereby agree
that, until Assignee's security interest in the Policy is released, Assignee
shall from time to time designate one or more individuals (the "Designee"), who
may be officers of Assignee, who shall be entitled to adjust the death benefit
under the Policy and to direct the investments under the Policy; provided,
however, that the Designee may only increase, but not decrease, the death
benefit in effect on the date that the Policy is issued; provided, further,
that the Designee may only direct the investments under the Policy in funds
offered by the Insurer under the Policy. Assignee shall notify the Insurer in
writing of the identity of the Designee and any changes in the identity of the
Designee. Until Assignee's security interest in the Policy is released, no
other party may direct the investments under the Policy without the consent of
the Assignee and Owner.
4. If the Policy is in the possession of the Assignee, the Assignee
shall, upon request, forward the Policy to the Insurer without unreasonable
delay for endorsement of any designation or change of beneficiary or the
exercise of any other right reserved by the Owner.
5. (a) Assignee shall be entitled to exercise its rights under the
Agreement by delivering a written notice to Insurer, executed by the Assignee
and the Owner or the Owner's beneficiary, requesting a withdrawal or
nonrecourse policy loan equal to the amount to which Assignee is entitled under
Sections 5, 6 or 12 of the Agreement and transfer of such withdrawn or borrowed
amount to Assignee. So long as the notice is also signed by Owner or his or her
beneficiary, Insurer shall pay or loan the specified amounts to Assignee
without the need for any additional documentation.
(b) Upon receipt of a properly executed notice complying with the
requirements of subsection (a) above, the Insurer is hereby authorized to
recognize the Assignee's claims to rights hereunder without the need for any
additional documentation and without investigating (1) the reason for such
action taken by the Assignee; (2) the validity or the amount of any of the
liabilities of the Owner to the Assignee under the Agreement; (3) the existence
of any default therein; (4) the giving of any notice required herein; or (5)
the application to be made by the Assignee of any amounts to be paid to the
Assignee. The A-3 receipt of the Assignee for any sums received by it shall be
a full discharge and release therefor to the Insurer.
6. Upon the full payment of the liabilities of the Owner to the
Assignee pursuant to the Agreement, the Assignee shall execute an appropriate
release of this Collateral Security Assignment.
7. The Assignee shall have the right to request of the Insurer and/or
the Owner notice of any action taken with respect to the Policy by the Owner.
Ex. A-3
<PAGE> 12
8. (a) The Assignee and the Owner intend that in no event shall the
Assignee have any power or interest related to the Policy or its proceeds,
except as provided herein and in the Agreement, notwithstanding the provisions
of any other documents including the Policy. In the event that the Assignee
ever receives or may be deemed to have received any right or interest beyond
the limited rights described herein and in the Agreement, such right or
interest shall be held in trust for the benefit of the Owner and be held
separate from the property of the Assignee.
(b) In order to further protect the rights of the Owner, the Assignee
agrees that its rights to the Policy and proceeds thereof shall serve as
security for the Assignee's obligations to the Owner as provided in the
Agreement. Assignee hereby grants to Owner a security interest in and
collaterally assigns to Owner any and all rights it has in the Policy, and
products and proceeds thereof whether now existing or hereafter arising
pursuant to the provisions of the Policy, the Agreement, this Collateral
Security Assignment or otherwise, to secure Assignee's obligations ("Assignee
Obligations") to Owner under the Agreement, whether now existing or hereafter
arising. The Assignee Obligations include all obligations owed by the Assignee
to Owner under the Agreement, including without limitation: (i) the obligation
to transfer ownership of the Policy to Owner and to make the premium payments
required under Section 3 of the Agreement and (ii) the obligation to do nothing
which may, in any way, endanger, defeat or impair any of the rights of Owner in
the Policy as provided in the Agreement. In no event shall this provision be
interpreted to reduce Owner's rights in the Policy or expand in any way the
rights or benefits of the Assignee under the Agreement. In the event that Owner
terminates employment with Employer for any reason prior to a Qualifying Event,
this security interest and collateral assignment granted by Assignee to Owner
shall automatically expire and be deemed waived.
9. Assignee and Owner agree to execute any documents necessary to
effectuate this Collateral Security Assignment pursuant to the provisions of
the Agreement. The rights under this Collateral Security Assignment may be
enforced pursuant to the terms of the Agreement.
IN WITNESS WHEREOF, the Owner and Assignee have executed this
Collateral Security Assignment effective the day and year first above written.
------------------------------
, Owner
STAFF BUILDERS, INC.
By:
---------------------------
Title:
------------------------
Ex. A-4
<PAGE> 13
EXHIBIT B
SPLIT DOLLAR LIFE INSURANCE
TWO YEAR SECURITY RELEASE NOTICE
Pursuant to the Split Dollar Life Insurance Agreement entered into
between Staff Builders, Inc. (the "Company") and me on _____________ (the
"Agreement"), I hereby notify the Company that I request to be released on
___________, ___________ ("Security Release Date") from the Company's
collateral security in Policy Number____________ issued by the [Manufacturers
Life Insurance Company of America]. I understand that my Security Release Date
must be at least two years from the date on which the Company receives this
Notice. I further understand that in order for the Company's collateral
security interest to be released on my Security Release Date, I must continue
to be employed by the Company or one of its subsidiaries until such date.
------------------------------
Participant
------------------------------
Date
Received by Staff Builders Inc.
on
------------------------------
By:
---------------------------
Ex. B-1
<PAGE> 14
[For use with
spousal consent]
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
This Agreement is entered into as of ______________ 19 _______ by and
between Staff Builders, Inc., a Delaware corporation, (the "Company") and
_____________________ ("Employee") in reference to the following facts:
10. Employee is a key employee of the Company or a subsidiary of the
Company.
11. The Company has simultaneously with the execution of this
Agreement caused the Equitable Variable Life Insurance Company (the "Insurance
Company") to issue policy number __________ (the "Policy") on the life of
Employee and delivered the Policy to Employee. A portion of the first annual
premium has been paid by the Company as of the date of this Agreement.
12. For purposes of this Agreement, the Company and its subsidiaries
shall constitute the "Employer". For this purpose, a subsidiary is a
corporation which is a member of a controlled group of corporations (within the
meaning of Section 1563(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), determined without regard to Section 1563(a)(4) and (e)(3)(C)
thereof and by substituting the phrase "at least 50 percent" for the phrase "at
least 80 percent" each time it appears in Section 1563(a)(1)) of which the
Company is a member. If Employee is employed by a corporation which, as a
result of a sale or other corporate reorganization, ceases to be a member of
such controlled group, such sale or other corporate reorganization shall be
treated as a termination of Employee by Employer without Cause (as defined in
Section 8) unless immediately following the event and without any break in
employment the Employee remains employed by the Company or another corporation
which is a member of the controlled group of corporations.
NOW THEREFORE, in consideration of the facts set forth above and the
various promises and covenants set forth below, the parties to this Agreement
agree as follows:
1. Ownership of Policy.
The Company acknowledges that Employee is the owner of the Policy and
that Employee is entitled to exercise all of his or her ownership rights
granted by the terms of the Policy, except to the extent that the power of the
Employee to exercise those rights is specifically limited by this Agreement.
Except as so limited, it is the expressed intention of the parties to reserve
to Employee all rights in and to the Policy granted to its owner by the terms
thereof, including, but not limited to, the right to change the beneficiary and
the right to exercise settlement options.
2. The Company's Security Interest.
The Company's security interest in the Policy is conditioned upon its
satisfactorily performing all of the covenants under this Agreement. Each
period covered by any individual premium payment described in Section 3 shall
be considered a discrete extension of the Company's security interest in the
Policy. The Company shall not have nor exercise any right in and to the Policy
which could, in any way, endanger, defeat, or impair any of the rights of
Employee in the
<PAGE> 15
Policy, including by way of illustration any right to collect the proceeds of
the Policy in excess of the amount due the Company as provided in this
Agreement and in the Policy. The only rights in and to the Policy granted to
the Company in this Agreement shall be limited to the Company's security
interest in and to the cash value of the Policy, as defined herein, (the
"Security Interest"). The Company shall not assign any of its Security Interest
in the Policy to anyone other than Employee.
3. Premium payments.
For so long as Employee is employed by the Employer and the Company's
Security Interest has not been released, the Company agrees to pay an annual
premium (which may be pre-paid in installments) on the Policy on or before the
last day of each "policy year" (as such term is used in the Policy) in an
amount equal to the sum of (a) the compensation deferred by Employee under the
Staff Builders, Inc. Executive Deferred Compensation Plan (the "Plan") during
the pay periods ending during such policy year plus (b) the "cost of insurance"
(as defined in the Policy) for the excess, if any, of (i) the minimum death
benefit required under Section 4 hereof (determined in compliance with the
7-pay test set forth in Section 7702A of the Code) over (ii) the minimum death
benefit (determined in compliance with such 7-pay test) which could be provided
by that portion of the accumulated premiums actually paid under the Policy
which were paid pursuant to clause (a) of this sentence. The premium payment
shall be transmitted directly by the Company to the Insurance Company.
Consistent with the preceding sentences, prior to the release of the Company's
Security Interest in the Policy, Employee and the Company agree that the
Company shall from time to time designate one or more individuals (the
"Designee"), who may be officers of the Company, who shall be entitled to
adjust the death benefit under the Policy and to direct the investments under
the Policy; provided, however, that the Designee may only increase, but not
decrease, the death benefit in effect on the date that the Policy is issued;
provided further, that the Designee may only direct the investments under the
Policies in funds offered by the Insurance Company under the Policy. During the
period of time that this Agreement is in effect, Employee irrevocably agrees
that all dividends paid on the Policy shall be applied to purchase from the
Insurance Company additional paid-up life insurance on the life of Employee.
4. Death of Employee while employed by Employer.
(a) If Employee dies prior to termination of employment with Employer
and prior to his or her Security Release Date (as defined in Section 10 below),
Employee's designated beneficiary shall be entitled to receive the entire death
benefit under the Policy, which shall be at least equal to the greater of (1)
50% of Employee's annual base salary at the time of death, up to a maximum of
$100,000 (adjusted as described herein), or (2) the following multiple of the
sum of the amounts credited to Employee's Deferred Account under the Plan
depending on the Employee's insurance age at death: (A) if under 60, 2.0 or (B)
if 60 or older, 1.75. The $100,000 death benefit described in the preceding
sentence shall be adjusted for changes in the cost of living commencing on
January 1, 1995 on the basis of the relationship between the U.S. Consumer
Price Index for Urban Wage Earners and Clerical Workers, as published by the
U.S. Department of Labor (or, if there is no such index, then a comparable
substitute selected by the Committee) for the preceding calendar year and the
same index for the calendar year 1993.
-2-
<PAGE> 16
(b) Employee agrees that, during the period of this Agreement,
Employee will obtain and provide to Employer and/or the Insurance Company the
written consent of the spouse of the Employee, in the form attached hereto as
Exhibit C, to any designation by Employee of anyone other than the Employee's
spouse as the beneficiary to receive the benefits under this Section 4.
5. Employee's attaining his or her Security Release Date or termination
of Employee's employment on account of a Qualifying Termination.
(a) By making timely payment of the premiums described in Section 3,
the Company may renew its Security Interest in the Policy for the period
commencing with the due date of such payment until the later of (1) the due
date of the next annual premium described in Section 3, or (2) the date that
Employee attains his or her Security Release Date or terminates employment with
the Employer on account of a Qualifying Termination (either of which events
described in this clause 2 is referred to herein as a "Qualifying Event"). The
Company may not extend its Security Interest in the Policy under the Collateral
Security Assignment Agreement attached as Exhibit A after the occurrence of a
Qualifying Event. After such Qualifying Event, Employee shall be entitled to
exercise all of his or her ownership rights in the Policy without any
limitation, and this Agreement and its accompanying Collateral Security
Assignment Agreement shall no longer constitute a restriction on Employee's
rights.
(b) Notwithstanding paragraph (a), the Company shall continue to have
its Security Interest in the Policy to the extent required to satisfy its
withholding obligations as described in Section 12 and to recover any amounts
owed by Employee as described in paragraph (c) below.
(c) Employee agrees that if, at the time of the occurrence of a
Qualifying Event, Employee has any outstanding balances on any loans made by
the Company to Employee, then, unless Employee otherwise repays such
outstanding balances, Employee shall cause, either by withdrawing from or
borrowing on a nonrecourse basis against the Policy, to be transferred to the
Company that portion of the cash value of the Policy which is equal to the sum
of the outstanding balances on all such loans.
6. Termination of an Employee for a reason other than a Qualifying
Termination.
If the employment of Employee with Employer is terminated prior to his
or her Security Release Date for a reason other than a Qualifying Termination
(as described below), Employee shall cause, either by withdrawing from or
borrowing against the Policy, on a nonrecourse basis, to be transferred to the
Company an amount equal to the amount that may then be obtained under the
Policy; provided that, the amount to be transferred to the Company shall be
reduced to the extent the Employee has previously transferred to the Company an
amount equal to any difference that then exists between the cash value of the
Policy and the amount that may be borrowed against the Policy. In no event
shall Employee's voluntary resignation prior to attaining his or her Security
Release Date (as such concept is further defined below) ever constitute a
Qualifying Termination, except in certain situations following a Change in
Control (see Section 9).
-3-
<PAGE> 17
7. Definition of a Qualifying Termination.
A Qualifying Termination is either of the following events: the
termination of Employee by Employer for any reason other than "Cause," as
described in Section 8; or the termination of Employee after a Change in
Control under the circumstances described in Section 9(a). Both of these
concepts are further defined below.
8. Qualifying Termination because Employee is terminated for a reason
other than "Cause".
For purposes of this Section, "Cause" shall mean (1) Employee's
material breach of his or her employment agreement (if any), (2) Employee's
willful and continued failure to substantially perform assigned duties with the
Employer, (3) Employee's commission of an act of fraud or embezzlement against
the Employer, or (4) Employee's conviction of a felony or other crime involving
moral turpitude.
9. Qualifying Termination on account of termination after a Change in
Control.
(a) A Qualifying Termination shall be treated as occurring after a
"Change in Control" (as defined below) if there is first a "Change in Control"
and then, within three years following such Change in Control, either (1)
Employee's employment with the Employer is terminated by the Employer without
"Cause" (as defined in Section 8) or (2) Employee terminates his or her
employment with the Employer for "Good Reason" (as defined in subsection (c)
below).
(b) For purposes of this Section, a "Change in Control" shall be
deemed to have occurred if a person, corporation, partnership, association or
entity (1) acquires a majority of the Company's outstanding voting securities,
(2) acquires securities of the Company bearing a majority of voting power with
respect to the election of directors of the Company or (3) acquires all or
substantially all of the Company's assets.
(c) For purposes of this Section, "Good Reason" shall mean the
occurrence of one of the following events without Employee's consent:
(1) An adverse and significant change in the Employee's position,
duties, responsibilities, or status with the Employer, or a
change in business location to a point which is more than 50
miles from his or her location prior to the Change in
Control, except for required travel on Employer business to
an extent substantially consistent with his or her business
travel obligations prior to the Change in Control.
(2) A reduction by the Employer in Employee's base salary; and
(3) The taking of any action by the Employer to eliminate benefit
plans without providing substitutes therefor, to reduce
benefits thereunder or to substantially diminish the
aggregate value of incentive awards or other fringe benefits
including insurance and vacation days.
-4-
<PAGE> 18
(d) A termination of employment by Employee within the 36-month period
following a Change in Control shall be for Good Reason if one of the
occurrences specified in paragraph (c) shall have occurred, notwithstanding
that Employee may have other reasons for terminating employment including
employment by another employer which Employee desires to accept.
10. Employee's attaining his or her Security Release Date.
(a) Employee's "Security Release Date" shall mean the date which is
two years following the date on which the Company receives from Employee a
completed notice in the form attached hereto as Exhibit B, provided that
Employee continues to be employed by Employer until such date. Employee's
election of a Security Release Date shall be irrevocable.
(b) Employee shall attain his or her Security Release Date upon
becoming disabled while employed by the Employer. Employee shall be considered
"disabled" at the time that the Administrator (as defined in Section 13(a)
below) determines, based upon competent medical advice, that an Employee is
incapable of rendering substantial services to the Employer by reason of mental
or physical disability.
(c) The Company's Security Interest in the Policy is contingent upon
the timely payment of premiums under Section 3 of this Agreement. Each period
covered by any individual premium payment shall be considered an independent
extension of the Company's Security Interest in the Policy. In the event that
the Company waives its rights by reason of failure to make payments under
Section 3 of this Agreement, Employee shall immediately attain his or her
Security Release Date. The Company's failure to extend its rights in no way
affects the Company's duties and obligations under this Agreement.
11. Limitation on Employee's rights prior to a Qualifying Event.
In order to protect the Company's Security Interest and
notwithstanding any other provisions in this Agreement, prior to a Qualifying
Event, Employee agrees that he or she will not modify the death benefit under
the Policy, direct the investment of the cash surrender value of the Policy,
borrow against the Policy, assign the Policy, or obtain any portion of the cash
value of the Policy. Notwithstanding the preceding sentence, if Section 6
applies to a termination, Employee may borrow or withdraw from the Policy, so
long as the borrowing or withdrawal request is submitted to the Insurance
Company along with a directive that the borrowed or withdrawn amount be
transferred directly to the Company.
12. Tax Withholding.
It is recognized by the parties that the rights of Employee in the
Policy (as modified by the Agreement) may cause Employee to be treated under
certain circumstances as in receipt of gross income. These circumstances may
also impose upon the Company an obligation to deduct and withhold federal,
state or local taxes. Unless Employee otherwise provides the Company the
amounts it is required to withhold, Employee shall cause, either by withdrawing
from or borrowing on a nonrecourse basis against the Policy, to be transferred
to the Company that portion of the cash value of the Policy which is equal to
the amount of any federal, state or local taxes required to be withheld.
-5-
<PAGE> 19
13. Administration.
(a) The Compensation and Stock Option Committee of the Board of
Directors (the "Administrator") shall administer this Agreement. The
Administrator (either directly or through its designees) will have power and
authority to interpret, construe, and administer this Agreement (for the
purpose of this section, the Agreement shall include the Collateral Security
Assignment Agreement).
(b) Neither the Administrator, its designee nor its advisors, shall be
liable to any person for any action taken or omitted in connection with the
interpretation and administration of this Agreement.
14. Collateral Security Assignment of Policy to the Company.
In consideration of the promises contained herein, the Employee has
contemporaneously herewith granted the Security Interest in the Policy to the
Company as collateral under the form of Collateral Security Assignment attached
hereto as Exhibit A, which Collateral Security Assignment gives the Company the
limited power to enforce its rights to recover the cash value of the Policy
under the circumstances defined herein. The Company's Security Interest in the
Policy shall be specifically limited to the rights set forth above in this
Agreement, notwithstanding the provisions of any other documents including the
Policy. Employee agrees to execute any notice prepared by the Company
requesting a withdrawal or non-recourse loan in an amount equal to the amount
to which the Company is entitled under Sections 5, 6 or 12 of this Agreement.
15. Employee's beneficiary rights and security interest.
(a) The Company and Employee intend that in no event shall the Company
have any power or interest related to the Policy or its proceeds, except as
provided herein and in the Collateral Security Assignment. In the event that
the Company ever receives or may be deemed to have received any right or
interest in the Policy or its proceeds beyond the limited rights described
herein and in the Collateral Security Assignment, such right or interest shall
be held in trust for the benefit of Employee and be held separate from the
property of the Company.
(b) In order to further protect the rights of the Employee, the
Company agrees that its rights to the Policy and proceeds thereof shall serve
as security for the Company's obligations as provided in this Agreement to
Employee. The Company grants to Employee a security interest in and
collaterally assigns to Employee any and all rights the Company has in the
Policy, and products and proceeds thereof whether now existing or hereafter
arising pursuant to the provisions of the Policy, this Agreement, the
Collateral Security Assignment or otherwise, to secure any and all obligations
owed by the Company to Employee under this Agreement. In no event shall this
provision be interpreted to reduce Employee's rights to the Policy or expand in
any way the rights or benefits of the Company under this Agreement, the Policy
or the Collateral Security Assignment. This security interest granted to
Employee from the Company shall automatically expire and be deemed waived if
Employee terminates employment with Employer prior to a Qualifying Event.
-6-
<PAGE> 20
16. Amendment of Agreement.
Except as provided in a written instrument signed by the Company and
Employee, this Agreement may not be canceled, amended, altered, or modified.
17. Notice under Agreement.
Any notice, consent, or demand required or permitted to be given under
the provisions of this Agreement by one party to another shall, be in writing,
signed by the party giving or making it, and may be given either by delivering
it to such other party personally or by mailing it, by United States Certified
mail, postage prepaid, to such party, addressed to its last known address as
shown on the records of the Company. The date of such mailing shall be deemed
the date of such mailed notice, consent, or demand.
18. Binding Agreement.
This Agreement shall bind the parties hereto and their respective
successors, heirs, executor, administrators, and transferees, and any Policy
beneficiary.
19. Controlling law and characterization of Agreement.
(a) To the extent not governed by federal law, this Agreement and the
right to the parties hereunder shall be controlled by the laws of the State of
New York.
(b) If this Agreement is considered a "plan" under the Employee
Retirement Income Security Act of 1974 (ERISA), both the Company and Employee
acknowledge and agree that for all purposes the Agreement shall be treated as a
"welfare plan" within the meaning of section 3(1) of ERISA. Consistent with the
preceding sentence, Employee further acknowledges that his or her rights to the
Policy and the release of the Company's Security Interest are strictly limited
to those rights set forth in this Agreement. In furtherance of this
acknowledgment and in consideration of the Company's payment of the initial
premiums for this Policy, Employee voluntarily and irrevocably relinquishes and
waives any additional rights in the Policy or any different restrictions on the
release of the Company's Security Interest that he or she might otherwise argue
to exist under either state, federal, or other law. Employee further agrees
that he or she will not argue that any such additional rights or different
restrictions exist in any judicial or arbitration proceeding. Similarly, the
Company acknowledges that its Security Interest is strictly limited as set
forth in this Agreement and voluntarily and irrevocably relinquishes and waives
any additional interests or different interests or advantages that the Company
would have or enjoy if the Agreement were not treated as a "welfare plan"
within the meaning of section 3(1) of ERISA.
-7-
<PAGE> 21
20. Execution of Documents.
The Company and Employee agree to execute any and all documents necessary to
effectuate the terms of this Agreement.
STAFF BUILDERS, INC.
By:
------------------------------
Its:
-----------------------------
EMPLOYEE
---------------------------------
<PAGE> 22
EXHIBIT A
COLLATERAL SECURITY ASSIGNMENT AGREEMENT
This Collateral Security Assignment is made and entered into effective
as of _____________, 19____, by the undersigned as the owner (the "Owner") of
Life Insurance Policy Number ______________ (the "Policy") issued by the
Equitable Variable Life Insurance Company (the "Insurer") upon the life of
Owner and by Staff Builders, Inc., a Delaware corporation (the "Assignee").
WHEREAS, the Owner is a key employee of Assignee or a subsidiary of
Assignee, and the Assignee wishes to retain him or her in its or its
subsidiary's employ; and
WHEREAS, as an inducement to the Owner's continued employment, the
Assignee wishes to pay premiums on the Policy, as more specifically provided
for in that certain Split-Dollar Life Insurance Agreement dated as of
____________19__, and entered into between the Owner and the Assignee as such
agreement may be hereafter amended or modified (the "Agreement") (unless
otherwise indicated, the terms herein shall have the definitions ascribed
thereto in the Agreement);
WHEREAS, in consideration of the Assignee agreeing to make the premium
payments, the Owner agrees to grant the Assignee a security interest in the
Policy as collateral security; and
WHEREAS, the Owner and Assignee intend that the Assignee have no
greater interest in the Policy than that prescribed herein and in the Agreement
and that if the Assignee ever obtains any right or interest in the Policy or
the proceeds thereof, except as provided herein and in the Agreement, such
right or interest shall be held in trust for the Owner to satisfy the
obligations of Assignee to Owner under the Agreement and the Assignee
additionally agrees that its rights to the Policy shall serve as security for
its obligations to the Owner under the Agreement;
NOW, THEREFORE, the Owner hereby assigns, transfers and sets over to
the Assignee for security the following specific rights in the Policy, subject
to the following terms, agreements and conditions:
1. This Collateral Security Assignment is made, and the Policy is to
be held, as collateral security for all liabilities of the Owner to the
Assignee pursuant to the terms of the Agreement, whether now existing or
hereafter arising (the "Secured Obligations"). The Secured Obligations include:
(i) the obligation of the Owner to transfer an amount equal to the entire cash
value in the event that the Owner terminates employment with Employer for a
reason other than a Qualifying Termination and before attaining his or her
Security Release Date; (ii) the obligation of the Owner to pay an amount of
cash to the Assignee or transfer to the Assignee that portion of the cash
surrender value of the Policy which is equal to the sum of the outstanding
balances on any loans made by Assignee to the Owner in the event of a
Qualifying Event (as set forth in section 5(a) of the Agreement); and (iii) the
obligation of the Owner to pay an amount of cash to the Assignee or transfer to
the Assignee that portion of the cash value which is equal to any federal,
state or local taxes that Assignee may be required to withhold and collect (as
set forth in Section 12 of the Agreement).
