AGREEMENT AND PLAN OF MERGER
AMONG
STAR MULTI CARE SERVICES, INC.
EFCC ACQUISITION CORP.
AND
EXTENDED FAMILY CARE CORPORATION
DATED AS OF JANUARY 3, 1997
TABLE OF CONTENTS
PAGE
ARTICLE I THE MERGER.....................................................2
1.1 The Merger.....................................................2
1.2 Closing........................................................2
1.3 Effective Time.................................................2
1.4 Effect of Merger...............................................3
1.5 Certificate of Incorporation and Bylaws........................3
1.6 Directors and Officers.........................................3
1.7 Tax Consequences...............................................3
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES.............3
2.1 Share Consideration; Conversion or Cancellation of
Shares in the Merger...........................................3
2.2 Cash Consideration.............................................4
2.3 Conversion Number..............................................5
2.4 Dissenters' Rights.............................................5
2.5 Exchange of Certificates.......................................5
2.6 Taking Necessary Action; Further Action........................8
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF STAR AND MERGER SUB......................................8
3.1 Corporate Organization.........................................8
3.2 Capital Stock..................................................8
3.3 Options or Other Rights........................................9
3.4 Authority Relative to this and Other Agreements................9
3.5 Star Common Stock..............................................9
3.6 No Violation...................................................9
3.7 Financial Statements and Reports..............................10
3.8 Absence of Certain Changes or Events..........................11
3.9 Representations Complete......................................11
3.10 No Default....................................................12
3.11 Brokers.......................................................12
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF EFCC........................12
4.1 Corporate Organization........................................12
4.2 Capital Stock.................................................12
4.3 Options or Other Rights.......................................13
4.4 Authority Relative to this and Other Agreements...............13
4.5 No Violation..................................................14
4.6 Compliance with Laws..........................................15
4.7 Litigation....................................................15
TABLE OF CONTENTS (cont'd)
PAGE
4.8 Financial Statements and Reports..............................16
4.9 Absence of Certain Changes or Events..........................16
4.10 Employee Benefit Plans and Employment Matters.................17
4.11 Labor Matters.................................................19
4.12 Insurance.....................................................19
4.13 Environmental Matters.........................................19
4.14 Tax Matters...................................................19
4.15 Intellectual Property.........................................21
4.16 Related Party Transactions....................................21
4.17 No Undisclosed Material Liabilities...........................21
4.18 No Default....................................................21
4.19 Title to Properties; Encumbrances.............................22
4.20 Contracts.....................................................23
4.21 Medicare/Medicaid Participation; Accreditation................24
4.22 Rate Tables and Reimbursement.................................24
4.23 Relationships.................................................24
4.24 Employees.....................................................25
4.25 Questionable Payments.........................................25
4.26 Representations Complete......................................25
4.27 Brokers.......................................................25
4.28 Minimum Net Worth, Working Capital and Cash...................25
ARTICLE V COVENANTS AND AGREEMENTS......................................26
5.1 Proxy Statement/Prospectus; Registration Statement;
Shareholders' Meeting...................................26
5.2 Conduct of the Business of EFCC Prior to the
Effective Time................................................28
5.3 Access to Properties and Records..............................30
5.4 No Solicitation, Etc..........................................30
5.5 Employee Benefit Plans........................................31
5.6 Existing Agreements...........................................31
5.7 Confidentiality...............................................31
5.8 Reasonable Best Efforts.......................................32
5.9 Certification of Shareholder Vote.............................32
5.10 Affiliate Letters.............................................33
5.11 Listing Application...........................................33
5.12 Supplemental Disclosure Schedules.............................33
5.13 No Action.....................................................33
TABLE OF CONTENTS (cont'd)
PAGE
5.14 Conduct of Business of Merger Sub.............................33
5.15 Notification of Certain Matters; Delivery of Financial
Information.............................................34
5.16 Tax-free Nature...............................................34
5.17 Financial Covenants. ........................................34
5.18 Director of Star..............................................35
5.19 EFCC Shareholders Agreement, Consulting Agreement,
Management Agreement and Escrow Agreement..............35
5.20 Xxxxxxxxx Proxy...............................................36
5.21 EFCC Dividend.................................................36
ARTICLE VI CONDITIONS PRECEDENT..........................................36
6.1 Conditions to Each Party's Obligation to Effect the Merger....36
6.2 Conditions to the Obligation of EFCC to Effect the Merger.....37
6.3 Conditions to the Obligations of Star and Merger
Sub to Effect the Merger................................38
ARTICLE VII TERMINATION...................................................40
7.1 Termination by Mutual Consent.................................40
7.2 Termination by Either Star or EFCC............................40
7.3 Termination by EFCC...........................................40
7.4 Termination by Star...........................................41
7.5 Effect of Termination and Abandonment.........................41
ARTICLE VIII MISCELLANEOUS.................................................42
8.1 Amendment.....................................................42
8.2 Waiver........................................................42
8.3 Survival......................................................42
8.4 Expenses and Fees.............................................42
8.5 Notices.......................................................42
8.6 Headings......................................................43
8.7 Publicity.....................................................43
8.8 Entire Agreement..............................................44
8.9 Assignment....................................................44
8.10 Counterparts..................................................44
8.11 Invalidity; Severability......................................44
8.12 Governing Law.................................................44
8.13 Legal Proceedings.............................................44
TABLE OF CONTENTS (cont'd)
PAGE
8.14 Purchase Price Adjustment.....................................44
EXHIBITS
Exhibit A Form of Affiliate Letters
Exhibit B Opinion of Xxxxxx Xxxxxx Flattau & Klimpl, LLP
Exhibit C Opinion of Xxxxxxx, Lippe, Goldstein, Wolf & Xxxxxxxxx, P.C.
Exhibit D Form of EFCC Shareholders Agreement
Exhibit E Form of Escrow Agreement Exhibit F Opinion of Xxxxxxx, Lippe,
Goldstein, Wolf & Xxxxxxxxx, P.C. regarding tax matters
Exhibit G Consulting Agreement
Exhibit H Management Agreement
Exhibit I Form of Xxxxxxxxx Proxy
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of January 3,
1997 among STAR MULTI CARE SERVICES, INC., a New York corporation ("Star"), EFCC
ACQUISITION CORP., a New York corporation and a wholly-owned subsidiary of Star
("Merger Sub"), and EXTENDED FAMILY CARE CORPORATION, a New York corporation
("EFCC").
WHEREAS, the Boards of Directors of Star, Merger Sub and EFCC have
deemed it advisable and in the best interests of their respective shareholders
that EFCC be merged with and into Merger Sub (the "Merger") upon the terms and
conditions set forth herein and in accordance with the Business Corporation Law
of the State of New York (the "BCL") and that, alternatively, in the event that
the All Cash Option (as hereinafter defined) is exercised (the "Exercise"),
Merger Sub be merged with and into EFCC (in either case, the surviving
corporation following the effectiveness of the Merger being hereinafter
sometimes referred to as the "Surviving Corporation");
WHEREAS, the Boards of Directors of Star, Merger Sub and EFCC have
approved the Merger pursuant to this Agreement, upon the terms and subject to
the conditions set forth herein;
WHEREAS, prior to the date hereof, Arbor Home Healthcare Holdings,
LLC ("Arbor"), pursuant to the Amended and Restated Option Agreement dated
October 31, 1995 between Arbor and EFCC, as amended to date, irrevocably has
exercised in full all of its options (the "Options") to purchase shares of
common stock, $.01 par value, of EFCC and has paid in full the exercise price
therefor;
WHEREAS, prior to or following the date hereof, but in any event
prior to the Closing Date (as hereinafter defined), EFCC shall, subject to
applicable law, declare and pay a cash dividend (the "EFCC Dividend") on shares
of its common stock in an aggregate amount of $750,000, which amount has been
reserved, will be held in reserve by and will be available to, EFCC for the
payment of the EFCC Dividend;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), provided that the
All Cash Option is not exercised;
WHEREAS, in order to induce Star and Merger Sub to enter into this
Agreement, certain shareholders of EFCC, as of the date hereof and Xx. Xxxx
Xxxxxxx, and the Voting Trustee (as hereinafter defined), are entering into (i)
a shareholders agreement in the form of Exhibit D attached hereto (the "EFCC
Shareholders Agreement," and such shareholder parties thereto, collectively, the
"Shareholders") pursuant to which the Shareholders and Voting Trustee are
agreeing to vote in favor of the Merger and this Agreement and in respect of
other matters,
the Shareholders are providing certain representations, warranties and other
covenants to Star and Merger Sub and are agreeing to certain "lock-up"
arrangements, (ii) a consulting agreement in the form of Exhibit G attached
hereto (the "Consulting Agreement") (iii) subject to approval by the
Commissioner of the New York State Department of Health, a management agreement
in the form of Exhibit H attached hereto (the "Management Agreement") and, on
the closing date of the Merger, will enter into an escrow agreement in the form
of Exhibit E attached hereto (the "Escrow Agreement") in connection with this
Agreement and the Shareholders Agreement; and
WHEREAS, in order to induce EFCC to enter into this Agreement,
Xxxxxxx Xxxxxxxxx ("Xxxxxxxxx"), an individual who is the direct beneficial
owner of 863,262 shares of Star Common Stock (as hereinafter defined) as of the
date hereof, is entering into an irrevocable proxy in the form of Exhibit I
attached hereto (the "Xxxxxxxxx Proxy") pursuant to which Xxxxxxxxx is agreeing
to vote in favor of the Merger and this Agreement and in respect of other
related matters.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions contained herein, and in order
to set forth the terms and conditions of the Merger and the method of carrying
the same into effect, the parties hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and conditions hereinafter set forth
and in accordance with the BCL, at the Effective Time (as defined in Section
1.3), EFCC shall be merged with and into Merger Sub and thereupon the separate
existence of EFCC shall cease and Merger Sub, as the Surviving Corporation,
shall continue to exist under and be governed by the BCL; provided that, in the
event of the Exercise, Merger Sub shall be merged with and into EFCC and
thereupon the separate existence of Merger Sub shall cease and EFCC, as the
Surviving Corporation, shall continue to exist under and be governed by the BCL.
In the event of the Exercise, notwithstanding anything else contained herein,
all references to the Surviving Corporation shall mean EFCC.
1.2 Closing. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place at the offices of
Xxxxxx Xxxxxx Flattau & Klimpl, LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx
Xxxx 00000 as promptly as practicable after satisfaction or waiver of the
conditions set forth in Article VI, or at such other location, time or date as
may be agreed to in writing by the parties hereto. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date."
1.3 Effective Time. If all the conditions to the Merger set forth in
Article VI shall have been satisfied or waived in accordance herewith and this
Agreement shall not have been
2
terminated as provided in Article VII, the parties hereto shall cause a
Certificate of Merger meeting the requirements of Section 904 of the BCL to be
properly executed and filed in accordance with such Section on the Closing Date.
The Merger shall become effective at the time of filing of the Certificate of
Merger with the Secretary of State of the State of New York in accordance with
the BCL or at such other time which the parties hereto shall have agreed upon
and designated in such filing as the effective time of the Merger (the
"Effective Time").
1.4 Effect of Merger. After the Effective Time, pursuant to the BCL,
the separate existence of EFCC (or, in the event of the Exercise, Merger Sub)
will cease and the Surviving Corporation shall succeed, without other transfer,
to all the rights and property of EFCC (or, in the event of the Exercise, Merger
Sub) and shall be subject to all the debts and liabilities of EFCC (or, in the
event of the Exercise, Merger Sub) in the same manner as if the Surviving
Corporation had itself incurred them.
1.5 Certificate of Incorporation and Bylaws. At the Effective Time,
the Certificate of Incorporation of Merger Sub shall be the Certificate of
Incorporation of the Surviving Corporation and the Bylaws of Merger Sub as in
effect on the date hereof shall be the Bylaws of the Surviving Corporation;
provided, however, that, at the Effective Time, Article I of such Certificate of
Incorporation of the Surviving Corporation shall be amended to read in full as
follows: "The name of this corporation is Extended Family Care Corporation"
1.6 Directors and Officers. The persons who are directors of Merger
Sub immediately prior to the Effective Time shall, after the Effective Time,
serve as the directors of the Surviving Corporation, to serve until their
successors have been duly elected and qualified in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation. The
persons who are officers of Merger Sub immediately prior to the Effective Time
shall, after the Effective Time, serve as the officers of the Surviving
Corporation at the pleasure of the Board of Directors of the Surviving
Corporation.
1.7 Tax Consequences. It is intended that the Merger shall constitute
a reorganization described in Section 368(a) of the Code and that this Agreement
shall constitute a "plan of reorganization" for the purposes of Section 368 of
the Code; provided that the All Cash Option is not exercised. The parties shall
treat the transactions contemplated hereby consistently with such intention.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
2.1 Share Consideration; Conversion or Cancellation of Shares in the
Merger. Subject to the provisions of this Article II, at the Effective Time, by
virtue of the Merger and without any action on the part of the holders thereof:
3
(a) Each share of the common stock, $.01 par value, of
Merger Sub (the "Merger Sub Common Stock") which is issued and outstanding
immediately prior to the Effective Time shall continue to be outstanding;
provided that, in the event of the Exercise, the Merger Sub Common Stock shall
be converted into one hundred (100) shares of fully paid and non-assessable
shares of common stock, $.01 par value, of the Surviving Corporation.
(b) Each share of the common stock, $.01 par value, of
EFCC (the "EFCC Common Stock"), which is issued and outstanding immediately
prior to the Effective Time, except those held by shareholders who validly and
properly demand and perfect dissenters' rights under the BCL, shall be converted
into the right to receive the following consideration (the "Merger
Consideration"): (x) the Cash Consideration (as defined in Section 2.2 below),
without interest; and (y) the number (the "Conversion Number") of duly
authorized, validly issued, full paid and non-assessable shares of common stock
$.001 par value, of Star (the "Star Common Stock"), computed in accordance with
Section 2.3 below. Anything contained in this Agreement to the contrary
notwithstanding, solely at Star's option, in lieu of the consideration described
in clauses (x) and (y) of the immediately preceding sentence, the "Merger
Consideration" shall be an amount in cash equal to (A) $7,250,000 divided by (B)
the EFCC Share Number (as defined in Section 2.2 below) (the "All Cash Option").
The All Cash Option shall be exercised, if at all, by notice being given by Star
to EFCC prior to the mailing of the joint proxy statement referred to in Section
5.1 below. All shares of EFCC Common Stock, and each holder of a certificate
representing such shares of EFCC Common Stock, shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration to be
issued or paid in consideration therefor upon surrender of such certificate in
accordance with Section 2.5 without interest.
(c) All shares of EFCC Common Stock that are owned by EFCC
as treasury stock and any shares of EFCC Common Stock owned by EFCC or any
wholly-owned Subsidiary of EFCC shall be cancelled. As used in this Agreement, a
"Subsidiary" of any party means any corporation or other organization, whether
incorporated or unincorporated, of which (i) such party or any other Subsidiary
of such party is a general partner (excluding partnerships, the general
partnership interests of which are held by such party or any Subsidiary of such
party and which do not have a majority of the voting interests in such
partnership) or (ii) 50% or more of the securities or other interests having by
their terms ordinary voting power to elect a majority of the Board of Directors
or others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries.
2.2 Cash Consideration. As used herein, the "Cash Consideration"
means the amount equal to: (a) $2,400,000 divided by (b) the EFCC Share Number
(as hereinafter defined). As used herein the "EFCC Share Number" means the
number of shares of EFCC Common Stock issued and outstanding immediately prior
to the Effective Time increased by that number of additional shares of EFCC
Common Stock that would have been issued and outstanding immediately prior to
the Effective Time assuming that no shareholders of TPC (as hereinafter defined)
validly and properly demanded and perfected, pursuant to the BCL, dissenters'
rights in
4
the TPC Merger (as hereinafter defined), which EFCC Share Number shall not be
less then 37,600,000.
2.3 Conversion Number. As used herein, the Conversion Number means
the amount equal to: (a) such number of shares of Star Common Stock (the "Star
Share Number") as has an aggregate Market Price on the third business day prior
to the Effective Time (the "Trigger Date") equal to $4,850,000; divided by (b)
the EFCC Share Number. As used herein, the "Market Price" of each share of Star
Common Stock on any day means the average of the closing sale prices of a share
of Star Common Stock as reported on the NASDAQ National Market during the one
hundred and twenty (120) trading days immediately preceding the date of the
determination, calculated by adding all such one hundred and twenty (120)
closing sale prices and dividing the sum by one hundred and twenty (120).
2.4 Dissenters' Rights. Shares of EFCC Common Stock that have not
been voted for the adoption of the Merger and with respect to which dissenters'
rights shall have been validly and properly demanded and perfected in accordance
with the BCL ("Dissenting Shares") shall not be converted into the right to
receive the Merger Consideration as provided in Section 2.1 on or after the
Effective Time unless and until the holder of such shares withdraws his demand
for such appraisal in accordance with applicable law or becomes ineligible for
such appraisal, at which time such shares shall be converted into and represent
the right to receive the Merger Consideration, without interest, as set forth in
Section 2.1. EFCC shall give Star: (i) prompt notice of any written demand for
appraisal, withdrawals of demands for appraisal and any other instrument in
respect thereof received by EFCC; and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal. EFCC will
not voluntarily make any payment with respect to any demands for appraisal and
will not, except with the prior written consent of Star, settle or offer to
settle any such demand.
2.5 Exchange of Certificates.
(a) As of the Effective Time, Star shall deposit, or shall
cause to be deposited, with Continental Stock Transfer and Trust Company, or
such other bank or trust company which shall be mutually acceptable to the
parties hereto (the "Exchange Agent"), for the benefit of holders of shares of
EFCC Common Stock, for exchange in accordance with this Section 2.5, through the
Exchange Agent: (i) certificates representing the Star Share Number of shares of
Star Common Stock (if the All Cash Option is not exercised); (ii) the estimated
amount of cash to be paid pursuant to Section 2.5(e); and (iii) all funds
necessary to pay the Cash Consideration for shares of EFCC Common Stock
converted by reason of the Merger (or the Merger Consideration, in cash, if the
All Cash Option is exercised) (in each case other than Merger Consideration with
respect to Dissenting Shares) (together, all such certificates and cash being
hereinafter referred to as the "Exchange Fund"). The Exchange Agent shall
deliver, pursuant to irrevocable instructions, the Cash Consideration (or the
Merger Consideration, in cash, if the All Cash Option is exercised), the shares
of Star Common Stock (if the All Cash Option is not exercised) contemplated to
be issued pursuant to Section 2.1 and the cash to be
5
issued pursuant to Section 2.5(e) out of the Exchange Fund. The Exchange Fund
shall not be used for any other purpose.
(b) As soon as reasonably practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of EFCC Common Stock (the "Certificates") whose shares were
converted into the right to receive the Merger Consideration pursuant to Section
2.1: (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such form and
have such other provisions as Star and EFCC may reasonably specify); and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the Cash Consideration and certificates representing shares of Star Common
Stock (or, in the event the All Cash Option is exercised, the Merger
Consideration in cash). Upon surrender of a Certificate for cancellation to the
Exchange Agent, or to such other agent or agents as may be appointed by Star,
together with such letter of transmittal, duly executed, and such other
documents as may be reasonably required by the Exchange Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor the Merger
Consideration which such holder has the right to receive pursuant to this
Section 2.5, and the Certificate so surrendered shall forthwith be canceled. In
the event of a transfer of ownership of EFCC Common Stock which is not
registered on the transfer records of EFCC, the Cash Consideration may be paid
to and certificates representing the proper number of shares of Star Common
Stock (or, in the event the All Cash Option is exercised, the Merger
Consideration in cash) may be issued to a transferee if the Certificate
representing such EFCC Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.5, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration. The Exchange Agent shall
not be entitled to vote or exercise any rights of ownership with respect to the
Star Common Stock held by it from time to time hereunder.
