SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended FEBRUARY 28, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
EXCHANGE ACT
For the transition period from ________________ to ________________
Commission File Number 0-11781
HOSPITAL STAFFING SERVICES, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2150637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6245 NORTH FEDERAL HIGHWAY, SUITE 400
FORT LAUDERDALE, FLORIDA 33308
(Address of principal executive offices)
(305) 771 - 0500
Registrant's telephone number, including area code
NOT APPLICABLE
Former name, former address and former fiscal year
if changed since last report
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No [
]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 5,649,770 shares of Common Stock,
$.001 par value, outstanding at April 13, 1995.
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Page(s)
-------
PART I - FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Operations 4
Consolidated Condensed Statements of
Stockholders' Equity 5
Consolidated Condensed Statements of Cash Flows 6
Notes to Consolidated Condensed Financial
Statements 7-16
Management's Discussion and Analysis of
Financial Condition and Results of Operations 17-20
PART II - OTHER INFORMATION AND SIGNATURES 21-22
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
FEBRUARY 28, 1995 AND NOVEMBER 30, 1994
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 899,053 $ 516,770
Short-term investments -- 1,148,729
Trade accounts receivable, less allowance for doubtful accounts
of $1,866,945 and $2,345,598 respectively 7,171,667 7,554,155
Estimated settlements due from Medicare 9,780,728 10,120,218
Prepaid expenses and other 352,221 249,904
Amounts due from officers/directors 136,595 240,781
Income taxes receivable 212,042 212,042
Other 764,960 785,360
------------ ------------
Total current assets 19,317,266 20,827,959
------------ ------------
NON-CURRENT ASSETS:
PROPERTY AND EQUIPMENT, at cost 3,629,623 3,537,469
Less: Accumulated depreciation (2,415,240) (2,282,793)
------------ ------------
Net property and equipment 1,214,383 1,254,676
------------ ------------
INTANGIBLES RELATED TO BUSINESSES ACQUIRED 2,160,016 2,022,183
NON-COMPETITION AGREEMENTS 479,426 551,544
------------ ------------
Total intangibles 2,639,442 2,573,727
Less: Accumulated amortization (614,846) (759,725)
------------ ------------
Net Intangibles 2,024,596 1,814,002
------------ ------------
DEPOSITS AND OTHER ASSETS 487,010 516,512
------------ ------------
Total non-current assets 3,725,989 3,585,190
------------ ------------
Total assets $ 23,043,255 $ 24,413,149
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,656,789 $ 5,744,272
Line of credit payable 59,704 304,912
Accrued payroll and payroll taxes 2,549,040 2,473,643
Accrued expenses and other 4,587,051 5,594,163
Notes payable (Notes 3 & 7) 240,130 156,000
Income taxes payable 284,247 561,245
------------ ------------
Total current liabilities 13,376,961 14,834,235
------------ ------------
NON-CURRENT LIABILITIES
Notes payable (Notes 3 & 7) 868,286 844,000
Lease settlement (Note 8) 700,000 700,000
------------ ------------
Total non-current liabilities 1,568,286 1,544,000
------------ ------------
Total liabilities 14,945,247 16,378,235
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Preferred Stock--$.001 par value; 5,000,000 shares authorized; none issued and
outstanding -- --
Common Stock--$.001 par value; 20,000,000 shares authorized; 5,649,770 shares
issued and outstanding 5,650 5,650
Additional paid-in capital 21,292,087 21,292,087
Accumulated deficit (13,199,729) (13,262,823)
------------ ------------
Total stockholders' equity 8,098,008 8,034,914
------------ ------------
Total liabilities and stockholders' equity $ 23,043,255 $ 24,413,149
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to consolidated condensed financial statements are
an integral part of these consolidated condensed balance sheets.
3
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1995 AND FEBRUARY 28, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
-----------------------------------
1995 1994
----------- -----------
<S> <C> <C>
NET REVENUE FROM SERVICES $13,711,732 $21,262,945
COST OF SERVICES:
PROFESSIONAL SALARIES AND PAYROLL TAXES 7,432,394 11,865,844
OTHER PROFESSIONAL EXPENSES 1,401,249 1,634,433
----------- -----------
TOTAL COST OF SERVICES 8,833,643 13,500,277
----------- -----------
GROSS MARGIN 4,878,089 7,762,668
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
ALL OTHER EXPENSES 1,574,892 2,772,494
SALARIES AND PAYROLL TAXES 2,679,209 4,199,743
LEGAL EXPENSES (NOTE 9) 486,015 470,215
----------- -----------
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,740,116 7,442,452
----------- -----------
INCOME FROM OPERATIONS 137,973 320,216
----------- -----------
INTEREST AND OTHER INCOME (EXPENSE):
INTEREST EXPENSE (87,557) (122,507)
INTEREST INCOME 17,669 13,535
OTHER INCOME, NET 33,009 3,504
----------- -----------
TOTAL INTEREST AND OTHER INCOME (EXPENSE) (36,879) (105,468)
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 101,094 214,748
PROVISION FOR INCOME TAXES 38,000 100,000
----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 63,094 114,748
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE -- 162,000
----------- -----------
NET INCOME $ 63,094 $ 276,748
----------- -----------
----------- -----------
PRIMARY EARNINGS PER COMMON AND COMMON SHARE EQUIVALENT
CONTINUING OPERATIONS $ 0.01 $ 0.02
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE -- 0.03
----------- -----------
$ 0.01 $ 0.05
----------- -----------
----------- -----------
FULLY DILUTED EARNINGS PER COMMON AND COMMON SHARE EQUIVALENT
CONTINUING OPERATIONS $ 0.01 $ 0.02
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE -- 0.03
----------- -----------
$ 0.01 $ 0.05
----------- -----------
----------- -----------
WEIGHTED AVERAGE COMMON AND COMMON SHARE EQUIVALENTS OUTSTANDING:
PRIMARY 5,649,770 5,646,020
----------- -----------
----------- -----------
FULLY DILUTED 5,649,770 5,653,639
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to consolidated condensed financial statements are
an integral part of these consolidated condensed statements.
4
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED NOVEMBER 30, 1994 AND
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1995
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------
NUMBER OF ADDITIONAL ACCUMULATED
SHARES OUTSTANDING AMOUNT PAID-IN CAPITAL DEFICIT
------------------ ------ --------------- ------------
<S> <C> <C> <C> <C>
BALANCE, November 30, 1993 5,646,020 $ 5,646 $ 21,278,966 $ (2,008,300)
Exercise of warrants 3,750 4 13,121 --
Net Loss -- -- -- (11,254,523)
------------------ ------ --------------- ------------
BALANCE, November 30, 1994 5,649,770 5,650 21,292,087 (13,262,823)
Net Income -- -- -- 63,094
------------------ ------ --------------- ------------
BALANCE, February 28, 1995
(Unaudited) 5,649,770 $ 5,650 $ 21,292,087 $ (13,199,729)
------------------ ------ --------------- ------------
------------------ ------ --------------- ------------
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these consolidated statements.
5
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1995 AND FEBRUARY 28, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income $ 63,094 $ 276,748
------------ ------------
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Provision for income taxes 38,000 --
Depreciation and amortization 174,791 360,914
Provision for losses on accounts receivable 58,045 147,333
Gain on fixed assets (5,981) --
Write-off of intangibles related to businesses acquired, net -- 62,074
Changes in assets and liabilities net of effects of acquisition of
Tri-Therapy:
(Increase) decrease in assets-
Trade accounts receivable 249,443 (1,609,708)
Estimated settlement due from Medicare 339,490 1,521,492
Prepaid expenses and other current assets (102,317) (22,338)
Amounts due from officers/directors 4,186 (4,692)
Income taxes receivable -- 116,786
Deposits and other assets 44,231 (79,541)
Increase (decrease) in liabilities -
Accounts payable (87,483) (372,222)
Accrued payroll and payroll taxes 75,397 60,283
Accrued expenses and other (1,007,112) --
Income taxes payable (314,998) --
Other liabilities -- (11,206)
------------ ------------
Total adjustments (534,308) 169,175
------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (471,214) 445,923
------------ ------------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Sale (purchase) of short-term investments, net 1,148,729 --
Capital expenditures (22,790) (14,498)
------------ ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 1,125,939 (14,498)
------------ ------------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Line of credit borrowings 14,363,000 20,720,000
Line of credit repayments (14,608,208) (21,658,535)
Notes payable (27,234) 313,738
------------ ------------
NET CASH USED BY FINANCING ACTIVITIES (272,442) (624,797)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 382,283 (193,372)
Cash and cash equivalents at beginning of period 516,770 1,280,545
------------ ------------
Cash and cash equivalents at end of period $ 899,053 $ 1,087,173
------------ ------------
------------ ------------
Supplemental Cash Flow Disclosures:
Cash paid: Income Taxes $ 224,948 $ 4,547
Interest $ 72,004 $ 174,731
</TABLE>
The accompanying notes to consolidated condensed financial statements are
an integral part of these consolidated condensed statements.
6
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
February 28, 1995
(Unaudited)
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES -
The accounting policies followed by Hospital Staffing Services, Inc. and
subsidiaries (the "Company") for quarterly financial reporting purposes are the
same as those disclosed in the Company's annual financial statements. In the
opinion of management, the accompanying consolidated condensed financial
statements reflect all adjustments (which consist only of normal recurring
adjustments) necessary for a fair presentation of the information presented.