Ex. A-1
<PAGE> 23
2. The Owner hereby grants to Assignee a security interest in and
collaterally assigns to Assignee the Policy and the cash value to secure the
Secured Obligations. However, the Assignee's interest in the Policy shall be
strictly limited to:
(a) The right to receive an amount equal to the entire cash value of
the Policy (which right may be realized by Owner's causing such amount to be
transferred to Assignee (through withdrawing from or borrowing against the
Policy), in accordance with the terms of the Agreement) if the Owner terminates
employment with Employer for a reason other than a Qualifying Termination
(unless he or she has previously attained his or her Security Release Date);
(b) The right to receive an amount equal to the sum of the outstanding
balances on any loans made by Assignee to the Owner in the event of a
Qualifying Event (as set forth in section 5(a) of the Agreement); and
(c) The right to receive an amount equal to any federal, state or
local taxes that Assignee may be required to withhold and collect (as set forth
in Section 12 of the Agreement)
3. (a) Owner shall retain all incidents of ownership in the Policy,
and may exercise such incidents of ownership except as otherwise limited by the
Agreement and hereunder. The Insurer is only authorized to recognize (and is
fully protected in recognizing) the exercise of any ownership rights by Owner
if the Insurer determines that the Assignee has been given notice of Owner's
purported exercise of ownership rights in compliance with the provisions of
Section 3(b) hereof and, as of the date thirty days after such notice is given,
the Insurer has not received written notification from the Assignee of
Assignee's objection to such exercise; provided that, the designation of the
beneficiary to receive the death benefits pursuant to Section 4 of the
Agreement may be changed by the Owner without prior notification of Assignee.
The Insurer shall not be responsible to ensure that the actions of the Owner
conform to the Agreement.
(b) Assignee hereby acknowledges that for purposes of this Collateral
Security Assignment, Assignee shall be conclusively deemed to have been
properly notified of Owner's purported exercise of his or her ownership rights
as of the third business day following either of the following events: (1)
Owner mails written notice of such exercise to Assignee by United States
certified mail, postage paid, at the address below and provides the Insurer
with a copy of such notice and a copy of the certified mail receipt or (2) the
Insurer mails written notice of such exercise to Assignee by regular United
States mail, postage paid, at the address set forth below:
Staff Builders, Inc.
1981 Marcus Avenue, Suite C115
Lake Success, New York 11042
ATTN: Corporate Secretary
The foregoing address shall be the appropriate address for such notices to be
sent unless and until the receipt by both Owner and the Insured of a written
notice from Assignee of a change in such address.
(c) Notwithstanding the foregoing, Owner and Assignee hereby agree
that, until Assignee's security interest in the Policy is released, Assignee
shall from time to time designate
Ex. A-2
<PAGE> 24
one or more individuals (the "Designee"), who may be officers of Assignee, who
shall be entitled to adjust the death benefit under the Policy and to direct
the investments under the Policy; provided, however, that the Designee may only
increase, but not decrease, the death benefit in effect on the date that the
Policy is issued; provided, further, that the Designee may only direct the
investments under the Policy in funds offered by the Insurer under the Policy.
Assignee shall notify the Insurer in writing of the identity of the Designee
and any changes in the identity of the Designee. Until Assignee's security
interest in the Policy is released, no other party may direct the investments
under the Policy without the consent of the Assignee and Owner.
4. If the Policy is in the possession of the Assignee, the Assignee
shall, upon request, forward the Policy to the Insurer without unreasonable
delay for endorsement of any designation or change of beneficiary or the
exercise of any other right reserved by the Owner.
5. (a) Assignee shall be entitled to exercise its rights under the
Agreement by delivering a written notice to Insurer, executed by the Assignee
and the Owner or the Owner's beneficiary, requesting a withdrawal or
nonrecourse policy loan equal to the amount to which Assignee is entitled under
Sections 5, 6 or 12 of the Agreement and transfer of such withdrawn or borrowed
amount to Assignee. So long as the notice is also signed by Owner or his or her
beneficiary, Insurer shall pay or loan the specified amounts to Assignee
without the need for any additional documentation.
(b) Upon receipt of a properly executed notice complying with the
requirements of subsection (a) above, the Insurer is hereby authorized to
recognize the Assignee's claims to rights hereunder without the need for any
additional documentation and without investigating (1) the reason for such
action taken by the Assignee; (2) the validity or the amount of any of the
liabilities of the Owner to the Assignee under the Agreement; (3) the existence
of any default therein; (4) the giving of any notice required herein; or (5)
the application to be made by the Assignee of any amounts to be paid to the
Assignee. The A-3 receipt of the Assignee for any sums received by it shall be
a full discharge and release therefor to the Insurer.
6. Upon the full payment of the liabilities of the Owner to the
Assignee pursuant to the Agreement, the Assignee shall execute an appropriate
release of this Collateral Security Assignment.
7. The Assignee shall have the right to request of the Insurer and/or
the Owner notice of any action taken with respect to the Policy by the Owner.
8. (a) The Assignee and the Owner intend that in no event shall the
Assignee have any power or interest related to the Policy or its proceeds,
except as provided herein and in the Agreement, notwithstanding the provisions
of any other documents including the Policy. In the event that the Assignee
ever receives or may be deemed to have received any right or interest beyond
the limited rights described herein and in the Agreement, such right or
interest shall be held in trust for the benefit of the Owner and be held
separate from the property of the Assignee.
(b) In order to further protect the rights of the Owner, the Assignee
agrees that its rights to the Policy and proceeds thereof shall serve as
security for the Assignee's obligations to the Owner as provided in the
Agreement. Assignee hereby grants to Owner a security interest in
Ex. A-3
<PAGE> 25
and collaterally assigns to Owner any and all rights it has in the Policy, and
products and proceeds thereof whether now existing or hereafter arising
pursuant to the provisions of the Policy, the Agreement, this Collateral
Security Assignment or otherwise, to secure Assignee's obligations ("Assignee
Obligations") to Owner under the Agreement, whether now existing or hereafter
arising. The Assignee Obligations include all obligations owed by the Assignee
to Owner under the Agreement, including without limitations (i) the obligation
to transfer ownership of the Policy to Owner and to make the premium payments
required under Section 3 of the Agreement and (ii) the obligation to do nothing
which may, in any way, endanger, defeat or impair any of the rights of Owner in
the Policy as provided in the Agreement. In no event shall this provision be
interpreted to reduce Owner's rights in the Policy or expand in any way the
rights or benefits of the Assignee under the Agreement. In the event that Owner
terminates employment with Employer for any reason prior to a Qualifying Event,
this security interest and collateral assignment granted by Assignee to Owner
shall automatically expire and be deemed waived.
9. Assignee and Owner agree to execute any documents necessary to
effectuate this Collateral Security Assignment pursuant to the provisions of
the Agreement. The rights under this Collateral Security Assignment may be
enforced pursuant to the terms of the Agreement.
Ex. A-4
<PAGE> 26
IN WITNESS WHEREOF, the Owner and Assignee have executed this
Collateral Security Assignment effective the day and year first above written.
------------------------------
, Owner
STAFF BUILDERS, INC.
By:
---------------------------
Title:
------------------------
<PAGE> 27
EXHIBIT B
SPLIT DOLLAR LIFE INSURANCE
TWO YEAR SECURITY RELEASE NOTICE
Pursuant to the Split Dollar Life Insurance Agreement entered into
between Staff Builders, Inc. (the "Company") and me on _________________ (the
"Agreement"), I hereby notify the Company that I request to be released on
___________, ____________ ("Security Release Date") from the Company's
collateral security in Policy Number ________________ issued by the
[Manufacturers Life Insurance Company of America]. I understand that my
Security Release Date must be at least two years from the date on which the
Company receives this Notice. I further understand that in order for the
Company's collateral security interest to be released on my Security Release
Date, I must continue to be employed by the Company or one of its subsidiaries
until such date.
------------------------------
Participant
------------------------------
Date
Received by Staff Builders, Inc.
on
------------------------------------
By:
---------------------------
Ex. B-1
<PAGE> 28
EXHIBIT C
Spousal Consent
to Designation of
Nonspousal Beneficiary
My spouse is ____________________. I hereby consent to the designation made by
my spouse of ______________________________ as the beneficiary under Life
Insurance Policy No. __________________________, which Staff Builders, Inc. has
purchased from the Equitable Variable Life Insurance Company and transferred to
him/her.
This consent is being voluntarily given, and no undue influence or coercion has
been exercised in connection with my consent to the designation made by my
spouse of the beneficiary named above rather than myself as the beneficiary
under the Split Dollar life Insurance Policy.
------------------------------
Spouse's Signature
------------------------------
Print Spouse's Name
------------------------------
Date
Ex. C-1
<PAGE> 1
EXHIBIT 10.33
STAFF BUILDERS, INC.
1998 STOCK OPTION PLAN
December 1, 1998
Dale R. Clift
Re: Grant of Non-qualifying Stock Options to
Purchase Shares of the Class A Common
Stock of Staff Builders, Inc.
Dear Dale:
You and Staff Builders, Inc., a Delaware corporation (the
"Corporation"), hereby agree as follows:
1. Reference. This is the Stock Option Agreement referred to
in Section 7(k) of the Corporation's 1998 Stock Option Plan (the "Plan"). The
stock option this Agreement grants is a Non-qualifying Stock Option, as set
forth in Section 2 below. This Agreement incorporates all terms, conditions and
provisions of the Plan.
2. Stock Option. The Corporation hereby grants to the Optionee
the option (the "Stock Option") to purchase that number of shares of Class A
Common Stock of the Corporation, par value $.01 per share, set forth on Schedule
A. The Corporation will issue these shares as fully paid and non-assessable
shares upon the Optionee's exercise of the Stock Option. The Optionee may
exercise the Stock Option in accordance with this Agreement any time prior to
the tenth anniversary of the date of grant of the Stock Option evidenced by this
Agreement, unless earlier terminated according to the terms of this Agreement.
Schedule A sets forth the date or dates after which the Optionee may exercise
all or part of the Stock Option, subject to the provisions of the Plan.
3. Exercise of Stock Option. The Optionee may exercise the
Stock Option in whole or in part by written notice delivered to the Corporation
in the form of Schedule B to this Agreement. If exercisable Stock Options as to
100 or more shares are held by an Optionee, then such Stock Options may not be
exercised for fewer than 100 shares at any time, and if exercisable Stock
Options for fewer than 100 shares are held by an Optionee, then Stock Options
for all such shares must be exercised at one time. The Optionee shall enclose
with each such notice payment by cash or by valid check in an amount equal to
the number of shares as to which his exercise is made, multiplied by the option
price therefor; provided, however, that if the Committee appointed by the Board
of Directors pursuant to Section 2 of the Plan shall, in its sole discretion,
approve, payment upon exercise of the Stock Option in whole or in part may be
made by surrender to the Corporation in due form for transfer of shares of Class
A Common Stock of the
<PAGE> 2
Corporation. In the case of payment in the Corporation's Class A Common Stock,
such stock shall be valued at its Fair Market Value (as defined in Section 7(b)
of the Plan) as of the date of surrender of the stock.
4. Purchase Price. The option price per share shall be that
set forth on Schedule A.
5. No Rights in Option Stock. Optionee shall have no rights as
a stockholder in respect of any shares subject to the Stock Option unless and
until Optionee has exercised the Stock Option in complete accordance with the
terms hereof, and shall have no rights with respect to shares not expressly
conferred by this Agreement.
6. Shares Reserved. The Corporation shall at all times during
the term of this Agreement reserve and keep available such number of shares of
Class A Common Stock as will be sufficient to satisfy the requirements of this
Agreement, and shall pay all original issue taxes on the exercise of the Stock
Option, and all other fees and expenses necessarily incurred by the Corporation
in connection therewith.
7. Non-assignability. The Stock Option and this Agreement
shall not be encumbered, disposed of, assigned or transferred in whole or part,
and, except as described in the Plan, may only be exercised by the Optionee
unless the prior written consent of the Committee has been obtained. All shares
purchased pursuant to this Agreement shall be purchased for investment by the
Optionee.
8. Effect Upon Employment. Nothing in this Agreement shall
confer on the Optionee any right to continue in the employment of the
Corporation or shall interfere in any way with the right of the Corporation to
terminate Optionee's employment at any time.
9. Successors. This agreement shall be binding upon any
successor of the Corporation.
In order to indicate your acceptance of the Stock Option on
the above terms and conditions, kindly sign the enclosed copy of this letter
agreement and return it to the Corporation.
STAFF BUILDERS, INC.
By:/s/ Stephen Savitsky
---------------------------
Stephen Savitsky
Accepted and Agreed to:
/s/ Dale R. Clift
- -------------------------------
Dale R. Clift
<PAGE> 3
Schedule A
Nonqualifying Stock Options
Date of Grant: December 1, 1998
Name of Optionee: Dale R. Clift
Number of Shares as to
which the Option is Granted: 333,333
Option Price per Share: $.50
Exercisability of Options:
<TABLE>
<CAPTION>
Number of Shares Date after which the
as to which the Option is Exercisable
Optionee May Exercise (anniversaries refer
the Option Granted to the Date of Grant
Hereby of the Stock Option
--------------------- ---------------------
<S> <C> <C>
111,111 June 1, 1999
111,111 December 1, 1999
111,111 December 1, 2000
</TABLE>
<PAGE> 4
Schedule B
NOTICE OF ELECTION TO EXERCISE
Staff Builders, Inc.
Attention:
Gentlemen:
I hereby irrevocably elect to exercise the Stock Option held
by me under the 1998 Stock Option Plan of Staff Builders, Inc. (the
"Corporation") to purchase shares of the Class A Common Stock, par value $.01
per share, of the Corporation at an option price of $_____________ per share.
Enclosed is a check, payable to the order of the Corporation,
in the amount of $______________.
A completed Exercise of Stock Option Payment Remittance Form
is attached.
Please instruct [ ], Transfer Agent, to issue
certificate(s)for shares each and, if applicable, a separate certificate
for the remaining shares in my name as shown below. The following address
is for the records of the Transfer Agent for mailing stockholder communications:
_______________________________________________
Name
_______________________________________________
Taxpayer I.D. Number
(i.e. Social Security/Insurance Number)
_______________________________________________
Number and Street
_______________________________________________
City State Zip Code
<PAGE> 5
Please forward the certificate(s) to me at the following address:
_______________________________________________
Number and Street
_______________________________________________
City State Zip Code
This election incorporates, and is subject to, all terms and
conditions of the Plan and my Stock Option Agreement with the Corporation. The
Stock Option I am exercising is stated to be:
[Check one] [ ] Incentive Stock Option
[ ] Nonqualifying Stock Option
I am acquiring the foregoing shares for investment purposes
only, and not with a view to their sale or distribution.
Dated:____________________________________
___________________________________________
Signature
___________________________________________
Print Name
<PAGE> 6
Schedule B-1
STAFF BUILDERS, INC.
1998
STOCK OPTION PLAN
Exercise of Stock Option Payment Remittance Form
In fulfillment of the accompanying Notice of Election to
Exercise, which advises you of my intention to exercise options to purchase
__________ shares of Staff Builders, Inc. Common Stock at an option price of $
per share, for a total purchase price of $__________ , I enclose in full payment
of the purchase price:
bank check in the amount of . . . . . . $_________________________
made payable to Staff Builders, Inc.
Dated: __________________________ _____________________________________
Signature
[ ] Incentive Stock Option
[ ] Nonqualifying Stock Option _____________________________________
Type Name
<PAGE> 1
EXHIBIT 10.36
STAFF BUILDERS, INC.
DECEMBER 1, 1998
To the Person Named as
Optionee on Schedule A
to this Agreement
Re: Grant of Nonqualifying Stock Options
to Purchase Shares of the Common
Stock of Staff Builders, Inc.
Dear Optionee:
You and Staff Builders, Inc., a Delaware corporation (the
"Corporation"), hereby agree as follows:
1. Reference. This is the Stock Option Agreement referred to in Section
7(1) of the Corporation's 1994 Performance- Based Stock Option Plan (the
"Plan"). The stock option this Agreement grants is a Nonqualifying Stock Option,
as set forth in Section 5 below. This Agreement incorporates all terms,
conditions and provisions of the Plan.
2. Stock Option.
(a) The Corporation hereby grants to the Optionee the option (the
"Stock Option") to purchase that number of shares of Class A Common Stock of the
Corporation, par value $.01 per share, set forth in Paragraph (b) of this
Section. The Corporation will issue these shares as fully paid and nonassessable
shares upon the Optionee's exercise of the Stock Option. The Optionee may
exercise the Stock Option in accordance with this Agreement any time between six
months and the tenth anniversary of the date of grant of the Stock Option
evidenced by this Agreement, unless earlier terminated according to the terms of
this Agreement.
(b) The Stock Option shall vest and become exercisable pursuant to
Section 7(c) of the plan.
3. Exercise of Stock Option. The Optionee may
<PAGE> 2
To the Person Named as
Optionee on Schedule A
DATE
Page 2
exercise the Stock Option in whole or in part by written notice delivered to the
Corporation in the form of Schedule B to this Agreement. The Optionee shall
enclose with each such notice payment by cash or by valid check in an amount
equal to the number of shares as to which his exercise is made, multiplied by
the option price therefor. The Optionee must exercise the Stock Option on or
before December 1, 2008 after which it will lapse.
4. Purchase Price. The option price per share shall be the Option Price
as defined in Section 7(b) of the Plan.
5. Tax Treatment of the Stock Option. The following is a summary of the
federal income tax consequences of the issuance and exercise of nonqualifying
stock options under the Plan to optionees and to the Corporation under the
Internal Revenue Code of 1986, as amended (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 Plan. Furthermore, differences
in optionees' financial situations may cause federal, state and local tax
consequences of participation in the Plan to vary. Therefore, each optionee in
the 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 Plan, including the applicability and effect of any state
or local tax laws, and of changes in applicable tax laws.
The grant of a nonqualifying stock option will not result in the
recognition of taxable income to the optionee for federal income tax purposes or
in deduction to the Corporation. Upon the exercise of a nonqualifying 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 Common Stock of the Corporation over the exercise price. Such amount may be
deductible by the Corporation if it complies with applicable reporting
requirements.
If an optionee disposes of any shares of Class A Common Stock received
upon the exercise of a nonqualifying 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
<PAGE> 3
To the Person Named as
Optionee on Schedule A
DATE
Page 3
gain or loss will be either long-term or short-term, depending on the holding
period. The Corporation will not be entitled to any tax deduction in connection
with such disposition of shares.
6. No Rights in Option Stock. Optionee shall have no rights as a
stockholder in respect of any shares subject to the Stock Option unless and
until Optionee has exercised the Stock Option in complete accordance with the
terms hereof, and shall have no rights with respect to shares not expressly
conferred by this Agreement.
7. Shares Reserved. The Corporation shall at all times during the term
of this Agreement reserve and keep available such number of shares of Class A
Common Stock as will be sufficient to satisfy the requirements of this
Agreement, and shall pay all original issue taxes on the exercise of the Stock
Option, and all other fees and expenses necessarily incurred by the Corporation
in connection therewith; provided, however, that pursuant to Section 7(g) of the
Plan, upon settlement of the Stock Option, it shall be a condition to the
obligation of the Corporation that the Optionee pay to the Corporation such
amount as the Corporation may request for the purpose of satisfying its
liability to withhold federal, state or local income or other taxes.
8. Nonassignability. The Stock Option and this Agreement shall not be
encumbered, disposed of, assigned or transferred in whole or part, and, except
as described in the Plan, may only be exercised by the Optionee unless the prior
written consent of the Corporation has been obtained. All shares of Class A
Common Stock purchased pursuant to this Agreement shall be purchased for
investment by the Optionee.
9. Effect Upon Employment. Nothing in this Agreement shall confer on
the Optionee any right to continue in the employment of the Corporation or shall
interfere in any way with the right of the Corporation to terminate Optionee's
employment at any time.
10. Successors. This agreement shall be binding upon any successor of
the Corporation.
<PAGE> 4
In order to indicate your acceptance of the Stock Option on the above
terms and conditions, kindly sign the enclosed copy of this letter agreement and
return it to the Corporation.
STAFF BUILDERS, INC.
/s/ Stephen Savitsky
--------------------
By: Stephen Savitsky
Accepted and Agreed to:
/s/ Willard T. Derr
- -------------------
By:Willard T. Derr
<PAGE> 5
SCHEDULE A
Nonqualifying Stock Options
Date of Grant: December 1, 1998
Name of Optionee: Willard T. Derr
Number of Shares as to
which the Option is Granted: 15,000
Option Price per Share: $.53
Additional Vesting Provision: All options will automatically
become exercisable on December 1, 2004 regardless of the market
price of the Class A Common Stock.
<PAGE> 6
SCHEDULE B
NOTICE OF ELECTION TO EXERCISE
STAFF BUILDERS, INC.
1981 Marcus Avenue
Lake Success, New York 11042
Attention:
------------------------------
Gentlemen:
I hereby irrevocably elect to exercise the Stock Option held by me
under the 1994 Performance-Based Stock Option Plan of Staff Builders, Inc. (the
"Company") to purchase shares of the Class A Common Stock, par value $.01 per
share, of the Company at an option price of $____________ per share.
Enclosed is a check, payable to the order of the Company, in the amount
of $_____________ .
A completed Exercise of Stock Option Payment Remittance Form is
attached.
Please issue __________ certificate(s) for __________ shares each and,
if applicable, a separate certificate for the remaining ____________ shares in
my name as shown below.
------------------------------------
Name
------------------------------------
Taxpayer I.D. Number
(i.e. Social Security/Insurance Number)
------------------------------------
Number and Street
------------------------------------
City State Zip Code
<PAGE> 7
Please forward the certificate(s) to me at the following address:
------------------------------------
Number and Street
------------------------------------
City State Zip Code
This election incorporates, and is subject to, all terms and conditions
of the Plan and my Stock Option Agreement with the Company.
I am acquiring the foregoing shares for investment purposes only, and
not with a view to their sale or distribution.
Dated:
--------------------
------------------------------------
Signature
------------------------------------
Print Name
<PAGE> 8
SCHEDULE B-1
STAFF BUILDERS, INC.
1994
PERFORMANCE-BASED STOCK OPTION PLAN
Exercise of Stock Option Payment Remittance Form
In fulfillment of the accompanying Notice of Election to Exercise,
which advises you of my intention to exercise options to purchase _____ shares
of Staff Builders, Inc. Class A Common Stock at an option price of $___ per
share, for a total purchase price of $____ , I enclose in full payment of the
purchase price a check in the amount of $___ made payable to Staff Builders,
Inc.
Dated:
--------------------
------------------------------------
Signature
------------------------------------
Type Name
<PAGE> 1
EXHIBIT 10.37
STAFF BUILDERS, INC.
DECEMBER 1, 1998
To the Person Named as
Optionee on Schedule A
to this Agreement
Re: Grant of Nonqualifying Stock Options
to Purchase Shares of the Common
Stock of Staff Builders, Inc.
Dear Optionee:
You and Staff Builders, Inc., a Delaware corporation (the
"Corporation"), hereby agree as follows:
1. Reference. This is the Stock Option Agreement referred to in Section
7(1) of the Corporation's 1994 Performance-Based Stock Option Plan (the
"Plan"). The stock option this Agreement grants is a Nonqualifying Stock Option,
as set forth in Section 5 below. This Agreement incorporates all terms,
conditions and provisions of the Plan.
2. Stock Option.
(a) The Corporation hereby grants to the Optionee the option (the
"Stock Option") to purchase that number of shares of Class A Common Stock of the
Corporation, par value $.01 per share, set forth in Paragraph (b) of this
Section. The Corporation will issue these shares as fully paid and nonassessable
shares upon the Optionee's exercise of the Stock Option. The Optionee may
exercise the Stock Option in accordance with this Agreement any time between six
months and the tenth anniversary of the date of grant of the Stock Option
evidenced by this Agreement, unless earlier terminated according to the terms of
this Agreement.
(b) The Stock Option shall vest and become exercisable pursuant to
Section 7(c) of the plan.
3. Exercise of Stock Option. The Optionee may
<PAGE> 2
To the Person Named as
Optionee on Schedule A
DATE
Page 2
exercise the Stock Option in whole or in part by written notice delivered to the
Corporation in the form of Schedule B to this Agreement. The Optionee shall
enclose with each such notice payment by cash or by valid check in an amount
equal to the number of shares as to which his exercise is made, multiplied by
the option price therefor. The Optionee must exercise the Stock Option on or
before December 1, 2008 after which it will lapse.
4. Purchase Price. The option price per share shall be the Option Price
as defined in Section 7(b) of the Plan.
5. Tax Treatment of the Stock Option. The following is a summary of the
federal income tax consequences of the issuance and exercise of nonqualifying
stock options under the Plan to optionees and to the Corporation under the
Internal Revenue Code of 1986, as amended (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 Plan. Furthermore, differences
in optionees' financial situations may cause federal, state and local tax
consequences of participation in the Plan to vary. Therefore, each optionee in
the 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 Plan, including the applicability and effect of any state
or local tax laws, and of changes in applicable tax laws.
The grant of a nonqualifying stock option will not result in the
recognition of taxable income to the optionee for federal income tax purposes or
in deduction to the Corporation. Upon the exercise of a nonqualifying 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 Common Stock of the Corporation over the exercise price. Such amount may be
deductible by the Corporation if it complies with applicable reporting
requirements.
If an optionee disposes of any shares of Class A Common Stock received
upon the exercise of a nonqualifying 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
<PAGE> 3
To the Person Named as
Optionee on Schedule A
DATE
Page 3
gain or loss will be either long-term or short-term, depending on the holding
period. The Corporation will not be entitled to any tax deduction in connection
with such disposition of shares.
6. No Rights in Option Stock. Optionee shall have no rights as a
stockholder in respect of any shares subject to the Stock Option unless and
until Optionee has exercised the Stock Option in complete accordance with the
terms hereof, and shall have no rights with respect to shares not expressly
conferred by this Agreement.