(c) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to Star Common Stock with a record
date after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Star Common Stock represented thereby
and no cash payment (including, without limitation, cash payment in lieu of
fractional shares) shall be paid to any such holder pursuant to this Section 2.5
until the surrender of such Certificate in accordance with this Section 2.5.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the holder of the Certificates representing
whole shares of Star Common Stock issued in exchange therefor, without interest:
(i) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Star Common Stock; and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and with a
6
payment date subsequent to such surrender payable with respect to such whole
shares of Star Common Stock.
(d) No Further Ownership Rights in Common Stock. All
shares of Star Common Stock issued, together with the Cash Consideration paid
(or the Merger Consideration, paid in cash, in the event the All Cash Option is
exercised), upon the surrender for exchange of Certificates in accordance with
the terms hereof (including any cash paid pursuant to Section 2.5(e)) shall be
deemed to have been issued (and/or paid) in full satisfaction of all rights
pertaining to such shares of EFCC Common Stock and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of EFCC Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange Agent
for any reason, they shall be canceled and exchanged as provided in this Section
2.5.
(e) No Fractional Shares. No certificates or scrip
representing fractional shares of Star Common Stock shall be issued upon the
surrender for exchange of Certificates, and such fractional share interests will
not entitle the owner thereof to vote or to any rights of a shareholder of Star.
Notwithstanding any other provision of this Agreement, each holder of shares of
EFCC Common Stock exchanged pursuant to the Merger who would otherwise have been
entitled to receive a fraction of a share of Star Common Stock (after taking
into account all Certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to such fractional part of a
share of Star Common Stock multiplied by the Market Price of a share of Star
Common Stock on the Effective Date.
(f) Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed for 180 days after the Effective Time
shall be delivered to Star, upon demand, and any holders of the Certificates who
have not theretofore complied with this Section 2.5 shall thereafter look only
to Star for delivery of the Merger Consideration.
(g) No Liability. None of Star, Merger Sub, EFCC nor the
Exchange Agent shall be liable to any holder of shares of EFCC Common Stock or
Star Common Stock, as the case may be, for such shares (or dividends or
distributions with respect thereto) or cash from the Exchange Fund (or by Star
after the Exchange Fund has terminated) delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law. At such time as
any amounts remaining unclaimed by holders of any such shares would otherwise
escheat to or become property of any governmental entity, such amounts shall, to
the extent permitted by applicable law, become the property of Star free and
clear of any claims or interest of any such holders or their successors, assigns
or personal representatives previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall
invest any cash included in the Exchange Fund, as directed by Star, on a daily
basis. Any interest and other income resulting from such investments shall be
paid to Star.
7
2.6 Taking Necessary Action; Further Action. Star, Merger Sub and
EFCC, respectively, shall take all such action as may be necessary or
appropriate in order to effectuate the Merger as promptly as possible. If, at
any time after the Effective Time, any further action is necessary or desirable
to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of either Merger Sub or EFCC, the
officers and directors of such corporations are fully authorized in the name of
their corporation or otherwise to take, and shall take, all such action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF STAR AND MERGER SUB
Star and Merger Sub, jointly and severally, represent and warrant to
EFCC as follows; provided that Sections 3.2, 3.3, 3.5, 3.7 and 3.8 shall be of
no force or effect in the event that the All Cash Option is exercised and
executed:
3.1 Corporate Organization. Each of Star and its Subsidiaries (the
"Star Subsidiaries") is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, with all
requisite corporate power and authority to own, operate and lease its properties
and to carry on its business as it is now being conducted, and is qualified or
licensed to do business and is in good standing in each jurisdiction in which
the failure to be so qualified or licensed, individually or in the aggregate,
would have a material adverse effect on the condition (financial or otherwise),
results of operations, business, working capital, assets, liabilities or
prospects of Star and the Star Subsidiaries taken as a whole (a "Material
Adverse Effect on Star"). Section 3.1 of the Star disclosure schedule delivered
by Star herewith (the "Star Disclosure Schedule") contains a complete and
accurate list of all of the Star Subsidiaries. Neither Star nor any Star
Subsidiary is in violation of any provision of its Certificate of Incorporation
or Bylaws which could have a Material Adverse Effect on Star. Merger Sub has not
engaged in any business nor has it incurred any liabilities or obligations since
it was incorporated other than relating to this Agreement and the transactions
contemplated hereby.
3.2 Capital Stock. As of the date hereof, the authorized capital
stock of Star consists in its entirety of (i) 10,000,000 shares of Star Common
Stock, $.001 par value, and (ii) 5,000,000 shares of Preferred Stock, $1.00 par
value. As of January 2, 1997, 4,045,889 shares of Star Common Stock and no
shares of Preferred Stock were issued and outstanding, (ii) options to acquire
626,136 shares of Star Common Stock were outstanding under all stock option
plans of Star, (iii) 333,900 shares were reserved for issuance pursuant to all
employee benefit plans of Star and (iv) warrants (the "Star Warrants") to
purchase 106,712 shares of Star Common Stock were outstanding. As of the date
hereof, the authorized capital stock of Merger Sub consists in its entirety of
1,000 shares of common stock, $.01 par value, of which 100 shares are issued and
outstanding. All of the outstanding shares of capital stock of each of the Star
Subsidiaries are owned beneficially and of record by Star or a Star Subsidiary
free and clear of all liens, charges
8
and encumbrances of any nature. All of the outstanding shares of capital stock
of Star, Merger Sub and each of the Star Subsidiaries have been validly issued
and are fully paid and nonassessable. The holders of the Star Warrants have
exercised rights thereunder to have the shares of Star Common Stock issuable
thereunder registered under the Securities Act of 1933 (the "Securities Act").
3.3 Options or Other Rights. Except as disclosed in Section 3.2
hereof, there is no outstanding right, subscription, warrant, call, unsatisfied
preemptive right, option or other agreement or arrangement of any kind to
purchase or otherwise to receive from Star or any Star Subsidiary any of the
outstanding authorized but unissued, unauthorized or treasury shares of the
capital stock or any other security of Star or any Star Subsidiary, and there is
no outstanding security of any kind convertible into or exchangeable for such
capital stock. No options or rights to acquire equity securities granted by Star
have provisions which accelerate the vesting or right to exercise such options
or rights or terminate any repurchase rights of Star upon the consummation of
the Merger.
3.4 Authority Relative to this and Other Agreements. Each of Star and
Merger Sub, as applicable, has full corporate power and authority to execute and
deliver this Agreement, the Consulting Agreement, the Management Agreement, the
EFCC Shareholders Agreement and the Escrow Agreement and to consummate the
transactions contemplated on their part hereby or thereby. The execution and
delivery of such agreements by each of Star and Merger Sub and the consummation
of the transactions contemplated on their respective parts hereby or thereby
have been duly authorized by their respective Board of Directors and, other than
the approval of Star's shareholders as provided in Section 5.1 hereof, no other
corporate proceedings on the part of Star or Merger Sub, as applicable, are
necessary to the consummation of the transactions contemplated on their
respective parts hereby or thereby. Such agreements have been (or, in the case
of the Escrow Agreement, will be) duly executed and delivered by each of Star
and Merger Sub, as applicable, and constitute (or, in the case of the Escrow
Agreement, will constitute) a legal, valid and binding obligation of each of
Star and Merger Sub, enforceable against each of them in accordance with their
respective terms, except to the extent that such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally or by general equity principles.
3.5 Star Common Stock. The shares of Star Common Stock to be issued
in connection with the Merger have been duly authorized and, when issued as
contemplated hereby at the Effective Time, will be validly issued, fully paid
and nonassessable, and not subject to any preemptive rights.
3.6 No Violation. The execution, delivery and performance of this
Agreement, the Consulting Agreement, the Management Agreement, the EFCC
Shareholders Agreement and the Escrow Agreement by each of Star and Merger Sub
and the consummation by each of them of the transactions contemplated hereby or
thereby will not (i) violate or conflict with any provision of any law
applicable to Star or any Star Subsidiary or by which any of their property or
assets are
9
bound, (ii) except for the Management Agreement, which is subject to the
approval of the Commissioner of the New York State Department of Health, require
the consent, waiver, approval, license or authorization of or any filing by Star
or any Star Subsidiary with any public authority (other than (A) the filing of a
pre-merger notification report under The Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act") and the expiration of the applicable waiting period,
(B) in connection with or in compliance with the provisions of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act, the
BCL, the Bylaws of the National Association of Securities Dealers, Inc. or the
"takeover" or "blue sky" laws of various states, (C) the approval by the New
York State Public Health Counsel required pursuant to Section 3611-a of the New
York State Public Health Law and the rules and regulations thereunder and any
similar approvals required by New Jersey State law, rules or regulations, and
(D) any other filings and approvals expressly contemplated by this Agreement) or
(iii) violate, conflict with, result in a breach of or the acceleration of any
obligation under, or constitute a default (or an event which with notice or the
lapse of time or both would become a default) under or give to others any right
of, or result in any, termination, amendment, acceleration or cancellation of,
or loss of any benefit or creation of a right of first refusal or result in the
creation of a lien or other encumbrance on any property or asset of Star or any
Star Subsidiary pursuant to or under any provision of any charter or bylaw,
indenture, mortgage, lien, lease, license, agreement, contract, instrument,
order, judgment, ordinance, Star Permit (as defined below), law, regulation or
decree to which Star or any Star Subsidiary is subject or by which Star or any
Star Subsidiary or any of their property or assets are bound, except where the
failure to give such notice, make such filings, or obtain such authorizations,
consents, waivers, licenses or approvals, or where such violations, conflicts,
breaches, defaults, terminations, amendments, accelerations, cancellations, loss
of rights, liens or encumbrances, individually or in the aggregate, would not
have a Material Adverse Effect on Star or on Star's or Merger Sub's ability to
consummate the transactions contemplated hereby.
3.7 Financial Statements and Reports. Star has made available to EFCC
true and complete copies of (i) its Annual Report on Form 10-KSB as filed with
the Securities and Exchange Commission (the "Commission"), for the year ended
May 31, 1996 (the "Star Form 10-KSB"), (ii) all registration statements filed by
Star and declared effective under the Securities Act since January 1, 1994
through the date hereof, and (iii) all other reports, statements and
registration statements (including Current Reports on Form 8-K) filed by it with
the Commission since January 1, 1994 through the date hereof. The reports,
statements and registration statements referred to in the immediately preceding
sentence (including, without limitation, any financial statements or schedules
or other information, included or incorporated by reference therein) are
referred to in this Agreement as the "Star SEC Filings." As of the respective
times such documents were filed or, as applicable, became effective, the Star
SEC Filings complied as to form and content, in all material respects, with the
requirements of the Securities Act and the Exchange Act, as the case may be, and
the rules and regulations promulgated thereunder, and did not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Star included in the Star SEC
10
Filings were prepared in accordance with generally accepted accounting
principles (as in effect from time to time) applied on a consistent basis and
(except as may be indicated therein or in the notes thereto) present fairly the
consolidated financial position, consolidated results of operations and
consolidated cash flows of Star and the Star Subsidiaries as of the dates and
for the periods indicated subject, in the case of unaudited interim consolidated
financial statements, to normal recurring year-end adjustments and any other
adjustments described therein.
3.8 Absence of Certain Changes or Events. Since May 31, 1996 and
except as disclosed in the Star SEC Filings made through the date hereof, the
business of Star and of each of the Star Subsidiaries has been conducted in the
ordinary course, and there has not been (i) any material adverse change in the
condition (financial or otherwise), results of operations, business, working
capital, assets, liabilities or prospects of Star and the Star Subsidiaries,
taken as a whole; (ii) any indebtedness incurred by Star or any Star Subsidiary
for money borrowed; (iii) any material transaction or commitment, except in the
ordinary course of business or as contemplated by this Agreement, entered into
by Star or any of the Star Subsidiaries; (iv) any damage, destruction or loss,
whether covered by insurance or not, which, individually or in the aggregate,
would have a Material Adverse Effect on Star; (v) any declaration, setting aside
or payment of any dividend (whether in cash, securities or property) with
respect to the Star Common Stock; (vi) any material agreement to acquire any
assets or stock or other interests of any third party; (vii) any increase in the
compensation payable or to become payable by Star or any Star Subsidiary to any
employees, officers, directors or consultants or in any bonus, insurance,
welfare, pension or other employee benefit plan, payment or arrangement made to,
for or with any such employee, officer, director or consultant (other than as
provided in employment agreements, consulting agreements and welfare and benefit
plans in existence as of the date hereof, and except for increases consistent
with past practice); (viii) any material revaluation by Star or any Star
Subsidiary of any asset (including, without limitation, any writing down of the
value of inventory or writing off of notes or accounts receivable); (ix) any
material change by Star in accounting principles or methods except insofar as
may be required by a change in generally accepted accounting principles; (x) any
mortgage or pledge of any of the assets or properties of Star or any Star
Subsidiary or the subjection of any of the assets or properties of Star or any
Star Subsidiary to any material liens, charges, encumbrances, imperfections of
title, security interest, options or rights or claims of other with respect
thereto; or (xi) any assumption or guarantee by Star or a Star Subsidiary of the
indebtedness of any person or entity.
3.9 Representations Complete. None of the representations or
warranties made by Star or Merger Sub herein or in any Schedule hereto,
including the Star Disclosure Schedule, or certificate furnished by Star or
Merger Sub pursuant to this Agreement, or the Star SEC Filings, when all such
documents are read together in their entirety, contains or will contain at the
Effective Time any untrue statement of a material fact, or omits or will omit at
the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
11
3.10 No Default. Neither Star nor any of the Star Subsidiaries is in
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a default or violation) of any term, condition
or provision of (i) its charter or Bylaws, (ii) any note, bond, mortgage,
indenture, license, agreement, contract, lease, commitment or other obligation
to which Star or any of the Star Subsidiaries is a party or by which they or any
of their properties or assets may be bound, or (iii) any order, writ injunction,
decree, statute, rule or regulation applicable to Star or any of the Star
Subsidiaries, except in the case of clauses (ii) and (iii) above for defaults or
violations which would not have a Material Adverse Effect on Star.
3.11 Brokers. Neither Star nor Merger Sub has paid or is obligated to
pay any fee or commission to any broker, finder, investment banker or other
intermediary in connection with this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EFCC
EFCC represents and warrants to Star and Merger Sub as follows:
4.1 Corporate Organization. Each of EFCC and its Subsidiaries (the
"EFCC Subsidiaries") is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, with all
requisite corporate power and authority to own, operate and lease its properties
and to carry on its business as it is now being conducted, and is qualified or
licensed to do business and is in good standing in each jurisdiction in which
the failure to be so qualified or licensed, individually or in the aggregate,
would have a material adverse effect on the condition (financial or otherwise),
results of operations, business, working capital, assets, liabilities or
prospects of EFCC and the EFCC Subsidiaries taken as a whole (a "Material
Adverse Effect on EFCC"). The EFCC disclosure schedule delivered by EFCC
herewith (the "EFCC Disclosure Schedule") contains a complete and accurate list
of all of the EFCC Subsidiaries. Neither EFCC nor any EFCC Subsidiary is in
violation of any provision of its charter or Bylaws which could have a Material
Adverse Effect on EFCC. EFCC, at the Effective Time, will own 100% of TPC Home
Care Services, Inc. ("TPC") and all rights and properties of TPC (other than
with respect to shares held by dissenters, subject to the limitations set out in
Section 6.3(k) hereof, in a contemplated stock for stock merger (the "TPC
Merger") of TPC with and into EFCC).
4.2 Capital Stock. As of the date hereof, the authorized capital
stock of EFCC consists in its entirety of 60,000,000 shares, consisting of
50,000,000 shares of common stock, $.01 par value, and 10,000,000 shares of
preferred stock, $.01 par value, ("EFCC Preferred Stock"). As of January 2,
1997, 32,000,226 shares of EFCC Common Stock and no shares of EFCC Preferred
Stock were issued and outstanding and (ii) no options to acquire EFCC Common
Stock were outstanding. All of the outstanding shares of capital stock of each
of the EFCC Subsidiaries are owned beneficially and of record by EFCC or a EFCC
Subsidiary free and clear
12
of all liens, charges, encumbrances, options, rights of first refusal or
limitations or agreements regarding voting rights of any nature. All of the
outstanding shares of capital stock of EFCC and each of the EFCC Subsidiaries
have been validly issued and are fully paid and nonassessable.
4.3 Options or Other Rights. Except as disclosed in Section 4.2
hereto, or as otherwise contemplated by Section 4.1 hereof, there is no
outstanding right, subscription, warrant, call, unsatisfied preemptive right,
option or other agreement or arrangement of any kind to purchase or otherwise to
receive from EFCC or any EFCC Subsidiary any of the outstanding, authorized but
unissued, unauthorized or treasury shares of the common stock or any other
security of EFCC or any EFCC Subsidiary and there is no outstanding security of
any kind convertible into or exchangeable for such capital stock. Except as
disclosed in Section 4.3 of the EFCC Disclosure Schedule, no options or rights
to acquire equity securities granted by EFCC have provisions which accelerate
the vesting or right to exercise such options or rights or terminate any rights
upon the consummation of the Merger.
4.4 Authority Relative to this and Other Agreements. EFCC has full
corporate power and authority to execute and deliver this Agreement, the
Consulting Agreement and the Management Agreement and to consummate the
transactions contemplated on its part hereby and thereby. The execution and
delivery of such agreements by EFCC and the consummation of the transactions
contemplated on its part hereby or thereby have been duly authorized by its
Board of Directors, and, other than the approval of EFCC's shareholders as
provided in Section 5.1 hereof or as otherwise disclosed in Section 4.3, no
other corporate proceedings on the part of EFCC are necessary to authorize the
execution and delivery of such agreements by EFCC or the consummation of the
transactions contemplated on its part hereby or thereby. Such agreements have
been duly executed and delivered by EFCC, and constitute legal, valid and
binding obligations of EFCC, enforceable against EFCC in accordance with their
terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally or by general equity principles. Each
of Arbor and Xxxx and Xxxx Xxxxxx, as voting trustee, as to the shares of EFCC
owned by Xxxx, (the "Voting Trustee") under that certain Voting Trust Agreement
dated as of June 20, 1996 by and between Cosmetic Sciences, Inc., Xxxx and Arbor
and the Voting Trustee (the "Voting Trust") has full power and authority to
execute and deliver the EFCC Shareholders Agreement, the irrevocable proxies
contemplated thereby and the Escrow Agreement and to consummate the transactions
contemplated on their part thereby. The execution and delivery of such
agreements by Arbor, Xxxx and the Voting Trustee and the consummation of the
transactions contemplated on their part thereby have been duly authorized, and
no other proceedings on their part are necessary to authorize the execution and
delivery of such agreements by them or the consummation of transactions
contemplated on their part thereby. Such agreements have been (or, in the case
of the Escrow Agreement, will be) duly executed and delivered by each of Arbor,
Xxxx and the Voting Trustee (and Xx. Xxxx Xxxxxxx with respect to the EFCC
Shareholders Agreement), and constitute (or, in the case of the Escrow
Agreement, will constitute) a legal, valid and binding obligation of each of
Arbor, Xxxx and the Voting Trustee (and Xx. Xxxx Xxxxxxx with respect to the
EFCC Shareholders Agreement), enforceable
13
against each of them (and him, as the case may be) in accordance with their
terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other laws affecting the
enforcement of creditors' rights generally or by general equity principles.