The quarterly consolidated condensed financial statements herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. Although the Company's management believes the
disclosures are adequate to make the information not misleading, it is suggested
that these quarterly consolidated condensed financial statements be read in
conjunction with the audited annual financial statements and footnotes thereto.
NOTE 2: GOING CONCERN -
The Company has suffered recurring losses from operations for the past
three fiscal years and as of fiscal year ended November 30, 1994 was in
violation of certain credit facility covenants, waivers for which were obtained
through November 30, 1995 on March 13, 1995. Additionally, the Company projects
negative cash flow in fiscal 1995 primarily as a result of funding of prior
years' recorded liabilities, slow collections of accounts receivables and loss
contingencies that are, in part, expected to mature over the next twelve months.
In addition, as more fully described in Note 8 to the consolidated condensed
financial statements, the Company is subject to additional contingencies, the
outcome of which may have a material impact on the Company's results of
operations and liquidity. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
Management's plans to overcome the above difficulties consist of
restructuring its operations to become profitable, obtaining extended payment
plans as necessary from vendors and for estimated settlements which may need to
be paid to the Medicare program, managing the contingencies described in Note 8
to the consolidated condensed financial statements to successful resolution and
lastly, raising additional capital. The Company is presently exploring ways to
raise the additional capital through a number of means including private
placement of debt, issuance of preferred and/or common stock and/or the sale of
certain of the Company's remaining operating units in part or in whole.
NOTE 3: ACQUISITIONS AND DIVESTITURES
On January 13, 1995, certain assets of the Company's Broward County,
Florida private duty home health agency were sold to the Company's Chairman and
Chief Executive Officer. The assets were sold for $185,000 representing all of
the fixed assets and certain intangibles. This price,
7
<PAGE>
which the Company believes is slightly in excess of fair market value, was based
upon the Company's investment banker's valuations and various offers received by
the Company from third parties.
On February 15, 1995, a wholly-owned subsidiary of the Company acquired
certain assets of a therapy company for an aggregate purchase price of
approximately $496,000 representing approximately $96,000 in fixed assets and
approximately $400,000 in certain intangibles. The purchase price is being
satisfied by the forgiveness of a $75,000 trade accounts receivable that the
therapy company owed the Company for nursing services provided by the Company
prior to the acquisition date and through the issuance of a promissory note of
approximately $421,000 with the balance due in equal annual payments of $84,130
over the next five years.
NOTE 4: DEBT -
On August 23, 1993, the Company obtained a three year $15 million revolving
line of credit with a commercial finance company to replace its prior credit
facility with a bank. The present credit facility bears interest at prime (8.5%
at February 28, 1995) plus 2% per annum payable monthly, is secured by
substantially all assets of the Company and requires adherence to certain
financial covenants. Borrowing is based on the Company's eligible accounts
receivable as defined.
The present credit facility includes up to $3.5 million to secure a
workers' compensation standby letter of credit required by the insurance carrier
for the Company's workers' compensation coverage. As of February 28, 1995, the
Company was contingently liable for a $2 million standby letter of credit issued
by its lender for the benefit of the insurance carrier. Such amount is reserved
under the $15 million line of credit with its lender, representing a reduction
of otherwise eligible borrowing. As of February 28, 1995, approximately $377,800
was available for additional borrowing under the line of credit.
Outstanding principal borrowings under the credit facility were
approximately $59,704 as of February 28, 1995. As of November 30, 1994 and
February 28, 1995 the Company was not in compliance with the financial covenant
relating to maintenance of a minimum tangible net worth and a second covenant
relating to a prohibition against entering into a consulting agreement with a
director of the Company. Waivers from its lender for the covenant violations
through November 30, 1995 were obtained on March 13, 1995.
NOTE 5: STOCKHOLDERS' EQUITY -
No stock options were granted or exercised during the quarter ended
February 28, 1995 under any of the Company's stock option plans.
On February 1, 1995, as amended on March 13, 1995, the Company's Board of
Directors based on the November 1, 1993 Termination and Benefits Agreement,
defined the Company's future severance obligation to its Chief Financial Officer
as approximately $630,000 upon his termination regardless of the reason
therefore, and additionally waived for its Chief Financial Officer the provision
of the Company's 1990 Stock Option Plan which provided for a ninety day
expiration date from the date of termination for the exercise of all stock
options previously granted. The exercise prices of the previously granted stock
options, which can be exercised for 115,000 shares of common stock on February
1, 1995 (100,000 shares of common stock on March 13, 1995, due to the expiration
of options to acquire 15,000 shares of common stock on February 20, 1995) were
in
8
<PAGE>
excess of the fair market value of the Company's common stock. The above actions
on the part of the Company are conditioned upon the Chief Financial Officer's
acceptance of the receipt of such severance amount over a 24 month equal
installment period without interest. As of February 28, 1995 the Chief Financial
Officer was still employed by the Company. See Note 7.
NOTE 6: EARNINGS PER COMMON AND COMMON SHARE EQUIVALENT -
Earnings per common and common share equivalent is based on the combined
weighted average number of common shares and common share equivalents
outstanding which includes the assumed exercise of those stock options and
warrants which are dilutive.
The Company utilizes the treasury stock method for computing earnings per
share. Under the treasury stock method the dilutive effect of outstanding common
stock equivalents for determining primary earnings per share is computed using
the average market price during the period, whereas the dilutive effect of
outstanding common stock equivalents for determining fully diluted earnings per
share is computed using the market price as of period end, if greater than the
average market price.
NOTE 7: SEVERANCE OBLIGATIONS -
Upon termination in October 1992, a previous officer of the Company entered
into a Termination Agreement and Consulting Agreement (the "New Agreement")
which superseded a December 1, 1990 Termination and Benefits Agreement (the
"Prior Agreement"). The New Agreement provides for substantially the same
compensation and benefits as existed in the Prior Agreement, however, such
compensation and benefits would be earned provided that future services were
requested by the Company and performed by the former officer. Inasmuch as there
was no certainty that such future services would be performed, the Company's
obligation, which aggregated approximately $900,000, was expensed as of the date
of the 1992 termination. As of February 28, 1995 and November 30, 1994, the
Company's remaining unpaid obligation was approximately $105,000 and $166,000,
respectively, and is included in Accrued expenses and other in the accompanying
consolidated condensed balance sheets.
Upon acceptance of the Company's request for his resignation in May 1994,
another officer of the Company entered into a Termination Agreement (the "1994
Agreement") dated May 27, 1994, which superseded a prior Termination and
Benefits Agreement (the "1991 Agreement") dated June 1, 1991. The 1994 Agreement
provided that compensation and benefits will be received for a ninety day
consulting period beginning May 27, 1994 and severance will be paid thereafter
for a period of one year, subject to certain non-competition provisions
contained therein. Inasmuch as there was no certainty that future consulting
services would be performed, the obligation for the entire fifteen month period,
which aggregated approximately $310,000, was expensed as of the date of the May
1994 resignation. As of February 28, 1995, the Company's remaining unpaid
obligation was approximately $129,400 and is included in Accrued expenses and
other in the accompanying February 28, 1995 consolidated condensed balance
sheet.
On December 30, 1994, the Company and its Chairman and Chief Executive
Officer entered into an agreement to modify the Termination and Benefits
Agreement dated June 1, 1991. In lieu of the Company's future obligation to the
Chief Executive Officer of between three and five years of base salary and
certain benefits (as defined), totaling approximately $1.2 - $2 million, which
would result from a termination of the Chief Executive Officer upon his
resignation or dismissal by the Company without cause, respectively, the Company
and the Chief Executive Officer agreed to
9
<PAGE>
currently settle the future obligation for $1 million. Such amount was charged
to fiscal year ended November 30, 1994's consolidated statement of operations as
the Board of Directors had effectively approved the terms of the agreement as of
that date. Also, in connection with this agreement, effective on January 1,
1995, the Chief Executive Officer agreed to reduce his future base salary from
$330,000 to $175,000 per year.
The Chief Executive Officer continues to remain in the Company's employ and
upon ninety days written notice from the Company, can be terminated at will
whereby the Company's only continuing obligation, in addition to the remaining
unpaid portion of the $1 million settlement discussed above, would be for the
payment of certain benefits (primarily life, health and disability insurance)
for a period of one year.
In connection with the January 13, 1995 sale of the Broward County home
health agency to the Chief Executive Officer (see Note 3 - Acquisitions and
Divestitures), $185,000 of the $1 million obligation was satisfied as an offset
to the purchase price of the Broward agency. Additionally, $100,000 of the $1
million obligation was satisfied as settlement of the amounts advanced from the
Company to the Chief Executive Officer in prior years. The remaining obligation
of $715,000 is being satisfied through installment payments under a promissory
note dated January 13, 1995. The promissory note requires monthly installments
of $13,000 plus accrued interest at prime rate per annum from the date of the
agreement for a period of 55 months. The promissory note provides for
acceleration of the balance due to be immediately payable to the Chief Executive
Officer upon the Company's default of a scheduled monthly payment or upon a
change in control of the Company, as defined in the promissory note. In the
absence of an event constituting acceleration, as of February 28, 1995 the
Company's future obligation under the amount due the officer was approximately
as follows:
Obligation Amount
---------- ------
Total $ 687,800
Less current portion (156,000)
---------
Non-current portion $ 531,800
=========
On March 31, 1995, the Company's Chief Financial Officer accepted the
conditions imposed upon him by the Company's Board of Directors with respect to
the Company's severance obligation due him, see Note 5. On this same date the
Chief Financial Officer and the Company entered into a Modification Agreement
(the "1995 Agreement") to supersede the prior Termination and Benefits Agreement
dated November 1, 1993. The 1995 Agreement provides for the Chief Financial
Officer's resignation from the Company effective May 1, 1995 and a severance
obligation due him of $630,000, subject to certain non-competition provisions.