7. Shares Reserved. The Corporation shall at all times during the term
of this Agreement reserve and keep available such number of shares of Class A
Common Stock as will be sufficient to satisfy the requirements of this
Agreement, and shall pay all original issue taxes on the exercise of the Stock
Option, and all other fees and expenses necessarily incurred by the Corporation
in connection therewith; provided, however, that pursuant to Section 7(g) of the
Plan, upon settlement of the Stock Option, it shall be a condition to the
obligation of the Corporation that the Optionee pay to the Corporation such
amount as the Corporation may request for the purpose of satisfying its
liability to withhold federal, state or local income or other taxes.
8. Nonassignability. The Stock Option and this Agreement shall not be
encumbered, disposed of, assigned or transferred in whole or part, and, except
as described in the Plan, may only be exercised by the Optionee unless the prior
written consent of the Corporation has been obtained. All shares of Class A
Common Stock purchased pursuant to this Agreement shall be purchased for
investment by the Optionee.
9. Effect Upon Employment. Nothing in this Agreement shall confer on
the Optionee any right to continue in the employment of the Corporation or shall
interfere in any way with the right of the Corporation to terminate Optionee's
employment at any time.
10. Successors. This agreement shall be binding upon any successor of
the Corporation.
<PAGE> 4
In order to indicate your acceptance of the Stock Option on the above
terms and conditions, kindly sign the enclosed copy of this letter agreement and
return it to the Corporation.
STAFF BUILDERS, INC.
/s/ Stephen Savitsky
--------------------
By: Stephen Savitsky
Accepted and Agreed to:
/s/ Willard T. Derr
- -------------------
By: Willard T. Derr
<PAGE> 5
SCHEDULE A
Nonqualifying Stock Options
Date of Grant: December 1, 1998
Name of Optionee: Willard T. Derr
Number of Shares as to
which the Option is Granted: 25,000
Option Price per Share: $.53
Additional Vesting Provision: All options will automatically
become exercisable on December 1, 2004 regardless of the market
price of the Class A Common Stock.
<PAGE> 6
SCHEDULE B
NOTICE OF ELECTION TO EXERCISE
STAFF BUILDERS, INC.
1981 Marcus Avenue
Lake Success, New York 11042
Attention:
-----------------------------
Gentlemen:
I hereby irrevocably elect to exercise the Stock Option held by me
under the 1994 Performance-Based Stock Option Plan of Staff Builders, Inc. (the
"Company") to purchase shares of the Class A Common Stock, par value $.01 per
share, of the Company at an option price of $ _________ per share.
Enclosed is a check, payable to the order of the Company, in the amount
of $ _________.
A completed Exercise of Stock Option Payment Remittance Form is
attached.
Please issue __________ certificate(s) for _________ shares each and,
if applicable, a separate certificate for the remaining __________ shares in my
name as shown below.
------------------------------------
Name
------------------------------------
Taxpayer I.D. Number
(i.e. Social Security/Insurance Number)
------------------------------------
Number and Street
------------------------------------
City State Zip Code
<PAGE> 7
Please forward the certificate(s) to me at the following address:
------------------------------------
Number and Street
------------------------------------
City State Zip Code
This election incorporates, and is subject to, all terms and conditions
of the Plan and my Stock Option Agreement with the Company.
I am acquiring the foregoing shares for investment purposes only, and
not with a view to their sale or distribution.
Dated:
--------------------
------------------------------------
Signature
------------------------------------
Print Name
<PAGE> 8
SCHEDULE B-1
STAFF BUILDERS, INC.
1994
PERFORMANCE-BASED STOCK OPTION PLAN
Exercise of Stock Option Payment Remittance Form
In fulfillment of the accompanying Notice of Election to Exercise,
which advises you of my intention to exercise options to purchase ________
shares of Staff Builders, Inc. Class A Common Stock at an option price of $ per
share, for a total purchase price of $___________ , I enclose in full payment of
the purchase price a check in the amount of $_____________ made payable to Staff
Builders, Inc.
Dated:
--------------------
------------------------------------
Signature
------------------------------------
Type Name
<PAGE> 1
EXHIBIT 10.38
STAFF BUILDERS, INC.
1998 STOCK OPTION PLAN
December 1, 1998
Willard T. Derr
Re: Grant of Qualifying Stock Options
to Purchase Shares of the Class A
Common Stock of Staff Builders, Inc.
Dear Will:
You and Staff Builders, Inc., a Delaware corporation (the
"Corporation"), hereby agree as follows:
1. Reference. This is the Stock Option Agreement referred to
in Section 7(k) of the Corporation's 1998 Stock Option Plan (the "Plan"). The
stock option this Agreement grants is an Incentive Stock Option, as set forth in
Section 2 below. This Agreement incorporates all terms, conditions and
provisions of the Plan.
2. Stock Option. The Corporation hereby grants to the Optionee
the option (the "Stock Option") to purchase that number of shares of Class A
Common Stock of the Corporation, par value $.01 per share, set forth on Schedule
A. The Corporation will issue these shares as fully paid and nonassessable
shares upon the Optionee's exercise of the Stock Option. The Optionee may
exercise the Stock Option in accordance with this Agreement any time prior to
the tenth anniversary of the date of grant of the Stock Option evidenced by this
Agreement, unless earlier terminated according to the terms of this Agreement.
Schedule A sets forth the date or dates after which the Optionee may exercise
all or part of the Stock Option, subject to the provisions of the Plan.
3. Exercise of Stock Option. The Optionee may exercise the
Stock Option in whole or in part by written notice delivered to the Corporation
in the form of Schedule B to this Agreement. If exercisable Stock Options as to
100 or more shares are held by an Optionee, then such Stock Options may not be
exercised for fewer than 100 shares at any one time, and if exercisable Stock
Options for fewer than 100 shares are held by an Optionee, then Stock Options
for all such shares must be exercised at one time. The Optionee shall enclose
with each such notice payment by cash or by valid check in an amount equal to
the number of shares as to which his exercise is made, multiplied by the option
price therefor; provided, however, that if the Committee
<PAGE> 2
appointed by the Board of Directors pursuant to Section 2 of the Plan shall, in
its sole discretion, approve, payment upon exercise of the Stock Option in whole
or in part may be made by surrender to the Corporation in due form for transfer
of shares of Class A Common Stock of the Corporation. In the case of payment in
the Corporation's Class A Common Stock, such stock shall be valued at its Fair
Market Value (as defined in Section 7 (b) of the Plan) as of the date of
surrender of the stock.
4. Purchase Price. The option price per share shall be that
set forth on Schedule A.
5. No Rights in Option Stock. Optionee shall have no rights as
a stockholder in respect of any shares subject to the Stock Option unless and
until Optionee has exercised the Stock Option in complete accordance with the
terms hereof, and shall have no rights with respect to shares not expressly
conferred by this Agreement.
6. Shares Reserved. The Corporation shall at all times during
the term of this Agreement reserve and keep available such number of shares of
Class A Common Stock as will be sufficient to satisfy the requirements of this
Agreement, and shall pay all original issue taxes on the exercise of the Stock
Option, and all other fees and expenses necessarily incurred by the Corporation
in connection therewith.
7. Nonassignability. The Stock Option and this Agreement shall
not be encumbered, disposed of, assigned or transferred in whole or in part,
except by will or by the laws of descent and distribution. Except as described
in the Plan, the Optionee alone may exercise the Stock Option. All shares
purchased pursuant to this Agreement shall be purchased for investment by the
Optionee.
8. Effect Upon Employment. Nothing in this Agreement shall
confer on the Optionee any right to continue in the employment of the
Corporation or shall interfere in any way with the right of the Corporation to
terminate Optionee's employment at any time.
9. Successors. This Agreement shall be binding upon any
successor of the Corporation.
<PAGE> 3
In order to indicate your acceptance of the Stock Option on
the above terms and conditions, kindly sign the enclosed copy of this letter
agreement and return it to the Corporation.
STAFF BUILDERS, INC.
/s/ Stephen Savitsky
----------------------------
By: Stephen Savitsky
Accepted and Agreed to:
/s/ Willard T. Derr
- ---------------------------
By: Willard T. Derr
<PAGE> 4
Schedule A
Qualifying Stock Option
Date of Grant: December 1, 1998
Name of Optionee: Willard T. Derr
Number of Shares as to
which the Option is Granted: 10,000
Option Price per Share: $.50
Exercisability of Options:
<TABLE>
<CAPTION>
Number of Shares Target Price of Class
as to which the A Common Stock at
Optionee May Exercise which Optionee May
the Option Granted Exercise the Option
Hereby Granted Hereby
--------------------- ---------------------
<S> <C>
2000 $1.50
1000 $2.00
1000 $2.50
1000 $3.00
1000 $3.50
1000 $4.00
1000 $4.50
1000 $5.00
1000 $6.00
</TABLE>
All options will automatically become exercisable on December 1, 2004 regardless
of the market price of the Class A Common Stock.
<PAGE> 5
Schedule B
NOTICE OF ELECTION TO EXERCISE
Attention:
Gentlemen:
I hereby irrevocably elect to exercise the Stock Option held
by me under the 1998 Stock Option Plan of Staff Builders, Inc. (the
"Corporation") to purchase shares of the Class A Common Stock, par value $.01
per share, of the Corporation at an option price of $__________ per share.
Enclosed is a check, payable to the order of the Corporation,
in the amount of $_____________.
A completed Exercise of Stock Option Payment Remittance Form
is attached.
Please instruct [ ], Transfer Agent,
to issue _________ certificate(s) for __________ shares each and, if applicable,
a separate certificate for the remaining _____________ shares in my name as
shown below. The following address is for the records of the Transfer Agent for
mailing stockholder communications:
-------------------------------------------------
Name
-------------------------------------------------
Taxpayer I.D. Number
(i.e. Social Security/Insurance Number)
-------------------------------------------------
Number and Street
-------------------------------------------------
City State Zip Code
<PAGE> 6
Please forward the certificate(s) to me at the following address:
-------------------------------------------------
Number and Street
-------------------------------------------------
City State Zip Code
This election incorporates, and is subject to, all terms and
conditions of the Plan and my Stock Option Agreement with the Corporation. The
Stock Option I am exercising is stated to be:
[Check one] ( ) Incentive Stock Option
( ) Nonqualifying Stock Option
I am acquiring the foregoing shares for investment purposes
only, and not with a view to their sale or distribution.
Dated:
------------------------
----------------------------------
Signature
----------------------------------
Print Name
<PAGE> 7
Schedule B-1
STAFF BUILDERS, INC.
1998
STOCK OPTION PLAN
Exercise of Stock Option Payment Remittance Form
In fulfillment of the accompanying Notice of Election to
Exercise, which advises you of my intention to exercise options to purchase
________ shares of Staff Builders, Inc. Class A Common Stock at an option price
of $ per share, for a total purchase price of $ , I enclose in full payment of
the purchase price:
bank check in the amount of . . . . . . $
made payable to Staff Builders, Inc. -----------------
Dated:
---------------------- --------------------
Signature
( ) Incentive Stock Option
( ) Nonqualifying Stock Option
--------------------
Type Name
<PAGE> 1
EXHIBIT 10.46
EMPLOYMENT AGREEMENT
Employment Agreement, effective as of April 15, 1999, by and between
Staff Builders, Inc., a Delaware Corporation ("SBI" or the "Corporation"), and
Edward Teixeira who resides at 76 Manchester Lane, Stony Brook, NY 11790
("Executive").
WHEREAS, Executive is a party to an Employment Agreement dated December
1, 1996 with Staff Builders, Inc., a wholly owned subsidiary of SBI,
incorporated in New York (the "Old Agreement").
WHEREAS, SBI wishes to terminate the Old Agreement and replace it with
a new agreement pursuant to which ATC Healthcare Services, Inc. ("ATC") will
secure the services of the Executive on the terms and conditions set forth
below;
AND WHEREAS, the Executive is willing to terminate the Old Agreement
and release SBI from its obligations under the Old Agreement and accept
employment with ATC on such terms and conditions.
NOW, THEREFORE, in consideration of their mutual promises and other
adequate consideration, ATC and the Executive do hereby agree as follows:
1. EMPLOYMENT. ATC will employ the Executive as Executive Vice
President and Chief Operating Officer in accordance with the terms and
provisions of this Agreement.
2. DUTIES. The Executive shall report to the President of SBI and shall
be responsible for the management of all aspects of the operations of ATC. The
Executive shall devote his full business time, attention and skill to the
performance of his duties hereunder and to the advancement of the business and
interests of ATC.
3. TERM. This Agreement shall be effective on April 15, 1999, and shall
remain in effect until April 14, 2002, unless terminated earlier pursuant to the
terms hereof.
4. COMPENSATION.
(a) Salary. The Executive shall be paid in weekly installments
at the rate of $200,000 per annum for the period through April 14, 2000;
$210,000 for the period April 15, 2000 through April 14, 2001; and $220,500 for
the period April 15, 2001 through April 14, 2002.
(b) Incentive Compensation. For each fiscal year of the
Corporation ending during the term hereof, commencing on February 29, 2000,
Executive shall be eligible for a bonus equal to five percent (5%) of the
incremental pre-tax profit, defined as "Net Income Before Taxes" greater than 3%
on the Profit and Loss Statement of ATC Healthcare Services, Inc. Such incentive
compensation shall be payable forty-five (45) days after the fiscal year-end
numbers are reported.
(c) Vacation and Benefits. The Executive is entitled to four
(4) weeks annual vacation. The Executive shall be eligible to receive and
participate in all health, medical or other insurance benefits which ATC
provides or makes available to its employees.
<PAGE> 2
(d) Expenses. ATC shall reimburse the Executive for all
reasonable and necessary expenses upon submission by the Executive of receipts,
accounts or such other documents reasonably requested by ATC.
(f) Options. Executive will be granted stock options to
purchase 60,000 shares of Staff Builders, Inc. (SBLI), which will be issued and
will vest in accordance with the terms of an Option Agreement between the
Executive and the Corporation on the following time schedule:
<TABLE>
<S> <C>
20,000 Immediately
20,000 April 15, 2000
20,000 April 15, 2001
</TABLE>
(g) Car Allowance. Executive shall be entitled to an annual
car allowance of $6,700 paid weekly.
5. TERMINATION: RIGHTS AND OBLIGATIONS UPON TERMINATION.
(a) If the Executive dies during the Term, then the
Executive's employment under this Agreement shall terminate. In such event, the
Executive's estate shall be entitled only to compensation and expenses accrued
and unpaid as at the date of the Executive's death.
(b) If, as a result of the Executive's total incapacity due to
physical or mental illness, whether or not job related, the Executive is absent
from his duties hereunder for 90 consecutive days, the Executive's employment
hereunder shall terminate. In such event, the Executive shall be entitled to
severance, payable at the then weekly base salary for a period of three (3)
months, and expenses accrued and unpaid as at the date of termination of the
Executive's employment.
(c) The Corporation shall have the right to terminate the
Executive's employment under this Agreement for Cause. For purposes of the
Agreement, the Corporation shall have "Cause" to terminate the Executive's
employment if (i) the Executive assigns, pledges, or otherwise disposes of his
rights and obligations under this Agreement, or attempts to do the same without
the prior written consent of the Corporation; or (ii) the Executive has breached
any of the terms or conditions under this Agreement, has engaged in willful
misconduct or has acted in bad faith; or (iii) the Executive has breached
Section 7 of this Agreement; or (iv) the Executive has committed a felony or
perpetrated a fraud against the
<PAGE> 3
Corporation. If the Corporation terminates this Agreement for Cause, the
Corporation's obligations hereunder shall cease, except for the Corporation's
obligation to pay the Executive the compensation and expenses accrued and unpaid
as of the date of termination in accordance with the provisions hereof.
(d) In the event that at any time after a Change of Control
(as defined below) but prior to the end of twelve (12) months after such Change
of Control, the Executive is discharged for any reason other than for Cause (as
defined below) or resigns for any reason (other than due to termination for
Cause), the Executive shall begin to receive within thirty (30) days after such
discharge or resignation a severance payment of twelve (12) months salary at the
same rate of pay in effect at the date of the Change of Control to be paid in
weekly installments for the twelve (12) month period following such discharge or
resignation. A "Change of Control" shall be deemed to occur when a person,
corporation, partnership association or entity (x) acquires a majority of the
outstanding voting securities of Staff Builders, Inc., a Delaware Corporation
("SBD") or (y) acquires securities bearing a majority of voting power with
respect to election of directors of SBD or (z) acquires all or substantially all
of SBD's assets.
(e) Notwithstanding anything to the contrary contained herein,
all payments owed to the Executive upon termination of this Agreement shall be
subject to offset by the Corporation for amounts owed to the Corporation by the
Executive hereunder or otherwise.
(f) The obligations of the Corporation and the Executive
pursuant to this Section 5 shall survive the termination of this Agreement.
6. NOTICES. Any written notice permitted or required under his
Agreement shall be deemed sufficient when hand delivered or posted by certified
or registered mail, postage prepaid, and addressed to:
if to SBI or ATC Healthcare Services, Inc.:
Staff Builders, Inc.
1983 Marcus Avenue,
Lake Success, New York 11042
Attention: President
<PAGE> 4
or
if to the Executive:
Edward Teixeira
76 Manchester Lane
Stony Brook, NY 11790
Either party may, in accordance with the provisions of this Section, give
written notice of a change of address, in which event all such notices and
requests shall thereafter be given as above provided at such changed address.
7. CONFIDENTIALITY OBLIGATIONS; NON-COMPETITION BY EXECUTIVE
(a) The Executive acknowledges that in the course of
performing his duties hereunder, he will be made privy to confidential and
proprietary information. The Executive covenants and agrees that during the term
of this Agreement and at any time after the termination of this Agreement, he
will not directly or indirectly, for his own account or as an employee, officer,
director, partner, joint venturer, shareholder, investor, or otherwise, disclose
to others or use for his own benefit or cause or induce others to do the same,
any proprietary or confidential information or trade secrets of ATC, including
but not limited to, any matters concerning the business or operations of ATC,
including their plans, procedures or methods of operations, any ATC's lists of
clients or business contacts, any information concerning specialty programs or
business development, other work product or records of ATC, other than in the
performance of his duties hereunder.
(b) The Executive agrees that, during the term hereof and for
six (6) months following the termination hereof (the "Restrictive Covenant
Period"), he will not, within the United States (A) compete, directly or
indirectly, for his own account or as an employee, officer, director, partner,
joint venturer, shareholder, investor, or otherwise, with the home health care
or supplemental staffing business conducted by ATC or (B) be employed by, work
for, advise, consult with, serve or assist in any way, directly or indirectly,
any person or entity whose business is home
<PAGE> 5
health care or supplement staffing; or (C) directly or indirectly solicit,
recruit or hire any employee of ATC to leave the employ of ATC; or (D) solicit
any client or customer of ATC to terminate or modify its business relationship
with ATC, respectively.
(c) The foregoing restrictions on the Executive set forth in
this Section 7 shall be operative for the benefit of ATC and of any business
owned or controlled by ATC, or any successor or assign of any of the foregoing.
(d) Executive acknowledges that the restricted period of time
and geographical area specified in this Section 7 is reasonable, in view of the
nature of the business in which ATC are engaged and the Executive's knowledge of
ATC's businesses. Notwithstanding anything herein to the contrary, if the period
of time or the geographical area specified in this Section 7 should be
determined to be unreasonable in a judicial proceeding, then the period of time
and territory of the restriction shall be reduced so that this Agreement may be
enforced in such area and during such period of time as shall be determined to
be reasonable.
(e) The parties acknowledge that any breach of this Section 7
will cause ATC irreparable harm for which there is no adequate remedy at law,
and as a result of this, ATC shall be entitled to the issuance of an injunction,
restraining order or other equitable relief in favor of ATC restraining
Executive from committing or continuing any such violation. Any right to obtain
an injunction, restraining order or other equitable relief hereunder shall not
be deemed a waiver of any right to assert any other remedy ATC may have at law
or in equity.
(f) For purposes of this Section 7, the term "ATC" shall refer
to each of the Corporation and all of their respective parents, subsidiaries and
affiliated corporations.
8. JURISDICTION. The Executive consents to the jurisdiction of the
Supreme Court of the State of New York or of any Federal Court in the City of
New York for a determination of any dispute as to any matters whatsoever arising
out of or in any way connected with this Agreement and authorizes the service of
process on his by registered mail sent to his at his address shown on the
records of
<PAGE> 6
ATC.
9. HANDBOOK; GROUP INSURANCE PROGRAM BOOKLET. The Executive
acknowledges receipt of ATC Employee Handbook and Group Insurance Program
booklet (together, the "Handbook"). The terms of the Handbook are incorporated
herein by reference.
10. BINDING EFFECT. This Agreement shall bind and inure to the benefit
of ATC, its successors and assigns and shall inure to the benefit of, and be
binding upon, the Executive, his heirs, executors and legal representatives.
11. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall in no way affect the validity or enforceability of any
other provision, or any part thereof.
12. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings,
negotiations, and discussions, whether oral or written, of the parties.
14. MODIFICATION, TERMINATION OR WAIVER. This Agreement may only be
amended or modified by a written instrument executed by the parties hereto. The
failure of any party at any time to require performance of any provision of this
Agreement shall in no manner affect the right of such party at a later time to
enforce the same.
IN WITNESS WHEREOF, ATC and the Executive have executed this Employment
Agreement as of the date first above written.
STAFF BUILDERS, INC.
By: /s/ David Savitsky
------------------
David Savitsky
President
/s/ Edward Teixeira
-------------------
Edward Teixeira
<PAGE> 1
EXHIBIT 10.50
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") dated as of March 1, 1999 by and
between STAFF BUILDERS, INC., a New York corporation (the "Company"), and Sandra
Parshall who resides at 17 W. 718 Butterfield Road, Suite 301, Oak Brook
Terrace, Illinois 60181 ("Executive").
WHEREAS, the Company wishes to secure the services of the
Executive on the terms and conditions set forth below; and
WHEREAS, the Executive is willing to accept employment with the Company
on such terms and conditions.
NOW, THEREFORE, in consideration of their mutual promises and other
adequate consideration, the Company and the Executive do hereby agree as
follows:
1. EMPLOYMENT. The Company will employ the Executive as Senior Vice
President-Operations, in accordance with the terms and provisions of this
Agreement.
2. DUTIES. The Executive shall report to the Chief Operating Officer
of the Company and shall be responsible for the management of assigned aspects
of the operations of the home health care business of the Company. The Executive
shall perform such other duties as shall be assigned to the Executive by the
Chief Operating Officer or such officer of the Company as the board of Directors
may from time-to-time designate. The Executive shall devote her full business
time, attention and skills to the performance of her duties hereunder and to the
advancement of the business and interests of the Company. During the time of
this Agreement, the Executive shall be required to base her business office at
the Lake Success Corporate office location. The Executive's base business office
shall not be changed without her prior consent.
3. TERM. This Agreement shall be effective upon execution by the
Company and the Executive, and shall remain in effect until the effective date
of the Distribution of the stock of Tender Loving Care Health Care Services,
Inc., as determined by the U.S. Securities and Exchange Commission, unless
terminated
earlier pursuant to the terms hereof.
4. COMPENSATION.
(a) Salary. The Executive shall be paid a salary of $204,000 per annum
during the term hereof, payable in weekly installments. The Executive's
salary will be reviewed by the Company on June 1, 2000 and June 1,
2001.
1
<PAGE> 2
(b) Benefits. The Executive shall be eligible to receive and
participate in, in accordance with their terms, all health, medical or
other insurance benefits which the Company provides or makes available
to its employees.
(c) Expenses. The Company shall reimburse the Executive for all
reasonable and necessary expenses upon submission by the Executive of
receipts, accounts or such other documents reasonably requested by the
Company.
(d) Car Allowance. The Company will lease a Lexus ES300 for the
Executive.
(e) Vacation. The Executive shall be entitled to three (3) weeks of
paid vacation during each twelve (12) month period of employment during
the term.
(g) Nothing in this Agreement is intended to cause a reduction in the
Executive's benefits under the Company's policy or under any benefit
plan in which Executive is a participant at the time of the execution
of this Agreement.
5. TERMINATION: RIGHTS AND OBLIGATIONS UPON TERMINATION.
(a) If the Executive dies during the Term, then the Executive's
employment under this Agreement shall terminate. In such event, the
Executive's estate shall be entitled only to compensation and expenses
accrued and unpaid as at the date of the Executive's death.
(b) If, as a result of the Executive's incapacity due to physical or
mental illness, whether or not job related, the Executive is absent
from her duties hereunder for 90 consecutive days, or an aggregate of
120 days during the Term, the Executive's employment hereunder and this
Agreement shall terminate. In such event, the Executive shall be
entitled only to compensation and expenses accrued and unpaid as at the
date of termination of the Executive's employment.
(c) The Company shall have the right to terminate the Executive's
employment under this Agreement for Cause. For purposes of the
Agreement, the Company shall have "Cause" to terminate the Executive's
employment if (i) the Executive assigns, pledges, or otherwise disposes
of her rights and obligations under this Agreement, or attempts to do
the same without the prior written consent of the Company; or (ii) the
Executive has been insubordinate, has materially breached any of the
terms or conditions hereof, has engaged in willful misconduct or has
acted in bad faith; or (iii)
2
<PAGE> 3
the Executive has breached Section 7 of this Agreement; or (iv) the
Executive has committed a felony or perpetrated a fraud against the
Company. If the Company terminates this Agreement for Cause, the
Company's obligations hereunder shall cease, except for the Company's
obligation to pay the Executive the compensation and expenses accrued
and unpaid as of the date of termination in accordance with the
provisions hereof.