4.5 No Violation. Except as disclosed in Section 4.5 of the EFCC
Disclosure Schedule, the execution, delivery and performance of this Agreement,
the Consulting Agreement and the Management Agreement by EFCC and the execution,
delivery and performance of the EFCC Shareholders Agreement, the irrevocable
proxies contemplated thereby and the Escrow Agreement by Arbor and Xxxx and the
consummation by each of them of the transactions contemplated hereby and thereby
will not (i) violate or conflict with any provision of any law applicable to
EFCC, any EFCC Subsidiary, Arbor or Xxxx or by which any of their respective
properties or assets are bound, (ii) except for the Management Agreement, which
is subject to the approval of the Commissioner of the New York State Department
of Health, require the consent, waiver, approval, license or authorization of or
any filing by EFCC, any EFCC Subsidiary, Arbor or Xxxx with any public authority
(other than (A) the filing of a pre-merger notification report under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder (the "HSR Act") and the expiration of the
applicable waiting period, (B) in connection with or in compliance with the
provisions of the Exchange Act, the Securities Act, the BCL, the Bylaws of the
National Association of Securities Dealers, Inc. or the "takeover" or "blue sky"
laws of various states, (C) the approval by the New York State Public Health
Counsel required pursuant to Section 3611-a of the New York State Public Health
Law and the rules and regulations thereunder and any similar approvals required
by New Jersey State law, rules or regulations, and (D) any other filings and
approvals expressly contemplated by this Agreement) or, (iii) violate, conflict
with or result in a breach of or the acceleration of any obligation under, or
constitute a default (or an event which with notice or the lapse of time or both
would become a default) under, or gives to others any right of, or result in
any, termination, amendment, acceleration or cancellation of, or loss of any
benefit or creation of a right of first refusal or result in the creation of a
lien or other encumbrance on any property or asset of EFCC, any EFCC Subsidiary,
Arbor or Xxxx pursuant to or under any provision of any charter or bylaw, or the
express terms of any written indenture, mortgage, lien, lease, license,
agreement, contract, instrument, order, judgment, ordinance, EFCC Permit (as
defined below), law, regulation or decree to which EFCC, any EFCC Subsidiary,
Arbor or Xxxx is subject or by which EFCC, any EFCC Subsidiary, Arbor or Xxxx or
any of their respective properties or assets are bound, except where the failure
to give such notice, make such filings, or obtain such authorizations, consents,
waivers, licenses or approvals, or where such violations, conflicts, breaches,
defaults, terminations, amendments, accelerations, cancellations, loss of
rights, liens or encumbrances, individually or in the aggregate, would not have
a Material Adverse Effect on EFCC or on EFCC's ability to consummate the
transactions contemplated hereby.
14
4.6 Compliance with Laws.
(a) EFCC and each EFCC Subsidiary hold all licenses,
permits and other authorizations necessary to conduct its business
(collectively, "EFCC Permits"), are certified as providers under all applicable
Medicare and Medicaid programs to the extent required to be so certified, and
are in compliance with all EFCC Permits and all federal, state and other laws,
rules, regulations, ordinances and orders governing its business, including,
without limitation, the requirements, guidelines, rules and regulations of
Medicare, Medicaid and other third-party reimbursement programs, except where
the failure to hold such licenses, permits and other authorizations or to so
comply would not be material to the financial condition, results of operations,
business or properties of EFCC and the EFCC Subsidiaries taken as a whole. The
EFCC Permits are in full force and effect.
(b) All health care personnel employed by EFCC or any EFCC
Subsidiary are properly licensed to the extent required to perform the duties of
their employment in each jurisdiction where such duties are performed, except
where the failure to be so licensed would not be material to the financial
condition, results of operations, business or properties of EFCC and the EFCC
Subsidiaries taken as a whole.
(c) No action or proceeding is pending or, to EFCC's
knowledge, threatened that may result in suspension, revocation or termination
of any EFCC Permit, the issuance of any cease-and-desist order, or the
imposition of any administrative or judicial sanction, and neither EFCC nor any
EFCC Subsidiary has received any notice from any governmental authority in
respect of the suspension, revocation or termination of any EFCC Permit, or any
notice of any intention to conduct any investigation or institute any
proceeding, in any such case where such suspension, revocation, termination,
order, sanction, investigation, or proceeding would be material to the financial
condition, results of operations, business or properties of EFCC and the EFCC
Subsidiaries taken as a whole.
(d) Neither EFCC nor any EFCC Subsidiary has received
notice that Medicare, Medicaid or any other third-party reimbursement program
has any claims for disallowance of costs against any of them which could result
in material offsets against future reimbursement or recovery of prior payments,
which offsets or recoveries have not been reserved for in EFCC's financial
statements.
4.7 Litigation. Except as set forth in Section 4.7 of the EFCC
Disclosure Schedule or in the EFCC SEC Filings (as defined below) made as of the
date hereof, there are no suits, arbitrations, mediations, actions, proceedings,
unfair labor practice complaints or grievances pending or, to EFCC's knowledge,
threatened against EFCC or any EFCC Subsidiary or with respect to any property
or asset of any of them before any court, arbitrator, administrator or
governmental or regulatory authority or body which, individually or in the
aggregate, would have a Material Adverse Effect on EFCC. Neither EFCC nor any
EFCC Subsidiary nor any property
15
or asset of any of them is subject to any order, judgment, injunction or decree
which, individually or in the aggregate, would have a Material Adverse Effect on
EFCC.
4.8 Financial Statements and Reports. EFCC has made available to Star
true and complete copies of (i) its Annual Report on Form 10-KSB for the year
ended December 31, 1995 (the "EFCC 10-KSB"), as filed with the Commission, (ii)
its proxy statement relating to its most recent annual meeting of its
shareholders, (iii) all registration statements filed by EFCC and declared
effective under the Securities Act since January 1, 1994 through the date hereof
and (iv) all other reports, statements and registration statements (including
Current Reports on Form 8-K) filed by it with the Commission subsequent to
January 1, 1994 through the date hereof. The reports, statements and
registration statements referred to in the immediately preceding sentence
(including, without limitation, any financial statements or schedules or other
information included or incorporated by reference therein) are referred to in
this Agreement as the "EFCC SEC Filings." As of the respective times such
documents were filed or, as applicable, became effective, the EFCC SEC Filings
complied as to form and content, in all material respects, with the requirements
of the Securities Act and the Exchange Act, as the case may be, and the rules
and regulations promulgated thereunder, and did not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of EFCC included in the EFCC SEC Filings were prepared in accordance
with generally accepted accounting principles (as in effect from time to time)
applied on a consistent basis and (except as may be indicated therein or in the
notes thereto) present fairly the consolidated financial position, consolidated
results of operations and consolidated cash flows of EFCC and the EFCC
Subsidiaries as of the dates and for the periods indicated subject, in the case
of unaudited interim consolidated financial statements, to normal recurring
year-end adjustment and any other adjustment described therein. Since December
31, 1995, there has been no change in accounting principles applicable to, or
methods of accounting utilized by, EFCC. The books and records of EFCC and the
EFCC Subsidiaries have been and are being maintained in accordance with good
business practice, reflect only valid transactions, are complete and correct in
all material respects, and present fairly in all material respects the basis for
the financial position and results of operations of EFCC and the EFCC
Subsidiaries set forth in the financial statements of EFCC included in the EFCC
SEC Filings.
4.9 Absence of Certain Changes or Events. Since December 31, 1995,
except as expressly disclosed in the EFCC SEC Filings made through the date
hereof and except with respect to the sale by TPC prior to the date hereof of
certain assets to Public Services, Inc. (the "Asset Sale"), (the full
description and terms of which are set forth in Section 4.9 of the EFCC
Disclosure Schedule), the business of EFCC and of each of the EFCC Subsidiaries
has been conducted in the ordinary course, and there has not been (i) any
material adverse change in the condition (financial or otherwise), results of
operations, business, working capital, assets, liabilities, or prospects of EFCC
and the EFCC Subsidiaries, taken as a whole; (ii) any indebtedness incurred by
EFCC or any EFCC Subsidiary for money borrowed; (iii) any material transaction
or commitment, except in the ordinary course of business or as contemplated by
this
16
Agreement or as set forth in Section 4.9 of the EFCC Disclosure Schedule or in
the EFCC SEC Filings, entered into by EFCC or any of the EFCC Subsidiaries; (iv)
any damage, destruction or loss, whether covered by insurance or not, which,
individually or in the aggregate, would have a Material Adverse Effect on EFCC;
(v) except for the EFCC Dividend and except as set forth in Section 4.9 of the
EFCC Disclosure Schedule, any declaration, setting aside or payment of any
dividend (whether in cash, securities or property) with respect to the EFCC
Common Stock; (vi) any material agreement to acquire any assets or stock or
other interests of any third-party; (vii) any increase in the compensation
payable since the filing of EEFC's Form 10-QSB for the period ended September
30, 1996 or to become payable by EFCC or any EFCC Subsidiary to any employees,
officers, consultants, or directors or in any bonus, insurance, welfare, pension
or other employee benefit plan, payment or arrangement made to, for or with any
such employee, officer, director or consultant (other than as provided in
employment agreements, consulting agreements and welfare and benefit plans set
forth on the EFCC Disclosure Schedule or any increase in the cash compensation
payable to non-officer employees to the extent consistent with past practice if
the rate of total annual compensation for any individual would not increase such
individual's rate of total annual compensation by more than five percent (5%)
over such individual's rate of total compensation); (viii) any material
revaluation by EFCC or any EFCC Subsidiary of any asset (including, without
limitation, any writing down of the value of inventory or writing off of notes
or accounts receivable); (ix) any material change by EFCC in accounting
principles or methods except insofar as may be required by a change in generally
accepted accounting principles; (x) any mortgage or pledge of any of the assets
or properties of EFCC or any EFCC Subsidiary or the subjection of any of the
assets or properties of EFCC or any EFCC Subsidiary to any material liens,
charges, encumbrances, imperfections of title, security interest, options or
rights or claims of others with respect thereto; or (xi) any assumption or
guarantee by EFCC or a EFCC Subsidiary of the indebtedness of any person or
entity.
4.10 Employee Benefit Plans and Employment Matters.
(a) Section 4.10 of the EFCC Disclosure Schedule lists all
employee benefit plans, collective bargaining agreements, labor contracts and
employment agreements not otherwise disclosed in the EFCC SEC Filings, which
provide for the annual payment of more than $25,000 in which EFCC participates,
or by which it is bound, including, without limitation: (i) any profit sharing,
deferred compensation, bonus, stock option, stock purchase, pension, welfare,
and incentive plan or agreement; (ii) any plan providing for "fringe benefits"
to its employees, including, but not limited to, vacation, sick leave, medical,
hospitalization and life insurance; (iii) any written employment agreement and
any other employment agreement not terminable at will; and (iv) any other
"employee benefit plan" (within the meaning of Section 3(3) of ERISA) that is
not exempted from the coverage of ERISA by reason of the Department of Labor
regulations. EFCC is in compliance in all material respects with the requirement
prescribed by all laws currently in effect applicable to employee benefit plans
and to any employment agreement, including, but not limited to, ERISA and the
Code. EFCC has performed all of its obligations under all such employee benefit
plans and employment agreements in all material respects. There is no pending
or, to the knowledge of EFCC, threatened legal action, proceeding or
investigation
17
against or involving any EFCC employee benefit plan which could result in a
material amount of liability to such employee benefit plan or to EFCC.
(b) EFCC does not sponsor or participate in, and has not
sponsored or participated in, any employee benefit pension plan to which Section
4021 of ERISA applies that would create a material amount of liability to EFCC
under Title IV of ERISA.
(c) EFCC does not sponsor or participate in, and has not
sponsored or participated in, any employee benefit pension plan that is a
"multiemployer plan" (within the meaning of Section 3(37) of ERISA) that would
subject EFCC to any material amount of liability with respect to any such plan.
(d) All group health plans of EFCC have been operated in
compliance with the group health plan continuation coverage requirements of
Section 4980B of the Code in all material respects, to the extent such
requirements are applicable.
(e) There have been no acts or omissions by EFCC that have
given rise to or may give rise to a material amount of fines, penalties, taxes,
or related charges under Sections 502(c) or 4071 of ERISA or under Chapter 43 of
the Code.
(f) No "reportable event," as defined in ERISA Section
4043, other than those events with respect to which the Pension Benefit Guaranty
Corporation has waived the notice requirement, has occurred with respect to any
of the employee benefit plans of EFCC.
(g) Section 4.9 of the EFCC Disclosure Schedule sets forth
the name of each director, officer or employee of EFCC entitled to receive any
material amount of benefit or payment under any existing employment agreement,
severance plan or other benefit plan solely as a result of the consummation of
any transaction contemplated by this Agreement, and with respect to each such
person, the nature of such benefit or the amount of such payment, the event
triggering the benefit or payment, and the date of, and parties to, such
employment agreement, severance plan or other benefit plan.
(h) EFCC has made available to Star true and correct
copies of all plan documents and employment agreements referred to on Section
4.10 of the EFCC Disclosure Schedule, including all amendments thereto, and all
related summary plan descriptions to the extent that one is required by law.
(i) For purposes of this Section 4.10, any reference to
"EFCC" shall be deemed to include a reference to any entity that is aggregated
with EFCC under the provisions of Section 414 of the Code, to the extent that
those aggregation rules apply.
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(j) At all times during the pendency of the employee
benefit plans referenced in the EFCC SEC Filings or in Section 4.10 of the EFCC
Disclosure Schedule, EFCC has had fewer than 100 employees enrolled in each of
such plans.
4.11 Labor Matters. Neither EFCC nor any EFCC Subsidiary has executed
any collective bargaining agreement with respect to any of their employees. None
of the employees of EFCC or any EFCC Subsidiary is represented by any labor
union. To the knowledge of EFCC, there is no activity involving any employees of
EFCC or the EFCC Subsidiaries seeking to certify a collective bargaining unit or
engaging in any other organizational activity.
4.12 Insurance. EFCC and the EFCC Subsidiaries maintain insurance
against such risks and in such amounts as EFCC reasonably believes are necessary
to conduct its business. All policies of fire, liability, workers' compensation
and other forms of insurance maintained by EFCC or the EFCC Subsidiaries are set
forth in Section 4.12 of the EFCC Disclosure Schedule. All such policies are in
full force and effect and all premiums required to be paid with respect thereto
have been paid for all periods up to and including the date hereof. EFCC and the
EFCC Subsidiaries are not in default with respect to any provisions or
requirements of any such policy nor have any of them failed to give notice or
present any claim thereunder in a due and timely fashion, except for defaults or
failures which, individually or in the aggregate, would not have a Material
Adverse Effect on EFCC. Neither EFCC nor any EFCC Subsidiary has received any
notice of cancellation or termination in respect of any of its insurance
policies.
4.13 Environmental Matters. EFCC and the EFCC Subsidiaries are in
compliance with all environmental laws, and have obtained all necessary licenses
and permits required to be issued pursuant to any environmental law, except
where the failure to so comply or to obtain such licenses or permits,
individually or in the aggregate, would not have a Material Adverse Effect on
EFCC. Neither EFCC nor any EFCC Subsidiary has received any notice or
communication from any governmental agency with respect to (i) any hazardous
substance relative to its operations, property or assets or (ii) any
investigation, demand or request pursuant to enforcing any environmental law
relating to it or its operations, and no such investigation is pending or, to
the knowledge of EFCC, threatened, in any case, which would lead to a Material
Adverse Effect on EFCC.
4.14 Tax Matters. (a) EFCC and each EFCC Subsidiary (for purposes of
this Section 4.14, EFCC Subsidiary shall also include all corporations that
were, at any time prior to the Effective Time, subsidiaries of EFCC, including
but not limited to TPC): (i) has duly and timely filed with the appropriate
authorities all Tax Returns (as defined below) required to be filed by or on
behalf of (or which includes) EFCC or any EFCC Subsidiary on or before the date
hereof, which Tax Returns are true, correct and complete, (ii) has duly and
timely paid or caused to be timely paid all Taxes (as defined below) due and
payable in respect of all periods up to and including the date hereof, and (iii)
has properly accrued on the Financial Statements all Taxes not
19
yet payable in respect of all periods up to and including the date hereof.
Section 4.14 of the EFCC Disclosure Schedule sets forth a list of each
jurisdiction in which EFCC or any EFCC Subsidiary has filed or is required to
file a Tax Return, the type of Tax and the type of Tax Return filed or required.
EFCC has provided Star with a copy of each Tax Return filed by or on behalf of
EFCC or any EFCC Subsidiary (or which includes EFCC or any EFCC Subsidiary)
within the last three years. EFCC and each EFCC Subsidiary has duly and timely
withheld or collected, paid over and reported all Taxes required to be withheld
or collected by it on or before the date hereof. Except as set forth in Section
4.14 of the EFCC Disclosure Schedule: (A) no taxing authority has claimed,
proposed or asserted any adjustment that could result in the creation of, or an
increase in, any deficiency in any Tax for which EFCC or any EFCC Subsidiary is
or may be liable or which relates to the income, assets or operations of EFCC or
any EFCC Subsidiary; (B) to the knowledge of EFCC or any EFCC Subsidiary, there
is no pending or threatened audit, investigation, proceeding or claim respecting
any Tax for which EFCC or any EFCC Subsidiary is or may be liable or which
relates to the income, assets or operations of EFCC or any EFCC Subsidiary; (C)
no statute of limitations relating to the assessment or collection of any Tax
for which EFCC or any EFCC Subsidiary is or may become liable or subject has
been waived or extended; (D) neither EFCC nor any EFCC Subsidiary is a party to
any agreement, contract or arrangement that would result, individually or in the
aggregate, in the payment of any amount that would not be deductible by reason
of Section 162 (unless required to be capitalized under Section 263 or 263A of
the Code), Section 280G or Section 404 of the Code, and the regulations
promulgated thereunder; (E) neither EFCC nor any EFCC Subsidiary is a party to
any Tax sharing or Tax allocation agreement; (F) there are no liens for Taxes
upon the assets of EFCC or any EFCC Subsidiary except for liens for Taxes not
yet due and payable; and (G) neither EFCC nor any EFCC Subsidiary is a foreign
person (within the meaning of Section 7701 of the Code). EFCC and each EFCC
Subsidiary have adequately disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income tax within the meaning of Section 6662 of the Code. Neither EFCC
nor any EFCC Subsidiary is a "consenting corporation" within the meaning of
Section 341(f) of the Code. No Tax is required to be withheld pursuant to
Section 1445 of the Code as a result of the transactions contemplated by this
Agreement. Neither EFCC nor any EFCC Subsidiary has ever made or been required
to make an election under Section 338 of the Code (or any comparable state,
local or foreign Tax provision). None of the assets of EFCC or any EFCC
Subsidiary is required to be treated as being owned by any other person pursuant
to the "safe harbor" leasing provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954, as in effect prior to the repeal of said provision (or any
comparable state, local or foreign Tax provision). Any Tax Sharing or Tax
Allocation Agreement listed in Section 4.14 of the EFCC Disclosure Schedule has
been terminated on or before the date hereof without obligation of EFCC or any
EFCC Subsidiary.