The 1995 Agreement further provides for the waiver of the provision of the
Company's 1990 Stock Option Plan which provided for a ninety day expiration date
from the date of termination for the exercise of stock options previously
granted to the Chief Financial Officer to acquire 100,000 shares of the
company's common stock and for the severance obligation to be paid pursuant to a
promissory note over a 24 month equal installment period without interest.
In as much as no future services will be performed by the Chief Financial
Officer subsequent to May 1, 1995, the entire severance obligation, inclusive
of payroll taxes and related costs, aggregating approximately $647,600
is expected to be expensed as of the date of the
10
<PAGE>
officer's resignation.
NOTE 8: COMMITMENTS AND CONTINGENCIES -
Dade County Medicare Investigation:
On December 3, 1992, in connection with a federal investigation into
Medicare practices by health care providers in South Florida, the Company was
served with federal search warrants. In response to the issuance of the search
warrants, the Company engaged counsel who initiated a lawyer directed, internal
investigation into its Medicare claims processing system and which was committed
to the identification and elimination of any and all improprieties discovered in
the course of such investigation. As of April 1995, twenty eight months have
passed since execution of the search warrants and no charges have been brought
against the Company, its officers or employees.
On December 15, 1992, in what appears to have been an action related to the
federal investigation, the Health Care Financing Administration ("HCFA"),
through its fiscal intermediary, notified the Company of its decision to suspend
reimbursement to the Company's South Florida Medicare offices. Such suspension
of Medicare payments in South Florida was based, among other considerations,
upon allegations of fraud arising from the federal investigation into claims
that were submitted for Medicare services that were not rendered. The suspension
related to all three of the Company's Medicare providers in South Florida,
because all of the providers were part of the same legal entity, Hospital
Staffing Services of Florida, Inc., a wholly-owned subsidiary of the Company.
Management, however, believes that the alleged violations relate solely to the
Dade County Medicare provider and that neither the suspension nor the federal
investigation relates to any of the Company's operations in any of its other
Florida offices or outside of Florida.
While management of the Company had considered a reduction of its use of
subcontracted services in its South Florida Medicare business prior to December
1992, because of circumstances arising from the investigation and suspension of
payments, the Company, in late December 1992, downsized its offices in Dade,
Broward and Monroe counties and terminated its subcontracting relationships with
staffing providers in South Florida, which relationships management believes
substantially gave rise to the federal investigation and suspension of Medicare
payments.
Subsequent to December 1992, the Company continued to operate its Medicare
office in Palm Beach County at a substantial cost to the Company in anticipation
of the reinstatement of Medicare payments. However, because the Company was
still unable to reach consensus with HCFA regarding the reinstatement of
Medicare payments to its South Florida operations, in February 1993 the Company
effectively closed its South Florida Medicare offices, including the Palm Beach
County Medicare office.
On November 30, 1992 and based on information available to management at
that time, the Company provided for estimated Medicare reimbursement
disallowances for potentially non-reimbursable costs which were incurred during
fiscal years 1992 and 1991 on subcontracted staffing in its now closed Dade
County Medicare offices. Because of the investigation into Medicare practices by
health care providers in South Florida and the related seizure of certain of the
Company's records pursuant to federal search warrants in December 1992, the
Company had been unable to complete the billing of a substantial amount of the
Dade County visits made in 1992 and 1991. During fiscal 1993, the Company
undertook an internal review program which included obtaining advice and
11
<PAGE>
consultation from an attorney specializing in Medicare law, engaging a criminal
defense attorney and performing a billing project. An objective of the internal
review program was to bill the balance of the 1992 and 1991 visits, upon return
of the Company's records that had previously been seized pursuant to the federal
search warrants, within the context of the Dade County Medicare investigation.
Additionally, the Company established parameters and guidelines, greater than
those required by the Medicare program, to be followed during the billing
project to insure that the visits were rendered and billable based on a detailed
patient chart review.
Based upon information which became available to management during the
third quarter of fiscal 1993, which suggested that certain visits may not be
billable for various reasons, including the expiration of certain administrative
deadlines, at that time, the Company recorded additional estimated Medicare
reimbursement disallowances related to the Dade County Medicare offices.
In November 1994, the Company completed the billing project with respect to
all visits not subject to a claim of untimely filing. While the majority of
prior years claims were billed, certain prior year claims were not billed based
upon the Company's determination from the results of its internal review
program. The internal review program encompassed detailed patient chart reviews
which included, among other tasks, visit verification by patients' doctors and
other caregivers. Management at this time is unable to estimate when the
ultimate outcome of the claims submissions will be known or when the federal
investigation may conclude. Accordingly, it is unknown what the ultimate impact,
if any, the outcome of these matters will have on the Company's consolidated
condensed financial statements.
The estimated settlement amounts due the Company as reflected in the
accompanying consolidated condensed balance sheets, as well as net revenue from
services presented in the accompanying consolidated condensed statements of
operations, are presented net of estimated Medicare reimbursement disallowances.
The estimated disallowances are subject to continual review and, as such, may be
increased or decreased as substantive information becomes available. Included in
the estimated settlements due from Medicare as of February 28, 1995 is
approximately $4.5 million for the Company's former South Florida Medicare
operations representing primarily claims billed by the Company subsequent to
closure of its South Florida Medicare operations. The Company believes that the
estimated settlements due from Medicare, as recorded in the accompanying
consolidated condensed balance sheet as of February 28, 1995, are realizable at
their recorded amount.
Proposed Shareholder Class Action Suits:
On October 13, 1992, a proposed class action suit was filed against the
Company and certain of its officers and directors, and, as amended, the
Company's independent certified public accountants (the "defendants") alleging
violations of the Securities and Exchange Act of 1934. On March 19, 1993, the
court denied without prejudice the defendants' motion to dismiss this action. On
November 24, 1993, another proposed class action suit with nearly identical
allegations was filed against the Company, certain of its officers and directors
and the Company's independent certified public accountants. The defendants
vigorously deny all allegations. To date, the Company has succeeded in staying
the second shareholder action pending the outcome of the first suit. Pursuant to
the provisions of Florida law and the Company's Articles of Incorporation and
Bylaws, the named officers and directors are entitled to indemnity against any
damages they may incur resulting from these suits.
12
<PAGE>
On October 29, 1994, the Company's Board of Directors, after evaluating the
economic merits of the continuing legal costs required to defend the original
class action, as well as its potential exposure to adverse judgement, against
the amount of settlement that the plaintiff is seeking, agreed to a proposed
settlement between the Company and legal counsel for the individual shareholders
in the original class action suit. In this regard, a Stipulation of Settlement
agreement was drafted which provides for a class period end date of November 30,
1993, the issuance of 700,000 shares of Common Stock and a cash payment. Should
the Company's stock price exceed $2.00 per share on the valuation date specified
in the agreement, the number of shares described above would be reduced to
reflect the increased stock price. The agreement is subject to final negotiation
and is subject to court approval, however, management believes it is probable
the settlement will be accepted under its present or similar terms. It is
expected that the second proposed class action will be dismissed if the court
accepts the proposed settlement on the original action because the members of
the proposed class in the second shareholder suit are encompassed within the
proposed settlement class period of the original action. Accordingly, based on
the estimated future value of the common stock issuance and cash payment, the
Company recorded a charge totaling approximately $1.9 million in its fiscal year
ended November 30, 1994 consolidated statement of operations to accrue the
estimated settlement liability. Since the proposed settlement is still subject
to court approval and final negotiations with the plaintiff, including funding
terms, the Company and its legal counsel are unable to determine the ultimate
outcome of these proposed class action suits should the settlement not be
accepted. Accordingly, except for the charge described above, no additional
provision for any liability that may result from an unfavorable outcome or
adjudication in connection with the proposed class action suits has been made.
Directors and officers insurance policy proceeds of up to $1 million were
available to fund legal fees and settlement or adverse judgement costs, as
applicable. The Company received $900,000 of such insurance proceeds during
1993. As of February 28, 1995 and November 30, 1994, approximately $224,600 and
$250,000 of the remaining insurance proceeds are being held in escrow and are
restricted to usage on the shareholder suits and are included in Other assets in
the accompanying consolidated condensed balance sheets, respectively.
Other Litigation, Claims and Assessments:
In the ordinary course of business, the Company is exposed to various
claims, threats and legal proceedings other than those items discussed above. In
management's opinion, the outcome of all other such matters will not have a
material impact upon the Company's consolidated financial position and
consolidated results of operations.
Rents:
The Company conducts a major portion of its operations from various leased
office facilities.
The Company had a ten year, non-cancelable operating lease agreement for
its corporate office facility in Fort Lauderdale, Florida. In connection with
the Company's sale of its California, New York and Arizona home health care
operations, effective November 1, 1994, the Company terminated its old lease for
the corporate office facility and simultaneously entered into a new lease
agreement to reflect the reduction in needed space. In connection with this
early termination the Company agreed to a penalty of $800,000 in exchange for
the landlord's release of the Company from approximately $1.4 million in future
minimum rentals. On
13
<PAGE>
November 1, 1994, $100,000 of the penalty was paid. The $700,000 balance is due
on November 1, 1995 and is payable in cash or in newly issued shares of common
stock of the Company at the Company's election. The number of shares to be
issued will be based upon the average closing price of the shares for the period
from October 26 to October 31, 1995 provided that the minimum and maximum
valuation shall be $1.00 and $3.00, respectively. As a result of the lease
restructuring, the Company recorded a charge totaling approximately $400,000 for
the termination penalty, net of the remaining pro rata future payments under the
old lease during the fourth quarter of fiscal year ended November 30, 1994.