(d) In the event that at any time after a Change of Control (as defined
below) but prior to the end of twelve (12) months after such Change of
Control, the Executive is discharged for any reason other than for
Cause (as defined in (c) above) or resigns for any reason (other than
due to termination for Cause), the Executive shall begin to receive
within thirty (30) days after such discharge or resignation a severance
payment equal to 2.99 times the 'average annual base salary' paid to
her at the same rate of pay in effect at the date of the Change of
Control to be paid in weekly installments for the three (3) year period
following such discharge or resignation. For the purposes of this
Section 5, "average annual base salary" shall mean the average of
Executive's annual income in the nature of compensation payable by the
Company and includible in gross income over the five most recent
taxable years ending before the Change of Control. Anything contained
herein to the contrary notwithstanding, for a Change of Control
occurring before 2002, years considered in the base period for
calculating 'average annual base salary' shall be determined as
follows:
<TABLE>
<CAPTION>
Years Considered in Calculating
Year of Change in Control Average Base Salary
------------------------- -------------------
<S> <C> <C>
1999 1996 - 1998
2000 1996 - 1999
2001 1996 - 2000
</TABLE>
A "Change of Control" shall be deemed to occur when a person,
Company, partnership, association or entity (i) acquires a majority of
the outstanding voting securities of Staff Builders, Inc., a Delaware
corporation ('SBI') or (ii) acquires securities bearing a majority of
voting power with respect to election of directors of SBI or (iii)
acquires all or substantially all of SBI's assets.
(e) Notwithstanding anything to the contrary contained herein, all
payments owed to the Executive upon termination of this Agreement shall
be subject to offset by the Company for amounts owed to the Company by
the Executive hereunder.
3
<PAGE> 4
(f) The obligations of the Company and the Executive pursuant to this
Section 5 shall survive the termination of this Agreement.
6. NOTICES. Any written notice permitted or required under this
Agreement shall be deemed sufficient when hand delivered or posted by certified
or registered mail, postage prepaid, and addressed to:
if to Staff Builders, Inc.:
1983 Marcus Avenue
Lake Success, New York 11042
Attention:Dale R. Clift, COO
or
if to the Executive:
Sandra Parshall
17 W. 718 Butterfield Road, Suite 301
Oak Brook Terrace, Illinois 60181
Either party may, in accordance with the provisions of this Section,
give written notice of a change of address, in which event all such notices and
requests shall thereafter be given as above provided at such changed address.
7. CONFIDENTIALITY OBLIGATIONS; NON-COMPETITION BY EXECUTIVE.
(a) The Executive acknowledges that in the course of performing her
duties hereunder, she will be made privy to confidential and
proprietary information. The Executive covenants and agrees that during
the term of this Agreement and at any time after the termination of
this Agreement, she will not directly or indirectly, for her own
account or as an employee, officer, director, partner, joint venturer,
shareholder, investor, or otherwise, disclose to others or use for her
own benefit or cause or induce others to do the same, any proprietary
or confidential information or trade secrets of the Company.
(b) The Executive agrees that, while this Agreement is in effect, and
for six (6) months following termination of employment, she will not,
within the United States (A) compete, directly or indirectly for her
own account or as an employee, officer, director, partner, joint
venturer, shareholder, investor, or otherwise, with the home health
care or supplemental staffing business conducted by the Company; or (B)
while this Agreement is in effect and for one (1) year following
termination of employment directly or indirectly solicit or recruit any
4
<PAGE> 5
employee of the Company to leave the employ of the Company, or solicit
any client or customer of the Company to terminate or modify its
business relationship with the Company.
(c) The foregoing restrictions on the Executive set forth in this
Section 7 shall be operative for the benefit of the Company and of any
business owned or controlled by the Company, or any successor or assign
of any of the foregoing.
(d) Notwithstanding anything herein to the contrary, if the period of
time or the geographical area specified in this Section 7 should be
determined to be unreasonable in a judicial proceeding, then the period
of time and territory of the restriction shall be reduced so that this
Agreement may be enforced in such area and during such period of time
as shall be determined to be reasonable.
(e) The parties acknowledge that any breach of this Section 7 will
cause the Company irreparable harm for which there is no adequate
remedy at law, and as a result of this, the Company shall be entitled
to the issuance of an injunction, restraining order or other equitable
relief in favor of the Company restraining Executive from committing or
continuing any such violation. Any right to obtain an injunction,
restraining order or other equitable relief hereunder shall not be
deemed a waiver of any right to assert any other remedy the Company may
have at law or equity.
(f) For purposes of this Section 7, the term "the Company" shall refer
to the Company and all of its parents, subsidiaries and affiliated
Companies.
8. JURISDICTION. The Executive and the Company consent to the
jurisdiction of the New York Supreme Court for a determination of any disputes
as to any matters whatsoever arising out of or in any way connected with this
Agreement and authorize the service of process on the Company or Executive by
registered mail sent to either party at the address set forth in Section 6 of
this Agreement.
9. HANDBOOK GROUP INSURANCE PROGRAM BOOKLET. The Executive
acknowledges receipt of the Company's Employee Handbook and Group Insurance
Program booklet (together, the "Handbook"). The terms of the Handbook are
incorporated herein by reference.
10. BINDING EFFECT. This Agreement shall bind and inure to
the benefit of the Company, its successors and assigns and shall
5
<PAGE> 6
inure to the benefit of, and be binding upon, the Executive, her heirs,
executors and legal representatives.
11. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall in no way affect the validity or enforceability of any
other provision, or any part thereof.
12. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings,
negotiations, and discussions, whether oral or written. of the parties.
14. MODIFICATION, TERMINATION OR WAIVER. This Agreement may only be
amended or modified by a written instrument executed by the parties hereto. The
failure of any party at any time to require performance of any provision of this
Agreement shall in no manner affect the right of such party at a later time to
enforce the same.
15. INDEMNIFICATION. The Company shall indemnify and hold Executive
harmless from any and all damages, costs, fees and expenses, including but not
limited to attorneys' fees, which she may incur as a result of any claim against
her arising out of her performance of her duties under this Agreement provided
that she is not found to have committed intentional misconduct.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Employment Agreement as of the date first above written.
STAFF BUILDERS, INC.
By: /s/ Dale R. Clift
------------------
Dale R. Clift, President
/s/ Sandra Parshall
---------------------
Sandra Parshall
6
<PAGE> 1
EXHIBIT 10.59
FIRST LEASE AMENDMENT
AGREEMENT, made this 28th day of October, 1998 between MATTERHORN USA,
INC., having an address at c/o BDG Management, Inc., 6800 Jericho Turnpike,
Syosset, New York 11791 (the "Landlord") and STAFF BUILDERS, INC. having an
address at 1983 Marcus Avenue, Lake Success, New York 11042 (the "Tenant").
W I T N E S E T H
WHEREAS, Landlord's predecessor in interest and Tenant entered into (i)
a lease agreement, dated October 1, 1993 (the "Lease") for the rental of
approximately 48,000 rentable square feet of office space (the "Original Office
Space") plus 5,000 square feet of storage space at 1983 Marcus Avenue, Lake
Success, New York (the "Building"), (ii) a lease agreement dated June 19, 1995
for the rental of 1,014 rentable square feet of office space (the '1014 Lease'),
(iii) a License Agreement dated January 3, 1996 (the '9816 License') for the use
of approximately 9,816 rentable square feet on the entry level of the Building,
(iv) a License Agreement dated January 16, 1997 (the '3100 License') for the use
of approximately 3,100 rentable square feet of storage space on the Concourse
Level of the Building, (v) a License Agreement dated August 15, 1997 (the '989
License') for the use of approximately 989 rentable square feet on the second
floor of the Building (the 9816 License, 3100 License, and 989 License are
hereinafter collectively referred to as the "License Agreements"); and
WHEREAS, the parties are desirous of amending the Lease so as to (i)
surrender certain space presently leased by Tenant from Landlord, (ii)
consolidate into the Lease certain space presently leased by Tenant from
Landlord under the 1014 Lease and License Agreements, (iii) lease 14,132
rentable square feet on the Second Floor not previously considered herein (the
space referred to in (iii) above and the License Agreements space is sometimes
hereinafter referred to as the "Expansion Space"), and (iv) extend the term of
the Lease to end the 30th day of September, two thousand and five upon the terms
and conditions provided herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed as follows:
1. The total rentable square foot area as indicated in the Lease is hereby
amended and increased to (i) 62,635 rentable square feet of office space, and
(ii) 8,100 rentable square feet of storage space, which premises consists of the
areas shown on Exhibit 'A' annexed hereto and made a part hereof.
2. The basic rent through the end of the term of this Lease shall be as
follows:
<PAGE> 2
<TABLE>
<CAPTION>
Office Space
- ------------
Dates Annual Rent Monthly Rent
----- ----------- ------------
<S> <C> <C>
Effective Date-11/30/98 $1,368,574.75 $114,047.90
12/1/1998-11/30/1999 $1,409,631.99 $117,469.33
12/1/1999-11/30/2000 $1,451,920.95 $120,993.41
12/1/2000-11/30/2001 $1,495,478.58 $124,623.22
12/1/2001-11/30/2002 $1,540,342.94 $128,361.91
12/1/2002-11/30/2003 $1,586,553.23 $132,212.77
12/1/2003-11/30/2004 $1,634,149.82 $136,179.15
12/1/2004-9/30/2005 $1,683,174.32 $140,264.53
</TABLE>
<TABLE>
<CAPTION>
Storage Space
- -------------
Dates Annual Rent Monthly Rent
----- ----------- ------------
<S> <C> <C>
Effective Date-11/30/98 $70,965.24 $5,913.77
12/1/1998-11/30/1999 $73,094.20 $6,091.18
12/1/1999-11/30/2000 $75,287.02 $6,273.92
12/1/2000-11/30/2001 $77,545.63 $6,462.14
12/1/2001-11/30/2002 $79,872.00 $6,656.00
12/1/2002-11/30/2003 $82,268.16 $6,855.68
12/1/2003-11/30/2004 $84,736.23 $7,061.35
12/1/2004-9/30/2005 $87,278.32 $7,273.19
</TABLE>
3. Tenant's Proportionate Share set forth in Article 6 of the Lease
shall be increased to 20.8682%.
4. The Work Letter set forth in Article 34 of the Lease shall be
amended as follows:
Landlord shall have no obligation to alter, improve, decorate, or
otherwise prepare the Demised Premises for Tenant's occupancy of the
Expansion Space except that Landlord shall perform such items of work,
so as to perform new building standard installation in accordance with
the construction drawings attached hereto (hereinafter, "Landlord's
First Amendment Work"). Landlord shall proceed with Landlord's First
Amendment Work with due diligence, subject to delays by causes beyond
its reasonable control and to the vacating and surrendering of all or
part of the Expansion Space by any present occupant thereof. This First
Amendment to Lease is subject to and contingent upon Landlord obtaining
vacant possession of the Expansion Space. If Landlord is required by
the terms hereof to do any such work without expense to Tenant and the
cost of such work is increased due to any delay resulting from any act
or omission of Tenant, it agents or employees, Tenant shall forthwith
pay the Landlord as additional rent an amount equal to such increase in
cost. For the purposes of this First Lease Amendment, the Landlord's
First Amendment Work shall be deemed "substantially ready for
occupancy" when the major construction aspects of Landlord's First
Amendment Work are substantially completed, although minor items are
not completed. Such minor uncompleted items
<PAGE> 3
may include touch-up plastering or painting, so called "punch list"
items or any other uncompleted construction or improvement which does
not unreasonably interfere with Tenant's ability to carry on its
business in the Expansion Space. Tenant shall periodically inspect
Landlord's First Amendment Work, as hereinafter provided, and make any
objections thereto without delay so as to mitigate changes, delays and
costs. Notwithstanding anything to the contrary herein, Landlord shall
perform such items of work pursuant to the construction drawings
previously approved by Landlord and Tenant, a copy of which is attached
hereto.
5. The following paragraph shall replace Paragraph 37 of the Lease:
Provided that Tenant (a) has given Landlord seven (7) months prior
written notice that it will exercise this right of cancellation and (b)
is not in default under the terms, conditions or covenants of this
Lease beyond applicable notice and grace periods on the date when
notice is given or on the date when this right of cancellation is
exercised, Tenant may exercise this right of cancellation on May 31,
2002 by paying to Landlord, in seven (7) equal monthly installments,
commencing upon notifying Landlord that it will exercise this right of
cancellation, a total sum computed as follows: (a) total cost of
initial tenant installation divided by 105 months and multiplied by the
number of months from the date the cancellation becomes effective to
September 30, 2003 (i.e., $1,254,000 / 105 = $11,942.86 x 16 =
$191,085.76) plus (b) the total cost of the 1014 Lease Work letter
divided by 105 months and multiplied by the number of months from the
date the cancellation becomes effective to September 30, 2003 (i.e.
$25,992.97 / 105 = $247.55 x 16 = $3,960.83) plus (c) total cost of
Landlord's First Amendment Work divided by 82 months and multiplied by
the number of months from the date the cancellation becomes effective
to the end of the lease term (i.e., $440,830 / 82 = $5,375.98 x 40 =
$215,039.02). If the Lease is terminated during said seven (7) month
period, all payments due under this Article shall thereafter cease
provided that Tenant is not in default under the terms, conditions and
covenants of the Lease beyond applicable notice and grace periods. If
Tenant does not elect to cancel on May 31, 2002, then Landlord, at its
sole cost and expense, shall repaint and replace any carpeting having a
useful life of less than three (3) years in the original Office Space
using similar paint and/or carpeting as used for the initial tenant
installation, with the work to be done during regular business hours.
Tenant agrees to cooperate in a commercially reasonable manner and
Landlord agrees to have the work performed in a commercially reasonable
manner.
6. For purposes of the calculation of additional rent due hereunder,
the area demised to Tenant shall be based on the total rentable square feet of
65,735, commencing as of the Effective Date
<PAGE> 4
hereinafter defined.
7. The effective date (the "Effective Date") of this First Lease
Amendment shall be the date that Landlord gives notice to Tenant that the
Expansion Space is substantially ready for occupancy or upon the day that Tenant
is actually occupying the Expansion Space, whichever is earlier. Landlord shall
use reasonable efforts to give to Tenant no less than ten (10) business days
prior notice of the date on which the Expansion Space shall be substantially
ready for occupancy. Notwithstanding anything to the contrary herein, if
Landlord shall be delayed in substantially completing Landlord's First Amendment
Work due to any acts and/or omissions of Tenant, including but not limited to
(i) Tenant's request for materials, finishes or installations other than
Landlord's standard, (ii) Tenant's changes in any plans, (iii) the performance
of work by a person, firm or corporation employed by Tenant and delays in the
completion of said work by said person, firm or corporation, (iv) Tenant's
delays in submitting any plans or specifications, and approving plans or
specifications or estimates, or in supplying information, (v) by reason of any
additional non-standard work requested by Tenant, then the Effective Date shall
be accelerated by the number of days of such delay. Notwithstanding anything to
the contrary herein, Tenant shall continue to pay all rent and comply with all
other terms and conditions of the Lease, the 1014 Lease and License Agreements
upon the execution of this First Lease Amendment until the Effective Date, at
which time said terms and conditions shall be amended as expressly provided
herein and the License Agreements, 1014 Lease and 1500 rentable square feet
known as the Concession Premises and shown on Exhibit B to the Lease shall
automatically be terminated in their entirety upon the Effective Date. Tenant
shall vacate the Concession Premises and all space under the 9816 License no
later than the Effective Date, with delivery of such premises to Landlord to be
made in accordance with all of the terms of the respective lease or license
agreement -Tenant's failure to vacate such premises as contemplated herein shall
be deemed to be a default under the terms of this Lease and Landlord shall
maintain all rights and remedies provided in the Lease or otherwise by law. The
parties acknowledge that approximately 936 rentable square feet of the 14,132
rentable square feet of space being added to the Premises now leased or licensed
by Tenant, is currently occupied by another tenant (the '936 Space').
Notwithstanding anything to the contrary herein, the Effective Date shall be the
date that Landlord gives notice to Tenant that the Expansion Space (other than
the 936 Space) is substantially ready for occupancy or upon the date Tenant is
actually occupying the aforementioned space, whichever is earlier and the rent
and all other charges shall be adjusted accordingly until the earlier of
substantial completion of the 936 Space or the date Tenant occupies said space.
If the 936 Space is not vacated by any existing occupants by November 1, 1998,
Landlord may elect to remove said premises from the terms of this First Lease
Amendment and all other terms and conditions of this First Lease Amendment shall
remain in full force and effect.
<PAGE> 5
8. Tenant represents that it has dealt with no broker other than Sutton
& Edwards (hereinafter the "Broker") in connection with this First Lease
Amendment and Tenant hereby agrees to indemnify and hold Landlord harmless of
and from any and all losses, costs, damages or expense (including, without
limitation attorneys' fees and disbursements) incurred by Landlord by reason of
any claim of or liability to any other broker who claims to have dealt with
Tenant in connection with this First Lease Amendment. Landlord shall pay the
Broker such brokerage fee as may be due it pursuant to and in accordance with
Landlord's separate agreement with the Broker.
9. It is expressly understood and agreed that submission by Landlord of
the within First Lease Amendment is for review and execution by Tenant and shall
confer no rights nor impose any obligation on either party unless or until both
Landlord and Tenant shall have executed this First Lease Amendment and
duplicates and originals thereof shall have been delivered to the respective
parties hereto.
10. The following Article shall replace Article 39 of the Lease:
Storage Space
Landlord will provide Tenant with +5,000 and +3,100 square feet of
'dead storage space' on the Concourse Level of the Building as more particularly
shown on Exhibit A attached hereto. Tenant may use said space solely for the
purposes of storage. There will be no personnel located in said space and
Tenant's use shall be limited to the maintenance of files plus such use of the
premises by Tenant's employees as reasonably necessary to file or retrieve files
located in said space. Landlord will provide Tenant with such space in an "as
is" condition. The Base Rent for this space is incorporated in the rent schedule
set forth in paragraph 2 of this First Lease Amendment. Late payments are
subject to interest and other charges as provided in this Lease with regard to
the Base Rent and Additional Rent. Landlord shall have no responsibility for the
security of the contents of such storage space and all risks are expressly
assumed by the Tenant.
11. The car spaces set forth in Article 4 of the Lease shall be
increased to 292 car spaces (267 spaces in the underground garage and 25 spaces
on the deck).
12. Articles 39, 44 and 45 of the Lease shall be deleted in their
entirety.
13. Except as otherwise set forth herein, all other terms and
conditions of the Lease are ratified, confirmed and remain in full force and
effect.
<PAGE> 6
IN WITNESS WHEREOF, the parties have signed and delivered this First
Lease Amendment as of the date first above written.
MATTERHORN, USA, INC.
BY: /s/ Michael J. Jaynes, VP
----------------------------------------
Michael J. Jaynes
Vice President
STAFF BUILDERS, INC.
BY: /s/ David Savitsky, EVP
----------------------------------------
David Savitsky
Executive Vice President
<PAGE> 1
EXHIBIT 10.66
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("License") is made as of the 16th of December,
1998, between MATTERHORN USA, INC., having an address at c/o BDG Management,
Inc., 6800 Jericho Turnpike, Syosset, New York 11791 ("Owner"), and STAFF
BUILDERS, INC., a New York Corporation, having an address at 1983 Marcus Avenue,
Lake Success, New York 11042 ("User").
W I T N E S S E T H:
WHEREAS, Owner is the owner of the office building located at and known
as Gateway South, 1981 Marcus Avenue, Lake Success, New York 11042 (the
"Building"); and
WHEREAS, User currently occupies certain premises in the adjoining
building owned by Owner and known as Gateway North, 1983 Marcus Avenue, Lake
Success, New York 11042; and
WHEREAS, User has requested the right to use and occupy approximately
1,396 square feet of space in the Building for storage purposes; and
WHEREAS, Owner is willing to grant User the right to use and occupy
space in the Building on the terms and conditions set forth in this License;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, Owner and User hereby agree as follows:
1 . User's Possession of Premises and Permitted Uses. Owner hereby
grants to User a license to use and occupy the space substantially as shown on
the diagram attached hereto and made a part hereof as Exhibit A on the concourse
level of the Building (the "Premises") for the period from the date hereof (the
"License Commencement Date") through September 30, 2005. This License shall be
limited to the use and occupancy of the Premises solely for storage of computer
equipment and only through the period contemplated herein or upon the earlier
termination of this Agreement.
2 . Charges. In consideration of Owner's granting to User the right to
use and occupy the Premises, User hereby agrees to pay owner a license fee (the
"License Fee") payable monthly without setoff or deduction, on the first day of
each calendar month during the term of this License as follows:
<PAGE> 2
<TABLE>
<CAPTION>
MONTHLY ANNUAL
FROM TO PAYMENT PAYMENT
License Execution
<S> <C> <C> <C>
9/30/99 $1,396.00 $16,752.00
10/01/99 9/30/00 $1,437.88 $17,254.50
l0/01/00 9/30/01 $1,481.02 $17,772.20
10/01/01 9/30/02 $1,525.45 $18,305.30
10/01/02 9/30/03 $1,571.21 $18,854.62
10/01/03 9/30/04 $1,618.35 $19,420.16
10/01/04 9/30/05 $1,666.90 $20,002.76
</TABLE>
User shall also pay Owner all other sums of money as shall become due
and payable by User under this License (hereinafter, "Additional Fees") , all of
which sums shall be payable as hereinafter provided, all to be paid to Landlord,
as specified on the first page of this License. In the event any installment of
the License Fees or Additional Fees required pursuant to the provisions of this
License to be paid by User is not paid when due, such installment shall bear
interest at the rate of twelve (12%) percent per annum from the date said
installment was due and payable, said interest to be deemed Additional Fee. In
addition, User shall pay upon demand by Owner any attorney's fees incurred by
Owner in connection with the imposition, collection or payment of any License
Fees, Additional Fees and/or said interest, said attorney's fees to be deemed
Additional Fees.
3. Condition of Premises. User represents and warrants that it has
inspected the Premises and accepts the Premises "as is". User acknowledges that
Owner has made no claim or promise about the condition of the Premises. User
shall not make any alterations, addition, changes, or improvements to the
Premises without the prior written consent of Owner.
4. Services. As long as User is not in default under this License,
Owner, during the hours of 8:00 a.m. to 6:00 p.m. on weekdays and on Saturdays
from 9:00 a.m. to 1:00 p.m., excluding legal holidays, shall furnish the
Premises with heat [and air conditioning in the respective seasons], and provide
the Premises with electricity for lighting and [usual office equipment.]
5 . Release From Liability. User agrees that Owner shall not be
responsible or liable for any damage or injury to any property or to any person
or persons at any time on or about the Premises arising from any cause
whatsoever except owner's negligence. User shall not hold owner in any way
responsible or liable therefor and will indemnify and hold owner harmless from
and against any and all claims, liabilities, penalties, damages, judgments and
expenses (including, without limitation, reasonable attorney fees and
disbursements) arising from injury to person or property of any nature arising
out of User's use or occupancy of the Premises and also for any other matter
arising out of User's use or occupancy of the Premises, or of the street or
sidewalks adjacent thereto.
<PAGE> 3
6. Insurance. During the term of User's use and occupancy of the
Premises, User, at its sole cost and expense, and for the mutual benefit of
Owner and User, shall carry and maintain comprehensive fire protection and
extended coverage and liability insurance, including property damage and
replacement value, insuring the Owner and the User against liability for injury
to persons or property occurring on or about the Premises arising out of the
ownership, maintenance, use or occupancy thereof, in amounts and with insurance
companies acceptable to Landlord, in its reasonable discretion. User shall
deliver to Owner a certificate evidencing such insurance on or before the
License Commencement Date. Such certificate shall provide that the insurer shall
not cancel, reduce or otherwise modify such coverage without giving Owner at
least thirty (30) days prior written notice of such change.
7 . No Assignment. No assignment of this License or sublicensing or
subleasing of the Premises or any part thereof shall be made by User. Neither
all nor any part of User's interest in the Premises granted hereunder may be
encumbered, assigned, or transferred in whole or in part either by the act of
User or by operation of law. User shall not permit or suffer the Premises to be
used by anyone other than the employees of User.
8 . Subordination. This License shall be subject and subordinate to any
and all mortgages and ground leases of the Building and all extensions,
consolidations, amendments or replacements thereof.
9. Default. In the event User shall be in default of any monetary
provision of this License for more than five (5) days after the sending by Owner
to User of written notice of such monetary default, or in the event User shall
be in default of any non-monetary provision of this License for more than ten
(10) days after the sending by Owner to User of written notice of such
non-monetary default, Owner shall have the right, to the extent permitted by
law, to (i) re-enter the Premises and withdraw the permission hereby granted to
User to use the Premises; and (ii) remove all persons and property therefrom,
without being deemed to have committed any manner of trespass. Such remedies
shall be in addition to any other rights or remedies owner may have hereunder or
at law or equity. Any default under any lease agreement now or hereafter entered
into between owner and User shall be deemed to be a default under this License
entitling Owner to all of the remedies provided herein or otherwise permitted by
law.
10. Notices. Any notices required or permitted to be given under this
License shall be given to the respective parties at the addresses set forth at
the head of this License by hand, by overnight courier or by certified mail,
return receipt requested. Such notices shall be deemed given upon delivery, in
the case of hand delivery, one day after mailing, in the case of overnight
courier and three business days after mailing, in the case of mailing. Such
notices can be given or received by the respective attorneys for the parties.
<PAGE> 4
11. Reimbursement of Fees. In the event that Owner is required to take
any legal action to enforce the terms of this License, including any action
against User for possession, owner shall be entitled, in addition to any other
rights and remedies hereunder or at law or equity, to the reimbursement by User
of all reasonable costs incurred by owner in the exercise of its rights and
remedies, including, but not limited to, reasonable attorneys' fees and
disbursements. In any legal action brought in connection with this License, both
Owner and User waive a jury trial.