For purposes of this Agreement, "Tax" means any tax, fee, levy, duty,
assessment or other governmental charge imposed by any governmental authority
(including without limitation any income, franchise, gross receipts, property,
sales, use, excise, services, value added, ad valorem, withholding, social
security, estimated, accumulated earnings, transfer, license, privilege,
payroll, profits, capital stock, employment, unemployment, severance, stamp,
20
minimum, environmental, occupancy, customs or occupation tax), including without
limitation any liability therefor as a result of Treasury Regulation ss.1.1502-6
(or any comparable state, local or foreign Tax provision), as a transferee
(including under Section 6901 of the Code or any comparable state, local or
foreign Tax provision) or as a result of any Tax sharing or similar agreement,
and any interest, additions to tax and penalties in connection therewith. "Tax
Return" means any return, declaration, report, estimate, claim, information
return or statement and any amendment thereto, together with any supporting
information or schedules, which is filed or required to be filed under
applicable law in connection with the determination, assessment, collection,
payment, refund or administration of any Tax, whether on a consolidated,
combined, unitary or separate basis or otherwise.
4.15 Intellectual Property. EFCC and the EFCC Subsidiaries own,
possess or have the right to use all franchises, patents, trademarks, service
marks, tradenames, licenses and authorizations (collectively, "EFCC Intellectual
Property Rights") set forth in Section 4.15 of the EFCC Disclosure Schedule,
which are necessary to the conduct of their respective businesses. Except as
disclosed in the EFCC SEC Filings, to the knowledge of EFCC, neither EFCC nor
any EFCC Subsidiary is infringing or otherwise violating the intellectual
property rights of any person which infringement or violation would subject EFCC
or any EFCC Subsidiary to liabilities which, individual or in the aggregate,
would have a Material Adverse Effect on EFCC or which would prevent EFCC or any
EFCC Subsidiary from conducting their respective businesses substantially in the
manner in which they are now being conducted. Except as disclosed in the EFCC
SEC Filings, no claim has been made or, to EFCC's knowledge, threatened against
EFCC or any EFCC Subsidiary alleging any such violation.
4.16 Related Party Transactions. Except as disclosed in Section 4.16
of the EFCC Disclosure Schedule or in the EFCC SEC Filings, there have been no
material transactions between EFCC or any EFCC Subsidiary on the one hand, and
any (i) officer or director of EFCC or any EFCC Subsidiary or (ii) record or
beneficial owner of five percent or more of the voting securities of EFCC.
4.17 No Undisclosed Material Liabilities. Other than professional
fees related to the transactions contemplated by this Agreement hereby and
except as disclosed in the EFCC SEC Filings or in Section 4.17 of the EFCC
Disclosure Schedule, neither EFCC nor any of the EFCC Subsidiaries has incurred
any liabilities of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, that, individually or in the aggregate,
would have a Material Adverse Effect on EFCC other than liabilities under or
contemplated by this Agreement.
4.18 No Default. Neither EFCC nor any of the EFCC Subsidiaries is in
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a default or violation) of any term, condition
or provision of (i) its charter or Bylaws, (ii) any note, bond, mortgage,
indenture, license, agreement, contract, lease, commitment or other obligation
to which EFCC or any of the EFCC Subsidiaries is a party or by which they or
21
any of their properties or assets may be bound, or (iii) any order, writ
injunction, decree, statute, rule or regulation applicable to EFCC or any of the
EFCC Subsidiaries, except in the case of clauses (ii) and (iii) above for
defaults or violations which would not have a Material Adverse Effect on EFCC.
4.19 Title to Properties; Encumbrances.
(a) EFCC and the EFCC Subsidiaries have good and
marketable title to all of the Assets (as hereinafter defined) reflected as
owned by EFCC on the September 30, 1996 Balance Sheet and all Assets thereafter
acquired by it (except for Assets disposed of by it in the ordinary course of
business or pursuant to the Asset Sale). The Assets are not subject to any
mortgage, security interest, pledge, lien, claim, encumbrance or charge, or
restraint or transfer whatsoever and no currently effective financing statement
with respect to any of its Assets has been filed under the Uniform Commercial
Code in any jurisdiction. Neither EFCC nor any EFCC Subsidiary is a party to any
financing statement or any security agreement authorizing any secured party
thereunder to file any financing statement. No person other than EFCC has any
right to the use or possession of any of the Assets. All Assets which are real
property or tangible personal property, whether owned or leased, are in good
operating condition and repair, excepting normal wear and tear, and are
sufficient to enable EFCC to operate its business in a manner consistent with
its operation during the immediately preceding twelve (12) months.
(b) Set forth on Section 4.19(b) of the EFCC Disclosure
Schedule is a true and correct list of leases, conditional sales, licenses or
similar arrangements to which EFCC or any EFCC Subsidiary is a party or to which
EFCC or any EFCC Subsidiary or any Asset is subject. EFCC has delivered to Star
a complete and correct copy of each lease, conditional sale, license and other
arrangement listed in Section 4.19(b) of the EFCC Disclosure Schedule. All of
said arrangements are valid, binding and enforceable in accordance with their
respective terms and are in full force and effect. Neither EFCC nor any EFCC
Subsidiary is in default under one or more of such arrangements, except to the
extent such defaults would not have a Material Adverse Effect on EFCC and has
not received any written notice alleging any default, set-off, or claim of
default. To the knowledge of EFCC, the parties to such arrangements are not in
default of their respective obligations under any of such arrangements, and
there has not occurred any event which, with the passage of time or giving of
notice (or both), would constitute such a default or breach under any of such
arrangements, except to the extent such default or breach would not have a
Material Adverse Effect on EFCC.
(c) As used herein, the term "Assets" means all of the
tangible and intangible assets of EFCC and the EFCC Subsidiaries including,
without limitation, all real property, tangible personal property (including,
without limitation, fixed and moveable equipment, trucks, cars and other
vehicles, furnishings, inventory and supplies), contract rights, leasehold
interests, goodwill, tradenames, trademarks, patient records and files, patient
films, Medicare and Medicaid provider agreements and numbers, telephone numbers
and, to the extent permitted by law, all permits, licenses and other
governmental approvals.
22
4.20 Contracts. Section 4.20 of the EFCC Disclosure Schedule contains
a complete and correct list of all of the following categories of agreements,
contracts, arrangements and commitments ("Contracts"), including summaries of
oral contracts (except immaterial oral contracts terminable at will), to which
EFCC or any EFCC Subsidiary or any of the Assets are bound, including, without
limitation:
(a) each contract or agreement for the employment or
retention of, or collective bargaining, severance or termination agreement with,
any director, officer, employee, consultant, agent, employee or group of
employees;
(b) each profit sharing, thrift, bonus, incentive,
deferred compensation, stock option, stock purchase, severance pay, pension,
retirement, hospitalization, insurance or other similar plan, agreement or
arrangement;
(c) each agreement or arrangement (including letter of
intent) for the purchase or sale of any assets, properties or rights outside the
ordinary course of business (by purchase or sale of assets, purchase or sale of
capital stock, merger or otherwise) which is currently in effect;
(d) each contract which contains any provisions requiring
EFCC or any EFCC Subsidiary to indemnify or act for, or guarantee the obligation
of, any other person or entity;
(e) each agreement restricting EFCC or any EFCC Subsidiary
from conducting business of any nature anywhere in the world;
(f) each partnership or joint venture contract or similar
arrangement or agreement which is likely to involve a sharing of profits or
future payments with respect to the business (or any portion thereof) of EFCC or
any EFCC Subsidiary;
(g) each agreement under which EFCC or any EFCC Subsidiary
is to acquire or contract to receive the services of any health care
professionals;
(h) each agreement to perform or provide services for any
nursing home, health care facility or any other facility or individual;
(i) each agreement with a laboratory;
(j) each lease, license, conditional sales contract or
similar arrangement for real or personal property or any corporate name, trade
or service xxxx, copyright, patent, process, operational manual, technique and
similar property;
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(k) each other agreement not made in the ordinary and
normal course of business which involves consideration of more than $25,000; and
(l) each letter of intent or agreement in principle to
enter into any Contract (whether or not binding, in whole or in part).
True, correct and complete copies of each Contract have been provided
or made available to Star and each remains in full force and effect in
accordance with the copies provided to Star. Each of the Contracts was entered
into and requires performance only in the ordinary course of business. EFCC is
not in material default under any Contract and no default or right of set-off
has been asserted, either by or against EFCC under any Contract, except such
defaults or breaches which, individually or in the aggregate would not have a
Material Adverse Effect on EFCC. To the knowledge of EFCC, the parties to the
Contracts, other than EFCC, are not in material default of any of their
respective obligations under the Contracts, and there has not occurred any
event, which with the passage of time or the giving of notice (or both), would
constitute a material default or breach under any Contract, except such defaults
or breaches which, individually or in the aggregate would not have a Material
Adverse Effect on EFCC. All amounts payable by EFCC under the Contracts are on a
current basis. Except as set forth in Section 4.5 or 4.20 of the EFCC Disclosure
Schedule, no Contract is terminable nor requires a payment in the event of the
Merger or a change in control of EFCC.
4.21 Medicare/Medicaid Participation; Accreditation. All services
provided by EFCC and the EFCC Subsidiaries which are reimbursable by Medicaid or
Medicare are certified for full participation in such programs, have a current
and valid provider contract with the Medicare and Medicaid programs or other
third party reimbursement source (inclusive of managed care organizations), are
in substantial compliance with the conditions of participation of such programs,
and have received all approvals or qualifications necessary for capital
reimbursement (if applicable). Neither EFCC nor any EFCC Subsidiary has received
any notice of recoupment from nor has any material liability for reimbursements
of any excess payments made by the Medicare or Medicaid programs or any other
third party reimbursement source (inclusive of managed care organizations).
4.22 Rate Tables and Reimbursement. EFCC has provided to Star rate
tables that set forth a complete and correct list of the rates charged by EFCC
and the EFCC Subsidiaries to their various customers. Neither EFCC nor any EFCC
Subsidiary is required to pay any Medicare or Medicaid refunds, and neither EFCC
nor any EFCC Subsidiary has paid any Medicare or Medicaid refunds since January
1, 1994.
4.23 Relationships. Except as disclosed in the EFCC SEC Filings, no
controlling shareholder, partner or affiliate of EFCC has, or at any time within
the last two (2) years has had, an ownership interest in any business, corporate
or otherwise, that is a party to, or in any property that is the subject of, any
business relationship or arrangement of any kind relating
24
to the operation or business of, or which may be binding upon, EFCC, any EFCC
Subsidiary or their Assets.
4.24 Employees. Section 4.24 of the EFCC Disclosure Schedule sets
forth a complete and correct list of the name, position and current rate of
compensation and all other compensation arrangements or fringe benefits of each
officer of EFCC and each EFCC Subsidiary.
4.25 Questionable Payments. Neither EFCC, any EFCC Subsidiary nor any
of its former subsidiaries, nor, to the knowledge of EFCC, any director,
officer, Affiliate or employee of EFCC or any of its former subsidiaries: (i)
has used any corporate funds of EFCC, any EFCC Subsidiary or any of EFCC's
former subsidiaries to make any payment to any officer or employee of any
government, or to any political party or official thereof, where such payment
either (A) is unlawful under laws applicable thereto or (B) would be unlawful
under the Foreign Corrupt Practices Act of 1977, as amended; nor (ii) has used
any corporate funds of EFCC, any EFCC Subsidiary or any of its former
subsidiaries for making payments to any person if such payment constituted an
illegal payment, bribe, kickback, political contribution or other similar
questionable payment.
4.26 Representations Complete. As of the execution of this Agreement,
none of the representations or warranties made by EFCC herein or in any Schedule
hereto, including the EFCC Disclosure Schedule, or certificate furnished by EFCC
pursuant to this Agreement, or the EFCC SEC Filings, when all such documents are
read together in their entirety, contains any untrue statement of a material
fact, or omits to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
4.27 Brokers. Neither EFCC nor any EFCC Subsidiary has paid or is
obligated to pay any fee or commission to any broker, finder, investment banker
or other intermediary in connection with this Agreement.
4.28 Minimum Net Worth, Working Capital and Cash. As of the date
hereof, the Adjusted Net Worth (as hereinafter defined) exceeds $1,500,000; the
Adjusted Working Capital (as hereinafter defined) exceeds $1,050,000; and the
Adjusted Cash (as hereinafter defined) exceeds $800,000.
25
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement; Shareholders'
Meeting.
(a) Star and EFCC agree that this Agreement shall be
submitted to their respective shareholders for approval at meetings (the
"Meetings") duly called and held pursuant to applicable state law. As soon as
practicable after the date of this Agreement, each of Star and EFCC shall take
all action, to the extent necessary in accordance with applicable law and their
respective Certificates of Incorporation and Bylaws, to convene the Meetings
promptly to consider and vote upon the approval of the Merger and such other
matters as may be necessary or desirable to consummate the Merger and the
transactions contemplated hereby.
As soon as practicable after the date of this Agreement,
EFCC and Star shall jointly prepare and file with (i) the Commission, subject to
the prior approval of the other party, which approval shall not be unreasonably
withheld, preliminary joint proxy materials relating to the Meetings as required
by the Exchange Act, and a registration statement on Form S- 4 (as amended or
supplemented, the "Registration Statement") relating to the registration under
the Securities Act of the shares of Star Common Stock issuable to the holders of
the EFCC Common Stock, and (ii) state securities administrators, such
registration statements or other documents as may be required under applicable
blue sky laws to qualify or register the shares of Star Common Stock issuable to
the holders of the EFCC Common Stock (the "Blue Sky Filings"). EFCC, Merger Sub
and Star shall use their reasonable best efforts to cause the Registration
Statement to become effective as soon as practicable. Promptly after the
Registration Statement has become effective and all applicable blue sky laws
have been complied with, Star and EFCC shall mail the joint proxy statement to
their respective shareholders. Such joint proxy statement at the time it
initially is mailed to the shareholders of Star and the shareholders of EFCC and
all duly filed amendments or revisions made thereto, if any, similarly mailed
are hereinafter referred to as the "Proxy Statement." Notice of the Star Meeting
shall be mailed to the shareholders of Star and notice of the EFCC Meeting shall
be mailed to the shareholders of EFCC, along with the Proxy Statement. In
addition, in connection with the TPC Merger, EFCC shall take such similar
actions as are required in furtherance of the TPC Merger, including those set
forth in this paragraph in connection with the Merger.
(b) Each party represents and warrants that the
information supplied or to be supplied by it for and included or incorporated by
reference in the Registration Statement, the Blue Sky Filings, the Proxy
Statement and any other documents to be filed with the Commission or any
regulatory agency in connection with the transactions contemplated hereby will,
at the respective times such documents are filed or, as applicable, declared
effective and, as of the Effective Time, and, with respect to the Proxy
Statement, when first published, sent or given to the shareholders of Star and
to the shareholders of EFCC and at the time of the
26
Meetings, not be false or misleading with respect to a material fact, or omit to
state any material fact necessary in order to make the statements therein not
misleading.
(c) Each party covenants and agrees that (i) if, at any
time prior to the Effective Time, any event relating to it or any of its
affiliates, officers or directors is discovered that should be set forth in an
amendment to the Registration Statement or Blue Sky Filings or a supplement to
the Proxy Statement, such party will promptly inform the other parties, and such
amendment or supplement will be promptly filed with the Commission and
appropriate state securities administrators and disseminated to the shareholders
of Star and EFCC, to the extent required by applicable federal and state
securities laws, and (ii) documents which either party files or is responsible
for filing with the Commission and any regulatory agency in connection with the
Merger (including, without limitation, the Proxy Statement) will comply as to
form and content in all material respects with the provisions of applicable law.
Notwithstanding the foregoing, no party makes any representations or warranties
with respect to any information that has been supplied by the other party or by
its auditors, attorneys, financial advisors, other consultants or advisors
specifically for use in the Registration Statement, Blue Sky Filing, the Proxy
Statement, or any other documents to be filed with the Commission or any
regulatory agency in connection with the transactions contemplated hereby.
(d) EFCC hereby represents that its Board of Directors has
(i) determined that the Merger is fair to and in the best interests of EFCC's
shareholders, (ii) approved the Merger and (iii) resolved to and will recommend
in the Proxy Statement adoption of this Agreement and authorization of the
Merger by the shareholders of EFCC; provided, however, that such determination,
approval or recommendation may be amended, modified or withdrawn to the extent
required by the fiduciary obligations of EFCC's Board of Directors under
applicable law, in the written opinion of outside counsel addressed to EFCC and
Star. Star hereby represents that its Board of Directors has (i) determined that
the Merger is fair to and in the best interests of Star's shareholders, (ii)
approved the Merger and (iii) resolved to and will recommend in the Proxy
Statement adoption of this Agreement and authorization of the Merger by the
shareholders of Star.
(e) EFCC shall use all reasonable efforts to cause to be
delivered to Star a letter of Xxxxxxxxx & Xxxxxxx, P.C., EFCC's independent
accountants, dated a date within five (5) business days before the date on which
the Registration Statement shall become effective and addressed to Star, of the
kind contemplated by the Statement of Auditing Standards with respect to Letters
to Underwriters promulgated by the American Institute of Certified Public
Accountants (the "AICPA Statement"), in form and substance reasonably
satisfactory to Star and customary in scope and substance for letters delivered
by independent public accountants in connection with registration statements
similar to the Registration Statement. Star shall use all reasonable efforts to
cause to be delivered to EFCC a letter of Xxxxx Xxxxxxxxxx & Co., LLP, Star's
independent accountants, dated a date within five (5) business days before the
date on which the Registration Statement shall become effective and addressed to
EFCC, of the kind contemplated by the AICPA Statement, in form and substance
reasonably satisfactory to EFCC
27
and customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement.