Total rent expense for the three months ended February 28, 1995 and 1994 on
the above and all other rentals, including HSSI HomeCare's branch facilities and
nurses' housing for the Travel Nurse Group, was approximately $787,500 and
$990,000, respectively.
Future minimum lease payments under all of the Company's non-cancelable
operating lease agreements as of February 28, 1995 are summarized as follows:
Fiscal Year Amount
- - ---------- ------
1995 $1,667,900
1996 707,300
1997 273,800
1998 179,400
1999 171,000
Thereafter 25,500
----------
Total $3,035,000
==========
14
<PAGE>
Termination and Benefits Agreements:
The Company has agreements with certain of its key employees which provide
for severance in the case of termination, stock option rights, and for the key
employees to adhere to non-competition provisions. Such agreements generally
provide for severance from three months up to two years dependent upon the
employee involved. The maximum aggregate commitment for these agreements,
including the Company's obligation to its Chief Financial Officer, whose
severance entitlement is $630,000 (see Note 7 - Severance Obligations) would be
approximately $1 million as of February 28, 1995, if all of the key employees
were to be terminated without cause. Excluded from the above amount is the
severance obligation to the Chief Executive Officer which was settled in January
1995 (see Note 7 - Severance Obligations).
Self Insurance:
The Company self insures its health and workers' compensation programs up
to policy limits, as defined. Claims in excess of such limits are insured by
third party reinsurers. The Company's estimate of its liability for both
outstanding as well as incurred but unreported claims is based upon its
historical loss experience. As of February 28, 1995 and November 30, 1994, such
reserves totaled approximately $2.6 million and $2.9 million, respectively, and
are included as a component of Accrued expenses and other in the accompanying
consolidated condensed balance sheets. Differences between actual losses and
reserve estimates are recognized in the period when such differences become
known. As of February 28, 1995, management believes that the differences between
actual losses to be incurred after February 28, 1995 related thereto and its
recorded reserve estimates will not be material.
Directors and Officers Indemnification Fund:
On October 29, 1994, the Company's Board of Directors approved the creation
of an indemnification fund for up to $2 million for any potential future
expenses which may be incurred by the current directors as a result of any
future action against them resulting from their services to the Company. Such
indemnification fund supplements proceeds which may be available to the
directors under the Company's Directors and Officers insurance policy. As of
February 28, 1995 no funding has occurred, however, at the directors discretion,
based upon the Company's future cash position and other factors as may be
considered, funding of the $2 million or whatever is deemed reasonable at the
time of funding may be made. On April 3, 1995, the Company's Board of Directors
approved the inclusion of the Company's past directors and current and past
officers in the indemnification fund.
15
<PAGE>
NOTE 9: LEGAL EXPENSES -
The Company incurred legal expenses of $486,000 and $470,215 during its
three months ended February 28, 1995 and 1994, respectively. In the ordinary
course of business the Company is exposed to various claims, threats and legal
proceedings.
During the three months ended February 28, 1995, in addition to normal
recurring legal costs, the Company continued to incur costs related to a South
Florida Medicare investigation and proposed shareholder class action suits (see
Note 8).
NOTE 10: NET REVENUE FROM SERVICES -
While the Company does not, in all cases, track revenue by payor source,
management estimates the Company's breakdown of net revenue by type of service
and payor source for the three months ended February 28, 1995 and 1994 were as
follows:
Home Health Care 1995 1994
- - ---------------- ---- ----
Medicare 56% 49%
Medicaid 7% 15%
Insurance Carriers 5% 5%
Private (Individuals) 5% 7%
Contract 6% 8%
Travel Nurse
- - ------------
Hospitals 21% 16%
--- ---
100% 100%
=== ===
NOTE 11: CONCENTRATION OF CREDIT RISK -
The Company provides services to customers located in the U.S. Virgin
Islands which are owned by the government of the U.S. Virgin Islands. Sales to
these customers accounted for approximately 10.5% and 6.5% of consolidated net
revenue from services for the three months ended February 28, 1995 and 1994,
respectively. Outstanding accounts receivable were approximately $2.8 million
and $2.2 million as of February 28, 1995 and November 30, 1994, respectively,
and are included in trade accounts receivable in the accompanying consolidated
balance sheets. As of April 5, 1995, approximately $2.6 million of the February
28, 1995 outstanding receivable balance from these customers remained unpaid of
which approximately $1.2 million has been outstanding for greater than 180 days.
Collections from customers located in the U.S. Virgin Islands are generally
slower than the Company's domestic hospital customer base. However, management
believes such balances are realizable at their recorded amounts. Accordingly, no
allowance for doubtful accounts has been recorded related to the outstanding
receivable.
16
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
February 28, 1995
LIQUIDITY AND CAPITAL RESOURCES -
Prior to its acquisition of Continental, the Company funded its growth
internally and through net proceeds of $9,036,000 from two public offerings. In
order to finance a portion of the acquisition costs of Continental and CarePoint
in July 1990 and February 1991, respectively, and to satisfy related future
working capital requirements the Company became a borrower under a line of
credit, term note and term loan.
In April 1992, the Company obtained a $13.5 million line of credit
primarily to meet its projected increased working capital needs in response to
the significant internal growth achieved on the acquired businesses, to retire
the then remaining outstanding current and non-current portions of the term note
and term loan and to provide a $1.5 million standby letter of credit for the
Company's self- funded workers' compensation program. The line of credit, which
matured on May 5, 1993, required monthly interest payments equal to the bank's
prime rate, borrowings to be secured by trade accounts receivable and all other
amounts owing to the Company, and the Company adhering to certain financial
covenants.
At November 30, 1992 the Company, as a result of its fourth quarter
financial results, which included a provision for estimated Medicare
reimbursement disallowances on costs incurred on subcontracted staffing in its
Dade County Medicare offices, was in default with certain of the credit
facility's financial covenants. Such covenants related to tangible net worth,
debt to tangible net worth ratio and annualized debt service coverage ratio.
Waivers for such non-compliance were not obtained. In an action related to the
December 3, 1992 federal investigation, the Medicare program suspended
reimbursement to the Company's South Florida Medicare offices. Because the
Company believed it was in full compliance with the Medicare program and its
license was not revoked, upon advice from its legal counsel, the Company
continued to operate its South Florida Medicare offices at a substantial cost
(such operations generated approximately $30 million in sales) in anticipation
of the reinstatement of Medicare payments. In continuing these operations the
Company borrowed substantial sums under its line of credit and simultaneously
created large accounts receivables from the Medicare program. After a few months
of continuing operations in the South Florida Medicare offices, the Company was
still unable to reach agreement with the Medicare program to reinstate the
Medicare payments. The lender, soon thereafter, notified the Company that it was
discontinuing the credit facility and required all amounts of indebtedness then
outstanding, approximately $10 million, to be immediately due and payable. In
response thereto, the Company closed all remaining South Florida Medicare
operations and agreed to installment payments until a new lender could be found.
On the scheduled May 5, 1993 maturity date of the existing credit facility,
the Company had yet to find another lender but was able to enter into a Loan
Modification and Extension Agreement (the "Agreement") with its bank, as amended
on June 2, 1993, to extend the maturity date of the credit facility, inclusive
of a $1.5 million standby letter of credit, to September 5, 1993. The Agreement
also modified the terms of the line of credit by converting it into a term loan
in an amount equal to the then outstanding borrowings of $8.1 million. The term
loan, bearing interest payable monthly, at prime rate plus two percent per
annum, required a $650,000 principal payment at closing and semi-monthly
principal payments to the bank of $150,000 beginning May 20, 1993 until maturity
on September 5, 1993 at which time the remaining outstanding principal balance
would become due. The Agreement also modified the previous financial covenants
and simultaneously placed the Company in full compliance with all such covenants
as of the modification date. In consideration for the Agreement the bank was
granted additional collateral which, together with the trade
17
<PAGE>
accounts receivable and all other amounts owing to the Company previously
encumbered, constituted all assets of the Company. In order to meet the required
installments, the Company halted all growth it was currently experiencing,
reduced its costs and employed other techniques as was necessary to generate
positive cash flow.
In June 1993, the Company received $480,000 in proceeds from secured loans
bearing interest at eleven percent per annum from two of its officers to
partially fund an arbitration agreement settlement (See Note 8 to the
consolidated condensed financial statements). These loans were repaid in full on
September 3, 1993 from proceeds from the new revolving line of credit (see
below).
Prior to the September 5, 1993 maturity date of the term loan with its
bank, on August 23, 1993 the Company obtained a three year $15 million revolving
line of credit with a commercial finance company. The credit facility bears
interest at prime plus two percent per annum, payable monthly, is secured by
substantially all assets of the Company and requires adherence to certain
financial covenants. Borrowing is based on the Company's eligible accounts
receivable as defined. A portion of the proceeds from this new credit facility
was immediately used to retire the then remaining outstanding indebtedness with
the Company's prior lender. Subsequent to August 23, 1993 and for the next
several months of fiscal 1993, the Company continued its strategy of halted
growth and operational restructuring in order to remain cash flow positive and
dramatically brought down the outstanding borrowings with its new lender. After
substantially all operational restructuring which could take place to generate
positive cash flow did take place, the Company changed course to a strategy of
maintaining the smaller base of business which it had managed to retain.