12. Surrender of Premises. Upon the termination of this License, User
shall deliver the Premises in a "broom clean" condition free from all debris,
and User agrees to remove all of its possessions and property from the Premises.
User agrees that between the date hereof and the termination of this License,
User will maintain the Premises in the same condition and repair as it was at
the commencement of this License, reasonable wear and tear excepted and will
cause the grounds to be maintained and well kept.
13. Owner Access to the Premises. During the term of this License, User
agrees to allow Owner, its employers, agents or servants to enter upon the
Premises and to inspect same and make any necessary repairs. owner is also
granted the right during User's normal business hours to enter the Premises and
exhibit the same for the purpose of showing the Premises to prospective tenants,
purchasers or mortgagees.
14. Real Estate Tax Escalation (a) User shall pay to owner as
Additional Fees, real estate tax escalations pursuant to the further provisions
of this Paragraph 14.
(b) For the purposes of this Paragraph 14, the term "Taxes" shall
include all real estate taxes and assessments, special assessments, water and
sewer rents and each and every installment thereof which shall or may during the
Term of this License be levied, assessed, imposed, become due and payable, or
liens upon or arising in connection with the use, occupancy or possession of or
grow out of, or for the Building and/or the Land, or any part thereof as if the
Building and Land were the sole asset of Owner. If at any time during the Term
of this License the methods of taxation prevailing at the execution of this
License shall be altered so that in lieu of or as a substitute for the whole or
any part of the taxes, assessments, levies, impositions or charges now levied,
assessed or imposed on real estate or the improvements thereon there shall be
levied, assessed or imposed (i) a tax, assessment, levy, imposition or charge
wholly or partially payable as a capital levy or otherwise on the rents received
therefrom, or (ii) a tax, assessment, levy, imposition or charge measured by or
based in whole or in part upon the Demised Premises and imposed upon Owner, or
(iii) a license fee or charge measured by the rents payable by User to owner, or
(iv) a license fee or
<PAGE> 5
charge measured by the rent receivable by owner for the Building or any portion
thereof and/or the Land or any other building or other improvements constructed
on the Land, or (v) a tax, license fee or charge imposed on Owner which is
otherwise measured by or based in whole or in part, upon the Building or any
portion thereof and/or the Land or any other building or other improvements
constructed on the Land, or (vi) any other tax or levy imposed in lieu of or as
a substitute for Taxes which are levied, assessed or imposed as of the date of
this License, then in any such event, the same shall be included in the
computation of Taxes hereunder. A tax bill or copy thereof shall be conclusive
evidence of the amount of Taxes or installments thereof.
(c) If, at any time subsequent to the License Commencement Date, the
Taxes for any General Tax Year and/or School Tax Year shall be more than the
Base General Tax Year and/or Base School Tax Year, then, in such event, User
shall pay to owner, as Additional Fees, User's Pro Rata share of such excess
(the "Excess Taxes"), in the manner provided in this paragraph.
(i) Base General Tax Year shall mean the taxes, as finally
determined, for the General Tax Year fiscal period commencing January 1, 1999,
and ending on December 31, 1999.
(ii) Base School Tax Year shall mean the taxes, as finally
determined, for the School Tax Year fiscal period commencing July 1, 1998, and
ending on June 30, 1999.
(iii) General Tax Year shall mean each period of 12 months,
commencing on January 1 of each such period, in which occurs any part of the
term of this License, or such other period as hereafter may be duly adopted by
the County of Nassau as its fiscal year for real estate tax purposes.
(iv) School Tax Year shall mean each period of 12 months,
commencing on July 1 of each such period, in which occurs any part of the term
of this License, or such other period of 12 months occurring during the term of
this License as hereafter may be duly adopted as the fiscal year for real estate
tax purposes of the school taxing authority.
(d) owner shall render to User a statement of the Excess Taxes,
including a statement of the Base General and/or School Tax Year amount, as
applicable, and the Additional Fee increase computed as set forth in Paragraph
14(c) hereof, and such increase shall be paid within twenty (20) days after
rendition thereof. A tax bill or copy thereof submitted by Owner to User shall
be conclusive evidence of the amount of Taxes. Owner shall have the right to
establish an escrow to cover the escalations for Taxes contemplated by this
Paragraph 15 and User shall pay one-twelfth of such estimate each month on the
date in which payments of License Fees are due, subject to adjustment at the end
of each calendar year. Such escrow payments shall commence on the first day of
the month after receipt of notice from owner of the calculation of the estimate.
<PAGE> 6
(e) only owner shall be eligible to institute proceedings to reduce the
assessed valuation of the Land or the Building. In the event Owner shall obtain
a tax refund as a result of any such reduction proceedings, then, provided User
is not then in default under the terms of this License, and after all applicable
grace periods have expired, and after the final conclusion of all appeals or
other remedies, User shall be entitled to User's Pro Rata Share of the net
refund obtained. As used herein, the term "net refund" means the refund plus
interest, if any, thereon, paid by the governmental authority less appraisal,
engineering, expert testimony, attorney, printing and filing fees and all other
Owner costs and expenses of the proceeding. User shall pay to Owner User's Pro
Rata Share of all appraisal, engineering, expert testimony, attorney, printing
and filing fees and all other reasonable costs and expenses of the proceeding
incurred by Owner in the event said proceeding does not result in any net
refund. Notwithstanding anything contained to the contrary herein, User shall
not be entitled to any refund in excess of monies paid by User hereunder.
(f) Owner's failure during the Term of this License to submit tax bills
or copies thereof to User, or Owner's failure to make demand under this
Paragraph 14 or under any other provision of this License shall not in any way
be deemed a waiver of, or cause owner to forfeit or surrender its rights to
collect any items of Additional Fees which may have become due pursuant to this
Paragraph 14 during the term of this License. User's liability for the
Additional Fees due under this Paragraph 14 shall survive the expiration or
sooner termination of this License.
(g) In no event shall any adjustment of User's Pro Rata Share of the
Taxes payable hereunder result in a decrease in License Fees or Additional Fees
payable pursuant to any other provision of this License, it being agreed that
the payment of Additional Fees under this Paragraph 14 is an obligation
supplemental and in addition to User's obligation to pay License Fees.
(h) If any User's Changes result in an increased real estate tax
assessment, User shall pay to Owner, as Additional Fees, the amount of such
increased assessment.
15. Electricity. User covenants and agrees that at all times it use of
electric current shall not exceed the capacity of existing feeders to the
Building or the risers or wiring installations servicing the Premises. User may
not use any electrical equipment which will overload installations or materially
interfere with the use thereof by other tenants of the Building. User's use of
electricity from the Premises shall be measured by the direct meter already
installed in other premises of User. [User shall be billed directly by the Long
Island Power Authority and shall pay LIPA directly.]
<PAGE> 7
16. User's Right to Cancel the License. Provided that User is not in
default of the terms of this License, User shall have the right to cancel this
License effective as of May 31, 2002, provided that User provides written notice
to Owner of its election to cancel this License no later than November 30, 2001,
and provided that User shall deliver to Owner, on or before may 31, 2002, the
amount which equals four (4) months' License Fees for the four-month period
immediately following the effective date of cancellation of this License. In the
event of the aforementioned termination, the terms of this License shall be
deemed to have expired with the same force and effect as if such termination
date were the date set forth herein as the expiration date of the term thereof.
17. Compliance With Laws. (a) User shall give prompt notice to Owner of
any notice it receives of the violation of any law or requirements of any public
authority with respect to the Demised Premises or the use or occupation thereof.
Prior to the License Commencement Date, if User is then in possession of the
Premises, and at all times thereafter, User shall promptly comply with all
present and future laws, orders and regulations of all state, federal, town,
municipal and local governments, departments, commissions and boards or any
direction of any public officer pursuant to law, and all orders, rules and
regulations of the New York Board of Fire Underwriters or any similar body which
shall impose any violation, order or duty upon Owner or User with respect to the
Premises (in which event User shall effect such compliance at its sole cost and
expense) or the Building (in which event, notwithstanding anything herein to the
contrary, User shall promptly pay User's Pro Rata Share of the cost to Owner of
complying therewith). User shall pay all costs, expenses, fines, penalties or
damages, which may be imposed upon Owner by reason of User's failure to comply
with the provisions of this Article, and if by reason of such failure the fire
insurance rate shall, at the beginning of this License or at any time
thereafter, be higher than it otherwise would be, then User shall reimburse
Owner, as Additional Fees hereunder, for that portion of all fire insurance
premiums thereafter paid by Owner which shall have been charged because of such
failure by User, and shall make such reimbursement upon the first day of the
month following such outlay by owner. Notwithstanding the foregoing, Tenant
shall have no obligation to make any alterations or improvements if same are
structural in nature unless due to the negligent act or omission of Tenant, its
agent, servant, employee or contractors.
(b) User shall not place a load upon any floor of the Premises
exceeding the floor load per square foot area which said floor was designed to
carry and which is allowed by law.
18. Bankruptcy. (a) If at any time prior to the License Commencement
Date there shall be filed by or against User in any court pursuant to any
statute either of the United States or of any
<PAGE> 8
State a petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee of all or a portion of User's property, or
if User makes an assignment for the benefit of creditors, or petitions for or
enters into an arrangement with creditors, this License shall ipso facto be
canceled and terminated and in which event neither User nor any person claiming
through or under User or by virtue of any statute or of any order of any court
shall be entitled to possession or to remain in possession of the Premises but
shall forthwith quit and surrender the Premises and Owner, in addition to the
other rights and remedies it has by virtue of any other provisions herein or
elsewhere in this License contained or by virtue of any statute or rule or law,
may retain as liquidated damages any rent or any deposit or monies received by
it from User or others on behalf of User.
(b) If at the License Commencement Date or if at any time during the
Term of this License there shall be filed by or against User in any court
pursuant to any statute either of the United States or of any State a petition
in bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee of all or a portion of User's property or if User makes an
assignment for the benefit of creditors or petitions for or enters into an
arrangement with creditors, this License, at the option of Owner exercised
within a reasonable time after notice of the happening of any one or more of
such events, may be canceled and terminated by written notice by Owner to User
and in which event neither User nor any person claiming through or under User by
virtue of any statute or of any order of any court shall be entitled to
possession or to remain in possession of the Premises but shall forthwith quit
and surrender the Premises and owner, in addition to the other rights and
remedies it has by virtue of any other provisions herein or elsewhere in this
License contained or by virtue of any statute or rule of law, may retain as
liquidated damages any rent, security, deposit or monies received by Owner from
User or others on behalf of User.
(c) At any of the times mentioned in either sub-paragraphs (a) or (b)
hereof, if an involuntary insolvency, bankruptcy or reorganization proceeding
shall be instituted against User as provided in said subparagraphs, User shall
have sixty (60) days in which to vacate the same before Owner shall have any
right to terminate this License.
(d) It is stipulated and agreed that in the event of the termination of
this License pursuant to subparagraphs (a) or (b) hereof, Owner shall forthwith,
notwithstanding any other provisions of this License to the contrary, be
entitled to recover from User as and for liquidated damages an amount equal to
the difference between the rent reserved hereunder for the unexpired portion of
the Term of this License and the fair market rental value of the Premises, if
lower than the rent reserved, at the time of termination, for the unexpired
portion of the Term of this License, both discounted at the rate of four (4-.)
percent per annum to
<PAGE> 9
present worth thereof. Nothing contained herein shall limit or prejudice the
right of Owner to prove for and obtain as liquidated damages by reason of such
termination an amount equal to the maximum allowed by any statute or rule of law
in effect at the time when, and governing the proceedings in which, such damages
are to be proved, whether or not such amount he greater, equal to, or less than
the amount of the difference referred to above. In determining the fair market
rental value of the Premises the rent realized by any arms-length re-letting, if
such re-letting be accomplished by Owner within a reasonable time after
termination of this License, shall be deemed prima facie evidence of the fair
market rental value. Any disputes with respect to the fair market rental value
shall be resolved pursuant to the arbitration provisions of this License.
19. Damage by Fire or Other Cause. (a) User shall give prompt notice to
owner in case of fire or other damage to the Premises or the Building.
(b) If the Premises or the Building shall be damaged by fire or other
casualty, Owner, at Owner's expense, shall repair such damage. However, Owner
shall have no obligation to repair any damage to, or to replace, User's personal
property or any other property or effects of User. If the Premises shall be
rendered untenantable by reason of any such damage, the License Fee only shall
abate for the period from the date of such damage to the date when such damage
shall have been substantially repaired, and if only a part of the Premises shall
be so rendered untenantable, the License Fee shall abate for such period in the
proportion which the Rentable Area of the Premises so rendered untenantable
bears to the total Rentable Area of the Premises. However, if, prior to the date
when all of such damage shall have been repaired, any part of the Premises so
damaged shall be rendered tenantable and shall be used or occupied by User or
other persons claiming through or under User, then the amount by which the
License Fee shall abate shall be equitably apportioned for the period from the
date of any such use or occupancy to the date when all such damage shall have
been repaired. User hereby expressly waives the provisions of Paragraph 227 of
the New York Real Property Law, and of any successor law of like import then in
force, and User agrees that the provisions of this Paragraph shall govern and
control in lieu thereof.
(c) Notwithstanding the foregoing provisions of this Paragraph, if
prior to or during the term of this License, (i) the Premises shall be totally
damaged or rendered wholly untenantable by fire or other casualty, and if Owner
shall decide not to restore the Premises, or (ii) the Building shall be so
damaged by fire or other casualty that, in Owner's opinion, substantial
alteration, demolition, or reconstruction of the Building shall be required
(whether or not the Demised Premises shall have been damaged or rendered
untenantable), then, in any of such events, Owner at Owner's option, may give to
User, within ninety (90) days after such fire or other casualty, a five (5)
days' written notice of
<PAGE> 10
termination of this License and, in the event such notice is given, this License
and the Term shall come to an end and expire (whether or not said Term shall
have commenced) upon the expiration of said five (5) days with the same effect
as if the date of expiration of said five (5) days were the expiration date, and
the License Fee and Additional Fees shall be apportioned as of such date and any
prepaid portion for any period after such date shall be refunded by Owner to
User.
(d) If this License shall not be terminated as provided in subparagraph
(c) hereof, Owner shall, at its expense, to the extent of the net insurance
recovery, repair or restore the Demised Premises with reasonable diligence and
dispatch, substantially to the condition immediately prior to the casualty
except that Owner shall not be required to repair or restore any of User's
leasehold improvements or betterments, furniture, furnishings, decorations or
any other installations made at User's expense. All insurance proceeds payable
to User for such items shall be held in trust by User and upon the completion by
Owner of repair or restoration, User shall prepare the Premises for occupancy by
User in the manner obtaining immediately prior to the damage or destruction in
accordance with plans and specifications approved by Owner.
(e) In no event shall owner be liable to User for any consequential
damages to or loss of business suffered by User by reason of any damages or
casualty, regardless of fault, and apart from the apportionment of rent required
under subparagraph (b) in the event a portion of the Premises is rendered
untenantable, User's sole recourse for any damages shall be against User's
insurance company, regardless of fault, and User waives on its own behalf and on
behalf of any insurer, any claim therefor against Owner.
20. Rules and Regulations. User shall observe strictly with the rules
and regulations as Owner or Owner's agents may from time to time adopt (such
rules and regulations as have been or may hereafter be adopted or amended are
hereinafter the "Rules and Regulations").
21. Liability of Landlord. Owner or its employees, agents or managing
agents shall not be liable for any damages or injury to property of User or of
any other person, including property entrusted to employees of Owner nor loss of
or damage to any property of User by theft or otherwise, nor for any injury or
damage to persons or property resulting from any cause whatsoever arising from
the acts or neglect of any User occupant, invitee or licensee of the Building,
nor for any consequential damages or loss of business suffered by User or from
any other cause whatsoever, unless caused by the gross negligence or willful
misconduct of Owner nor shall Owner or its agents, employees, or managing agents
be liable for any such damage caused by other tenants or persons in, upon or
about the Building, or caused by operations in construction of any private,
public or quasi-public work; nor shall Owner be liable for any latent defect in
the Premises or in the
<PAGE> 11
Building. Notwithstanding the foregoing, in no event shall Owner be liable for
any loss or damage for which User has, or is required hereunder to carry,
insurance.
22. Right to Perform. If User shall default in the observance or
performance of any obligation of User under this License, then, unless otherwise
provided elsewhere hereunder, Owner may immediately or at any time thereafter
without notice perform such obligation of User without thereby waiving such
default. If Owner, in connection therewith incurs any costs including, but not
limited to, attorneys fees in instituting, prosecuting or defending any action
or proceeding, such costs with interest at the rate of twelve (12%) percent per
annum, shall be deemed to be Additional Rent hereunder and shall be paid by User
to owner within five (5) days of rendition of any bill or statement to User
therefor.
23. Brokerage. User represents that it has dealt with no broker other
than Sutton & Edwards Inc. (the "Broker") in connection with this License and
User hereby agrees to indemnify and hold owner harmless of and from any and all
losses, costs, damages or expense (including, without limitation, attorneys'
fees and disbursements) incurred by reason of any claim of or liability to any
other broker who claims to have dealt with User in connection with this License.
Owner shall pay Sutton & Edwards, Inc., such brokerage fee as may be due it
pursuant to and in accordance with Owner's separate agreement with Sutton
Edwards, Inc.
24 . Estoppel Certificate. (a) Each party shall, at any time and from
time to time, without cost or charge, at the request of the other party, upon
not less than five (5) days' notice, if given in person, or ten (10) days
notice, if given by mail, execute and deliver to the other a certificate
evidencing whether or not this License is in full force and effect (or if there
have been any modifications or amendments hereof, that the same is in full force
and effect as modified or amended, as the case may be, and submitting copies of
such modifications or amendments, if any);
(ii) there are any existing defaults hereunder to the
knowledge of the party executing the certificate, and specifying the nature of
such defaults, if any;
(iii) the dates to which the License Fees and any Additional
Fees and all other charges payable hereunder have been paid;
(iv) whether or not, to the best knowledge of the signer, the
other party is in default in the performance of any of its obligations under the
License, and, if so, specifying each such default of which the signer may have
knowledge; and
(v) any improvements required to be made by Owner have been
completed in accordance with the terms of this License.
<PAGE> 12
[ (b) User shall, upon the License Commencement Date of this License,
execute and deliver to owner a User Estoppel Certificate in substantially the
form attached hereto as Exhibit E.]
(c) It is agreed by the parties hereto that the certificate referenced
in herein hereof may be relied upon by anyone with whom the party requesting
such certificate may be dealing.
(d) In the event that User shall fail to comply with the provisions
hereunder, User appoints Owner its attorney-in-fact to execute any such
certificate on Users, behalf.
25. Surrender of Premises. (a) Upon expiration or other termination of
the Term of this License, User shall (i) quit and surrender to Owner the
Premises vacant, broom clean, in good order and condition, normal wear and tear
excepted, and (ii) remove all its property therefrom, except as otherwise
expressly provided in this License. User's obligation to observe or perform this
covenant shall survive the expiration or other termination of the Term of this
License. If the last day of the Term of this License falls on a Sunday, this
License shall expire at noon on the preceding Saturday, unless it be a legal
holiday, in which case it shall expire at noon on the previous business day.
(b) User acknowledges that possession of the Premises must be
surrendered to Owner at the expiration or sooner termination of the Term of this
License. User agrees to indemnify and save Owner harmless against all costs,
claims, loss or liability resulting from delay by User in so surrendering the
Premises, including, without limitation, any claims made by any succeeding
tenant founded on such delay. The parties recognize and agree that the damage to
Owner resulting from any failure by User to timely surrender possession of the
Premises as aforesaid will be extremely substantial, will exceed the amount of
the License Fee and Additional Fees theretofore payable hereunder, and will be
impossible to accurately measure. User therefore agrees that if possession of
the Premises is not surrendered to owner within 24 hours after the date of the
expiration or sooner termination of the Term of this License, then User shall
pay to Owner for each month and for each portion of any month during which User
holds over in the Premises after the expiration or sooner termination of the
Term of this License, a sum equal to two (2) times the aggregate of that portion
of the License Fee and Additional Fees which was payable under this License
during the last month of the term hereof. Nothing contained herein shall be
deemed to permit User to retain possession of the Premises after expiration of
the Term of this License and the provisions of this Article shall survive the
expiration or sooner termination of the Term of this License.
26. Exculpation. Notwithstanding anything to the contrary contained
herein, User shall look solely to the interest
<PAGE> 13
of owner in the Building for the satisfaction of any of User's remedies with
regard to the payment of money or otherwise, and no other property or assets of
owner shall be subject to levy, execution or other enforcement procedures for
the satisfaction of User's remedies or with respect to this License, the
relationship of Owner and User hereunder or User's use or occupancy of the
Premises, such exculpation of personal liability to be absolute.
27. Effect of Conveyance bv Landlord. User agrees that from and
following a transfer by Owner of its interest in the Building, by sale, lease or
otherwise, User shall look solely to Owner's successor (and such successor's
interest in this Building) for satisfaction of owner's liabilities hereunder.
28. Successors and Assigns. The covenants, conditions and agreements
contained in this License shall bind and inure to the benefit of the parties
hereto and their respective heirs, distributees, executors, administrators,
successors and, except as provided herein, their assigns.
29. Entire Agreement; Modification. This License Agreement contains the
entire agreement between the parties hereto with respect to the transactions
contemplated herein, and no representation, promise, inducement or statement of
intention relating to the transactions contemplated by this License Agreement
has been made by any party which is not set forth in this License Agreement.
This License Agreement shall not be modified or amended except by an instrument
in writing signed by or on behalf of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have hereunder set their hands
and seals the day and year first above written.
OWNER: MATTERHORN USA, INC.
By: G.E. Capital Realty Corp.,
Inc. Its Servicing Agent
By: /s/ Michael Jayness
--------------------------
Michael Jayness
USER: STAFF BUILDERS, INC.
By: /s/ David Savitsky
--------------------------
David Savitsky
<PAGE> 1
ASSET PURCHASE AGREEMENT
BETWEEN
ALBERT GALLATIN HOME CARE, INC.
and
ALBERT GALLATIN VISITING NURSE ASSOCIATION, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1. ASSETS ACQUIRED
1.1 Sale and Purchase of Assets ............................ 1
1.2 Excluded Assets ........................................ 1
ARTICLE 2. CLOSING DATE; TRANSFER OF ASSETS ....................... 2
2.1 Closing and Closing Date................................ 2
2.2 Transfer of Assets ..................................... 2
ARTICLE 3. CONSIDERATION FOR THE ASSETS; ASSUMPTION
OF LIABILITIES; EXCLUDED LIABILITIES ................. 2
3.1 Assumption of Liabilities .............................. 2
3.2 Excluded Liabilities ................................... 4
3.3 Buyer's Indemnification of Seller and other
Indemnitees .......................................... 4
3.4 Defense of Pending Litigation and Investigations ....... 9
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SELLER ............... 10
4.1 Organization of Seller; Good Standing; Qualifications;
Charter and By-Laws .................................. 10
4.2 Authority .............................................. 10
4.3 Approvals, Licenses and Other Authorizations ........... 11
4.4 Financial Statements; Liabilities ...................... 11
4.5 Absence of Certain Events .............................. 12
4.6 Title to and Condition of Properties ................... 13
4.7 Intangible Properties .................................. 15
4.8 Contracts and Commitments .............................. 15
4.9 Tax Returns and Tax Audits ............................. 16
4.10 Insurance .............................................. 17
4.11 No Litigation, Adverse Events or Violations ............ 17
4.12 Labor Agreements ....................................... 17
4.13 Employee Benefit Plans ................................. 17
4.14 Trade Names ............................................ 20
4.15 Bank Accounts .......................................... 20
4.16 Accounts Receivable and Notes Receivable ............... 20
4.17 Joint Ventures; No Subsidiaries ........................ 21
4.18 Licenses and Permits ................................... 21
4.19 Employees .............................................. 21
4.20 Discharge Fees ......................................... 21
4.21 No Adverse Action ...................................... 21
4.22 Full Disclosure ........................................ 21
4.23 Ownership of Necessary Assets .......................... 22
4.24 Severance Pay .......................................... 22
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF BUYER ................ 22
5.1 Organization of Buyer; Good Standing ................... 22
5.2 Authority .............................................. 22
5.3 No Adverse Action ...................................... 23
ARTICLE 6. COVENANTS AND AGREEMENTS OF SELLER ..................... 23
6.1 Actions Pending Closing ................................ 23
6.2 Consents ............................................... 25
ARTICLE 7. COVENANTS AND AGREEMENTS OF BUYER ...................... 26
7.1 Consents ............................................... 26
7.2 Employees .............................................. 26
7.3 Post-Closing Access to Information ..................... 26
ARTICLE 8. CONDITIONS TO BUYER'S OBLIGATION TO CONSUMMATE
THE TRANSACTION..................................... 27
8.1 Compliance with Agreement .............................. 27
8.2 Representations and Warranties ......................... 27
8.3 Approvals and Consents ................................. 27
8.4 No Litigation .......................................... 27
8.5 Closing of Other Transactions .......................... 27
8.6 No Material Adverse Change ............................. 28
8.7 Opinion of Counsel ..................................... 28
8.8 Key Employee Certificates .............................. 28
8.9 Noncompetition Agreement ............................... 28
8.10 Deliveries ............................................. 28
8.11 Release of Certain Liens ............................... 28
ARTICLE 9. CONDITIONS TO SELLER'S OBLIGATION TO CONSUMMATE
THE TRANSACTION .................................... 28
9.1 Compliance with Agreement .............................. 28
9.2 Representations and Warranties ......................... 29
9.3 Approvals and Consents ................................. 29
9.4 No Litigation .......................................... 29
9.5 Closing of Other Transactions .......................... 29
9.6 Guaranty of Staff Builders, Inc......................... 29
9.7 Deliveries ............................................. 29
ARTICLE 10. TERMINATION ............................................ 30
10.1 Termination Prior to the Closing Date .................. 30
ARTICLE 11. DELIVERIES AT AND AFTER CLOSING ........................ 31
11.1 Deliveries at Closing .................................. 31
11.2 Deliveries after Closing ............................... 33
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 12. MISCELLANEOUS .......................................... 33
12.1 Survival ............................................... 33
12.2 Expenses ............................................... 33
12.3 Notices ................................................ 33
12.4 Parties in Interest and Assignment ..................... 34
12.5 Modification ........................................... 35
12.6 Entire Agreement ....................................... 35
12.7 Execution in Multiple Counterparts ..................... 35
12.8 Headings................................................ 35
12.9 Governing Law .......................................... 35
12.10 Schedules .............................................. 35
12.11 Severability ........................................... 35
</TABLE>
(iii)
<PAGE> 5
SCHEDULES
<TABLE>
<S> <C>
Schedule 1.0 Communities Served by Seller
Schedule 1.2 Excluded Assets
Schedule 3.1 Summary of Joint Investigation
Schedule 4.2 Required Consents
Schedule 4.3 Approvals and Consents; Certain Matters Regarding
Licenses
Schedule 4.4(b) Liabilities of Seller as of April 30, 1993
Schedule 4.5 Certain Changes in Seller's Business
Schedule 4.5(a) Certain Accounts of Seller to be Contributed to
AGP&D
Schedule 4.6 Owned and Leased Real Property; Liens and
Encumbrances; Certain Tangible Personal Property
Schedule 4.7 Patents, Trademarks, etc.