5.2 Conduct of the Business of EFCC Prior to the Effective Time.
Prior to the Effective Time, except as (i) otherwise expressly consented to or
approved by Star, (ii) expressly advised by Star pursuant to the Consulting
Agreement or as expressly directed by Star pursuant to the Management Agreement
or required in order to consummate the transactions contemplated by, this
Agreement:
(a) EFCC and the EFCC Subsidiaries shall conduct their
respective businesses in the ordinary course and consistent in all material
respects with past practice and shall use all reasonable efforts to preserve
substantially intact their respective business organizations, to keep available
the services of their present officers, employees and consultants and to
preserve their present relationships with customers, suppliers, payors and other
persons with whom they have a significant business relationship;
(b) Neither EFCC nor any EFCC Subsidiary shall (i) amend
its charter or Bylaws, (ii) other than the EFCC Dividend, declare, set aside or
pay any dividend or other distribution or payment in cash, securities or
property in respect of shares of the EFCC Common Stock, (iii) make any direct or
indirect redemption, retirement, purchase or other acquisition of any of its
capital stock or (iv) split, combine or reclassify its outstanding shares of
capital stock;
(c) Neither EFCC nor any EFCC Subsidiary shall, directly
or indirectly, (i) issue, grant, sell or pledge or agree or propose to issue,
grant, sell or pledge any shares of, or rights or securities of any kind to
acquire any shares of, the capital stock of EFCC or such EFCC Subsidiary except
that EFCC may issue shares of EFCC Common Stock upon the exercise of stock
options outstanding on the date hereof pursuant to the terms thereof existing as
of the date hereof, (ii) other than in the ordinary course of business and
consistent with past practice, incur any material indebtedness for borrowed
money, (iii) waive, release, grant or transfer any rights of material value,
(iv) except as provided in clause (v) below, merge or consolidate with any
person or adopt a plan of liquidation or dissolution, (v) acquire, propose to
acquire or enter into an agreement to acquire any assets, stock or other
interests of a third party, (vi) transfer, lease, license, sell or dispose of a
material portion of assets or any material assets, (vii) permit any material
revaluation of any asset (including, without limitation, any writing down of the
value of inventory or writing off of notes or accounts receivable), (viii)
change any accounting principles or methods except insofar as may be required by
changes in generally accepted accounting principles or (ix) mortgage or pledge
any of their assets or properties or subject any of their assets or properties
to any material liens, charges, encumbrances, imperfections of title, security
interests, options or rights or claims of others with respect thereto;
(d) Neither EFCC nor any EFCC Subsidiary will, directly or
indirectly, (i) increase the cash compensation payable or to become payable by
it to any of its employees, officers, consultants or directors; provided that
EFCC or any EFCC Subsidiary may increase the
28
cash compensation payable to non-officer employees to the extent consistent with
past practice and in no event to a rate of total annual compensation for any
individual that would increase such individual's rate of total annual
compensation by more than five percent (5%) over such individual's current such
rate, (ii) enter into, adopt or amend any stock option, stock purchase, profit
sharing, pension, retirement, deferred compensation, restricted stock or
severance plan, agreement or arrangement for the benefit of employees, officers,
directors or consultants of EFCC or any EFCC Subsidiary, (iii) enter into or
amend any employment or consulting agreement, or (iv) make any loan or advance
to, or enter into any written contract, lease or commitment with, any officer,
employee, consultant or director of EFCC or any EFCC Subsidiary;
(e) Neither EFCC nor any EFCC Subsidiary shall, directly
or indirectly, assume, guarantee, endorse or otherwise become responsible for
the obligations of any other individual, corporation or other entity, or make
any loans or advances to any individual, corporation or other entity except in
the ordinary course of business and consistent with past practices;
(f) Neither EFCC nor any EFCC Subsidiary shall authorize
or enter into any agreement to do any of the things described in clauses (a)
through (e) of this Section 5.2;
(g) EFCC and each EFCC Subsidiary: (i) shall duly and
timely file with the appropriate authorities all Tax Returns required to be
filed by or on behalf of (or which includes) EFCC or any EFCC Subsidiary, which
Tax Returns shall be true, correct and complete; (ii) shall duly and timely pay
or cause to be timely paid all Taxes due and payable; (iii) shall duly and
timely withhold or collect, and pay over to the appropriate authorities all
Taxes required to have been withheld or collected; (iv) shall prepare such Tax
Returns in a manner consistent with Tax Returns of the same type filed by such
corporation prior to the date hereof (unless otherwise required by applicable
law); (v) shall not make, amend, modify or terminate any election with respect
to any Tax or Tax Return, without the prior written consent of Star; (vi) shall
furnish Star with a draft of each Tax Return with sufficient time to review such
Tax Return and comment thereon, and have corrections made, prior to the timely
filing of such Tax Return; (vii) immediately notify Star if any taxing authority
claims, proposes or asserts any adjustment that could result in the creation of,
or an increase in, any deficiency in any Tax for which EFCC or any EFCC
Subsidiary is or may be liable or which relates to the income, assets or
operations of EFCC or any EFCC Subsidiary; (viii) shall not waive or extend any
statute of limitations relating to the assessment or collection of any Tax for
which EFCC or any EFCC Subsidiary is or may become liable or subject; (ix) shall
not enter into or become a party to any agreement, contract or arrangement that
would result, individually or in the aggregate, in the payment of any amount
that would not be deductible by reason of Section 162 (unless required to be
capitalized under Section 2603 or 263A of the Code), Section 280G or Section 404
of the Code, and the regulations promulgated thereunder; (x) shall not enter
into or become a party to any Tax sharing or Tax allocation agreement; (xi)
shall not become or acquire a foreign person (within the meaning of Section 7701
of the Code); (xii) shall adequately disclose on its federal income Tax Returns
all positions taken therein that could give rise to a substantial understatement
of federal income tax
29
within the meaning of Section 6662 of the Code; (xiii) shall not become a
"consenting corporation" within the meaning of Section 341(f) of the Code; (xiv)
shall not make or become required to make an election under Section 338 of the
Code (or any comparable state, local or foreign Tax provision); and (xv) shall
not acquire any assets required to be treated as being owned by any other person
pursuant to the "safe harbor" leasing provisions of Section 168(f)(8) of the
Internal Revenue Code of 1954, as in effect prior to the repeal of said
provision (or any comparable state, local or foreign Tax provision).
5.3 Access to Properties and Records. Each party shall afford to the
other and their respective accountants, counsel and representatives ("Respective
Representatives"), reasonable access during normal business hours throughout the
period prior to the Effective Time to all of their respective properties
(including, without limitation, books, contracts, commitments and written
records) and shall make reasonably available their respective officers and
employees to answer fully and promptly questions put to them thereby; provided,
however, that no investigation pursuant to this Section 5.3 shall alter any
representation or warrant of any party hereto or the conditions to the
obligations of the parties hereto.
5.4 No Solicitation, Etc.
(a) Prior to the Effective Time, EFCC agrees that it shall
not, and shall cause each of its officers, directors, employees, agents, legal
and financial advisors and affiliates not to, directly or indirectly, make,
solicit, encourage, initiate or unless permitted by Section 5.4(b) enter into
any agreement or agreement in principle, or announce any intention to do any of
the foregoing, with respect to any offer or proposal to acquire all or a
substantial part of EFCC's business and properties or a substantial amount of
EFCC's equity securities or debt securities whether by purchase, merger,
purchase or assets, tender offer, exchange offer, business combination or
otherwise (any such proposal or offer being hereinafter referred to as a "Third
Party Transaction").
(b) Prior to the Effective Time, EFCC and its Subsidiaries
shall not, and shall cause each of their officers, directors, legal and
financial advisors, agents and affiliates not to, directly or indirectly,
participate in any negotiations or discussions regarding, or furnish any
information with respect to, or otherwise cooperate in any way in connection
with, or assist or participate in, facilitate or encourage, any effort or
attempt to effect or seek to effect, a Third Party Transaction with or involving
any other person unless EFCC shall have received an unsolicited written offer to
effect a Third Party Transaction and the Board of Directors of EFCC determines
in good faith upon the written opinion of its outside legal counsel addressed to
Star and EFCC that, in the exercise of the fiduciary obligations of the Board of
Directors under applicable law, such information is required to be provided to
or such discussions or negotiations are required to be undertaken with the
person submitting such Third Party Transaction. EFCC represents that it is not
currently involved in any negotiations with any person other than Star with
respect to any Third Party Transaction.
30
(c) Prior to the Effective Time, EFCC will promptly
communicate to Star the terms of any Third Party Transaction which it may
receive and will keep Star informed as to the status of any actions, including
negotiations or discussions, taken in connection therewith.
5.5 Employee Benefit Plans. Except as otherwise provided in this
Agreement, the EFCC employee benefit plans listed on the EFCC Disclosure
Schedule which are in effect at the date of this Agreement shall remain in
effect immediately following the Effective Time. Star and EFCC shall cooperate
in coordinating their respective benefit plans, and any EFCC employee benefit
plan may be terminated after the Effective Time, to the extent reasonably
comparable benefits (including credit for past service), considered in the
aggregate, are made available to employees of EFCC under one or more employee
benefits plans of Star or any Star Subsidiary.
5.6 Existing Agreements. Star and the Surviving Corporation shall
insure and guaranty that the provisions with respect to indemnification by EFCC
and the EFCC Subsidiaries now existing in favor of any present or former
director, officer, employee or agent (and their respective heirs and assigns) of
EFCC or any EFCC Subsidiary, respectively (the "Indemnified Parties"), as set
forth in their respective charters or Bylaws or pursuant to other agreements
(including any insurance policies), shall survive the Merger, shall not be
amended, repealed or modified in any manner as to adversely affect the rights of
such Indemnified Parties and shall continue in full force and effect for a
period of at least six years from the Effective Time; provided, however, that
Star and the Surviving Corporation shall be required to maintain or obtain such
insurance coverage only (i) if it is available for an annual premium not in
excess of 125% of the last annual premium paid by EFCC or the EFCC Subsidiaries
prior to the date of this Agreement (but in such case shall purchase as much
coverage as possible for an amount which shall not exceed 125% of the last
annual premium paid by EFCC or the EFCC Subsidiaries prior to the date of the
Agreement), and (ii) for six years after the Effective Time. This Section 5.6
shall survive the closing of any of the transactions contemplated hereby, is
intended to benefit the officers and employees of EFCC and of the EFCC
Subsidiaries at the Effective Time and each of the Indemnified Parties (each of
which shall be entitled to enforce this Section 5.6 against Star and the
Surviving Corporation, as the case may be, as a third-party beneficiary of this
Agreement), and shall be binding on all successors and assigns of the Surviving
Corporation.
5.7 Confidentiality. The confidentiality agreement (the
"Confidentiality Agreement") dated June 4, 1996 between EFCC and Star is hereby
affirmed by Star and EFCC and the terms thereof are herewith incorporated herein
by reference and shall continue in full force and effect until the Effective
Time shall have occurred, and if this Agreement is terminated or if the
Effective Time shall not have occurred for any reason whatsoever, the
Confidentiality Agreement shall thereafter remain in full force and effect in
accordance with its terms; provided, however, to the extent there are any
provisions in the Confidentiality Agreement inconsistent with the terms of this
Agreement, the terms of this Agreement shall control. Each of Star and EFCC
agrees that it will not, and will cause its respective Representatives (as such
term is defined in the Confidentiality Agreement) not to, use any information
obtained pursuant to Section 5.3 for any purpose unrelated to the consummation
of the transactions contemplated by this Agreement.
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Subject to the requirements of law, each party hereto will keep confidential,
and will cause its respective Representatives to keep confidential, all
information and documents obtained pursuant to Section 5.3 except as otherwise
consented to by the other party; provided, however, that neither Star nor EFCC
shall be precluded from making any disclosure which it deems required by law in
connection with the Merger. In the event that any party is required to disclose
any information or documents pursuant to the immediately preceding sentence,
such party shall promptly give written notice of such disclosure that is
proposed to be made to the other party so that the parties can work together to
limit the disclosure to the greatest extent possible and, in the event that
either party is legally compelled to disclose any information, to seek a
protective order or other appropriate remedy or both. Upon any termination of
this Agreement, each of Star and EFCC will collect and deliver to the other
party all documents obtained pursuant to Section 5.3 or otherwise from such
party or its respective Representatives by it or any of its respective
Representatives then in their possession and any copies thereof.
5.8 Reasonable Best Efforts. Subject to the terms and conditions
herein provided, the parties hereto shall: (i) if required by law, promptly make
their respective filings and thereafter make any other required submissions
under the HSR Act with respect to the Merger; (ii) use all reasonable best
efforts to cooperate with one another in (A) determining which filings are
required to be made prior to the Effective Time with, and which consents,
approvals, permits or authorizations ("Third Party Consents") are required to be
obtained prior to the Effective Time from, governmental or regulatory
authorities of the United States and the several states and from private parties
in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, including those Third
Party Consents required by TPC, and (B) timely making all such filings and
timely seeking all such Third Party Consents, including those Third Party
Consents required by TPC; and (iii) use all reasonable best efforts to take, or
cause to be taken, all other action and do, or cause to be done, all other
things necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement, including the TPC Merger. If, at
any time after the Effective Time, any further action is necessary or desirable
to carry out the purpose of this Agreement, the proper officers and directors of
the parties hereto shall take all such necessary action. No party hereto shall
take any action for the purpose of delaying, impairing or impeding the receipt
of any Third Party Consent including those Third Party Consents required by TPC,
or the making of any required filing or registration or the mailing of the Proxy
Statement. EFCC shall use its reasonable best efforts to obtain the opinions
referred to in Sections 6.1(f) and 6.1(g).
5.9 Certification of Shareholder Vote. At or prior to the closing of
the transactions contemplated by this Agreement, EFCC and Star shall deliver to
each other a certificate of their respective Secretaries setting forth the
number of shares of EFCC Common Stock or Star Common Stock, as the case may be,
voted in favor of adoption of this Agreement and consummation of the Merger and
the number of shares of EFCC Common Stock or Star Common Stock voted against
adoption of this Agreement and consummation of the Merger.
32
5.10 Affiliate Letters. At least 30 days prior to the Closing Date,
EFCC shall deliver to Star a list of names and addresses of those persons who
were, in the reasonable judgment of EFCC at the record date for its
shareholders' meeting to approve the Merger, "affiliates" (each such person a
"Rule 145 Affiliate") of EFCC within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act. EFCC shall provide to Star
such information and documents as Star may reasonably request for purposes of
reviewing such list. EFCC shall use all reasonable efforts to deliver or cause
to be delivered to Star, prior to the Closing Date, from each of its Rule 145
Affiliates identified in the foregoing list, an Affiliate Letter in the form
attached hereto as Exhibit A. Star shall be entitled to place legends as
specified in such Affiliate Letters on the certificates evidencing any Star
Common Stock to be received by Rule 145 Affiliates pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the transfer
agent for such Star Common Stock, consistent with the terms of such Affiliate
Letters. Following reasonable request therefor, Star shall, upon advice of its
counsel, cooperate with each Rule 145 Affiliate to eliminate such legends and
stop transfer instructions in connection with proposed sales under Rule 145.
After two years from the Effective Time, Star shall promptly notify its transfer
agent to eliminate such legends and stop transfer instructions unless Star
receives advice from its counsel that a Rule 145 Affiliate is as of that date an
"affiliate" of Star.
5.11 Listing Application. Star will use its reasonable best efforts
to cause the Star Common Stock to be issued pursuant to this Agreement in the
Merger, to be listed for trading on the NASDAQ National Market.
5.12 Supplemental Disclosure Schedules. Each of Star and EFCC shall
supplement their respective Disclosure Schedules delivered in connection with
this Agreement as of the Effective Time to the extent necessary to reflect
matters permitted by, or consented to by, the other party under this Agreement.
In addition, from time to time prior to the Effective Time, each of Star and
EFCC will promptly deliver to the other party such amended or supplemental
Disclosure Schedules as may be necessary to make the Schedules accurate and
complete in all material respects as of the Effective Time; provided, however,
that no such disclosure shall have any effect for the purpose of determining the
satisfaction of the conditions set forth in Article VI of this Agreement.
5.13 No Action. Except as expressly advised by Star pursuant to the
Consulting Agreement or as expressly directed by Star pursuant to the Management
Agreement or except as contemplated by this Agreement, no party hereto will, nor
will either such party permit any of its Subsidiaries to, take or agree or
commit to take any action that is reasonably likely to make any of its
representations or warranties hereunder inaccurate in any material respect at
the date made (to the extent so limited), or as of the Effective Time (to the
extent so limited).
5.14 Conduct of Business of Merger Sub. Merger Sub shall not conduct
any business from the date of this Agreement, other than to consummate the
Merger and the transactions contemplated by this Agreement.
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5.15 Notification of Certain Matters; Delivery of Financial
Information.
(a) Star and Merger Sub agree that they shall give prompt
notice to EFCC, and EFCC agrees that it shall give prompt notice to Star and
Merger Sub, of (i) any known breach of any representations or warranties
contained in this Agreement at any time from the date hereof to the Effective
Time and (ii) any material failure of Star, Merger Sub or EFCC, as the case may
be, or any officer, director, employee or agent thereof, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that failure to give such notice shall not
constitute a waiver of any defense that may be validly asserted.
(b) Each of Star and EFCC shall furnish the other with all
financial, operating and other information and data as Star or EFCC, as the case
may be, through its officers, employees or agents, may reasonably request and
shall promptly furnish to the other party a copy of (i) each report, schedule
and other document filed or received by it during such period pursuant to the
requirements of the federal securities laws and (ii) monthly operating and
financial reports as such party shall reasonably request from time to time, when
such reports become available.
5.16 Tax-free Nature. None of Star, Merger Sub and EFCC, nor any of
their respective Subsidiaries or other affiliates shall take, or fail to take,
any action that would jeopardize qualification of the Merger (or the TPC Merger)
as a reorganization described in Section 368(a) of the Code; provided in the
case of the Merger that the All Cash Option is not exercised. For purposes of
ensuring that the Merger (or the TPC Merger) will be treated as a tax-free
reorganization under Section 368(a) of the Code, each of Star and Merger Sub on
the one hand and EFCC on the other agrees to deliver to Xxxxxxx, Lippe,
Goldstein, Wolf & Xxxxxxxxx, P.C., counsel to EFCC and TPC, a certificate of an
authorized officer containing all representations and warranties by such
corporation necessary to enable such firm to deliver its opinion referred to in
Section 6.1(f).
5.17 Financial Covenants.
(a) The Adjusted Net Worth of EFCC at the date hereof
(determined in accordance with subsection (b) below) shall exceed $1,500,000;
the Adjusted Working Capital of EFCC at the date hereof (determined in
accordance with subsection (b) below) shall exceed $1,050,000; and the Adjusted
Cash owned by EFCC at the date hereof determined in accordance with subsection
(b) below) shall exceed $800,000.
(b) Immediately after the execution and delivery of this
Agreement, EFCC will deliver to Star the balance sheet of EFCC as of December
31, 1996 (the "Year End Balance Sheet"), audited by a firm of independent
certified public accountants acceptable to both Star and EFCC (it being hereby
agreed that Xxxxxxxxx & Xxxxxxx, P.C. is such an acceptable
34
firm) and prepared in accordance with generally accepted accounting principles
consistently applied and which EFCC shall use its best efforts in causing to be
prepared. "Adjusted Net Worth" shall mean the shareholders' equity of EFCC as
shown on the Year End Balance Sheet, giving effect to all accrued and unpaid
legal and accounting expenses of EFCC as of the date hereof, and reduced by the
sum of (x) $300,000, less any Deal Costs (as defined below) expensed through
December 31, 1996. Deal Costs shall be defined as the aggregate amount of all
legal, accounting and other expenses to be incurred by EFCC in connection with
the transactions contemplated hereby, (y) the estimated aggregate amount of any
unpaid tax liability incurred or to be incurred in connection with the Asset
Sale and (z) the aggregate of all taxes due and payable by EFCC as of the date
hereof, to the extent not reflected in full on the Year End Balance Sheet plus
any claims by taxing authorities not yet paid or accrued for (the sum of (x),
(y) and (z) being hereinafter referred to as the "Year End Balance Sheet
Adjustments"). "Adjusted Working Capital" shall mean the current assets of EFCC
minus the current liabilities of EFCC as shown on the Year End Balance Sheet,
giving effect to all accrued and unpaid legal and accounting expenses of EFCC as
of the date hereof and reduced by the Year End Balance Sheet Adjustments.
"Adjusted Cash" shall mean the cash as shown on the Year End Balance Sheet net
of the sum of any amount described in clause (z) above.
(c) Other than with respect to the satisfaction of the
Financial Covenants set out in subsection (a) of this Section 5.17, as a
condition to closing pursuant to Section 6.3(b), or as a basis for termination
pursuant to Section 7.4(b), EFCC shall have no liability for violation of this
Section 5.17 or a breach of Section 4.28, provided EFCC as of the date hereof
was not aware of the basis in fact of such violation or breach.