The present credit facility includes up to $3.5 million securing a standby
letter of credit required by the insurance carrier for the Company's workers'
compensation coverage. As of February 28, 1995 the Company was contingently
liable for a $2 million standby letter of credit issued by its lender for the
benefit of the insurance carrier. Such amount is reserved under the $15 million
line of credit with its lender, representing a reduction of otherwise eligible
borrowing. As the definition of eligible accounts receivable is strict, the
Company's borrowing capacity is extremely limited. As of February 28, 1995
approximately $377,000 was available for additional borrowing under the line of
credit. This amount fluctuates daily consistent with the revolving nature
of the facility.
Outstanding principal borrowings under the present credit facility were
$59,704 as of February 28, 1995.
Due to the large loss incurred by the Company in the fourth quarter of
fiscal year ended November 30, 1994, the Company was in violation of certain
covenants of the credit facility, including the covenant relating to maintenance
of a minimum tangible net worth. Waivers for the covenant violations through
November 30, 1995 were obtained on March 13, 1995.
For the reasons set forth above, and other reasons as set forth in the
March 13, 1995 report of Independent Certified Public Accountants, such
accountants have modified their report on the Company's 1994 consolidated
financial statements to call attention to the possible inability of the Company
to continue as a going concern.
While management believes that the present credit facility is generally
adequate to meet the Company's working capital needs in the absence of slow
collections of accounts receivable, the present facility is not adequate to
provide for any significant liabilities that may arise (see paragraph below) or
for growth, internally or by acquisition. Accordingly, the Company is exploring
ways to raise additional capital through a number of means including private
placement of debt, issuance of preferred and/or common stock and/or the sale of
certain of the Company's remaining operating units in part or in whole. In the
absence of raising additional capital, management believes that, subject to
timely collections of accounts receivable and/or obtaining adequate extended
payment terms with its creditors, the Company has the ability to fund its
current level of activities through cash generated from continuing
18
<PAGE>
operations and that its focus would be on attempting to achieve profitability
through operating efficiencies. If, however, the above does not occur and/or
significant contingencies become commitments and, in the absence of raising
additional capital, the Company's liquidity will be adversely affected and the
Company may be unable to fund its commitments as they become due.
Periodically, the Company has estimated settlements due to Medicare. The
estimated settlement amounts due are the result of interim reimbursement rates,
at which the Company was paid for its services throughout the year, exceeding
the Company's actual costs of providing such services and also includes
revisions by certain intermediaries of the Company's reported reimbursable costs
after their reviews or audits of the Company's cost report filings. Such amounts
are presented as a reduction of estimated settlements due from Medicare in the
accompanying consolidated balance sheet. Management's plans to fund such
settlements as they become due include negotiating extended payment plans and
incurring additional borrowings under the existing credit facility, if
available, or any of the capital raising strategies discussed in the paragraph
above, however, there are no assurances that the Company will be able to do so.
As of February 28, 1995 the Company had no amounts due under notification from
the Medicare program's fiscal intermediaries.
In addition to external sources, the Company generates or uses cash in its
operating activities. Net cash provided by (used in) operating activities was
($471,214) and $445,923 for the three months ended February 28, 1995 and
1994.
In addition to cash flow from operating activities the Company's overall
cash position can be significantly affected by its investing and financing
activities. Significant investing activities during the quarter ended February
28, 1995 consisted of liquidating the Company's short-term investments to
satisfy cash flow requirements. Financing activities principally consisted of
net repayments of outstanding borrowings under the $15 million line of credit.
As of February 28, 1995, the Company had approximately $5.9 million of
working capital and approximately $899,000 of cash, cash equivalents and
short-term investments. The ratio of current assets to current liabilities at
February 28, 1995 was 1.4 to 1. As of February 28, 1995, the Company's
commitments that would require large or unusual amounts of cash consisted of
office rents, settlement of the two shareholder suits, severance obligations to
former officers and an amount due to the Chairman and Chief Executive Officer
(see Notes 7 and 8 to the consolidated condensed financial statements).
RESULTS OF OPERATIONS -
THREE MONTHS ENDED FEBRUARY 28, 1995 COMPARED WITH THREE MONTHS ENDED
FEBRUARY 28, 1994
Net revenue for the first quarter ended February 28, 1995 decreased
approximately $7.6 million (35.5%) from net revenue for the quarter ended
February 28, 1994. As expected, this decrease is primarily attributable to the
sale of the Company's California, New York and Arizona home health care
operations which occurred effective August 31, 1994. In addition, revenue for
the Travel Nurse Group declined slightly due to less demand for contract nursing
staff in serviced hospitals.
The Company's gross margin before selling, general and administrative
expenses is the difference between amounts charged by the Company to its clients
and wages the Company pays to its medical personnel, plus related housing costs,
travel, insurance costs and other benefits.
The Company's gross margin of approximately 35.6% for the quarter ended
February 28, 1995 remained relatively consistent from approximately 36.5% for
the comparable quarter of 1994. The Company's gross margin is subject to a
number of factors such as billing rates, pay rates and cost of travel and
housing. The impact of these factors
19
<PAGE>
varies due to competitive and seasonal factors as well as the geographic mix and
type of service (discipline and payor source) being performed by the Company.
Selling, general and administrative expenses remained relatively consistent
as a percentage of revenue at approximately 35.0 % during the first quarter of
1994 compared to approximately 34.6% during the first quarter of 1995.
Interest and other income (expense), net, was approximately $69,000 lower
during the quarter ended February 28, 1995 compared with the quarter ended
February 28, 1994 primarily as a result of lower average outstanding borrowings
under the Company's credit facility in the quarter ended February 28, 1995.
The effective tax rate for the provision for income taxes during the
quarter ended February 28, 1995 differs from the statutory tax rate as a result
of state and foreign (U.S. Virgin Islands) income tax provisions and certain
financial statement expenses not deductible for tax purposes.
Effective December 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS No.
109 requires, among other things, recognition of future tax benefits as an
asset. To the extent that realization of such benefits is more likely than not,
these future tax benefits have been measured using enacted tax rates and are
attributable to deductible temporary differences between the financial statement
and income tax bases of assets and liabilities, and to net operating loss and
foreign tax credit carryforwards. Under the provisions of SFAS No. 109, the
Company elected not to restate prior years' consolidated financial statements.
The cumulative effect of adoption was to increase first quarter fiscal year 1994
earnings by $162,000 as management assessed the realization of this amount of
the available gross deferred tax asset to be more likely than not. The valuation
allowance at December 1, 1993 was established at an amount equal to 75% of the
federal and 100% of the state net operating loss carryforwards. The valuation
allowance is subject to continual review and, as such, may be increased or
decreased as substantive information becomes available about the Company's
ability to generate sufficient future taxable income to realize the deferred tax
assets. During the fourth quarter of 1994, due to the Company's recurring losses
and other matters discussed in Note 2, management no longer was of the belief
that the future realizability of the net deferred tax asset was more likely than
not. Consequently, at November 30, 1994, the valuation allowance was increased
so that the net deferred tax asset was fully reserved resulting in an increase
in the income tax provision of approximately $2.1 million in the fiscal year
ended 1994 consolidated statement of operations.
As of February 28, 1995, the Company has available Federal and state net
operating loss carryforwards totaling approximately $4.0 million and $12.1
million, respectively, expiring through 2009. Additionally, as of this same
date, the Company has available a foreign tax credit carryforward of
approximately $285,000, expiring in 2000.
20
<PAGE>
HOSPITAL STAFFING SERVICES, INC.
PART II - OTHER INFORMATION
February 28, 1995
ITEM 1. LEGAL PROCEEDINGS
See Note 8 and Note 9 to the Notes to Consolidated Condensed Financial
Statements. See also "ITEM 3 - LEGAL PROCEEDINGS" which is
incorporated by reference from the Company's Annual Report in Form
10-K for the fiscal year ended November 30, 1994 filed with the
Securities and Exchange Commission on March 14, 1995.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(1) Modification Agreement between Hospital Staffing
Services, Inc. and Warren A. Marmorstein dated
March 31, 1995.
(2) Promissory Note between Hospital Staffing
Services, Inc., as Maker, and Warren A. Marmorstein,
as Holder, dated March 31, 1995.
(b) Reports - None.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Hospital Staffing Services, Inc. has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
HOSPITAL STAFFING SERVICES, INC.
/s/ RONALD A. CASS
--------------
By: Ronald A. Cass, Chairman of the Board
and Chief Executive Officer
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ RONALD A. CASS
-------------------- Chairman of the Board, April 13, 1995
Ronald A. Cass Chief Executive Officer
and President (Principal
Executive Officer)
/s/ WARREN A. MARMORSTEIN
--------------------- Chief Financial and April 13, 1995
Warren A. Marmorstein Administrative Officer,
Senior Vice President,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
/s/ RODERICK C. DICKINSON
--------------------- Director April 13, 1995
Roderick C. Dickinson
/s/ WILLIAM F. MCCONNELL
--------------------- Director April 13, 1995
William F. McConnell
/s/ HECTOR L. ZIPEROVICH
--------------------- Director April 13, 1995
Hector L. Ziperovich, M.D.