Schedule 4.8 Material Contracts
Schedule 4.10 Insurance
Schedule 4.11 Litigation
Schedule 4.13 Employee Benefit Plans
Schedule 4.14 Trade Names
Schedule 4.15 Bank Accounts
Schedule 4.18 Material Licenses, Permits, Certificates of Need
and Approvals
Schedule 4.19 Employees; Employment Agreements
Schedule 6.1 Permitted Liens and Security Interests
Schedule 8.3 Material Consents, Approvals and Waivers Required
to be Obtained Prior to Closing
</TABLE>
(iv)
<PAGE> 6
EXHIBITS
<TABLE>
<S> <C>
Exhibit I Opinion of Seller's Counsel
Exhibit II Key Employee Certificate
Exhibit III Noncompetition Agreement
Exhibit IV Intentionally Omitted
Exhibit V Guaranty of Staff Builders, Inc.
Exhibit VI Power of Attorney
Exhibit VII Assumption Agreement Regarding Employment
Agreements
Exhibit VIII Assumption and Substitution Agreement (Regarding
Profit Sharing Plan and Flex Plan)
Exhibit IX Assignment and Bill of Sale
Exhibit X Assumption Agreement
</TABLE>
(v)
<PAGE> 7
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (hereinafter referred to as the
"Agreement") is made and entered into as of the 22nd day of June, 1993, by and
between ALBERT GALLATIN HOME CARE, INC., a Delaware corporation (the "Buyer"),
and ALBERT GALLATIN VISITING NURSE ASSOCIATION, INC., a Pennsylvania nonprofit
corporation (the "Seller").
BACKGROUND
WHEREAS, Seller owns and operates a visiting nurse association
throughout portions of Pennsylvania and West Virginia as more fully described
on Schedule 1.0 hereto; and
WHEREAS, Seller desires to transfer and sell to Buyer substantially
all of the assets of Seller, and Buyer desires to purchase and acquire such
assets, in accordance with the terms and provisions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the mutual agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, Seller and Buyer covenant, represent, warrant, stipulate and agree as
follows:
ARTICLE 1. ASSETS ACQUIRED
1.1 Sale and Purchase of Assets. Subject to the terms and conditions
of this Agreement, Seller agrees to sell, transfer and assign to Buyer all
assets of Seller of any nature, whether real, personal or mixed, tangible and
intangible, owned or leased (other than the Excluded Assets, as hereinafter
defined in Section 1.2), wherever located, including, without limitation, all
real estate and interests therein, buildings, equipment, cash, bank accounts,
accounts receivable, inventory, supplies, prepaid items, licenses, contracts,
franchises, leases, choses in action, all rights of appeal as to cost reports
(including but not limited to the 1990 Provider Reimbursement Review Board
appeal), books, records, security deposits, customer lists, contract rights,
trade secrets, the trade names "Albert Gallatin" and "BAHRD Home Health
Services" and all other tangible and intangible assets of Seller, as reflected
in the balance sheet of Seller as of December 31, 1992, and any assets of Seller
acquired subsequent thereto (collectively the "Assets"), in the manner and for
the consideration hereinafter set forth.
1.2 Excluded Assets. The following shall be excluded from the Assets
of Seller transferred and sold to Buyer:
<PAGE> 8
(a) All properties and interests in properties of Seller which have
been or will be sold or consumed by Seller in the ordinary course of business
from December 31, 1992 through the Closing Date;
(b) Minute books, stock books and other books and records pertaining
to the corporate existence of Seller;
(c) Seller's rights under and in respect of this Agreement and the
transaction contemplated hereby;
(d) The assets described on Schedule 1.2 hereto;
(e) The names "Albert Gallatin Planning and Development Corporation"
and "Albert Gallatin Human Services Agency, Inc."; and
(f) That certain account receivable of Seller from Albert Gallatin
Planning and Development Corporation, in the outstanding principal amount of
$65,650, and all rights thereto or related thereto.
The assets described in this Section 1.2 are collectively referred to
in this Agreement as the "Excluded Assets."
ARTICLE 2. CLOSING DATE; TRANSFER OF ASSETS
2.1 Closing and Closing Date. The closing hereunder (the "Closing")
shall take place at such place and time and on such date as may be agreed to in
writing by Seller and Buyer. The date upon which the Closing occurs shall be
the "Closing Date."
2.2 Transfer of Assets. Seller shall, at the Closing on the Closing
Date, by general warranty deeds, bill of sale and other appropriate documents,
transfer the Assets to Buyer.
ARTICLE 3. CONSIDERATION FOR THE ASSETS;
ASSUMPTION OF LIABILITIES; EXCLUDED LIABILITIES
3.1 Assumption of Liabilities. (a) In consideration of the sale of
the Assets to Buyer, at the Closing on the Closing Date, Buyer shall assume, by
Assumption Agreement in the form of Exhibit X hereto, and discharge as they
become due, all of the liabilities of Seller arising out of, in connection
with, in respect of or attributable to Seller's operations prior to Closing,
known or unknown, contingent, or otherwise (the
-2-
<PAGE> 9
liabilities described in this Section 3.1 are hereinafter collectively referred
to as the "Assumed Liabilities"), including without limitation all liabilities
of Seller: (i) as set forth in the balance sheet of Seller as of December 31,
1992, (ii) for any monetary Loss or other monetary expenses (including without
limitation with respect to civil or criminal legal proceedings) in connection
with the joint investigation by the United States Attorney for the Eastern
District of Pennsylvania and the Office of the Inspector General of the
Department of Health and Human Services of the United States of America (as such
investigation is more fully described on Schedule 3.1 of this Agreement),
including without limitation any monetary Loss or other monetary expenses,
arising out of or in connection therewith (including without limitation with
respect to criminal or civil legal proceedings); (iii) under or arising out of
the Material Contracts (as hereinafter defined in Section 4.8) and all other
immaterial contracts and agreements to which Seller is a party or by which
Seller is bound on the Closing Date, (iv) in connection with all cost reports
(settled and unsettled, filed, or unfiled); (v) for the payment required to be
made on or before September 15, 1993 to the Albert Gallatin Visiting Nurse
Association, Inc. Profit Sharing Plan (the "Profit Sharing Plan"), established
for Seller's employees; and (vi) for the payment required to be made to the
Profit Sharing Plan with respect to the contribution for the period January 1,
1993 through the Closing Date.
(b) Buyer and Seller acknowledge that Seller will remain in existence
following the Closing for the purpose of winding up its affairs, but not to
otherwise engage in any active business, and that certain administrative and
other filings will need to be made to maintain Seller's existence. It is
expressly agreed that the acknowledgments and undertakings by Seller set forth
in this Section 3.1(b) do not in any way modify the other obligations of Buyer
in this Agreement, including, without limitation, the obligations set forth in
Sections 3.3 and 3.4. Buyer acknowledges that following the Closing, Seller
will need to file federal, state and local tax returns, cost reports, reports
in respect of employee benefit plans and other similar administrative or
governmental reports, notices, or filings attributable to the period prior to
the Closing Date, and Buyer agrees that at reasonable times employees and
facilities of Buyer shall be made available to Seller for the preparation of
such tax returns, reports, notices and filings. Buyer further agrees that the
preparation of such tax returns, reports, notices and filings shall be at
Buyer's expense and paid by Buyer and that any taxes, fees, payments or
liabilities payable by Seller with respect to such tax returns, reports,
notices and filings attributable to the period prior to the Closing Date or for
sales or transfer taxes with respect to the transfer of the Assets of Seller to
-3-
<PAGE> 10
Buyer shall be the sole expense of Buyer and timely paid by Buyer on behalf of
Seller.
3.2 Excluded Liabilities. It is expressly agreed that Buyer shall not
assume and shall have no liability for: (i) any and all liabilities of Seller
arising out of, in connection with, in respect of or attributable to Seller's
operations following the Closing Date, except for those liabilities assumed by
Buyer in clause 3.1(b) above; (ii) any and all liabilities in connection with
any of the Excluded Assets; (iii) any and all indebtedness and other
liabilities of Seller incurred by Seller during the period of December 31, 1992
through the Closing Date, other than in the ordinary course of business, other
than as otherwise permitted to be incurred by Seller in accordance with this
Agreement or other than as set forth in Schedule 4.4(b) of this Agreement; (iv)
any and all liabilities arising out of a material breach by Seller of a
representation, warranty, covenant or agreement made by Seller to Buyer in this
Agreement or any other Transaction Documents or a breach by a Key Employee (as
hereinafter defined) of a representation made in a Key Employee Certificate
delivered by such Key Employee to Buyer, such Certificate to be in the form of
Exhibit II hereto (each a "Key Employee Certificate"); (v) any liability of
Seller outstanding on the Closing Date of which Seller had knowledge and did
not disclose to Buyer or which a Key Employee had knowledge and failed to
disclose in a Key Employee Certificate; and (vi) any obligation of a
nonmonetary nature arising out of the Joint Investigation. "Key Employee" shall
have the meaning as set forth in Section 8.8 of this Agreement. For purposes of
clause (iv) of this Section 3.2, any liability in excess of $25,000 arising out
of a breach by Seller of a representation, warranty, covenant or agreement made
by Seller to Buyer in this Agreement or any other Transaction Documents to
which Buyer is a party or a breach by a Key Employee of a representation made
in a Key Employee Certificate shall be deemed a "material breach."
3.3 Buyer's Indemnification of Seller and other Indemnitees. (a)
Following the Closing, subject to the limitations on indemnification provided
in Sections 3.3(b), (c) and (d) below, Buyer shall defend, indemnify and hold
harmless Seller and any person who was or is prior to Closing a director,
officer, employee or representative of Seller (hereinafter Seller and such
persons are collectively referred to as the "Indemnitees" and individually as
an "Indemnitee"), from and against:
(i) any Loss (as hereinafter defined) suffered, sustained,
incurred or required to be paid by any Indemnitee or to be suffered,
sustained, incurred or paid in the future (following the Closing) by
any Indemnitee arising out of any and all breaches of
-4-
<PAGE> 11
Buyer's covenants, agreements, representations and warranties under
this Agreement or the other Transaction Documents (as hereinafter
defined) including without limitation, any acts or omissions of Buyer
in connection with any of the Assumed Liabilities (as defined in
Section 3.1 hereof);
(ii) as to an Indemnitee other than Seller, any Loss suffered,
sustained, incurred or required to be paid by any Indemnitee (other
than Seller) arising out of any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of Seller), by
reason of any Indemnitee (other than Seller) serving prior to Closing
as a director, officer, employee or representative of Seller prior to
Closing or any Indemnitee (other than Seller) serving at the request
of Seller prior to Closing as a representative of another corporation,
partnership, joint venture, trust or other enterprise, including,
without limitation (a) any Loss suffered, sustained, incurred or
required to be paid by an Indemnitee (other than Seller) arising out
of an action or proceeding seeking rescission, by a court of
appropriate jurisdiction, of the sale of the Assets of Seller to Buyer
pursuant to this Agreement and the other Transaction Documents, and
(b) any Loss suffered, sustained, incurred or required to be paid by
any Indemnitee (other than Seller) arising out of any suit, action or
proceeding arising out of, in connection with or as a result of the
Joint Investigation (as described on Schedule 3.1 hereto) or the
subject matter thereof; and
(iii) any and all reasonable costs and expenses of any Indemnitee
related to the foregoing clauses (i) or (ii), including reasonable
attorney's fees in connection with the prosecution, defense or appeal
of, or participation in, any suit, action, arbitration or legal
proceeding in connection therewith.
For purposes of this Agreement, "Loss" shall mean collectively any and all
monetary damages, losses, obligations, liabilities, claims, actions, causes of
action, costs, assessments, expenses, judgments, fines, penalties,
reimbursement recoupments or other monetary expenses and in the case of any of
the foregoing, including without limitation with respect to civil or criminal
legal proceedings.
(b) With respect to indemnification under Section 3.3(a)(ii), each
Indemnitee (other than Seller) shall be entitled to indemnification to the
fullest extent that such Indemnitee
-5-
<PAGE> 12
would have been entitled to be indemnified pursuant to the Pennsylvania
Nonprofit Corporation Law, including all presumptions thereunder permitted by
law.
(c) The obligation of Buyer to indemnify an Indemnitee pursuant to
Section 3.3 of this Agreement is subject to the following limitations:
(i) In the event any Indemnitee suffers, sustains or incurs any
Loss arising out of a (a) breach of warranty, representation, covenant
or agreement of Seller in this Agreement or the other Transaction
Documents, (b) any liability of Seller outstanding on the Closing Date
of which Seller had knowledge and did not disclose to Buyer or which a
Key Employee had knowledge and failed to disclose in a Key Employee
Certificate, or (c) a breach by a Key Employee of a representation made
in a Key Employee Certificate, no Indemnitee shall be entitled to
indemnification pursuant to Section 3.3(a) of this Agreement with
respect to any Loss arising out of or related to such breach of
warranty, representation, agreement or covenant or with respect to such
undisclosed liability; provided, however, that: (x) notwithstanding the
foregoing, an Indemnitee who is or was a director of Seller prior to
Closing and who was not at any time prior to Closing an officer,
employee or representative of Seller (each such person for purposes of
this subsection (i) is sometimes referred to as a "Nonemployee
Director," and it is specifically agreed that the term Nonemployee
Director shall specifically exclude the Key Employees), shall be
entitled to indemnification pursuant to Section 3.3(a) of this
Agreement for any Loss arising out of any matter described in clauses
(a), (b) and (c) of this subsection (i); provided, further, that
nothing in clause (x) above shall be deemed to be a waiver of any
rights of Buyer to limit indemnification as to any Indemnitee other
than a Nonemployee Director with respect to a breach described in
clause (a), (b) or (c) of this subsection (i);
(ii) Buyer shall have no obligation to indemnify an Indemnitee
for any Loss incurred, suffered or sustained by an Indemnitee (a)
arising out of or in connection with the transfer of the Assets of
Seller to Buyer pursuant to this Agreement and the other Transaction
Documents, other than arising out of an action or proceeding seeking
rescission, by a court of appropriate jurisdiction, of the sale of the
Assets of Seller to Buyer pursuant to this Agreement and the other
Transaction Documents; (b) arising out of or in
-6-
<PAGE> 13
connection with any of the Excluded Liabilities; and (c) which is not
of a monetary nature (such as nonmonetary criminal sanctions,
imprisonment, debarment or exclusion), including but not limited to
any Loss not of a monetary nature arising out of the Joint
Investigation;
(iii) In order to satisfy any indemnity payments Buyer is
required to make to an Indemnitee pursuant to Section 3.3 of this
Agreement, it is agreed that any applicable insurance proceeds shall
first be used to satisfy such a claim, with any deductible amount
applicable to such insurance payment to be paid by Buyer.
(iv) Buyer shall have no obligation to indemnify an Indemnitee
for any Loss incurred, suffered or sustained by an Indemnitee in
connection with any claim or action against a third party (other than
a claim against Buyer pursuant to this Agreement or the other
Transaction Documents) where such Indemnitee is the plaintiff;
provided however that Buyer shall be obligated to indemnify an
Indemnitee for any Loss arising out of any claims or actions against a
third party where such Indemnitee is the plaintiff if the nature of
the claim or action is a cross claim, counterclaim or any other claim
or action initiated by an Indemnitee (which in each case Buyer has
reasonably approved), as the moving party, arising out of any claim,
action, suit or proceeding by a third party against an Indemnitee for
which such Indemnitee is entitled to indemnification from Buyer
pursuant to this Agreement. The provisions of this Section shall not
modify Buyer's obligations pursuant to Section 3.3(a)(i) of this
Agreement.
(v) The indemnification provisions of Section 3.3 of this
Agreement are for indemnification of an Indemnitee for actual damages
(including Losses) suffered, sustained, incurred or to be suffered,
sustained or incurred in the future, by an Indemnitee, and Buyer shall
have no obligation to indemnify an Indemnitee for any consequential
damages.
(vi) It is expressly agreed that Buyer shall have no obligation
to indemnify Seller's outside, independent auditors pursuant to this
Agreement.
(d) The indemnification obligations of Buyer pursuant to this Section
3.3 with respect to claims resulting from the
-7-
<PAGE> 14
assertion of liability by third parties shall be subject to the following terms
and conditions:
(i) Each Indemnitee shall give prompt written notice as provided
below to Buyer, with a copy to Seller, of any claim which might give
rise to a claim by such Indemnitee against Buyer based on the
provisions of Section 3.3, stating the nature and basis of said claims
and the amount thereof, to the extent known. Each Indemnitee shall
provide the notice required to be given by such Indemnitee to Buyer
hereunder within ten (10) business days following the day such
Indemnitee becomes aware that it has a claim for indemnification from
Buyer under this Agreement;
(ii) In the event that any action, suit or proceeding is brought
against any Indemnitee, with respect to which Buyer may have liability
under this Section 3.3, the action, suit, or proceeding shall be
defended (including all proceedings on appeal or for review which
counsel for the defendant shall deem appropriate) by legal counsel
reasonably acceptable to Buyer and such Indemnitee (such consent of
the Indemnitee not to be unreasonably withheld), at Buyer's expense.
An Indemnitee shall have the right to employ its own counsel in any
such case, in addition to counsel provided by Buyer, and the fees and
expenses of such additional counsel shall be at the expense of such
Indemnitee unless the employment of such counsel shall have been
authorized, in writing, by Buyer in connection with the defense of
such action, suit or proceeding. In any event, such Indemnitee shall
keep Seller fully informed of each such action, suit or proceeding at
all stages thereof. Subject to applicable privileges or protections,
Buyer shall make available to Seller or such Indemnitee and their
attorneys and accountants, all books and records of Buyer relating to
such proceedings or litigation (which shall be kept confidential), and
Buyer and the Indemnitees agree to render to each other such
assistance as they may reasonably require of each other in order to
insure the proper and adequate defense of any such action, suit or
proceeding;
If Buyer believes in good faith that a reasonable basis exists
for a counterclaim by an Indemnitee with respect to a Loss as to which
indemnification has been asserted against Buyer by such Indemnitee,
such Indemnitee shall cooperate with Buyer in respect of the bringing
of such counterclaim. The costs and expenses, including attorneys
fees, shall be borne by the Buyer in respect of such counterclaim. In
-8-
<PAGE> 15
the event of a favorable result, the proceeds, award or judgment
thereof shall be assigned by such Indemnitee to Buyer or any
proceeds thereof received by such Indemnitee shall be paid over by
such Indemnitee to Buyer. Buyer shall indemnify such Indemnitee for
any Loss suffered, sustained or incurred by such Indemnitee resulting
from the counterclaim. Further, the participation of such Indemnitee
in any counterclaim pursuant to this Section, shall not in any way
modify Buyer's other indemnification obligations set forth in Section
3.3(a).
(iii) Buyer shall have the right to settle, in good faith, any
Loss against an Indemnitee which Buyer is defending pursuant to this
Section 3.3 without such Indemnitee's consent; provided, however, that
Buyer shall not make any monetary settlement of any claims which would
require as a condition of such monetary settlement the imposition of
nonmonetary sanctions (such as imprisonment, debarment or exclusion) on
an Indemnitee, would require the entering of a plea by an Indemnitee,
would require an admission of guilt by an Indemnitee, would require a
plea of nolo contendre by an Indemnitee, or would require an Indemnitee
to consent to exclusion from government programs, without the prior
written consent of such Indemnitee, which consent shall not be
unreasonably withheld or delayed; provided, further, that in the event
the consent of an Indemnitee is unreasonably withheld or delayed, Buyer
shall have no further obligation to indemnify such Indemnitee with
respect to the matter for which the requested consent was unreasonably
withheld or delayed; and
(iv) If Buyer, in violation of this Agreement, fails or refuses
to defend any action referred to in this Section 3.3, one or more of
the Indemnitees may defend such action and the indemnity obligations
of this Section 3.3 shall remain in full force and effect.
3.4 Defense of Pending Litigation and Investigations.
Schedule 4.11 hereto sets forth pending litigation and investigations
involving Seller. Following the Closing, without limiting the generality of
Section 3.3, subject to the provisions of Section 3.3(b), (c) and (d) Buyer
agrees to engage legal counsel reasonably satisfactory to Buyer and Seller
(such consent of Seller not to be unreasonably withheld) at Buyer's expense, to
continue representation of Seller and the other Indemnitees in connection
with such pending litigation and investigation, including without limitation,
with respect to all criminal and
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civil legal proceedings arising out off, in connection with or as a result of
the Joint Investigation commenced against an Indemnitee, appeals thereof, and
any actions in connection with any sanctions, fines, or penalties imposed or
assessed or to be imposed upon or assessed against any Indemnitee.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer both as of the date
hereof and the Closing Date as follows:
4.1 Organization of Seller; Good Standing; Qualifications; Charter
and By-Laws. Seller is a nonprofit corporation, duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania. Seller has the requisite corporate power and authority to own,
lease and operate its properties and to conduct its business as currently
conducted. Seller is duly qualified to do business and is in good standing in
the State of West Virginia. No actions or proceedings to dissolve Seller are
pending. Seller has delivered to Buyer an accurate and complete copy of the
Articles of Incorporation and Bylaws of Seller as currently in effect. Seller
is not in violation of any provision of its Articles of Incorporation or
Bylaws.
4.2 Authority. (a) Seller has full corporate power and has taken all
corporate action necessary to execute, deliver and perform this Agreement and
the other Transaction Documents (as hereinafter defined) to which Seller is a
party and to carry out the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the other
Transaction Documents to which Seller is a party constitute the legal, valid
and binding obligation of Seller enforceable against Seller in accordance with
its terms, except to the extent that such enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally, and (ii) equitable principles which may
limit the availability of certain equitable remedies (such as specific
performance) in certain instances. For purposes of this Agreement, "Transaction
Documents" shall mean this Agreement and the schedules hereto, each certificate
delivered pursuant hereto, each exhibit hereto in executed form and all other
documents and agreements executed and delivered to Buyer pursuant hereto at the
Closing.
(b) Neither the execution or delivery of this Agreement and other
Transaction Documents nor the consummation of the transactions contemplated
hereby will (i) except for obtaining the required consents as set forth on
Schedule 4.2 and except for obtaining any consent where the failure to obtain
such
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<PAGE> 17
consent would not materially and adversely affect the Assets or the financial
condition of Seller, conflict with, constitute a breach, violation or
termination of any provision of any contracts and other agreements to which
Seller is a party or by which it or the Assets are bound, (ii) conflict with or
violate the Articles of Incorporation or Bylaws of Seller, or (iii) to the best
of Seller's knowledge, violate any statute, law, regulation, judgment, rule,
order or any other restriction of any kind or character applicable to Seller or
any of its properties or the Assets, except for any statute, law, regulation,
judgment, rule, order or any other restriction where the violation thereof would
not materially and adversely effect the Assets or the financial condition of
Seller.
4.3 Approvals, Licenses and Other Authorizations. (a) Except as set
forth on Schedule 4.3 hereto, no consent, waiver, authorization or approval of,
giving of notice to, or registration or filing or taking of any other action in
connection with, any governmental authority or other person is necessary in
connection with the execution and delivery of this Agreement or the other
Transaction Documents by Seller and the consummation of the transactions
contemplated hereby. All licenses, permits and other governmental
authorizations and approvals of all federal, state and local governmental
authorities required or necessary for Seller to operate have been duly obtained
and are in full force and effect, except where the failure to so comply would
not have a material adverse effect upon the Assets or upon the financial
condition of Seller. The consummation of the transaction contemplated by this
Agreement and the other Transaction Documents will not result in the
termination or revocation of any such license, permit or other governmental
authorizations or approvals of any federal, state or local governmental
authority.
(b) Except as may be found as a result of the matters set forth on
Schedule 4.3, Seller has operated its business in accordance with all
applicable federal, state and local laws, rules and regulations except where
noncompliance would not have a material adverse effect on the financial
condition or operations of the Seller.