5.18 Director of Star. Star agrees that, after the Effective Time,
Star shall take such reasonable action as may be appropriate to cause Xx. Xxxx
Xxxxxxx to be appointed to the Board of Directors of Star and to be nominated
for election by the shareholders of Star to such Board at each of the next two
annual meetings of such shareholders following the Effective Time; provided that
this Section 5.18 shall terminate and be of no force or effect in the event that
on the date 30 days preceding the date of mailing of the proxy statement
relating to either such meeting the aggregate number of shares of Star Common
Stock deemed to be beneficially owned (in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934) by Xxxx Holding Corp. ("Xxxx") and Arbor
represents less than five percent of all outstanding Star Common Stock,
determined in the reasonable judgment of Star.
5.19 EFCC Shareholders Agreement, Consulting Agreement, Management
Agreement and Escrow Agreement. Each of Star, Arbor, Xxxx, the Voting Trustee
and Xx. Xxxx Xxxxxxx simultaneously herewith shall enter into the EFCC
Shareholders Agreement in the form attached hereto as Exhibit D; each of Star
and EFCC simultaneously herewith shall enter into the Consulting Agreement in
the form attached hereto as Exhibit G; each of Star, and EFCC simultaneously
herewith shall enter into the Management Agreement in the form attached hereto
as Exhibit H; each of Star, Arbor and Xxxx shall on the Closing Date enter into
the Escrow Agreement in the form attached hereto as Exhibit E; and each of
Arbor, Xxxx and
35
Xx. Xxxx Xxxxxxx shall enter into each of the proxies contemplated by the EFCC
Shareholders Agreement.
5.20 Xxxxxxxxx Proxy. Xxxxxxxxx, simultaneously herewith shall enter
into the Xxxxxxxxx Proxy in the form attached hereto as Exhibit I.
5.21 EFCC Dividend. Each of Star and EFCC agree that, subject to
applicable law, the amount of the EFCC Dividend shall be $750,000, which amount
EFCC has caused to be reserved for payment prior to the date hereof, is held in
reserve, will be available to be paid and shall be paid in full prior to the
Closing Date.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) The Registration Statement shall have been declared
effective, and no stop order suspending the effectiveness of the Registration
Statement shall have been issued by the Commission or shall be continuing to be
in effect, and no proceedings for that purpose shall have been initiated or
threatened by the Commission. Star shall have received all state securities laws
or "blue sky" permits and authorizations necessary to issue the shares of Star
Common Stock, if any, constituting Merger Consideration pursuant to the Merger
and the transactions contemplated hereby.
(b) This Agreement and the Merger contemplated hereby and
any other action necessary to consummate the transactions contemplated hereby
shall have been approved and adopted by the requisite vote of (i) the holders of
the outstanding shares of the EFCC Common Stock entitled to vote thereon at the
EFCC Meeting and (ii) the holders of the outstanding shares of the Star Common
Stock entitled to vote thereon at the Star Meeting.
(c) No governmental authority or other agency, commission
or court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, injunction or other order
(whether temporary, preliminary or permanent) which is in effect and has the
effect of making the Merger illegal or otherwise prohibiting consummation of the
transactions contemplated by this Agreement; provided, however, that, prior to
invoking this condition, each party hereto shall use all reasonable efforts to
have such statute, rule, regulation, injunction or order vacated.
36
(d) Any waiting period applicable to the Merger under the
HSR Act shall have expired or been terminated without action by the Justice
Department or the Federal Trade Commission to prevent consummation of the
Merger.
(e) The shares of Star Common Stock issuable to EFCC's
shareholders in the Merger or thereafter shall have been authorized for listing
on the NASDAQ National Market, upon official notice of issuance.
(f) Each of EFCC and Star shall have received the opinion,
in the form attached hereto as Exhibit F, addressed to each of them, of Xxxxxxx,
Lippe, Goldstein, Wolf & Xxxxxxxxx, P.C., counsel to EFCC, dated as of the
Effective Time. In rendering such opinion, Xxxxxxx, Lippe, Goldstein, Wolf &
Xxxxxxxxx, P.C. may require and rely upon representations contained in the
certificates of officers of Star, Merger Sub and EFCC (or in the case of the TPC
Merger, TPC) referred to in Section 5.16.
6.2 Conditions to the Obligation of EFCC to Effect the Merger. The
obligation of EFCC to effect the Merger shall be subject to the fulfillment or
waiver by EFCC at or prior to the Effective Time of the following additional
conditions:
(a) Each of Star and Merger Sub shall have performed in
all material respects its obligations under this Agreement required to be
performed by it on or prior to the Effective Time pursuant to the terms hereof,
unless EFCC shall have intentionally prevented such performance.
(b) All representations or warranties of Star and Merger
Sub in this Agreement shall be true and correct, in each case only as of the
execution of this Agreement except for the representations and warranties in
Sections 3.1, 3.2 (except (ii) and (iii) thereof) and 3.4 which shall be true
and correct as of the execution of this Agreement and of the Effective Time;
provided, however, that, with respect to representations and warranties relating
to the financial condition or results of operations of Star, no breach of this
condition shall be deemed to have occurred unless a breach of any such
representations or warranties, individually or in the aggregate, represents a
Material Adverse Effect on Star based on the financial condition or results of
operations of Star as represented on the most recent balance sheet of Star
contained in the Star SEC Filings.
(c) Each of Star and Merger Sub shall have delivered a
certificate of its President or Vice President and its Chief Financial Officer
to the effect set forth in clauses (a) and (b) of this Section 6.2.
(d) EFCC shall have received from Xxxxxx Xxxxxx Flattau &
Klimpl, LLP, counsel to Star, an opinion or opinions dated as of the Effective
Time covering the matters set forth in Exhibit B hereto; provided that
paragraphs numbered 1,2,3 and 5 thereof need not be included in such opinion in
the event that the All Cash Option is exercised.
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(e) Xxxxxxx, Lippe, Goldstein, Wolf & Xxxxxxxxx, P.C.,
counsel to EFCC, shall have received the letters from Star and Merger Sub
referred to in Section 5.16.
(f) Xxxxxxxxx, simultaneously herewith, shall have
executed and delivered to EFCC the Xxxxxxxxx Proxy in the form attached hereto
as Exhibit I.
(g) Star shall have obtained all Third Party Consents,
including those Third Party Consents required by TPC, contemplated by subsection
(ii) of Section 5.8 and applicable to Star unless the failure to obtain any such
Third Party Consent would not, individually, or in the aggregate, have a
Material Adverse Effect on Star.
6.3 Conditions to the Obligations of Star and Merger Sub to Effect
the Merger. The obligations of Star and Merger Sub to effect the Merger shall be
subject to the fulfillment or waiver by Star at or prior to the Effective Time
of the following additional conditions:
(a) EFCC shall have performed in all material respects
each of its obligations under this Agreement, the Consulting Agreement and the
Management Agreement required to be performed by it on or prior to the Effective
Time pursuant to the terms hereof unless Star shall have prevented such
performance.
(b) All representations or warranties of EFCC in this
Agreement shall be true and correct, in each case only as of the execution of
this Agreement, except for the representations and warranties in Sections 4.1,
4.2, 4.3, 4.4 and 4.16 which shall be true and correct at the execution of this
Agreement and at the Effective Time; provided, however, that, with respect to
representations and warranties relating to the financial condition or results of
operations of EFCC, no breach of this condition shall be deemed to have occurred
unless (i) any breach of any such representations or warranties, individually or
in the aggregate, represents a material adverse effect on the financial
conditions or results of operations of EFCC based on the financial condition or
results of operations of EFCC as represented on the most recent balance sheet of
EFCC contained in the EFCC SEC Filings, or (ii) there has been any breach of any
representation or warranty contained in Section 4.28 or 5.17, provided that the
conditions set forth in this clause (ii) shall expire after ten business days
following the delivery to Star of the Year End Balance Sheet.
(c) There shall have been no adverse development or change
or prospective adverse development or change regarding the ability of EFCC to
conduct its Medicaid-related operations in the nature or to the extent conducted
prior to the date hereof.
(d) All material federal, state, local and foreign
governmental consents, approvals and filings required to permit the Merger and
the consummation of the transactions contemplated by this Agreement shall have
been received or made and any applicable waiting period shall have expired or
been terminated without the imposition of conditions that are or
38
would become applicable to EFCC or the EFCC Subsidiaries or Star or the Star
Subsidiaries and which would have a Material Adverse Effect on EFCC or a
Material Adverse Effect on Star.
(e) EFCC shall have obtained all Third Party Consents
(applicable to EFCC or any EFCC Subsidiary) contemplated by subsection (ii) of
Section 5.8, except for such Third Party Consents which, if not obtained, would
not, individually or in aggregate, have a Material Adverse Effect on EFCC.
(f) EFCC shall have delivered a certificate of its
President or Vice President and its Chief Financial Officer to the effect set
forth in paragraphs (a), (b), (c) and (d) to this Section 6.3.
(g) Star shall have received from Xxxxxxx, Lippe,
Goldstein, Wolf & Xxxxxxxxx, P.C., counsel to EFCC, an opinion or opinions dated
as of the Effective Time covering the matters set forth in Exhibit C hereto.
(h) Merger Sub shall have received letters of resignation
addressed to EFCC from the members of EFCC's Board of Directors, which
resignations shall be effective as of the Effective Time.
(i) Each of Star and EFCC shall have received the
Affiliate Letters from each of the Rule 145 Affiliates, as provided in Section
5.10.
(j) Each of Xxxx and Arbor (and Xx. Xxxx Xxxxxxx and the
Voting Trustee with respect to items (w), (x) and (y)) simultaneously herewith
shall have executed and delivered to Star (w) the EFCC Shareholders Agreement in
the form attached hereto as Exhibit D, (x) an Irrevocable Proxy in the form
attached to Exhibit D as Annex B, (y) an Irrevocable Proxy in the form attached
to Exhibit D as Annex C, and (z) the Consulting Agreement in the form attached
hereto as Exhibit G, and on the Closing Date shall have executed and delivered
to Star the Escrow Agreement in the form attached hereto as Exhibit E.
(k) The number of shares of the EFCC Share Number, as to
which dissenters' rights shall have been validly and properly demanded and
perfected, shall not exceed 5% of the EFCC Share Number.
(l) The TPC Merger shall have been completed in compliance
with all applicable law.
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ARTICLE VII
TERMINATION
7.1 Termination by Mutual Consent. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, before
or after the approval of this Agreement by the shareholders of EFCC or Star, by
the mutual consent of Star and EFCC.
7.2 Termination by Either Star or EFCC. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either Star or EFCC if:
(a) The Merger shall not have been consummated by August
15, 1997, unless such failure of consummation is due to the failure of the
terminating party to perform or observe any covenant, agreement or condition
hereof to be performed or observed by it at or before the Closing Date;
(b) The approval of the shareholders of each of Star and
EFCC required by Section 6.1(b) shall not have been obtained at the meetings
duly convened therefor or at any adjournments or postponements thereof; or
(c) A United States federal or state court of competent
jurisdiction or United States federal or state governmental regulatory or
administrative agency or commission shall have issued an order, decree or ruling
or taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and non-appealable;
provided, that the party seeking to terminate this Agreement pursuant to this
clause (c) shall have used all reasonable efforts to remove such injunction,
order or decree; provided, in the case of a termination pursuant to clauses (a)
or (b) above, the terminating party shall not have breached in any material
respect its obligations under this Agreement in any manner that shall have
proximately contributed to the failure to consummate the Merger by August 15,
1997 and; provided further, that if any condition to this Agreement shall fail
to be satisfied by reason of the existence of an injunction or order of any
court or governmental or regulatory body resulting from an action or proceeding
commenced by any party which is not a government or governmental authority, then
at the request of either party the deadline date referred to above shall be
extended for a reasonable period of time, not in excess of 90 days, to permit
the parties to have such injunction vacated or order reversed.
7.3 Termination by EFCC. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or after
the adoption and approval by the shareholders of EFCC referred to in Section
6.1(b), by action of the Board of Directors of EFCC, if:
(a) The Board of Directors of EFCC determines in good
faith with the advice of outside legal counsel that, in the exercise of the
fiduciary obligations of the Board of
40
Directors under applicable law, such termination is required by reason of a
Third Party Transaction;
(b) Any of the conditions specified in Section 6.2(b) have
not been satisfied; or
(c) There has been a breach in any material respect of any
of the covenants or agreements set forth in this Agreement on the part of Star,
which breach is not curable or, if curable, is not cured within 30 days after
written notice of such breach is given by EFCC to Star, unless EFCC shall have
intentionally caused such breach and prevented such cure.
7.4 Termination by Star. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (but only within
ten business days following the delivery to Star of the Year End Balance Sheet
with respect to subsection (b)(ii) of Section 6.3(b) as referred to in Section
7.4(b) below), by action of the Board of Directors of Star, if:
(a) The Board of Directors of EFCC shall have withdrawn or
modified its determination that the Merger is fair to and in the best interests
of EFCC's shareholders or its approval or recommendation of this Agreement or
the Merger;
(b) Any of the conditions specified in Section 6.3(b) have
not been satisfied; or
(c) There has been a breach in any material respect of any
of the covenants or agreements set forth in this Agreement on the part of EFCC,
which breach is not curable or, if curable, is not cured within 30 days after
written notice of such breach is given by Star to EFCC, unless Star shall have
intentionally caused such breach and prevented such cure.
7.5 Effect of Termination and Abandonment.
(a) In the event that this Agreement is terminated by EFCC
pursuant to Section 7.3(a) or by Star pursuant to Section 7.4(a), then EFCC
shall promptly, but in no event later than ten days after the date of such
request, pay Star a fee of $350,000, which amount shall be payable by wire
transfer of same day funds. EFCC acknowledges that the agreements contained in
this Section 7.5(a) are an integral part of the transactions contemplated in
this Agreement, and that, without these agreements, Star and Merger Sub would
not enter into this Agreement.
(b) In the event of termination of this Agreement and the
abandonment of the Merger pursuant to this Article VII, all obligations of the
parties hereto shall terminate, except the obligations of the parties pursuant
to this Section 7.5 and except as provided in Section 8.3. Moreover, in the
event of termination of this Agreement pursuant to Section 7.3 or 7.4, and
subject to Section 5.17(c) nothing herein shall prejudice the ability of the
non-breaching party
41
from seeking damages from any other party for any breach of this Agreement,
including without limitation, attorneys' fees and the right to pursue any remedy
at law or in equity.
ARTICLE VIII
MISCELLANEOUS
8.1 Amendment. Subject to the applicable provisions of state law,
this Agreement may be amended by the parties hereto solely by action taken by
their respective Boards of Directors. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
8.2 Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken by their respective Boards of Directors, may (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any documents delivered
pursuant hereto, and (iii) waive compliance by the other party with any of the
agreements or conditions herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. No waiver by either party of any
default with respect to any provision, condition or requirement hereof shall be
deemed to be a waiver of any other provision, condition or requirement hereof;
nor shall any delay or omission of either party to exercise any right hereunder
in any manner impair the exercise of any such right accruing to it thereunder.
37
8.3 Survival. All representations, warranties and agreements
contained in this Agreement or in any instrument delivered pursuant to this
Agreement shall terminate and be extinguished at the Effective Time or the
earlier date of termination of this Agreement pursuant to Article VII, as the
case may be, except that the agreements set forth in Article I, Article II and
in Sections 5.4, 5.6, 5.7, 5.19, 8.4 and 8.7 will survive the Effective Time
indefinitely and those set forth in Sections 7.5 and 8.7 will survive the
termination of this Agreement indefinitely, and other than any covenant the
breach of which has resulted in the termination of this Agreement.
8.4 Expenses and Fees. Whether or not the Merger is consummated, all
costs and expenses incurred by the parties hereto in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses except as expressly provided herein and except that (i)
the filing fee in connection with the HSR Act filing, if any, (ii) the filing
fee in connection with the filing of the Registration Statement or Proxy
Statement with the Commission and (iii) the expenses incurred in connection with
printing and mailing the Registration Statement and the Proxy Statement, shall
be shared equally by Star and EFCC.
8.5 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been given or
made if in writing and
42
delivered personally or sent by registered or certified mail (postage prepaid,
return receipt requested) or by telecopier to the parties at the following
addresses:
if to Merger Sub or Star: Star Multi Care Services, Inc.
00 Xxxx Xxxxxxx Xxxx
Xxxxxxxxxx Xxxxxxx, Xxx Xxxx 00000
Attn: Chief Executive Officer
Telecopier: 000-000-0000
with copies to: Xxxxxx Xxxxxx Flattau & Klimpl, LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx Xxxxxxxxx, Esq.
Telecopier: (000) 000-0000
if to EFCC: Extended Family Care Corporation
c/o Arbor Home Healthcare Holdings, LLC
000 Xxxx Xxxxxxxx Xxxxxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attn: Chief Executive Officer
Telecopier: 000-000-0000
with copies to: Xxxxxxx, Lippe, Goldstein, Wolf
& Xxxxxxxxx, P.C.
000 Xxxxxx Xxxxxx
Xxxxxxx, Xxx Xxxx 00000
Attn: Xxxxxxx X. Xxxxx, Esq.
Telecopier: (000) 000-0000
or at such other addresses as shall be furnished by the parties by like notice,
and such notice or communication shall be deemed to have been given or made as
of the date so delivered or mailed.
8.6 Headings. The headings contained in this Agreement are inserted
for convenience only and do not constitute a part of this Agreement.
8.7 Publicity. The parties hereto shall not, and shall cause their
affiliates not to, issue or cause the publication of any press release or other
announcement with respect to the Merger or this Agreement without consulting
with all other parties and their respective counsel; provided, however, that to
the extent either party believes on the advice of counsel that it is obligated
under federal or state law to issue or cause the publication of any press
release or other announcement, such party shall only be obligated to so consult
if it is possible to do so without violating any such legal obligation.
43
8.8 Entire Agreement. This Agreement and the other agreements
referred to herein constitute the entire agreement among the parties and
supersede all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof.
8.9 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefits of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any of
the rights, interests or obligations shall be assigned by any of the parties
hereto without the prior written consent of the other parties. This Agreement is
not intended to confer upon any other person any rights or remedies hereunder.
8.10 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
8.11 Invalidity; Severability. In the event that any provision of
this Agreement shall be deemed contrary to law or invalid or unenforceable in
any respect by a court of competent jurisdiction, the remaining provisions shall
remain in full force and effect to the extent that such provisions can still
reasonably be given effect in accordance with the intentions of the parties, and
the invalid and unenforceable provisions shall be deemed, without further action
on the part of the parties, modified, amended and limited solely to the extent
necessary to render the same valid and enforceable.
8.12 Governing Law. The validity and interpretation of this Agreement
shall be governed by the laws of the State of New York, without reference to the
conflict of law principles thereof.
8.13 Legal Proceedings. Legal proceedings commenced by Star or EFCC
or arising out of any of the transactions or obligations contemplated by this
Agreement shall be brought exclusively in the federal courts or, in the absence
of federal jurisdiction, state courts, in either case in Nassau County, New
York. Star and EFCC irrevocably and unconditionally submit to the jurisdiction
of such courts and agree to take any and all future action necessary to submit
to the jurisdiction of such courts. Each of Star and EFCC irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding brought in any federal or state court in Nassau County, New
York, and further irrevocably waives any claims that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
8.14 Purchase Price Adjustment. The Merger Consideration shall be
reduced by an amount equal to any damages or losses incurred by Star due to any
liens not disclosed to Star on any EFCC Disclosure Schedule.