22
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000731625
<NAME> HOSPITAL STAFFING SERVICES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> FEB-28-1995
<PERIOD-START> DEC-01-1994
<CASH> 899,053
<SECURITIES> 0
<RECEIVABLES> 16,952,395
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,317,266
<PP&E> 3,629,623
<DEPRECIATION> 2,415,240
<TOTAL-ASSETS> 23,043,255
<CURRENT-LIABILITIES> 13,376,961
<BONDS> 0
<COMMON> 5,650
0
0
<OTHER-SE> 8,092,358
<TOTAL-LIABILITY-AND-EQUITY> 23,043,255
<SALES> 13,711,732
<TOTAL-REVENUES> 13,711,732
<CGS> 8,833,643
<TOTAL-COSTS> 8,833,643
<OTHER-EXPENSES> 4,740,116
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,557
<INCOME-PRETAX> 101,094
<INCOME-TAX> 38,000
<INCOME-CONTINUING> 63,094
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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</TABLE>
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
M E M O R A N D U M
TO: RONALD A. CASS
FROM: CHARLES B. PEARLMAN
DATE: APRIL 3, 1995
RE: AGREEMENTS FOR WARREN MARMORSTEIN
On Thursday, March 30, 1995, I drafted and delivered a Modification
Agreement to you, together with a promissory note concerning Warren Marmorstein.
I believe that the documents are in proper order, and while I did not attend
certain Board of Director meetings, such documents conform to minutes which were
delivered to me with regard to the Board of Director's authorization concern
Marmorstein's severance arrangements. In conclusion, I believe the documents I
drafted and delivered to you may be executed.
You should note that Marmorstein was represented by counsel who reviewed
the documents on behalf of Marmorstein.
Should you have any questions or comments, please do not hesitate to call.
Thank you.
<PAGE>
MODIFICATION AGREEMENT
This Modification Agreement (the "Agreement") dated March 31, 1995 is
entered into by and between Warren A. Marmorstein ("Marmorstein"), an individual
residing at 12749 N.W. 18th Manor, Coral Springs, Florida 33071 and Hospital
Staffing Services, Inc., a Florida corporation ("HSSI") whose principal office
is located at 6245 North Federal Highway, Suite 400, Fort Lauderdale, Florida
33308.
WHEREAS, Marmorstein and HSSI have previously entered into a Termination
and Benefits Agreement dated November 1, 1993 (the "Benefits Agreement"); and
WHEREAS, certain issues have been raised by the parties with respect
to the Benefits Agreement; and
WHEREAS, the parties acknowledge that as of the date hereof Marmorstein has
not engaged in any conduct which would provide for termination with cause as
defined in the Benefits Agreement; and
WHEREAS, in consideration of the foregoing, the parties have agreed to
resolve all of such issues as more fully set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. TERMINATION DATE.
The parties acknowledge that Marmorstein shall be terminated as an officer
of HSSI and employee of HSSI as of May 1, 1995 (the "Termination Date").
Marmorstein shall continue to receive from HSSI all salary, compensation and
benefits currently being received by him through the Termination Date.
SECTION 2. INDEMNITY AND ADVANCEMENTS.
As set forth more fully in the Unanimous Written Consents of the Board of
Directors of HSSI dated March 31, 1993 and May 16, 1994, Marmorstein shall be
entitled to indemnity and advancements of legal fees by the Company. Marmorstein
shall also be entitled to participate in the Indemnification Fund, created by
the Board of Directors pursuant to its meeting dated October 29, 1994 if and
when funded. The indemnity to be provided herein shall be made to the fullest
extent permitted by Florida law and the corporate resolutions and undertakings
made prior to the date hereof and shall include but shall not be limited to the
Medicare investigation, SEC investigation and any and all past or future matters
involving investigations or inquiries by any regulatory agency.
SECTION 3. BENEFITS AGREEMENT.
(a) Sections 1, 2 and 7(a) of the Benefits Agreement are terminated as
of the date hereof and shall hereafter be deemed null and void and of no effect
whatsoever.
(b) The provisions of Section 3, 4, 5 and 6 of the Benefits Agreement
shall remain in full force and effect; provided however that Section 4 shall be
amended to provide that the non-competition period shall be for one year from
the date of termination (the "Term") and shall be amended to provide that the
restricted area shall be limited to any county in the United States where HSSI
or any of its subsidiaries are engaged in the homecare business as may be
conducted by HSSI or any of its subsidiaries as of the date of this Agreement;
provided however that if, during the Term, HSSI or any of its subsidiaries are
no longer engaged in the homecare business within a previously restricted area,
for purposes of this Section, that restricted area is waived.
<PAGE>
SECTION 4. SEVERANCE OBLIGATION.
In lieu of the compensation to be provided pursuant to the Benefits
Agreement, HSSI as its unconditional severance obligation shall pay to
Marmorstein, $630,000. This obligation is evidenced in the accompanying
Promissory Note of Exhibit A attached hereto (the "Promissory Note"), dated
March 31, 1995 which is an integral part of this Agreement. In the event of his
death, Marmorstein's dependents or estate, as applicable, will be the
beneficiary of HSSI's severance obligation to Marmorstein.
SECTION 5. STOCK OPTIONS.
Marmorstein and HSSI acknowledge that as of the Termination Date
Marmorstein will hold stock options as follows:
(a) Options granted on November 28, 1990, 50,000 shares exercisable at
$3.00 per share (the "1990 Options").
(b) Options granted on October 6, 1993 for 50,000 shares exercisable
at $3.00 per share (the "1993 Options").
The parties further agree:
(a) the 1990 Options, all of which have previously vested, shall
expire November 28, 1997, representing a modification to the underlying stock
option agreement pertaining to such options, which provides for an expiration
date of 90 days subsequent to employee termination;
(b) The 1993 Options, which vesting shall accelerate as to the
unvested portion of 16,667 shares to the date of this Agreement, will expire as
follows:
16,667 on October 6, 1998
16,667 on October 6, 1999
16,667 on October 6, 2000
representing a modification to the underlying stock option agreement pertaining
to such options, which provides for a vesting date of October 6, 1995 as to
16,667 shares, and for an expiration date of 90 days subsequent to employee
termination.
SECTION 6. ENTIRE AGREEMENT.
This Agreement together with the Benefits Agreement constitutes the entire
understanding between the parties hereto and may not be terminated, except in
accordance with its terms, or amended, except in a prior writing executed by the
parties hereto.
SECTION 7. NOTICES.
All notices, requests, demands, declarations, and other communication
required or permitted to be given hereunder shall be in writing and shall be
given and deemed to have been duly given, if delivered in person, given by
prepaid telegram or mailed first class, postage prepaid, registered or certified
mail, or delivered to an independent local or overnight courier directed to the
respective addresses set forth below or to such other address as may be directed
by any party in written notice to the other party;
If to HSSI: 6245 N. Federal Highway, Suite 400
Fort Lauderdale, Florida 33308
Attention: Ronald A. Cass
Chief Executive Officer
<PAGE>
With a copy to: Atlas, Pearlman, Trop & Borkson, P.A.
200 E. Las Olas, Blvd., Suite 1900
Fort Lauderdale, Florida 33301
Attention: Charles B. Pearlman, Esq.
If to Marmorstein: 12749 N.W. 18th Manor
Coral Springs, FL 33071
With a copy to: Gary Lipson, Esq.
914 Matanzas Avenue
Coral Gables, FL 33146
SECTION 8. AUTHORIZATION.
This Agreement and the execution thereof by Ronald Cass on behalf of HSSI
has been authorized by HSSI pursuant to a Unanimous Consent of the Board of
Directors on February 1, 1995, as amended on March 13, 1995.
SECTION 9. MISCELLANEOUS PROVISIONS .
1. The obligations of HSSI and Marmorstein are absolute and
unconditional, except as may be otherwise provided for herein and therein,
and independent.
2. This Agreement shall be construed within the fair meaning of each of its
terms and not against the party drafting the document.
3. HSSI and Marmorstein will execute all documents as may be necessary to
assign to Marmorstein the split dollar life insurance policy and disability
policy currently in place on his behalf. Upon so doing, Marmorstein shall be
entitled to continue such policies at his own cost and expense. HSSI shall be
entitled to all premiums it has paid on the split dollar life insurance policy
to the extent of the cash surrender value of that policy as of the Termination
Date.
4. Any and all press releases or similar information released into the
public domain, as well as Marmorstein's personnel file, shall describe the
reason for Marmorstein's termination from the Company as a resignation and his
performance as satisfactory.
SECTION 10. REPRESENTATION AND WARRANTY OF HSSI.
In order to induce Marmorstein to enter into this Agreement, HSSI hereby
represents and warrants to Marmorstein that the execution, delivery and
performance by HSSI of the Benefits Agreement, this Agreement and the Promissory
Note have all been duly authorized by all necessary corporate action of HSSI.
Each of the Benefits Agreement, this Agreement and the Promissory Note
constitutes the valid and binding obligation of HSSI and its successor(s) and is
enforceable against HSSI and its successor(s) in accordance with its respective
terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
HOSPITAL STAFFING SERVICES, INC.,
a Florida corporation
\s\ Dorothy R. Zoghby By: \s\ Ronald A. Cass
- - ---------------------- -------------------------
Witness Ronald A. Cass,
Chief Executive Officer
\s\ Suzanne E. Sierra
- - ----------------------
Witness \s\ Warren A. Marmorstein
-------------------------
Warren A. Marmorstein
<PAGE>
CONFIDENTIAL
M E M O R A N D U M
VIA FEDERAL EXPRESS
TO: Bill McConnell
Rod Dickinson
Hector Ziperovich
FROM: Ron Cass
DATE: March 30, 1995
RE: Marmorstein Severance Agreement
Warren has accepted the Board of Directors' terms with regard to the severance
arrangement upon his termination as such terms were stated by the Board of
Directors by resolution at its February 1, 1995 Board of Directors meeting, as
amended on March 13, 1995. More specifically, Warren has accepted the Board's
requirement that the severance offer made to him be conditioned upon his
acceptance of a 24 month installment payment without interest.