(c) Except as set forth on Schedule 4.3, there are no proceedings
pending or, to the best of Seller's knowledge, threatened to restrict, revoke
or modify such licenses or to the best of Seller's knowledge, matters which
could give rise to such proceedings.
4.4 Financial Statements; Liabilities. (a) Seller has delivered to
Buyer a copy of the audited balance sheet of Seller as of December 31, 1992,
and the related audited statement of revenues and expenses, changes in fund
balances and statement
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of cash flows (the "Financial Statements"). The Financial Statements have been
prepared from the books and records of Seller on a consistent basis in
accordance with generally accepted accounting principles, as of the date and
for the period then ended.
(b) Attached hereto as Schedule 4.4(b) is a true and complete list of
Seller's liabilities as of April 30, 1993. Since December 31, 1992, Seller has
not incurred any liabilities, except: (i) in the ordinary course of business,
(ii) as set forth in Schedule 4.4(b) of this Agreement, or (iii) as permitted
by this Agreement. Other than as disclosed in the Financial Statements and in
Schedule 4.4(b) hereto, Seller has no outstanding liabilities as of April 30,
1993 and, subject to the following sentence, no knowledge of any threatened
claims, actions or investigations which would result in the incurrence of any
additional liabilities by Seller. The Joint Investigation, as described on
Schedule 3.1, is ongoing and Seller makes no representation or warranty as to
any claims or liabilities which might result from or arise out of the Joint
Investigation.
(c) Except as may be found as a result of the matters set forth on
Schedules 4.3 and 4.11 of this Agreement, there are no claims or statements of
fact, known to Seller which would be the basis of an indemnity claim under this
Agreement.
4.5 Absence of Certain Events. Since December 31, 1992, Seller has
operated its business in the ordinary and normal course and there has not been:
(a) any damage, destruction or loss, whether covered by insurance or
not, adversely affecting the Assets of Seller;
(b) except as set forth on Schedule 4.5, any increase or decrease in
the compensation payable or to become payable to any of Seller's officers or
management employees or material change in any insurance, pension or other
benefit plan, payment or arrangement made to, for or with any of Seller's
officers or management employees or any commission or bonus paid to any of such
officers or management employees;
(c) except as set forth on Schedule 4.5, any sale, assignment,
transfer, lease or other disposition of any Asset, other than in the ordinary
course of business consistent with past practices;
(d) any acquisition of any assets, other than in the ordinary course
of business consistent with past practices;
(e) any transaction, contract or commitment entered into which is not
in the ordinary course of business and consistent with past practices; or
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(f) any material adverse chance in the Assets, business or financial
condition of Seller; provided however that projected losses of up to $250,000
from Seller's operations for the period beginning January 1, 1993 through June
30, 1993 and any of the matters disclosed in this Agreement or the Schedules
hereto shall not be deemed a material adverse change in the financial condition
of Seller, of the Assets or of the business of Seller.
Notwithstanding the foregoing clauses (a) through (f), Buyer acknowledges and
agrees that on or before the Closing Date, Seller shall contribute to its
affiliate, Albert Gallatin Planning and Development Corporation, a Pennsylvania
nonprofit corporation ("AGP&D") an amount equal to the cash balances in those
accounts listed on Schedule 4.5(a) hereto which shall not exceed $20,000,
including, without limitation, amounts received by Seller from The United Way
and other charitable sources. It is acknowledged that such funds were intended
to be used for charitable purposes.
4.6 Title to and Condition of Properties.
(a) Schedule 4.6 hereto contains a list of all real property owned or
leased by Seller, and a true and complete copy of the deed therefor and each
such lease with respect thereto has been delivered to Buyer. Seller has good
and valid title to all of its properties, free and clear of liens and security
interests except as set forth on Schedule 4.6 hereto. Without limiting the
generality of the foregoing, as to leasehold estates leased by Seller, as
lessee, Seller warrants that it has quiet and peaceable possession of each of
the leased properties. Except for obtaining the consents as set forth on
Schedule 4.2, Seller warrants that all leases and subleases to which it is a
party are in full force and effect and that there are no defaults thereunder
which would result in the termination or cancellation of any such lease.
(b) A list of all tangible personal property included in the Assets
having a book value in excess of $500 is included on Schedule 4.6. Schedule 4.6
also contains a list of all leases of personal property under which Seller is a
lessee or lessor involving tangible personal property requiring annual lease
payments or revenue in excess of $1,000 (true, accurate and complete copies of
which leases have been previously delivered to Buyer).
(c) Seller has good and valid title to all of the Assets, including
without limitation all owned and leased real estate of Seller, free and clear
of all liens, security interests, and other encumbrances, except as set forth
on Schedule 4.6 hereto.
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(d) The Assets including, but not limited to, the machinery,
equipment, furniture and fixtures are in good operating condition and repair
for assets of such age and type, subject to ordinary wear and tear and the use
to which such assets have been employed. Seller makes no other warranties with
respect to the Assets as to merchantability or fitness for any particular
purpose. The Assets are transferred "As is, where is."
(e) Seller has not received any notice from any federal, state or
local governmental agency requiring any repairs or alterations to any owned
real estate of Seller.
(f) At Closing, Seller will transfer to Buyer good and valid title to
the Assets, free and clear of all liens, security interests and other
encumbrances except for those liens, security interests and encumbrances set
forth on Schedule 4.6 hereto.
(g) All of the real property (including, but not limited to, the
buildings and improvements thereon) and the easements, rights of way and other
similar interests in real property of third parties, in any case, owned by
Seller (the "Owned Real Property") is listed and described on Schedule 4.6, and
the Seller has good and marketable title in fee simple to the Owned Real
Property, including all plants, buildings and improvements thereon, free and
clear of any mortgage, lien (including mechanics, or similar liens or claims
which have been filed for work, labor or material), claim, charge, exception,
imperfection of title, encroachment, easement, right-of-way, squatters' right,
lease or encumbrance (collectively, "Impairments"), except for those
Impairments which are described on Schedule 4.6. No rights are outstanding that
under law could give rise to any mechanics' or similar liens or claims for
work, labor or material. All of the improvements located on the Owned Real
Property lie wholly within the boundaries and building restriction lines of
such property, and no improvements on adjoining properties encroach upon the
Owned Real Property. True and complete copies of title insurance policies,
surveys, mortgages, agreements and other documents granting rights in or
relating to the Seller's ownership of such Owned Real Property, if any, have
previously been delivered to the Buyer. The legal descriptions of the Owned
Real Property set forth in the deeds delivered to Buyer are complete and
correct descriptions of such real property, its location and limits, and the
Seller's rights therein and are in each case sufficient to locate the records
pertaining to such Owned Real Property in the offices in the jurisdictions
where such Owned Real Property is located where public records concerning Owned
Real Property are kept.
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<PAGE> 21
(h) With respect to the leases, mortgages and other agreements
referred to on Schedule 4.6 and except as set forth on Schedule 4.6 no default
or event of default on the part of the Seller as lessee or as mortgagor, and,
to the knowledge of the Seller, no default or event of default on the part of
the lessor or mortgagee, under the provisions of any of said leases, mortgages
or other agreements, and no event which with the giving of notice or passage of
time, or both, would constitute such default or event of default on the part of
the Seller, or to the knowledge of the Seller, on the part of any such lessor
or mortgagee, has occurred and is continuing unremedied or unwaived. Except as
set forth on Schedule 4.6, no notes secured by a mortgage have been secured by
any collateral, pledged account or other security except the lien of the
corresponding mortgage.
(i) None of the real property listed on Schedule 4.6 is located
within a flood hazard area as described in the Flood Disaster Protection Act of
1973, as amended, and the National Flood Insurance Act of 1968, as amended, or
if any such property is so located, then proper federal insurance has been
obtained in the maximum amount permitted respecting such risk and is in full
force and effect. The plants, buildings and improvements owned or leased by the
Seller, and the operation or maintenance thereof as now operated and
maintained, do not (i) to Seller's knowledge, contravene any zoning or building
or other law, regulation, or order, (ii) violate any covenant, agreement or
restriction, the effect of which materially interferes with or prevents the
continued use of such properties for the purposes for which they are now being
used, or would materially and adversely affect the value thereof, or (iii) to
Seller's knowledge, violate any applicable health and environmental laws and
regulations or any other applicable laws, rules and regulations.
(j) Except as set forth on Schedule 4.6, there exists no pending or,
to the knowledge of the Seller, threatened, condemnation, eminent domain or
similar proceeding with respect to, or which could affect, any Owned Real
Property or any leased real property of Seller, including the plants, buildings
or improvements thereon.
4.7 Intangible Properties. Schedule 4.7 hereto contains a list of all
patents and applications therefor, trademarks, trademark registrations and
applications therefor, trade names, service marks, copyrights, copyright
registrations and applications therefor, owned or used by Seller.
4.8 Contracts and Commitments.
(a) To the extent not listed on Schedule 4.6 hereto, Schedule 4.8
hereto lists all Material Contracts (as hereinafter defined) to which Seller is
a party or by which it is bound. A
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true and complete copy of each Material Contract has been delivered to Buyer.
For purposes of this Agreement, the term "Material Contract" means all leases,
agreements, contracts and commitments of seller with annual payments or revenue
of at least $5,000. Each Material Contract is in full force and effect, and
there exists no default or event of default thereunder which would cause the
termination of such contract. Seller has not received any notice that any person
party to a Material Contract intends to cancel, modify or terminate any Material
Contract, and Seller has not given any notice of cancellation, modification or
termination of any Material Contract. Each Material Contract is a valid and
binding agreement of Seller enforceable against Seller in accordance with its
terms, and no consent or approval of the other parties to any Material Contract
or any person pursuant to any Material Contract is required for the assignment
of such Material Contract to Buyer, other than the consents and approvals set
forth on Schedule 4.3 hereto.
(b) As of the date hereof, Seller has not made any other contract or
agreement or granted any option to sell or otherwise transfer any part of the
Assets of Seller or entered into any understanding or agreement in principle
respecting any such transaction with anyone other than Buyer.
(c) There are no contracts or commitments between Seller and any
affiliate other than those specifically identified on Schedule 4.8 attached
hereto.
4.9 Tax Returns and Tax Audits.
(a) Seller is a not-for-profit corporation exempt from taxation under
Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, and Seller
is a nonprofit corporation under the Pennsylvania Nonprofit Corporation Law of
1988, as amended, and the regulations promulgated thereunder. Seller has filed
with all appropriate governmental agencies all tax or information returns and
tax reports required to be filed and has paid all federal, state and local
income, franchise, sales, property, excise, ad valorem, employment (including
applicable withholdings for FICA, FUTA, and other required federal, state or
municipal withholdings) or other taxes, and all interest, penalties,
assessments or deficiencies claimed to be due by any such taxing authority for
all periods prior to the current taxable period.
(b) Seller is not a party to any pending or threatened action or
proceeding by any governmental taxing authority for assessment or collection
of taxes, and no claim for assessment or collection of taxes has been asserted
against Seller.
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4.10 Insurance. Attached hereto as Schedule 4.10 is a list and
description of all general liability, director and officer, property and
casualty insurance policies currently in force providing coverage on behalf of
Seller including, without limitation, for the following: malpractice or
negligent or grossly negligent acts or omissions by Seller or its employees or
agents and for general liability of Seller, general casualty, property damage
and flood insurance. All of such insurance is now in full force and effect and
premiums with respect to such policies have been paid to keep such insurance in
full force and effect through the dates set forth on Schedule 4.11. True and
complete copies of all such policies and any endorsements thereof have been
delivered to Buyer.
4.11 No Litigation, Adverse Events or Violations.
(a) Except as set forth on Schedule 4.11 hereto, there is no action,
suit, claim, investigation or other proceeding pending or, to the best of
Seller's knowledge, threatened, or any injunction or orders entered, pending
or, to the best of Seller's knowledge, threatened against Seller or any of the
Assets.
(b) Except as may be found as a result of the matters set forth on
Schedule 4.11, Seller is in compliance with applicable federal, state and local
law, relating or applicable to it, or to any of the Assets, where the violation
of or noncompliance with which would have a material adverse effect on the
financial condition or operations of Seller.
(c) There are no actions, suits, claims or proceedings pending, or to
the knowledge of Seller threatened, except as set forth on Schedule 4.11 hereto,
that would give rise to any right of indemnification on the part of any
director, officer, employee or representative of Seller or the heirs, executors
or administrators of any such director, officer, employee or representative,
against the Seller. There are no written or oral agreements or understandings
with respect to indemnification of any director, officer, employee or
representative of Seller, except as set forth in this Agreement, in the other
Transaction Documents and in the By-laws of the Seller.
4.12 Labor Agreements. Seller is not and has never been a party to and
is not bound by any collective bargaining agreement.
4.13 Employee Benefit Plans.
(a) Except as set forth on Schedule 4.13 hereto, Seller does not have
any Benefit Plans, as defined in paragraph
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(m) below, nor has Seller maintained or contributed to any Benefit Plans
subject to Title IV of ERISA.
(b) All persons who participate in the operations of each Benefit Plan
(including but not limited to the members of any plan committee, all plan
fiduciaries, all plan administrators, Seller, its Board of Directors, and all
relevant employees of the Seller) act and have always acted with respect to
each Benefit Plan in all material respects in accordance with the requirements
of all applicable laws (including but not limited to the Employee Retirement
Income Security Act of 1974, as amended, and any rules and regulations
promulgated thereunder ("ERISA") and the Internal Revenue Code of 1986, as
amended, and any rules and regulations promulgated thereunder (the "Code")) and
in accordance with the terms and conditions of each such Benefit Plan.
(c) All Benefit Plans are now, and have always been established,
maintained and operated in all material respects in accordance with all
applicable laws (including but not limited to ERISA and the Code) and in
accordance with the terms and conditions of each such Plan.
(d) Except as set forth on Schedule 4.13, all returns, reports,
disclosure statements and elections required to be made under all applicable
laws (including but not limited to ERISA and the Code) with respect to the
Benefit Plans have been timely and accurately filed, delivered, or made.
(e) With respect to any of the Benefit Plans, no reportable events
(within the meaning of ERISA and the Code, respectively), prohibited
transactions (within the meaning of Section 4975 of the Code) or
party-in-interest transactions (within the meaning of Section 406 of ERISA)
have occurred.
(f) Except as described on Schedule 4.13 hereto and except with
respect to income taxes on benefits paid or provided, no income, excise or
other tax or penalty (federal or state) has been waived or excused, has been
paid or is owed by any person (including but not limited to any Benefit Plan,
any plan fiduciary and the Seller) with respect to the operations of, or any
transactions with respect to, any Benefit Plan. No action has been taken, nor
has there been any failure to take any action, nor is any action or failure to
take action contemplated, that would subject any person or entity to any
liability for any tax or penalty in connection with any Benefit Plan (including
but not limited to any tax or penalty for the failure to withhold income taxes
in connection with fringe benefits).
(g) Except as described in paragraph (l)(iv) of this Section 4.13, all
contributions required to be made to or with
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respect to each Benefit Plan have been completely and timely made.
(h) All benefits or other payments required to be made under or by any
Benefit Plan have been completely and timely paid.
(i) There has been no merger, consolidation or transfer of assets or
liabilities (including but not limited to a split up or split off) with respect
to any Benefit Plan.
(j) There are no actions, suits or claims (other than routine claims
for benefits) pending or threatened against the Benefit Plans or their assets,
or arising out of such Benefit Plans, including but not limited to any action,
suit or claim by or on behalf of the Benefit Plans or by any employee of the
Seller alleging a breach or breaches of fiduciary duties or violations of
applicable state or federal law which could result in liability on the part of
either Seller or the Benefit Plans under ERISA or any other law, and, to the
Seller's best knowledge, no facts exist which could give rise to any such
actions, suits or claims.
(k) Seller has delivered to Buyer true and complete copies of all
current and prior material documents, including all amendments thereto, with
respect to each of the Benefit Plans set forth on Schedule 4.13 hereto, and
Seller hereby agrees to transfer to Buyer, upon Closing, all records in
connection with each Benefit Plan to be assumed by Buyer hereunder. All such
records shall accurately state the history of each participant and beneficiary
in connection with each Benefit Plan and accurately state the benefits earned
by and/or owed to each such person under each Benefit Plan.
(1) With respect to the Benefit Plan listed on Schedule 4.13 hereto as
the Albert Gallatin Visiting Nurse Association, Inc. Profit Sharing Plan (the
"Profit Sharing Plan"),
(i) such Plan which is intended to qualify as a tax-qualified
retirement plan under Code Seller 401(a) has received a favorable
determination letter from the Internal Revenue Service as to
qualification of such Plan; and the trust thereunder is exempt from
tax pursuant to Code Section 501(a);
(ii) no event has occurred that will or could give rise to the
disqualification of such Plan or loss of the tax-exempt status of the
trust created thereunder under the aforesaid Sections of the Code;
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(iii) no event has occurred that will or could subject such Plan
to tax under section 511 of the Code; and
(iv) all contributions have been made to such Plan in a complete
and timely fashion pursuant to the applicable provisions of the Code
with respect to all plan years, other than the contribution for the
plan year ended December 31, 1992.
(m) For purposes of this Section 4.13, the term "Benefit Plan"
includes but is not limited to (i) pension, retirement, profit sharing, stock
bonus, and nonqualified deferred compensation plans, (ii) disability, medical,
dental, worker's compensation, health insurance, life insurance, and incentive
plans, (iii) vacation benefits and fringe benefits, (iv) any other employee
benefit plan as such term is defined in Section 3(3) of ERISA, and (v) any
cafeteria plan, accident and health plan (including self-insured medical
reimbursement plan), or dependent care assistance program (as such terms are
defined in Sections 125, 105 and 129, respectively of the Code).
(n) Seller has complied in all material respects with the continuation
coverage requirements of Section 4980B of the Code which applies to any
employees of the Seller prior to the Closing.
4.14 Trade Names. Seller does not conduct business in the Commonwealth
of Pennsylvania or the State of West Virginia under any name other than those
listed on Schedule 4.14.
4.15 Bank Accounts. Schedule 4.15 contains a list setting forth the
name of each bank, savings and loan or other financial institution in which
Seller has any account, safe deposit box, holds any certificates of deposit or
other investments, including the type of each such account, the names in which
each account, safe deposit box, certificates of deposit or other investments
are held, the names of each person authorized to draw thereon or have access
thereto, and the amounts held in such accounts or such boxes or the fair market
value of such certificates of deposit or other investments as of the date
designated on Schedule 4.15.
4.16 Accounts Receivable and Notes Receivable. All accounts receivable
and notes receivable of Seller represent and constitute bona fide indebtedness
owing to Seller in the amounts indicated in the Financial Statements of Seller,
with no known setoffs (other than Seller's customary allowances for
uncollectible accounts and contractual adjustments as indicated thereon and
adjusted for estimated recovery of bad debt). seller has provided buyer with a
complete and accurate aging report of
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all the accounts receivable as of December 31, 1992 and with a schedule of all
accounts receivable of Seller as of December 31, 1992 which since December 31,
1992 have been assigned to collection agencies or are otherwise held or assigned
for collection.
4.17 Joint Ventures; No Subsidiaries. Seller is not a party to any
joint venture agreement or partnership agreement. Seller has no subsidiary
corporations or interest in any other business organizations, partnerships,
corporations or joint ventures. At the date hereof, no director, officer or
employee of Seller serves at the request of Seller, as a representative of
Seller to another corporation, partnership, joint venture, trust or other
enterprise.
4.18 Licenses and Permits. Set forth on Schedule 4.18 is a true and
complete listing of all material licenses, permits, certificates of need and
approvals from any governmental authority required for the operation of
Seller's business as conducted at present. Each such license, permit,
certificate of need and approval is in full force and effect, Seller is in
compliance with all of its obligations with respect thereto, and to the best
knowledge of Seller, no event has occurred which permits or with the giving of
notice or the passage of time or both would permit, the revocation or
termination of any thereof, except as may be found as a result of the matters
set forth on Schedule 4.18 hereto.
4.19 Employees. Set forth on Schedule 4.19 is a true and complete list
of each employee, director and officer of Seller, together with the current
position of each such person and the current amount of salaries and bonuses of
each such person. Schedule 4.19 also sets forth whether Seller has entered into
a written employment agreement or arrangement with any such person, and a true
and complete copy of each such employment agreement has been delivered to Buyer.
4.20 Discharge Fees. Seller has not, directly or indirectly, retained
any financial advisor, broker, agent or finder or paid or agreed to pay any
financial advisor, broker, agent or finder on account of this Agreement or the
transaction contemplated thereby.
4.21 No Adverse Action. There are no actions, suits, claims or other
proceedings pending or, to the best of Seller's knowledge, threatened or
injunctions or orders entered, pending or, to the best of Seller's knowledge,
threatened against Seller, to restrain or prohibit the consummation of the
transactions contemplated hereby.
4.22 Full Disclosure. Seller has disclosed to Buyer all material facts
relating to Seller and its operations and has
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not omitted to disclose to Buyer any material fact relating to Seller, or its
operations, necessary to make the statements made herein not misleading.
Without limiting the generality of the foregoing, Seller has disclosed to Buyer
all material facts of which Seller has knowledge related to the Joint
Investigation and has delivered to Buyer or granted access to Buyer to all
documents of Seller related to the Joint Investigation. Notwithstanding
anything in this Agreement to the contrary, none of the representations of
Seller are made as to any computer software utilized by Seller other than
software which Seller is using pursuant to license agreements between Seller
and Atlantic West Services, Inc.
4.23 Ownership of Necessary Assets. The real and other properties and
assets owned or leased by Seller constitute all such properties and assets
which are necessary to the business of Seller as conducted at present and all
such assets of Seller (other than the Excluded Assets) are being transferred to
Buyer on the Closing Date.
4.24 Severance Pay. The Closing of the transaction contemplated
hereunder and the subsequent employment of Seller's employees by Buyer pursuant
to the terms of this Agreement shall not result in any severance obligations of
Buyer with respect to Seller's employees who become employees of Buyer.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller, both as of the date hereof
and as of the Closing Date, as follows:
5.1 Organization of Buyer; Good Standing. Buyer is a corporation, duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer has the requisite corporate power and authority to own, lease
and operate its properties and to conduct its business as currently conducted.
Buyer is duly qualified to do business and is in good standing in the State of
West Virginia and Buyer has filed an application for qualification to do
business with the Office of the Secretary of the Commonwealth of Pennsylvania.
5.2 Authority. (a) Buyer has full corporate power and has taken all
action necessary to execute, deliver and perform this Agreement and to carry
out the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the other Transaction Documents to which
Buyer is a party constitute legal, valid and binding obligations of Buyer
enforceable against Buyer in accordance with its terms, except to the extent
that such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization,
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moratorium, and similar laws affecting creditors' rights generally, and (ii)
equitable principles which may limit the availability of certain equitable
remedies (such as specific performance) in certain instances.
(b) Neither the execution or delivery of this Agreement or the other
Transaction Documents nor the consummation of the transactions contemplated
hereby will (i) except for obtaining any consent, where the failure to obtain
such consent would not materially or adversely affect the assets or the
financial condition of Buyer, conflict with, constitute a breach, violation or
termination of any provision of any contracts and other agreements to which
Buyer is a party or by which it is bound, (ii) conflict with or violate the
Articles of Incorporation or Bylaws of Buyer, or (iii) to the best of Buyer's
knowledge, violate any law, regulation, judgment, rule, order or any other
restriction of any kind or character applicable to Buyer or any of its
properties or assets, the violation of which could have a material adverse
effect on the financial condition or business operations of Buyer.
5.3 No Adverse Action. There are no actions, suits, claims or other
proceedings pending or, to the best of Buyer's knowledge, threatened or
injunctions or orders entered, pending or, to the best of Buyer's knowledge,
threatened against Buyer, to restrain or prohibit the consummation of the
transactions contemplated hereby.
ARTICLE 6. COVENANTS AND AGREEMENTS OF SELLER
6.1 Actions Pending Closing. From the date hereof to the Closing,
except as otherwise contemplated by this Agreement, Seller covenants and agrees
as follows; provided that Buyer acknowledges that Seller is in a troubled
financial condition which may alter its normal operations and operating
procedures:
(a) Seller will be operated in the usual and ordinary manner
consistent with past practices and will use good faith efforts to preserve its
present business organization intact, and preserve its present relationships
with persons having business dealings with it and to take such actions as are
necessary and to use Seller's good faith efforts to cause the transition of
such business operations and employee and other relationships to Buyer as of
the Closing Date.
(b) Seller will not, without Buyer's consent, increase or decrease the
compensation payable or to become payable by Seller to any officer or employee
of Seller, or make any change in any insurance, pension or other employee
benefit
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plan, nor pay any commission or bonus to any of such officers or employees,
other than in the normal course of business consistent with existing personnel
policies, nor amend any employment agreement between Seller and any employee of
Seller. Further, without Buyer's prior consent, Seller will not hire or engage
any off employees, officers or representatives, nor will Seller appoint any new
directors; provided, however, should a vacancy be mandated by the By-laws of
Seller, either by death or resignation of a director, such vacancy may be filled
and a new director may be appointed without Buyer's consent but in accordance
with Seller's bylaws, and Seller shall promptly give notice thereof to Buyer.
(c) Except as otherwise provided herein, Seller will not (i) mortgage,
pledge, create or permit to exist any lien or security interest against any of
the Assets, except for the liens and security interests set forth on Schedule
6.1 hereto and except for liens securing property acquired by Seller in the
ordinary course of business and as otherwise permitted pursuant to this
Agreement (the "Permitted Exceptions"); (ii) fail to maintain the Assets in the
usual and ordinary course of business consistent with past practices; (iii)
sell, assign, transfer, lease or otherwise dispose of any of the Assets or
acquire any assets or any interest therein, except in each case in the usual
and ordinary course of business; (iv) terminate, modify or change any of the
Material Contracts; and (v) enter into any transaction, contract or commitment
obligating Seller in excess of $5,000 which is not in the usual and ordinary
course of the Seller's business.