44
IN WITNESS WHEREOF, Star, Merger Sub and EFCC have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
EXTENDED FAMILY CARE STAR MULTI CARE SERVICES, INC.
CORPORATION
By: /s/ Xxxxxx Xxxxxx By: /s/ Xxxxxxx Xxxxxxxxx
-------------------- ------------------------
Xxxxxx Xxxxxx, Vice-President Xxxxxxx Xxxxxxxxx, Chairman
and Chief Executive Officer
EFCC ACQUISITION CORP.
By: /s/ Xxxxxxx Xxxxxxxxx
------------------------
Xxxxxxx Xxxxxxxxx, Chairman
and Chief Executive Officer
45
EXHIBIT A
---------
___________, 1997
Star Multi Care Services, Inc.
00 Xxxxxxxx Xxxxxxx Xxxxx
Xxxxxxxxxx, Xxx Xxxx 00000
Gentlemen:
Reference is made to the provisions of the Agreement and Plan of
Merger, dated as of January __, 1997 (together with any amendments thereto, the
"Merger Agreement") among Star Multi Care Services, Inc., a New York corporation
("Star"), EFCC Acquisition Corp., a New York corporation and a wholly-owned
subsidiary of Star (the "Merger Sub") and Extended Family Care Corporation, a
New York corporation ("EFCC"), pursuant to which EFCC will be merged with and
into Merger Sub (the "Merger"), with Merger Sub continuing as the surviving
corporation (the "Surviving Corporation"). This letter consists of the
undertakings contemplated by Section 5.10 of the Merger Agreement and is
designed to assure compliance with Rule 145 ("Rule 145").
I represent, warrant and covenant as follows:
(a) I understand that I may be deemed to be an "affiliate"
of EFCC, as such term is defined for purposes of Rule 145, and that the
transferability of the shares of common stock, par value $.001 per share, of
Star (the "Star Common Stock"), if any, which I will receive upon the
consummation of the Merger in exchange for my shares of common stock, par value
$.01 per share, of EFCC (the "EFCC Common Stock"), is therefore subject to the
provisions of Rule 145. Nothing herein shall be construed as an admission that I
am an affiliate.
(b) Appendix A attached hereto sets forth all shares of
EFCC Common Stock and Star Common Stock owned by me, including all EFCC Common
Stock as to which I have sole or shared voting or investment power and all
rights, options and warrants to acquire EFCC Common Stock owned or held by me.
(c) I will not sell, pledge, transfer or otherwise dispose
of any shares of Star Common Stock issued to me pursuant to the Merger, except
pursuant to an effective registration statement or in compliance with Rule 145
or another exemption from the registration requirements of the Securities Act.
(d) Except for those rights specifically granted by Star
to certain shareholders of EFCC pursuant to that certain EFCC Shareholders
Agreement between Star and certain shareholders of EFCC listed on Annex A
thereto and Xx. Xxxx Xxxxxxx, an individual having voting control of the shares
of EFCC owned by each of the Shareholders, I understand that Star is under no
obligation to register the sale, transfer, pledge or other disposition of the
Star Common Stock to be received by me upon consummation of the Merger or to
take any other action necessary for the purpose of making an exemption from the
registration requirements of the Act available for the resale of the Star Common
Stock to be received by me upon consummation of the Merger.
(e) I understand that Star will impose stop transfer
instructions with respect to the Common Stock to be received by me upon
consummation of the Merger and that a restrictive legend will be placed on
certificates delivered to me evidencing such Star Common Stock in substantially
the following form:
"This certificate and the shares represented
hereby have been issued pursuant to a transaction governed
by Rule 145 ("Rule 145") promulgated under the Securities
Act of 1933, as amended (the "Act"), and may not be sold
or otherwise disposed of unless registered under the Act
pursuant to a Registration Statement in effect at the time
or unless the proposed sale or disposition can be made in
compliance with Rule 145 or without registration in
reliance on another exemption therefrom."
(f) I have full power and authority to execute this
Agreement, to make the representations, warranties and covenants herein
contained and to perform my obligations hereunder.
(g) I understand the requirements of this letter and the
limitations imposed upon the sale, pledge, transfer or other disposition of the
Star Common Stock.
(h) The receipt of this letter by Star is an inducement to
Star's obligation to consummate the Merger under the Merger Agreement.
(i) All of the above representations are true, correct and
complete on the date hereof and will continue to be true, correct and complete
through and including the time of the transaction. If any of the representations
in this letter cease to be true at any time prior to the time of the
transaction, I will so notify you immediately in writing (and in all events
before the time of the transactions).
Very truly yours,
-2-
EXHIBIT B
---------
OPINION OF XXXXXX XXXXXX FLATTAU & KLIMPL, LLP
1. Each of Star and the Star Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of incorporation, with all requisite corporate power and authority
to own, operate and lease its properties and to carry on its business as it is
now being conducted, and is qualified or licensed to do business and is in good
standing in each jurisdiction in which the failure to be so qualified or
licensed, individually or in the aggregate, would have a Material Adverse Effect
on Star. Section 3.1 of the Star Disclosure Schedule contains a complete and
accurate list of all of the Star Subsidiaries. Neither Star nor any Star
Subsidiary is in violation of any provision of its Certificate of Incorporation
or Bylaws which could have a Material Adverse Effect on Star. To our knowledge,
Merger Sub has not engaged in any business nor has it incurred any liabilities
or obligations since it was incorporated other than relating to this Agreement
and the transactions contemplated hereby.
2. The Star Common Stock to be issued pursuant to the Merger, when
issued in accordance with the terms and conditions of the Merger Agreement, will
be duly authorized, validly issued, fully paid and nonassessable.
3. As of the date hereof, the authorized capital stock of Star
consists in its entirety of (i) 10,000,000 shares of Star Common Stock, $.001
par value, and (ii) 5,000,000 shares of Preferred Stock, $1.00 par value. As of
January 2, 1997, 4,045,889 shares of Star Common Stock and no shares of
Preferred Stock were issued and outstanding, (ii) options to acquire 626,136
shares of Star Common Stock were outstanding under all stock option plans of
Star, (iii) 333,900 shares were reserved for issuance pursuant to all employee
benefit plans of Star and (iv) warrants to purchase 106,712 shares of Star
Common Stock were outstanding. As of the date hereof, the authorized capital
stock of Merger Sub consists in its entirety of 1,000 shares of common stock,
$.01 par value, of which 100 shares are issued and outstanding. All of the
outstanding shares of capital stock of each of the Star Subsidiaries are owned
beneficially and of record by Star or a Star Subsidiary free and clear of all
liens, charges and encumbrances of any nature. All of the outstanding shares of
capital stock of Star, Merger Sub and each of the Star Subsidiaries have been
validly issued and are fully paid and nonassessable.
4. Each of Star and Merger Sub has full corporate power and authority
to execute and deliver the Merger Agreement and to consummate the transactions
contemplated on its part thereby. The execution and delivery of the Merger
Agreement by each of Star and Merger Sub and the consummation of the
transactions contemplated on its part thereby have been duly authorized by their
respective Boards of Directors and duly approved by Star's shareholders and no
other corporate proceedings on the part of Star or Merger Sub are necessary to
authorize the execution and delivery of the Merger Agreement by Star and Merger
Sub or the consummation of
the transactions contemplated on its part thereby. The Merger Agreement has been
duly executed and delivered by each of Star and Merger Sub and constitutes the
legal, valid and binding obligation of each of Star and Merger Sub, as the case
may be, enforceable against each of them in accordance with its terms, except to
the extent that such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors'
rights generally or by general equity principles.
5. The Registration Statement has become effective under the
Securities Act and, to the best of our knowledge, no order suspending the
effectiveness of the Registration Statement has been issued and no proceeding
for that purpose has been instituted or is pending.
EXHIBIT C
---------
January __, 1997
Star Multicare Services, Inc.
00 Xxxx Xxxxxxx Xxxx
Xxxxxxxxxx Xxxxxxx, XX 00000
Gentlemen:
We have acted as counsel to Extended Family Care Corporation, a New
York corporation ("EFCC"), and TPC Home Care Services, Inc., a New York
corporation ("TPC"), in connection with the preparation, execution and delivery
of the Agreement and Plan of Merger (the "Merger Agreement"), dated January ___,
1997 among Star Multicare Services, Inc., EFCC and EFCC Acquisition Corp.
This opinion is delivered to you pursuant to Section 6.3 of the
Merger Agreement. Capitalized terms used herein and not defined shall have the
meanings ascribed thereto in the Merger Agreement.
In connection with the preparation of this Opinion Letter, we have,
with your consent, examined and relied upon the Merger Agreement including
exhibits and schedules thereto. In addition, we have examined such certificates
of public officials and of corporate officers of EFCC and other documents and
records as we have deemed necessary as a basis for the opinions set forth below.
In making such examination, we have assumed the genuineness of all signatures,
the legal capacity
Star Multicare Services, Inc. 2 January __, 1997
of natural persons, the authenticity of all documents submitted to us as
originals and the conformity to the originals of all documents submitted to us
as copies. As to various facts material to the opinions set forth herein, we
have relied upon the representations made in the Merger Agreement, upon
certificates of public officials and upon a certificate of Xxxxxx Xxxxxx, Vice
President of EFCC, which facts we have not independently verified.
In rendering the opinions expressed below, we have assumed, with your
permission and without any independent investigation or verification of any
kind, that (i) each party to the Merger Agreement, the Consulting Agreement, the
Shareholders Agreement and the Escrow Agreement (the "Merger Documents") other
than EFCC, TPC, and Arbor Home Healthcare Holdings, LLC ("Arbor") (collectively,
the "Other Parties") has been duly organized and is validly existing and in good
standing under the laws of its jurisdiction of incorporation and of each other
jurisdiction in which the conduct of its business or the ownership of its
property makes such qualification necessary, (ii) each of the Other Parties has
full power and authority to execute, deliver and perform the Merger Documents;
(iii) the execution, delivery and performance of the Merger Documents by each of
the Other Parties has been duly authorized by all requisite corporate action on
the part of each Other Party; (iv) each of the Merger Documents has been duly
executed and delivered by each of the Other Parties; and (v) the execution,
delivery and performance of each of the Merger Documents by each of the Other
Parties does not and will not violate the charter, by-laws or other
organizational documents of any of the Other Parties. We have further assumed,
with your permission and without any independent investigation or verification
of any kind, that the Merger Documents constitutes the valid and legally binding
obligations of the Other Parties.
As used in this opinion, the phrase "to our knowledge" means the
actual present knowledge or belief of those attorneys in our firm who are
currently representing EFCC without independent investigation. We have not
undertaken any independent investigation to determine the existence or
nonexistence of those facts with respect to which we are expressing an opinion
or whether there are other facts which may affect our opinion, and no inference
as to our knowledge of the existence or nonexistence of those facts should be
drawn from the fact of this firm's delivery of an opinion with respect to EFCC
in connection with the subject transaction.
Based on and subject to the foregoing, and subject to the
qualifications and exceptions set forth herein, we are of the opinion that:
1. To our knowledge, the EFCC Disclosure Schedule contains a complete
and accurate list of all of the EFCC Subsidiaries. Each of EFCC and TPC is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of New York, with all requisite corporate power and authority
to own, operate and lease its properties and to carry on its business as it is
now being conducted, and is qualified or licensed to do business and is in good
standing in each jurisdiction in which the failure to be so qualified or
licensed, individually or in the
Star Multicare Services, Inc. 3 January __, 1997
aggregate, would have a Material Adverse Effect on EFCC. To our knowledge,
neither EFCC nor TPC is in violation of any provision of its charter or bylaws.
2. The authorized capital stock of EFCC consists in its entirety of
10,000,000 shares of Preferred Stock, $.01 par value and 50,000,000 shares of
common stock, $.01 par value. Based solely upon a certificate of American Stock
Transfer & Trust Co., as of January ___, 1997, as well as stock transfer records
and corporate minutes to the extent available, 32,000,226 shares of EFCC Common
Stock were issued and outstanding. The authorized capital stock of TPC consists
in its entirety of 20,000,000 shares of Common Stock, $.01 par value. Based
solely upon a certificate of American Stock Transfer & Trust Co. and our review
of the Certificate of Incorporation of TPC, as well as stock transfer records
and corporate minutes to the extent available, as of January ___, 1997,
1,750,000 shares of TPC Common Stock were issued and outstanding, of which
1,451,157 shares were owned of record by EFCC. To our knowledge, all outstanding
shares of EFCC and TPC have been duly authorized and validly issued and are
fully-paid and non-assessable.
3. To our knowledge, other than as contemplated in the Merger
Agreement, there is no outstanding right, subscription, warrant, call,
unsatisfied preemptive right, option or other agreement or arrangement of any
kind to purchase or otherwise to receive from EFCC or TPC any of the
outstanding, authorized but unissued, unauthorized or treasury shares of the
common stock or any other security of EFCC or TPC, and there is no outstanding
security of any kind convertible into or exchangeable for such capital stock.
4. EFCC has full corporate power and authority to execute and deliver
the Merger Agreement and the Consulting Agreement and to consummate the
transactions contemplated on its part thereby. The execution and delivery of the
Merger Agreement and the Consulting Agreement by EFCC and the consummation of
the transactions contemplated on its part thereby have been duly authorized by
its Board of Directors and, in the case of the Merger Agreement, duly approved
by EFCC's shareholders, and, other than as contemplated in the Merger Agreement,
no other corporate proceedings on the part of EFCC are necessary to authorize
the execution and delivery of the Merger Agreement or the Consulting Agreement
by EFCC or the consummation of the transactions contemplated on its part
thereby. Each of the Merger Agreement and the Consulting Agreement has been duly
executed and delivered by EFCC, and constitutes the legal, valid and binding
obligation of EFCC, enforceable against EFCC in accordance with its terms,
subject to the General Qualifications contained in ss.11-14 of the Third-Party
Legal Opinion Report of the Section of Business Law, American Bar Association
(1991) (the "General Qualifications") and Paragraph 10 below.
5. Each of Xxxx Holding Corp. ("Xxxx") and Arbor has full power and
authority to execute and deliver the EFCC Shareholders Agreement and each of the
irrevocable proxies contemplated thereby (the "Proxies") and to consummate the
transactions contemplated thereby. The
Star Multicare Services, Inc. 4 January __, 1997
execution and delivery of the EFCC Shareholders Agreement and the Proxies by
each of Xxxx and Arbor and the consummation of the transactions contemplated
thereby have been duly authorized, and no other proceeding on the part of Xxxx
or Arbor is necessary to authorize the execution and delivery of the EFCC
Shareholders Agreement and the Proxies by Xxxx or Arbor or the consummation of
the transactions contemplated thereby. The EFCC Shareholders Agreement and the
Proxies have been duly executed and delivered by Xxxx, Arbor and Xx. Xxxx
Xxxxxxx, and constitute the legal, valid and binding obligation of Xxxx, Arbor
and Xx. Xxxx Xxxxxxx, enforceable against Xxxx, Arbor and Xx. Xxxx Xxxxxxx in
accordance with their terms, subject to the General Qualifications and Paragraph
10 below.
6. Each of Xxxx and Arbor has full corporate power and authority to
execute and deliver the Escrow Agreement and to consummate the transactions
contemplated on its part thereby. The execution and delivery of the Escrow
Agreement by each of Xxxx and Arbor and the consummation of the transactions
contemplated on their part thereby have been duly authorized by its Board of
Directors, and no other corporate proceedings on the part of Xxxx or Arbor is
necessary to authorize the execution and delivery of the Escrow Agreement by
Xxxx or Arbor or the consummation of the transactions contemplated on their part
thereby. The Escrow Agreement has been duly executed and delivered by each of
Xxxx and Arbor, and constitutes the legal, valid and binding obligation of each
of Xxxx and Arbor, enforceable against Xxxx and Arbor in accordance with its
terms, subject to the General Qualifications.
7. Except as disclosed in Section 4.5 of the Merger Agreement or the
EFCC Disclosure Schedule, the execution, delivery and performance of the Merger
Agreement by EFCC and the consummation by it of the transactions contemplated
thereby do not (i) violate or conflict with any provision of any law applicable
to EFCC or TPC or by which any of their property or assets are bound, (ii)
require the consent, waiver, approval, license or authorization of, or any
filing by EFCC or TPC with, any public authority, or (iii) violate, conflict
with or result in a breach of or the acceleration of any obligation under, or
constitute a default (or an event which with notice or the lapse of time or both
would become a default) under, or give to others any right of, or result in any,
termination, amendment, acceleration or cancellation of, or loss of any benefit
or creation of a right of first refusal or result in the creation of a lien or
other encumbrance on any property or asset of EFCC or TPC pursuant to or under
any provision of any charter or bylaw, or, to the best of our knowledge, any
indenture, mortgage, lien, lease, license, agreement, contract, or instrument
identified the EFCC Disclosure Schedules or, to our knowledge, any order,
judgment, ordinance, EFCC Permit, law, regulation or decree to which EFCC or TPC
is subject or by which EFCC or TPC or any of their property or assets are bound,
except where the failure to give such notice, make such filings, or obtain such
authorizations, consents, waivers, licenses or approvals, or where such
violations, conflicts, breaches, defaults, terminations, amendments,
accelerations, cancellations, loss of rights, liens or encumbrances,
individually or in the aggregate, would not have a Material Adverse Effect on
EFCC or on EFCC's ability to consummate the transactions contemplated by the
Merger Agreement.
Star Multicare Services, Inc. 5 January __, 1997
8. Upon filing of the Certificate of Merger with the Secretary of
State of the State of New York, the Merger will be effective in accordance with
the terms of the Certificate of Merger and the BCL.
9. To our knowledge, except as set forth in Section 4.7 of the EFCC
Disclosure Schedule or in the EFCC SEC Filings, there are no suits,
arbitrations, mediations, actions, proceedings, unfair labor practice complaints
or grievances pending or threatened against EFCC or TPC.
10. We express no opinion as to the enforceability of (i) the
indemnification obligation contained in the Shareholders Agreement, to the
extent it purports to relate to any liability under any Federal or state
securities law, or (ii) any provision of the Consulting Agreement that purports
to require EFCC to act in accordance with directions received from Star
Multicare Services, Inc.
11. Our opinions set forth in Paragraphs "5" and "6" above, insofar
as they relate to Xxxx, are rendered in reliance upon the opinion of
________________________, Esqs., counsel to Xxxx, a copy of which is annexed
hereto. Our opinions contained in clauses (i) and (ii) of Paragraph "7" above
insofar as they relate to laws, rules, regulations or requirements governing the
provision of healthcare services, is rendered in reliance upon the opinion of
___________________, Esqs., special healthcare services counsel to EFCC and TPC,
a copy of which is also annexed hereto.
12. The Registration Statement relating to the shares of Star Multi
Care Services, Inc. to be issued pursuant to the Merger Agreement has become
effective under the Securities Act and, to our knowledge, no order suspending
the effectiveness of the Registration Statement has been issued and no
proceeding for that purpose has been instituted or is pending.
Star Multicare Services, Inc. 6 January __, 1997
We are members of the Bar of the State of New York, and we do not
express any opinion herein concerning any law other than the laws of the State
of New York and the Federal laws of the United States.