At this time, Warren has agreed to sever his employment relationship with the
Company pursuant to the agreed upon terms. In this regard, attached hereto, is a
Modification Agreement which cites the agreed upon terms for Warren's severance
and which supersedes, in part, the original Termination and Benefits Agreement
between he and the Company dated November 1, 1993. Warren's termination date
will be effective May 1, 1995 at which time his responsibilities to the
Company's fiscal year 1995 second quarter's 10-Q will be completed.
Charlie Pearlman has prepared the attached documents on behalf of the Company.
The terms therein are identical to the terms authorized by the Board of
Directors and is also consistent with the minutes of the Board of Directors
meetings held on the above two dates as well as the Company's 1994 10-K
disclosure. Please evidence your agreement for my execution of the attached
documents on behalf of the Company by signing below and returning this by
facsimile (305-771-0899) to my attention no later than 3:00 o'clock p.m.
tomorrow, Friday, March 31, 1995. Thank you.
Agreed to by:
\s\ William F. McConnell \s\ Hector Luis Ziperovic
-------------------- ----------------------------
William F. McConnell Hector Luis Ziperovich, M.D.
\s\ Roderick C. Dickinson \s\ Ronald A. Cass
---------------------- -------------------------
Roderick C. Dickinson Ronald A. Cass
Attachments
cc: Charlie Pearlman (via facsimile)
Warren Marmorstein (by hand)
<PAGE>
TERMINATION AND BENEFITS AGREEMENT
TERMINATION AND BENEFITS AGREEMENT, dated November 1, 1993 (the "Agreement") by
and between WARREN MARMORSTEIN ("Employee"), an individual residing at 12749 N.
W. 18 Manor, Coral Springs, Florida, and HOSPITAL STAFFING SERVICES, INC., a
Florida corporation ("HSSI" or "Employer"), whose principal office is located at
6245 N. Federal Highway, Suite 500, Ft. Lauderdale, FL 33308.
WHEREAS, Employee is hereby employed at will by HSSI as Senior Vice
President; and
WHEREAS, in consideration of Employee's continued employment by HSSI, Employee
and HSSI desire to protect Employee's compensation and benefits package to the
extent as more fully set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
(a) Employee may be terminated with or without cause; however, in the event
that Employee is terminated without cause, subject to Employee's compliance with
the provisions of Sections 3 and 4 hereof, he shall be entitled to continue to
receive each and every one of the benefits of an employee of HSSI and
additionally each of the benefits or compensation granted specifically to
Employee by the Board of Directors as such compensation, including bonuses, and
benefits exist at the time of his termination for a period of two (2) years from
the date of such termination without cause (or one (1) year if the Employee
voluntarily terminates his employment (except in either case for annual salary
increases); provided, however, that during such one (1) year period following
the voluntary cessation of employment the Employee shall provide not more than
twenty-five (25) hours of consulting services per month on an "as requested"
basis). In the event that Employee is terminated with cause, then the period for
which Employee shall be entitled to receive such benefits or compensation as set
forth above shall be one (1) year, subject to Employee's compliance with the
provisions of Sections 3 and 4 hereof. Each of the events of termination
referred to herein, i.e., without cause or with cause, shall be referred to for
the purposes of this Agreement as an event of "Termination". Moreover, for the
purposes hereof, a decrease in Employee's annual salary of more than 10% or any
material change of his job responsibilities or duties shall, at the election of
Employee, be deemed a termination without cause.
(b) For purposes of this Agreement, "cause" shall be defined as (i) the
commission or participation by Employee in an injurious act of fraud or
dishonesty against HSSI, (ii) the commission or participation by Employee in any
other injurious act or omission wantonly, willfully, recklessly or in a manner
which was grossly negligent against HSSI, and (iii) engaging in a criminal
enterprise involving moral turpitude.
SECTION 2. OPTIONS
In the event of the Employee's Termination or in the event of a Change in
Control, any and all options granted to Employee shall be deemed to be
immediately and fully vested regardless of any other or conflicting vesting
schedule attached to those options, whether by written agreement or otherwise.
In addition, and in the event of a Change of Control, the Employee shall receive
10,000 fully-vested shares of HSSI's common stock for no additional
consideration. For purposes of this Agreement, "Change of Control" shall mean an
event pursuant to which any person or entity acquires twenty (20%) percent or
more of the outstanding shares of HSSI.
SECTION 3. CONFIDENTIALITY OF SPECIFIC TRADE SECRETS
Employee acknowledges that, in and as a result of his employment hereunder, he
will be making use of, acquiring and/or adding to Specific Trade Secrets
developed by Employer and of a special and unique nature and value to Employer,
including, but not limited to, the nature and material
<PAGE>
terms of business opportunities and proposals available to Employer, Employer's
methods, systems and research, the names and addresses of its clients and
staffing personnel, prices charged and paid by Employer or its clients,
technical memoranda, research reports, employment specifications, record cards,
client records and files, staffing personnel records and files, services,
operating procedures, charts, ledgers, accounts receivable ledgers, methods and
systems, accounts payable ledgers, records of amounts received from clients,
financial records of the Employer and of clients, any and all insurance records
of Employer, and other information, data, and documents now existing or later
acquired by Employee or Employer, regardless of whether any such information,
data, or documents, qualify as a "trade secret" under applicable Federal or
State law (collectively, the "Specific Trade Secrets"). As a material inducement
to Employer to enter into this Agreement, and to pay to Employee the
compensation and benefits referred to in Sections 1 and 2 hereof, Employee
covenants and agrees that he shall not at any time during the Term or following
any termination thereof, directly or indirectly, divulge or disclose or use for
any purpose whatsoever (except for the sole and exclusive benefit of Employer),
any Specific Trade Secrets which has been obtained by or disclosed to him as a
result of his employment with Employer. In accordance with the foregoing, the
Employee further agrees that he will at no time retain or remove from the
premises of the Employer records of any kind or description whatsoever for any
purpose whatsoever unless authorized by Employer, and will return all of the
foregoing to Employer upon Employer's request or any termination of his
employment.
SECTION 4. NON-COMPETITION
(a) As a material inducement to Employer to enter into this Employment
Agreement and to pay to Employee the compensation and benefits referred to in
Sections 1 and 2 hereof, Employee agrees that he will not, during the term
hereof and for a period which is the same as the relevant compensation period
set forth in Section 1(a) above after termination, for any reason (i) engage in
any business relating directly or indirectly to the business of Employer
described in the preliminary statements hereof (the "Activities"), anywhere
within the United States or throughout the world; (ii) become associated as
manager, supervisor, employee, officer, director, consultant, advisor,
stockholder or participating in the management or direction of a company, or
otherwise with any person, corporation, or entity engaging in any activity
competitive with the Activities anywhere in the world; (iii) otherwise engage in
any activities for any person, corporation, or entity other than Employer
competitive with the Activities anywhere in the world; (iv) divert, solicit or
take away any client or clients of Employer, or any employee of Employer,
specifically including the "travelling"staffing personnel of Employer, for the
purposes of engaging in any activities competitive with the Activities anywhere
in the world for himself or for any other person, corporation, or entity other
than Employer; or (v) attempt to convert to other methods of using same or
similar services as provided by Employer or any of Employer's staffing
personnel, anywhere in the world any client or staffing person with which
Employee has had any contact as a result of his employment by Employer
hereunder.
(b) Employee acknowledges that the occurrence of any of the events and or
activities set forth in Section 4 (a) (i) - (v) are events or activities that
will by their very nature result in, whether or not intentional, the disclosure
or use of Employer's Specific Trade Secrets that are or have been obtained by or
disclosed to Employee as a result of his employment with Employer and that the
disclosure or use of Employer's Specific Trade Secrets will result in
irreparable injury to Employer which irreparable injury cannot adequately be
compensated by damages in an action at law.
(c) Employee covenants and agrees that he shall offer to Employer any business
opportunities which shall become available to him as a result of his employment
by Employer.
(d) Employee covenants and agrees that if he shall violate any of his
covenants or agreements provided for pursuant to this Section, Employer,
<PAGE>
in addition to the equitable relief provided for in Section 5 hereof, shall be
entitled to an accounting and repayment of all profits, compensation,
commissions, remuneration, or benefits which Employee, directly or indirectly,
has realized and/or may realize as a result of, growing out of, or in connection
with any such violation.
SECTION 5. EQUITABLE RELIEF
In the event of a breach or threatened breach by the Employee of any of the
provisions of Sections 3 or 4, Employer, in addition to and not in limitation of
any other rights, remedies, or damages available to Employer at law or in
equity, shall be entitled to a permanent injunction in order to prevent or to
restrain any such breach by Employee or by Employee's partners, agents,
representatives, servants, employers, employees and/or any and all persons
directly or indirectly acting for or with him.
SECTION 6. REASONABLENESS OF RESTRICTIONS
(a) Employee has carefully read and considered the provisions of Sections 3, 4
and 5 hereof, and having done so with a recognition that the business of
Employer is international in nature, agrees that the restriction set forth in
such Sections (including, but not limited to, the time period of restriction and
the geographical areas of restriction set forth in Section 4 hereof) are fair
and reasonable and are reasonably required for the protection of the interests
of the Employer, its officers, directors, and other employees.