(d) All Assets will be used, operated, maintained and repaired in the
usual and ordinary course of Seller's business consistent with past practices.
(e) Seller will not permit any insurance policy naming it as a
beneficiary or a loss payable payee covering any of the Assets or its
operations to be canceled, terminated or modified or any of the coverage
thereunder to lapse unless simultaneously with such termination or
cancellation, replacement policies providing substantially the same coverage
are in full force and effect.
(f) Seller will timely file (including all applicable extensions) all
tax returns and reports required to be filed with any federal, state or local
governments or governmental agencies, and Seller will pay all taxes due with
respect thereto.
(g) Seller shall not make or institute any methods of collection,
credit, billing, management, accounting or operation which are not in the usual
and customary course of its business, consistent with seller's past practices.
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(h) Seller shall not transfer any Assets, other than in the ordinary
course of business.
(i) Seller shall use its good faith efforts in taking all actions
necessary and appropriate to render title to the Assets free and clear of all
liens, security agreements, and encumbrances (except for the Permitted
Exceptions) and to obtain appropriate consents, as are required by this
Agreement.
(j) With respect to any Material Contracts of Seller which, in
accordance with their terms, will terminate due to the expiration of the term
thereof prior to the Closing Date, Seller shall use good faith efforts to
extend such Material Contracts; provided, however, that in the event any such
extension would require payment of rentals or other compensation by Seller in
excess of that currently paid or would require Seller to agree to terms which
are materially and adversely different from the present terms of such Material
Contract, then Seller shall not extend such Material Contract without obtaining
Buyer's prior written consent to such terms and extension.
(k) From the date hereof, through and including the Closing Date,
Seller shall not amend its Articles of Incorporation or By-laws.
(l) Seller will operate its business through the Closing Date so that
the representations and warranties of Seller made to Buyer in this Agreement
shall be true and correct on the Closing Date as if made on the Closing Date
(except for representations and warranties made in Section 4.4, 4.15 and 4.16
with respect to financial statements and other financial information of Seller
which expressly relate to an earlier date or time, which representations shall
be true and correct on and as of the specific date or times referred to
therein); provided however that Seller shall promptly disclose to Buyer any
information contained in the Schedules to this Agreement which, because of an
event occurring after the date hereof, is incomplete or is no longer correct as
of all times after the date hereof until the Closing Date and was incorrect
when made; provided, however, that none of such disclosures shall be deemed to
modify, amend or supplement the representations and warranties of Seller in the
Schedules hereto, unless Buyer shall have consented thereto in writing.
6.2 Consents. Seller shall use good faith efforts and cooperate with
Buyer in obtaining all necessary consents required for the transfer of the
Assets to Buyer and for the assumption of the Assumed Liabilities by Buyer on
the Closing Date.
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ARTICLE 7. COVENANTS AND AGREEMENTS OF BUYER
Buyer hereby covenants and agrees with Seller as follows:
7.1 Consents. From and after the date hereof, Buyer shall use good
faith efforts and cooperate with Seller in obtaining all necessary consents
required for the transfer of the Assets to Buyer and for the assumption of the
Assumed Liabilities by Buyer on the Closing Date.
7.2 Employees. (a) Following the Closing Date, Buyer agrees to assume
the employment agreements between Seller and each of the Key Employees. At
Closing, Buyer and each Key Employee shall execute an assumption agreement, in
the form of Exhibit VII hereto, to such effect. Buyer will endeavor to offer to
the other employees of Seller, to employ such other employees of Seller
following the Closing for the same salaries and benefits currently paid to and
afforded such employees; provided, however, Buyer shall have the right to amend
or modify any future compensation or benefits. This Section 7.2 shall not
create any rights in favor of any third party beneficiary.
(b) Subject to Section 7.2(a) above, Buyer will further credit each
employee of Seller for all purposes of employment as an employee of Buyer, or
as applicable under Buyer's employee benefit plans or programs (including as
applicable but without limitation, compensation, vacation, fringe benefits,
retirement plan benefit accrual, vesting, commencement of retirement benefits,
and other benefit entitlement), with all service credited to each such employee
of Seller as of the Closing. Seller will endeavor to provide Buyer a list of
such service credits of each employee as of the most recent practical date
prior to Closing.
(c) At Closing, pursuant to an Assumption and Substitution Agreement
in the form of Exhibit VIII hereto, Buyer shall assume all obligations of
Seller under Seller's Profit Sharing Plan and Flex Plan for employees of
Seller.
7.3 Post-Closing Access to Information. Seller and Buyer acknowledge
that subsequent to Closing each party may need access to information or
documents in the control or possession of the other party for the purposes of
concluding the transactions herein contemplated, audits, compliance with
governmental requirements and regulations, and the prosecution or defense of
third party claims. Accordingly, Seller and Buyer agree that after Closing each
will make reasonably available to the other such documents and information as
may be available relating to the Assets for periods prior and subsequent to
Closing any minute book and other organizational documents of
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Seller for periods prior to the Closing, to the extent necessary to facilitate
concluding the transactions herein contemplated, audits, compliance with
governmental requirements and regulations and the prosecution or defense of
claims.
ARTICLE 8. CONDITIONS TO BUYER'S OBLIGATION TO
CONSUMMATE THE TRANSACTION
Each and every obligation of Buyer to be performed hereunder is
subject to the satisfaction on or prior to the Closing Date of the conditions
set forth below, any one or more of which may be waived by Buyer.
8.1 Compliance with Agreement. Seller shall have performed all of its
obligations and agreements, and complied, in all material respects, with all
covenants, warranties and conditions contained in this Agreement which are
required to be performed or complied with by it on or prior to the Closing
Date, and the Chief Executive Officer of Seller shall have delivered a
Certificate to such effect to Buyer at Closing.
8.2 Representations and Warranties. The representations and warranties
of Seller contained in this Agreement, the Schedules hereto and in the other
Transaction Documents shall be true, complete and correct, in all material
respects, on and as of the date made and as of the Closing Date with the same
force and effect as though such representations and warranties had been made or
given on the Closing Date, and the Chief Executive Officer of Seller shall have
delivered a Certificate to such effect to Buyer at Closing.
8.3 Approvals and Consents. The material consents, approvals and
waivers as set forth on Schedule 8.3 hereto necessary in order to consummate
the transactions contemplated hereby shall have been obtained.
8.4 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions herein contemplated or which would
prohibit Buyer's purchase of the Assets.
8.5 Closing of Other Transactions. Simultaneous with the Closing
hereunder:
(i) the Closing shall occur in accordance with that certain
Stock Purchase Agreement by and between Staff Builders, Inc., a New
York corporation, and Albert Gallatin Planning and Development
Corporation ("AGP&D") dated as of the date hereof; and
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(ii) Buyer (or appropriate affiliate) and Albert Gallatin
Management Company shall have entered mutually satisfactory franchise
and management agreements.
8.6 No Material Adverse Change. No event or condition resulting in a
materially adverse change in the financial condition of Seller or the Assets
shall have occurred and be continuing; provided however that projected losses
of $250,000 from Seller's operations for the period beginning January 1, 1993
through June 30, 1993 and any of the matters disclosed in this Agreement or the
Schedules hereto shall not be deemed a material adverse change in the financial
condition of Seller or the Assets.
8.7 Opinion of Counsel. Buyer shall have received an opinion of
Seller's legal counsel, dated the Closing Date, substantially in the form of
Exhibit I hereto.
8.8 Key Employee Certificates. Buyer shall have received from each of
Gerald Shuttlesworth, Bonita Campbell, Frank Ovial and Patricia Check
(collectively the "Key Employees") a certificate in the form of Exhibit II
hereto.
8.9 Noncompetition Agreement. Buyer shall have received the
Noncompetition Agreement substantially in the form of Exhibit III hereto duly
executed by Seller and AGP&D, and such Noncompetition Agreement shall be in
full force and effect and constitute a legal, valid and binding obligation of
each of Seller and AGP&D, enforceable against them in accordance with its
terms.
8.10 Deliveries. Buyer shall have received from Seller all of the
other documents required to be delivered by Seller pursuant to Section 11.1(a)
of this Agreement.
8.11 Release of Certain Liens. Prior to or simultaneous with the
Closing, all liens against Seller's accounts receivable shall be released.
ARTICLE 9. CONDITIONS TO SELLER'S
OBLIGATION TO CONSUMMATE THE TRANSACTION
Each and every obligation of Seller to be performed at or before the
Closing hereunder is subject to the satisfaction on or prior to the Closing
Date of the conditions set forth below, any one or more of which may be waived
by Seller.
9.1 Compliance with Agreement. Buyer shall have performed all of its
obligations and agreements and complied, in all material respects, with all
covenants, warranties and
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conditions contained in this Agreement which are required to be performed or
complied with by Buyer on or prior to the Closing Date, and an authorized
officer or the Buyer shall have delivered a Certificate to such effect to
Seller on the Closing Date.
9.2 Representations and Warranties. The representations and warranties
of Buyer contained in this Agreement and the other Transaction Documents shall
be true, complete and correct, in all material respects, on and as of the date
made and as of the Closing Date with the same force and effect as though such
representations and warranties had been given on the Closing Date, and an
authorized officer of Buyer shall have delivered a certificate to such effect
to Seller at closing.
9.3 Approvals and Consents. The material consents, approvals and
waivers as set forth on Schedule 8.3 hereto necessary in order to consummate
the transactions contemplated hereby shall have been obtained.
9.4 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions herein contemplated or which would
prohibit Buyer's purchase of the Assets.
9.5 Closing of Other Transactions. Simultaneous with the Closing
hereunder:
(i) the Closing shall occur in accordance with that certain
Stock Purchase Agreement by and between Staff Builders, Inc., a New
York corporation, and AGP&D dated as of the date hereof; and
(ii) Buyer (or appropriate affiliate) and Albert Gallatin
Management Company shall have entered into mutually satisfactory
franchise and management agreements.
9.6 Guaranty of Staff Builders, Inc. Seller shall have received from
Staff Builders, Inc. a duly authorized and executed Guaranty in the form of
Exhibit V hereto, and such Guaranty shall be in full force and effect and
constitute a legal, valid and binding obligation of Staff Builders, Inc.,
enforceable against Staff Builders, Inc., in accordance with its terms.
9.7 Deliveries. Seller shall have received from Buyer all of the other
documents required to be delivered by Buyer pursuant to Section 11.1(b) of
this Agreement.
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ARTICLE 10. TERMINATION
10.1 Termination Prior to the Closing Date. Notwithstanding anything
herein to the contrary, this Agreement may be terminated as follows:
(i) On or prior to the Closing Date by mutual written consent of
Buyer and Seller;
(ii) By Buyer, if the conditions specified in Article 8 have not
been satisfied or waived by Buyer as of the Closing Date;
(iii) By Seller, if the conditions specified in Article 9 hereof
have not been satisfied or waived by Seller as of the Closing Date;
(iv) By Buyer or Seller, on July 31, 1993, if the Closing has
not occurred by such date;
(v) At the election of the Seller prior to the Closing Date, if
the Buyer has breached any representation, warranty, covenant or
agreement contained in this Agreement;
(vi) At the election of the Buyer prior to the Closing Date, if
the Seller has breached any representation, warranty, covenant or
agreement contained in this Agreement;
(vii) At the election of the Seller or the Buyer, if any legal
proceeding is commenced or threatened by any court or governmental
agency directed against the consummation of the Closing or any other
transaction contemplated under this Agreement; or
(viii) By Buyer or Seller if the Stock Purchase Agreement
between Staff Builders, Inc. and Albert Gallatin Planning and
Development Corporation, of even date, is terminated in accordance
with the terms thereof.
In the event of the termination of this Agreement pursuant to this Section
10.1, this Agreement shall automatically terminate and be of no further force
and effect, and there shall be no liability hereunder (except if termination
occurs pursuant to clauses (v) or (vi) above) or in respect of the transaction
contemplated hereby.
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ARTICLE 11. DELIVERIES AT AND AFTER CLOSING
11.1 Deliveries at Closing. (a) At Closing, Seller shall deliver to
Buyer:
(i) An Assignment and Bill of Sale in the form Of Exhibit IX
hereto and such bills of sale, endorsements, assignments, deeds and
other good and sufficient instruments of transfer and conveyance as
shall be reasonably deemed necessary or appropriate by Buyer to vest
in Buyer good and valid title to the Assets, together with the Power
of Attorney in the form of Exhibit VI hereto;
(ii) actual possession and operating control of the Assets;
(iii) Certificates, dated the Closing Date, required to be
delivered by Seller to Buyer pursuant to Sections 8.1 and 8.2 hereof;
(iv) a Certificate of an authorized officer of Seller
certifying: (a) as to Seller's Articles of Incorporation and By-laws,
and attaching a true and complete copy of each thereto; and (b) that
all necessary corporate action by the Board of Directors of Seller
has been taken to authorize the consummation of the transactions
provided for in this Agreement. Such certificate shall attach or set
forth verbatim the resolutions adopted by the Board of Directors of
Seller;
(v) a Certificate of an authorized officer of AGP&D certifying:
(a) as to AGP&D's Articles of Incorporation and By-laws, and
attaching a true and complete copy of each thereto; and (b) that all
necessary corporate action by the Board of Directors of AGP&D has
been taken to authorize the consummation of the transactions provided
for in this Agreement. Such certificate shall attach or set forth
verbatim the resolutions adopted by the Board of Directors of AGP&D;
(vi) a list, certified by the Chief Financial Officer of Seller,
of the accounts payable and accounts receivable of Seller as of the
Closing Date;
(vii) with respect to Seller, good standing certificate and tax
clearance letter from the Commonwealth of Pennsylvania and a good
standing certificate from the State of West Virginia;
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(viii) the opinion of Seller's counsel required pursuant to
Section 8.7 hereof;
(ix) the Key Employee Certificates required pursuant to Section
8.8 hereof;
(x) the Noncompetition Agreement required pursuant to Section
8.9 hereof; and
(xi) the Assumption Agreements Regarding Employment Agreements,
in the form of Exhibit VII hereto, executed by Seller and each Key
Employee with respect to the employment agreement of each Key
Employee.
(b) At Closing, Buyer shall deliver to Seller:
(i) The Assumption Agreement in the Form of Exhibit X hereto,
the Assumption and Substitution Agreement in the form of Exhibit VIII
hereto and such other documents of assumption as shall be reasonably
deemed necessary or appropriate by Seller and Buyer for the
assumption by Buyer of all of the Assumed Liabilities;
(ii) Certificates, dated the Closing Date, required to be
delivered by Buyer to Seller pursuant to Sections 9.1 and 9.2 hereof;
(iii) Certificate of an authorized officer of Buyer certifying:
(a) as to Buyer's Articles of Incorporation and By-laws and attaching
a true and complete copy of each thereto; (b) that all consents,
certifications, certificates of need and approvals set forth on
Schedule 8.3 of this Agreement have been obtained by Buyer; and (c)
that all necessary corporate action by the Board of Directors of
Buyer has been taken to authorize the consummation of the
transactions provided for in this Agreement. Such certificate shall
attach or set forth verbatim the resolutions adopted by the Board of
Directors of Buyer;
(iv) the Guaranty required pursuant to Section 9.6 hereof; and
(v) the Assumption Agreements Regarding Employment Agreements,
in the form of Exhibit VII hereto, executed by Buyer with respect to
the employment agreement of each Key Employee.
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11.2 . Deliveries After Closing. From time to time after the Closing
Date, without further consideration from Buyer, Seller shall cause to be
executed and delivered to Buyer, such further instruments of sale, assignment,
transfer and delivery, and take such other actions as Buyer may reasonably
request in order to more effectively sell, assign transfer and deliver, and
reduce to the possession of Buyer, any and all of the Assets and to consummate
the transactions contemplated herein, and Buyer, without further consideration
from Seller, shall cause to be executed and delivered to Seller such further
instruments, agreements and assumptions and take such other actions as Seller
may reasonably request in order to effect Buyer's assumption of the Assumed
Liabilities.
ARTICLE 12. MISCELLANEOUS
12.1 Survival. The representations, warranties, covenants and
agreements made by the parties in this Agreement shall survive the Closing and
expire thirty (30) days after the expiration of all applicable statutes of
limitation, including, without limitation any applicable statute of limitation
permitting any third party to commence any claim or cause of action against any
Indemnitee. This Section 12.1 is not intended to create any rights in any third
party beneficiaries (other than in Indemnitees other than Seller, as such
rights with respect to Indemnitees are provided in Section 3.3 of this
Agreement). Notwithstanding any rights of Buyer to fully investigate the
business and operations of the Seller or the Assets, the Buyer shall be
entitled to rely fully on the representations, warranties, covenants and
agreements of Seller contained in this Agreement and the other Transaction
Documents.
12.2 Expenses. At the Closing Buyer shall be solely responsible for
and shall pay all reasonable costs incurred by Buyer or Seller incident to the
preparation and execution of this Agreement, to include the reasonable fees and
disbursements of legal counsel, accountants and consultants employed by the
respective parties in connection with the transactions contemplated by this
Agreement, unless otherwise agreed by the parties.
12.3 Notices. Any notice, request, consent or communication under this
Agreement shall be effective only if it is in writing and personally delivered
or sent by a nationally recognized overnight delivery service, with delivery
confirmed, or telexed or telecopied with receipt confirmed (provided that if
telexed or telecopied, with a copy also sent by regular United States Mail), or
deposited in the United States mail, with
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postage prepaid thereon, certified or registered mail, return receipt
requested, addressed as follows:
<TABLE>
<S> <C>
If to Seller or an Indemnitee: With Copy To:
Albert Gallatin Visiting Nurse Thomas E. Boyle, Esquire
Association, Inc. Buchanan Ingersoll Professional
20 Highland Park Drive Corporation
Suite 203 5700 - 600 Grant Street
Uniontown, PA 15401 Pittsburgh, PA 15219
Fax No.: (412) 438-4468 Fax No.: (412) 562-1041
If to Buyer:
With Copy To:
Albert Gallatin Home Care, Inc. Albert Gallatin Home Care, Inc.
1981 Marcus Avenue 1981 Marcus Avenue
Suite C115 Suite C115
Lake Success, NY 11042 Lake Success, NY 11042
Attention: Stephen Savitsky, Attention: Mark Meirowitz,
Chief Executive Officer Vice President & General Counsel
Fax No.: (516) 358-1036 Fax No.: (516) 358-1036
</TABLE>
or such other persons and/or addresses as shall be furnished in writing by any
party to the other party, and shall be deemed to have been given as of the date
when so personally delivered, or the next day when delivered during business
hours to such overnight delivery service properly addressed or when receipt of
a telex or telecopy is confirmed, or upon the earlier to occur of receipt or
five (5) business days after mailed as provided above, as the case may be,
unless the sending party has actual knowledge that such notice was not received
by the intended recipient.
12.4 Parties in Interest and Assignment.
(a) This Agreement is binding upon and is for the benefit of Buyer and
its successors and assigns. This Agreement is binding upon and is solely for
the benefit of Seller.
(b) This Agreement and Transaction Documents do not create any third
party beneficiary rights, with the sole exception being rights of Indemnitees
(other than Seller) under Section 3.3 hereof.
(c) Neither this Agreement nor any of the rights or duties of any
party hereto may be transferred or assigned to any person except by a written
agreement executed by Buyer and Seller; provided, however, that Buyer may
assign its rights or
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delegate its duties hereunder to a wholly owned subsidiary of Buyer.
12.5 Modification. This Agreement may not be amended or modified
except by writing signed by an authorized officer of Buyer and Seller. No
waiver of the performance or breach of, or default under, any condition or
obligation hereof shall be deemed to be a waiver of any other performance, or
breach of, or default under the same or any other condition or obligation of
this Agreement.
12.6 Entire Agreement. This Agreement, together with the other
Transaction Documents, embodies the entire agreement between the parties hereto
and cancels and supersedes all previous agreements and understandings relating
to the subject matter of this Agreement and the other Transaction Documents,
written or oral, between the parties hereto, including without limitation, the
Letter of Intent dated as of May 11, 1993. There are no agreements,
representations, or warranties between the parties other than those set forth
or provided herein and in the other Transaction Documents.
12.7 Execution in Multiple Counterparts. This Agreement may be
executed in multiple counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same instrument.
12.8 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
12.9 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the Commonwealth of
Pennsylvania applicable to agreements made and to be performed entirely within
such Commonwealth, including all matters of enforcement, validity and
performance. All litigation brought or held on the basis of this Agreement
shall be brought and held in the appropriate state or federal court for
Allegheny County or Fayette County, Pennsylvania.
12.10 Schedules. All of the Schedules attached hereto are incorporated
herein and made a part of this Agreement by this reference thereto.
12.11 Severability. In case one or more of the provisions contained
in this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, the invalidity or illegality or unenforceability
shall not affect any other provision and this Agreement shall be construed as
if the
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invalid, illegal or unenforceable provision had never been contained in it.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
ALBERT GALLATIN HOME CARE, INC.
By: Gary Tighe
------------------------------------
Chief Financial Officer
ALBERT GALLATIN VISITING NURSE
ASSOCIATION, INC.
By: Gerald L. Shuttlesworth
------------------------------------
Chief Executive Officer
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EXHIBIT 21
Staff Builders, Inc. (DE)
Staff Builders International, Inc. (NY)
ATC Healthcare Services, Incorporated (GA)
ATC Staffing Services, Inc. (DE)
Albert Gallatin Home Care, Inc. (DE)
Careco, Inc. (MA)
T.L.C. Midwest, Inc. (DE)
Tender Loving Care Health Care Services, Inc. (CT)
Home Health Care, Inc. (MD)
Personnel Industries, Inc. (MD)
T.L.C. Home Health Care, Inc. (FL)
T.L.C. Medicare Services of Dade, Inc. (FL)
T.L.C. Medicare Services of Broward, Inc. (FL)
Tender Loving Care Private Patient Company, Inc. (FL)
Tender Loving Care Home Care Services, Inc. (NY)
U.S. Ethicare Corporation (DE)
U.S. Ethicare Albany Corporation (NY)
U.S. Ethicare Chautauqua Corporation (NY)
U.S. Ethicare Erie Corporation (NY)
U.S. Ethicare Niagara Corporation (NY)
U.S. Ethicare Onondaga Corporation (NY)
Ethicare Certified Services, Inc. (NY)
Staff Builders, Inc. (NY)
Chelsea Computer Consultants, Inc. (NY) (approx. 83%)
Millenium Computer Systems, Inc. (NY)
SBPP, INC. (DE)
Albert Gallatin Services Corporation (PA)
S.B.H.F., Inc. (NY)
Staff Builders Services, Inc. (NY)
MedVisit, Inc. (NC)
Staff Builders Home Health Care, Inc. (DE)
Staff Builders Prescription Services, Inc. (FL)
Staff Builders Prescription Services, Inc. (CO)
Professional Detail Services, Inc. (NY)
A Reliable Homemaker of Martin-St. Lucie County,
Inc.(FL)
St. Lucie Home Health Agency, Inc. (FL)
S.B. Assured Home Care, Inc. (DE)
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of STAFF
BUILDERS, INC., a Delaware corporation (the "Corporation"), hereby constitutes
and appoints David Savitsky or Stephen Savitsky, his true and lawful
attorney-in-fact and agent, with full power to act for him and in his name,
place and stead, in any and all capacities, to sign the Corporation's Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on
Form 10-K for the Fiscal Year Ended February 28, 1999, or any amendments or
supplements thereto, including without limitation on Form 8, with power where
appropriate to affix the corporate seal of the Corporation thereto and to attest
said seal, and to file such Form 10-K and each such amendment and supplement,
with all exhibits thereto, and any and all other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform any and all acts and things requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his name as of the
29th day of April, 1999.
/s/ JONATHAN J. HALPERT
-----------------------------
Jonathan J. Halpert,
Director of the Corporation
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of STAFF
BUILDERS, INC., a Delaware corporation (the "Corporation"), hereby constitutes
and appoints David Savitsky or Stephen Savitsky, his true and lawful
attorney-in-fact and agent, with full power to act for him and in his name,
place and stead, in any and all capacities, to sign the Corporation's Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on
Form 10-K for the Fiscal Year Ended February 28, 1999, or any amendments or
supplements thereto, including without limitation on Form 8, with power where
appropriate to affix the corporate seal of the Corporation thereto and to attest
said seal, and to file such Form 10-K and each such amendment and supplement,
with all exhibits thereto, and any and all other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform any and all acts and things requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his name as of the
29th day of April, 1999.
/s/ BERNARD J. FIRESTONE
----------------------------
Bernard J. Firestone,
Director of the Corporation
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of STAFF
BUILDERS, INC., a Delaware corporation (the "Corporation"), hereby constitutes
and appoints David Savitsky or Stephen Savitsky, his true and lawful
attorney-in-fact and agent, with full power to act for him and in his name,
place and stead, in any and all capacities, to sign the Corporation's Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on
Form 10-K for the Fiscal Year Ended February 28, 1999, or any amendments or
supplements thereto, including without limitation on Form 8, with power where
appropriate to affix the corporate seal of the Corporation thereto and to attest
said seal, and to file such Form 10-K and each such amendment and supplement,
with all exhibits thereto, and any and all other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform any and all acts and things requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his name as of the
29th day of April, 1999.
/s/ DONALD MEYERS
----------------------------
Donald Meyers,
Director of the Corporation
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