(b) In the event that, notwithstanding the foregoing, any of the provisions of
Sections 3, 4 and 5 shall be held to be invalid or unenforceable, the remaining
provisions thereof shall nevertheless continue to be valid and enforceable as
though the invalid or unenforceable parts had not been included therein. In the
event that any provision of Section 4 hereof relating to time period and/or
areas of restriction shall be declared by a court of competent jurisdiction to
exceed the maximum time period or areas such court deems reasonable and
enforceable , said time period and/or areas of restriction shall be deemed to
become, and thereafter be, the maximum time period and/or area which such court
deems reasonable and enforceable.
SECTION 7. MISCELLANEOUS PROVISIONS
(a) ARBITRATION. Any dispute arising under this Agreement shall be submitted to
arbitration at the request of either party. Any such arbitration shall be
conducted under the rules and auspices of the American Arbitration Association
in Fort Lauderdale, Florida. However, in the event of a breach or a threatened
breach by Employee of his obligations of confidentiality and non-competition of
Sections 3 and 4 hereof, HSSI may petition the appropriate court for injunctive
relief without first submitting the dispute to arbitration.
(b) AGREEMENT TERMS CONFIDENTIAL. The parties agree that they will not
voluntarily publish, publicly disclose or disclose in a manner which will
reasonably lead to publication of, the terms or provisions of this Agreement,
including specifically those relating to compensation.
(c) REPLACEMENT AGREEMENT. This Termination and Benefits Agreement
hereby replaces any and all previous, employment agreements between
Employee and HSSI.
(d) NOTICES. Unless otherwise specifically provided herein, all notices to be
given hereunder shall be in writing and sent to the parties by certified mail,
return receipt requested, at their respective addresses set forth herein.
(e) COMPLETENESS AND MODIFICATION. This Agreement constitutes the entire
understanding between the parties hereto and shall not be terminated, except in
accordance with its terms, or amended, except in a writing executed by the
parties hereto.
<PAGE>
(f) SEVERABILITY. The invalidity or unenforceability, in whole or in part, of
any covenant, promise or undertaking, or any section, subsection, paragraph,
sentence, clause, phrase or word, or of any whole provision of this Agreement,
shall not affect the validity or enforceability of the remaining portions
thereof.
(g) CONSTRUCTION. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida.
(h) BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the heirs, personal representatives, administrators,
successors and assigns of each of the parties hereto.
(i) LITIGATION-ATTORNEY'S FEES. In connection with any litigation arising out
of the enforcement of this Agreement, or for its interpretation, the prevailing
party shall be entitled to recover its costs, including reasonable attorneys'
fees, from the other party hereto if such party was an adverse party to such
litigation.
(j) REMEDIES CUMULATIVE. The remedies provided for herein shall each be in
addition to and not in limitation of the other remedies provided for herein,
including any injunctive relief or other equitable relief or damages, to which
HSSI may be entitled to at law or in equity or under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year set forth in the first paragraph of this Agreement above.
HOSPITAL STAFFING SERVICES, INC.
a Florida Corporation
\s\ Mary Fannazzi \s\ Ron Cass
- - ----------------- -------------------------
(As to Employer) Ron Cass
\s\ Elaine Raffa \s\ Warren Marmorstein
- - ----------------- -------------------------
(As to Employee) Warren Marmorstein
PROMISSORY NOTE
$630,000
Dated as of: March 31, 1995 Broward County, Florida
FOR VALUE RECEIVED, HOSPITAL STAFFING SERVICES, INC., a Florida corporation
(the "Maker/Company"), promises to pay to the order of Warren Marmorstein, an
individual currently residing at 12749 NW 18th Manor, Coral Springs, Florida
33071, ("Holder/Marmorstein"), in lawful money of the United States of America,
in the manner and at the times provided hereinafter, (i) Principal (as
hereinafter defined); and (ii) all other amounts due and payable pursuant to and
in accordance with the terms of this Promissory Note (the "Note").
A. DEFINITIONS.
The following terms as used herein shall have the following meanings:
1. "Principal" shall mean Six Hundred Thirty Thousand Dollars,
($630,000), or so much thereof as may from time to time be outstanding
hereunder.
B. PAYMENTS.
1. The Note shall be paid in twenty four (24) month equal installments of
twenty six thousand two hundred fifty dollars ($26,250) payable on the first day
of each calendar month, beginning on May 1, 1995 and continuing through April 1,
1997.
2. Payment of all Principal on the Note shall be accelerated upon a failure by
the Company to make payment as set forth in Section E (i) or F hereof or a
Default by the Company as set forth in Section E (ii) or F hereof.
C. INTEREST.
This Note is non-interest bearing.
D. PREPAYMENT.
This Note may be prepaid, in whole or in part, at any time by the Company
without premium or penalty.
E. ACCELERATION.
Notwithstanding anything to the contrary herein, upon the occurrence of any one
or more of: (i) The Maker's failure for any reason to make any payment when due
hereunder and the Maker's failure to cure such default within three (3) business
days, after the due date thereof; or (ii) a Default hereunder; then at the sole
option and discretion of Holder, and without further demand or notice of any
kind, the following shall become immediately due and payable:
1. the Principal sum remaining unpaid hereunder;
2. all other indebtedness evidenced by this Note.
<PAGE>
F. DEFAULT.
Any one of the following shall constitute a "Default" hereunder: (i) the
assignment of any Company asset, whether it be real or personal, tangible or
intangible, including the stock of the Company or any of its subsidiaries, for
the benefit of creditors of the Company; (ii) the application for the
appointment of a receiver for the Company or for property of the Company; (iii)
the filing of a petition in bankruptcy by or against the Company; (iv) the
issuance of an attachment or the entry of a judgment against the Company in
excess of One Million Dollars ($1,000,000) for which the Company has no readily
accessible means for satisfactions and within thirty (30) days of entry of such
judgment either (1) such judgment has not been satisfied or (2) no agreement is
in effect postponing execution of such judgment; (v) a default by the Company
with respect to any obligations to pay money to Holder pursuant to paragraph B1.
hereof; (vi) the merger, consolidation, sale of all or substantially all of the
assets of the Company, termination of existence, liquidation or dissolution of
the Company.
G. REMEDIES.
If the Company fails to pay any amounts when due hereunder, whether by
maturity, acceleration or otherwise, or if there occurs any event which entitles
the Holder to accelerate the indebtedness due under this Note and any grace
period applicable to any such failure to pay or event as set forth herein
expires, then Holder will receive interest from the date of the scheduled
required monthly payment(s) to the date of actual receipt by the Holder of the
required monthly payment at the highest interest rate allowable by law.
Additionally, Holder shall have all of the rights and remedies provided to it
hereunder and at law or in equity. The remedies of Holder, as provided herein,
shall be cumulative and concurrent, and may be pursued singularly, successively,
or together, at the sole discretion of Holder, and may be exercised as often as
occasion therefor shall arise. Holder may resort for payment hereunder to any of
the security for, or any guaranty of, this Note whether or not Holder shall have
resorted for payment hereunder to any other security for or guaranty of this
Note. No act or omission of Holder, including specifically any failure to
exercise any right, remedy or recourse, shall be deemed to be a waiver or
release of the same, such waiver or release to be effected only through a
written document executed by Holder and then only to the extent specifically
recited therein. A waiver or release with reference to any one event shall not
be construed as continuing, as a bar to, or as a waiver or release of, any
subsequent right, remedy, or recourse as to a subsequent event. If this Note is
placed in the hands of an attorney for collection or is collected on advice of
counsel or through any legal proceeding, the Company promises to pay, to the
extent permitted by law, all court costs and reasonable attorneys' fees incurred
by Holder. The Company hereby waives presentment, demand, notice of dishonor or
non-payment, protest and notice of protest in connection herewith.
H. MISCELLANEOUS.
l. If any provision of this Note is unenforceable, invalid or contrary to law,
or its inclusion herein would affect the validity, legality or enforcement of
this Note, such provision shall be limited to the extent necessary to render the
same valid or shall be excised from this Note, as the circumstances require, and
this Note shall be construed as if said provision had been incorporated herein
as so limited or as if said provision had not been included herein, as the case
may be.
2. Time is of the essence of this Note.
3. After the maturity date or following the occurrence of an event which
entitles Holder to accelerate the indebtedness evidenced hereby, all payments
received on account of the indebtedness evidenced hereby shall be applied, in
whatever order, combination and amounts as Holder, in its sole and absolute
discretion, decides, to all costs, expenses, and other
<PAGE>
indebtedness, if any, owing to Holder by reason of this Note, Interest and
Principal.
4. This Note, and the terms and provisions hereof, shall be binding upon the
Company and its successors, administrators, and assigns, and shall inure to the
benefit of any holder hereof.
5. All amounts due hereunder shall be paid without deduction, set-off or
counterclaim, the Company expressly waiving any such rights to deduction,
set-off or counterclaim.
6. This Note shall be construed within its fair meaning and not
against the party drafting this Note.
7. This Note shall inure to the benefit of Holder and its successors and
assigns and shall be governed and interpreted in accordance with the laws of the
State of Florida.
Executed as of March 31, 1995.
MAKER:
HOSPITAL STAFFING SERVICES, INC.,
a Florida corporation
\s\ Ronald A. Cass
----------------------
Name: Ronald A. Cass
-------------------------------------
Its: Chairman and Chief Executive Officer
--------------------------------------