This opinion letter is rendered to you in connection with the
above-described transaction. This opinion letter may not be relied upon by you
for any other purpose, or relied upon by, or furnished to, any other person,
firm or corporation, without our prior written consent.
Very truly yours,
XXXXXXX, LIPPE, GOLDSTEIN,
WOLF & XXXXXXXXX, P.C.
By:_________________________
EXHIBIT D
---------
EFCC SHAREHOLDERS AGREEMENT
This EFCC Shareholders Agreement (the "Agreement") is made and
entered into as of January 3, 1997 among Star Multi Care Services, Inc., a New
York corporation ("Star"), Xxxx Holding Corp., a New York corporation ("Xxxx")
and Arbor Home Healthcare Holdings, LLC, a limited liability company formed
under the laws of the state of New York ("Arbor" and collectively with Xxxx, the
"Shareholders"), shareholders of Extended Family Care Corporation, a New York
corporation ("EFCC") listed on Annex A hereto, and Xx. Xxxx Xxxxxxx, an
individual having voting control of the shares of EFCC owned by each of the
Shareholders ("Xxxxxxx") and Xxxxxx, as Voting Trustee under the Voting Trust.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed thereto in the Merger Agreement (as defined below).
RECITALS
A. Concurrently with delivery of this Agreement, Star, EFCC and EFCC
Acquisition Corp., a New York corporation and a wholly owned subsidiary of Star
("Merger Sub"), are entering into an Agreement and Plan of Merger (the "Merger
Agreement") which provides for the merger (the "Merger") of EFCC with and into
Merger Sub or, in the event of the exercise of the All Cash Option, as defined
in the Merger Agreement, Merger Sub with and into EFCC. Pursuant to the Merger,
shares EFCC Common Stock will be converted into the right to receive cash and
shares of Star Common Stock on the basis described in the Merger Agreement.
B. Each of Arbor and the Voting Trustee is the record holder and each
of Arbor and Xxxx is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such number
of issued and outstanding shares of EFCC Common Stock as is indicated on Annex A
of this Agreement (the "Shares").
C. As an inducement to Star to enter into the Merger Agreement, each
Shareholder, the Voting Trustee and Xxxxxxx is willing to enter into and be
bound by this Agreement pursuant to which each agrees (i) not to transfer or
otherwise dispose of any of their respective Shares, or any other securities of
EFCC acquired hereafter and prior to the Expiration Date (as defined in Section
1.1 below, except as otherwise permitted hereby), (ii) not to transfer or
otherwise dispose of any of their respective shares of Star Common Stock
received as Merger Consideration, except as otherwise expressly permitted
hereby, (iii) to vote their respective Shares and any other such securities of
EFCC held thereby so as to facilitate consummation of the Merger, and (iv) to
accept certain liabilities in respect of the obligations of the Company pursuant
to the Merger Agreement, and (v) following the Merger, to vote any and all
shares of Star as to which it has voting power in accordance with the
determinations of the Board of Directors of Star, all as specified herein below.
D. Each Shareholder and Xx. Xxxx Xxxxxxx does not have a binding
commitments or preconceived plans or arrangements to dispose of the shares of
Star Common Stock to be received pursuant to the terms of the Merger Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. Each Shareholder and Xxxxxxx
severally agrees not to transfer (except as may be specifically required by
court order), sell, exchange, pledge or otherwise dispose of or encumber any of
the Shares or any New Shares (as defined in Section 1.2 below), or to make any
offer or agreement relating thereto, at any time prior to the Expiration Date.
As used herein, the term "Expiration Date" shall mean the earlier to occur of
(i) such date and time as the Merger shall become effective in accordance with
the terms and provisions of the Merger Agreement and (ii) such date and time as
the Merger Agreement shall be terminated pursuant to Article VII thereof.
1.2 Additional Purchases. Each Shareholder and Xxxxxxx
agrees that any shares of capital stock of EFCC that it or he purchases or with
respect to which it or he otherwise acquires beneficial ownership after the
execution of this Agreement and prior to the Expiration Date ("New Shares")
shall be subject to the terms and conditions of this Agreement to the same
extent as if they constituted Shares.
2. Agreement to Vote Shares and Irrevocable Proxy.
(a) At every meeting of the shareholders of EFCC called
with respect to any of the following, and at every adjournment or postponement
thereof, and on every action or approval by written consent of the shareholders
of EFCC with respect to any of the following, each Shareholder and the Voting
Trustee and Xxxxxxx severally agrees to vote their respective Shares and any New
Shares: (i) in favor of approval of the Merger Agreement and the Merger and any
matter that could reasonably be expected to facilitate the Merger; and (ii)
against approval of any proposal made in opposition to or competition with
consummation of the Merger and against any merger, consolidation, sale of
assets, reorganization or recapitalization, with any party other than with Star
and its affiliates and against any liquidation or winding up of EFCC (each of
the foregoing is hereinafter referred to as an "Opposing Proposal"). Each
Shareholder and the Voting Trustee and Xxxxxxx severally agrees not to take any
actions contrary to its or his obligations under this Agreement.
(b) Concurrently with the execution of this Agreement,
each Shareholder and the Voting Trustee and Xxxxxxx shall deliver to Star a
proxy in each of the forms attached hereto as Annex B and Annex C (the
"Proxies"), which shall be irrevocable to the extent
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provided in the New York Business Corporation Law, with respect to the total
number of shares of capital stock of EFCC or Star, as the case may be,
beneficially owned (as such term is defined in Rule 13d-3 under the Exchange
Act) by it or him set forth therein.
3. Agreement Not to Sell. Each Shareholder and Xxxxxxx,
severally agrees that, from the Effective Time through and until the second
anniversary thereof (such period being hereinafter referred to as the
"Restrictive Period"), none of them shall sell, or in any other way directly or
indirectly transfer, convey, assign, distribute, encumber or otherwise dispose
of, any Star Common Stock received as Merger Consideration; provided, however,
that during the Restrictive Period Arbor, Xxxx and Xxxxxxx may, (i) pursuant to
the Registration Rights granted by Section 4 hereby, sell such shares of Star
Common Stock pursuant to a registration effected under the Securities Act in
accordance with said Registration Rights or (ii) following ten days' prior
written notice to Star of its intent to do so and disclosing the broker/dealer
executing such sale (and including a copy of the Form 144 relating thereto, if
applicable), sell such shares of Star Common Stock in a transaction or
transactions made in accordance with Rules 144 and/or 145 under the Securities
Act. Other than as set forth in clauses (i) and (ii) above, however, nothing
contained herein shall preclude, Arbor, Xxxx or Xxxxxxx during the Restrictive
Period, from selling any Star Common Stock received as Merger Consideration
provided that prior thereto each transferee or subsequent transferee enter into
an agreement with Star in writing to be bound by and indeed becomes bound by the
provisions of this Agreement and to enter into and deliver to Star an
enforceable proxy, irrevocable to the extent provided above, on behalf of Star
in the form of Annex C attached hereto, provided that such proxy shall
terminate, and be of no further effect as to any shares of Star Common Stock
sold pursuant to Sections 3(i) or 3(ii) hereof.
4. Registration Rights
Upon their receipt of the shares of Star Common Stock
received as Merger Consideration (the "Registerable Securities") each of the
Shareholders will be entitled to the following Registration Rights.
(a) PIGGY-BACK RIGHTS. If Star proposes to register for
itself or anyone else pursuant to the Securities Act the sale of shares of any
class of its common stock then, on any such occasion, during the 18-month period
commencing at the Effective Time (the "Piggy-back Period"), Star will furnish
the Shareholders with prompt written notice thereof (other than the receipt of
notice of any exercise of demand registration rights as to fewer than 50,000
such shares and with respect to which Star does not sell any such shares on its
own behalf). To the extent permitted by applicable securities laws and this
Agreement, Star will cause to be registered in such registration statement, if
any, all of the Shareholders' Registrable Securities that the Shareholders have
properly requested be included in such registration. The Shareholders shall
exercise the "Piggy-back rights" under this Section 4(a) by giving written
notice to Star to such effect within seven (7) days after being given notice of
any registration by Star as aforesaid. The provisions of this Section shall not
apply to a registration (i) on Form S-8 or other comparable form relating
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solely to employee stock benefit plans or (ii) on Form S-4 or other comparable
form relating solely to business combination transactions.
(b) DEMAND REGISTRATION. For one year commencing upon the
expiration of the Piggy-back Period, upon written demand by either Shareholder
that it desires to have any or all of the Registerable Securities owned by it
registered (the "Shareholder Demand"), Star shall, as expeditiously as possible,
use its best efforts to effect (at the earliest possible date and if possible
within ninety (90) days after the giving of such written notice to Star) the
registration and/or qualification of such Registerable Securities under the
Securities Act and any applicable state securities laws then in force and to
file such amendments and supplements as may be necessary to keep such
registration effective for ninety (90) days (such period to be tolled for any
period that Star is not in compliance with its obligation hereunder). Star will
give notice to the other Shareholder(s) of the Shareholder Demand, of its
intention to effect such registration and otherwise comply with the provisions
of this Section 4(b) with respect to such registration. Star shall not be
obligated to cause to become effective more than one registration statement
pursuant to which Registerable Securities are sold under this Section 4(b).
(c) REGISTRATION EXPENSES. All expenses, disbursements and
fees arising out of or related to the preparation, filing, amendment and
supplementing of a registration statement, including without limitation all
legal and accounting fees (other than fees of counsel, if any, engaged by any
Shareholders in connection with any registration of Registerable Securities),
filing fees, printing costs, registration or qualification fees and expenses
necessary to comply with blue sky or other state securities laws and any other
expenses in connection with any action to be taken under Section 4(a) shall be
borne by Star. All expenses, disbursements and fees arising out of or related to
the preparation, filing, amendment and supplementing of a registration statement
including, without limitation, all legal and accounting fees, filing fees,
printing costs, registration or qualification fees and expenses necessary to
comply with blue sky or other state securities laws and any other expenses in
connection with any action to be taken under Section 4(b) shall be borne,
jointly and severely, by the Shareholders, proportional to the shares of such
Shareholder included in a registration under Section 4(b).
5. Representations, Warranties and Covenants of the
Shareholders. Each Shareholder hereby severally represents, warrants and
covenants to Star as follows:
5.1 Ownership of Shares. Such Shareholder (i) is the
beneficial owner of the respective number of Shares set forth opposite its name
on Annex A, which at the date hereof and at all times up until the Expiration
Date will be free and clear of any liens, claims, options, charges or other
encumbrances; (ii) does not beneficially own any shares of capital stock of Star
other than such Shares; and (iii) has full power and authority to make, enter
into and carry out the terms of this Agreement and the Proxy.
5.2 No Proxy Solicitations. Such Shareholder, the Voting
Trustee and Xxxxxxx will not, and will not permit any entity under Shareholder's
control to: (i) solicit
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proxies or become a "participant" in a "solicitation" (as such terms are defined
in Regulation 14A under the Exchange Act) with respect to an Opposing Proposal
or otherwise encourage or assist any party in taking or planning any action that
would compete with, restrain or otherwise serve to interfere with or inhibit the
timely consummation of the Merger in accordance with the terms of the Merger
Agreement; (ii) initiate a shareholders vote or action by consent of EFCC
shareholders with respect to an Opposing Proposal; or (iii) become a member of a
"group" (as such term is used in Section 13(d) of the Exchange Act) with respect
to any voting securities of EFCC with respect to an Opposing Proposal.
5.3 Authority; Enforceability. Such Shareholder and the
Voting Trustee have the legal right and power, and all authorization and
approval required by law, to enter into this Agreement and the Affiliate Letter
to be delivered by such Shareholder pursuant to Section 5.10 of the Merger
Agreement. This Agreement and the Affiliate Letter have each been duly
authorized, executed and delivered by or on behalf of such Shareholder and the
Voting Trustee and constitutes a valid and binding obligation of such
Shareholder and the Voting Trustee enforceable in accordance with its respective
terms, except, with respect to Section 2 hereof, as such enforceability may be
limited by principles of public policy and subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and the
rules of law governing specific performance, injunctive relief or other
equitable remedies.
5.4 No Conflict. The execution and delivery by such
Shareholder and the Voting Trustee of, and the performance by such Shareholder
and the Voting Trustee of, its obligations under this Agreement and the
Affiliate Letter will not contravene any provision of applicable law, or the
certificate of incorporation or Bylaws, partnership agreement, trust agreement
or other charter documents of such Shareholder, any agreement or other
instrument binding upon such Shareholder or the Voting Trustee, or any judgment,
order or decree of any governmental body, agency or court having jurisdiction
over such Shareholder or the Voting Trustee, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by such Shareholder or the Voting Trustee
of its obligations under this Agreement and the Affiliate Letter to be delivered
by such Shareholder pursuant to Section 5.10 of the Merger Agreement, except (i)
such consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under applicable state and federal securities
laws and the laws of any foreign country, (ii) filings under the HSR Act (iii)
such other consents, authorizations, filings, approvals and registrations which
if not obtained or made would not have a Material Adverse Effect on the ability
of such Shareholder or the Voting Trustee to consummate the transactions
contemplated by this Agreement, the Affiliate Letter and the Merger Agreement or
(iv) any consents specified in Section 4.5(ii)(C) or (ii)(D) of the Merger
Agreement.
-5-
5.5 Representations and Warranties of EFCC.
(a) The representations of EFCC set forth in Section 4.6
of the Merger Agreement are true and correct as of the date of the Merger
Agreement and will be true as of the Effective Time and each of the Shareholders
further shall represent and warrant in writing to Star immediately prior to the
Effective Time that, from the date hereof through the Effective Time, there has
not been any adverse development or change or prospective adverse development or
change regarding the ability of EFCC to conduct its Medicaid-related operations
in the nature or to the extent conducted prior to the date hereof.
(b) Except as relate to certified class action lawsuits
relating to the Merger, the representations of EFCC set forth in Sections 4.7,
4.10 and 4.11 of the Merger Agreement are true and correct as of the date of the
Merger Agreement and will be true as of the Effective Time.
6. Survival; Limitation; Indemnification.
6.1 Survival of Representations and Warranties. The
representations and warranties of the Shareholders set forth in Section 5.5(a)
hereof shall survive for a period of twenty-four (24) months following the
Effective Time and the representations and warranties of the Shareholders set
forth in Section 5.5(b) shall survive for a period of twelve (12) months
following the Effective Time.
6.2 Limitation of Damages. The liability of each
Shareholder for monetary damages with respect to the foregoing representations
and warranties shall be limited exclusively to the Escrow Fund, as that term is
defined in the form of Escrow Agreement attached to the Merger Agreement as
Exhibit E.
6.3 Indemnification by the Sellers.
(a) Subject to Sections 6.1 and 6.2 above and 6.3(b)
below, the Shareholders shall, jointly and severally, indemnify, defend and hold
Star and EFCC and any director, officer, employee, agent, advisor, parent,
shareholder, subsidiary or affiliate of Star (each a "Star Indemnitee") harmless
from, against and with respect to any and all demands, claims, actions or causes
of action, assessments, liabilities, losses, costs, damages, penalties, charge
or expense, including, without limitation, interest, penalties and reasonable
counsel and accountants' fees, disbursements and expenses (collectively,
"Indemnifiable Losses") arising out of, or related to, (i) any breach by any
Shareholder of any representation or warranty made by any Shareholder in this
agreement or any other document delivered by any Shareholder in connection
herewith, and (ii) the failure on the part of any Shareholder to fully,
faithfully and timely perform all covenants to be performed by it under this
agreement or any such document (collectively, the "Claims").
(b) The Shareholders shall only be obligated to indemnify,
defend and hold Star harmless for Indemnifiable Losses incurred as a result of a
breach or breaches of Section
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5.5(b) hereof in the event and to the extent that all such Indemnifiable Losses
shall exceed $100,000.
6.4 Procedure for Indemnification.
(a) If Star receives notice of the assertion by a third
party of any claim or of the commencement by any such person of any action or
proceeding (a "Third Party Claim") with respect to which the Shareholders are
obligated to provide indemnification, Star shall give the Shareholders prompt
notice thereof after becoming aware of such Third Party Claim in reasonable
detail and shall indicate the amount (estimated if necessary) of the
Indemnifiable Loss that has been or may be sustained by Star. If the
Shareholders elect, at their expense, to compromise or defend such Third Party
Claim, they shall promptly notify Star of their intent to do so, and Star shall
cooperate, at the expense of the Shareholders, in the compromise of, or defense
against, such Third Party Claim. If the Shareholders elect not to compromise or
defend against the Third Party Claim as aforesaid, or fail to notify Star of
their election to do so as herein provided, Star may pay (without prejudice to
any of its rights against the Shareholders), compromise or defend such Third
Party Claim. Notwithstanding the foregoing, neither the Shareholders nor Star
may settle or compromise any claim (unless the sole relief payable to a Third
Party in respect of such Third Party Claim is monetary damages that are paid in
full by the party settling or compromising such claim) over the objection of the
other; provided, however, that consent to settlement or compromise shall not be
unreasonably withheld. In any event, Star and the Shareholders may each
participate in the defense of such Third Party Claim. Such participation shall
be at the expense of each party except if Star, in its reasonable discretion,
believes that because of its relationship with the Third Party it must
participate therein, then in such event the participation of Star shall be at
the expense of the Shareholders. Star shall make available to the Shareholders
during normal business hours and for reasonable periods, any books, records or
other documents within its control that are necessary or appropriate for such
defense.
(b) Any claim by Star on account of an Indemnifiable Loss
which does not result from a Third Party Claim shall be asserted by written
notice given to the Shareholders. The Shareholders shall have a period of ten
(10) days within which to respond thereto. If the Shareholders do not respond
within such 10-day period, the Shareholders shall be deemed to have accepted
responsibility to make payment, and shall have no further right to contest the
validity of such claim. If the Shareholders do respond within such 10-day period
and reject such claim in whole or in part, Star shall be free to pursue such
remedies as may be available to it under applicable law.
6.5 Remedies Cumulative. The remedies provided herein
shall be cumulative and shall not preclude assertion by any party hereto of any
other rights or the seeking of any other remedies against any other party
hereto, except as provided in Section 6.2.
7. Additional Documents. Each Shareholder and the Voting
Trustee hereby severally covenants and agrees to execute and deliver any
additional documents necessary or
-7-
desirable, in the reasonable opinion of Star or Shareholder, as the case may be,
to carry out the intent of this Agreement.
8. Consent and Waiver. Each Shareholder and the Voting
Trustee hereby gives any consents or waivers that are reasonably required for
the consummation of the Merger under the terms of any agreements to which such
Shareholder is a party or pursuant to any rights such Shareholder or the Voting
Trustee may have.
9. Termination. Except as provided is Sections 3, 4, 5.5 and
6 hereof, this Agreement and the Proxy delivered in connection herewith shall
terminate and shall have no further force or effect as of the Expiration Date.
10. Miscellaneous.
10.1 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
10.2 Binding Effect and Assignment. This Agreement and all
of the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor any
of the rights, interests or obligations of any Shareholder or the Voting Trustee
may be assigned by the Shareholder or the Voting Trustee without the prior
written consent of Star.
10.3 Amendments and Modification. This Agreement may not
be modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the party against whom enforcement
is sought.
10.4 Specific Performance; Injunctive Relief. The parties
hereto acknowledge that Star will be irreparably harmed and that there will be
no adequate remedy at law for a violation of any of the covenants or agreement
of any Shareholder set forth herein, other than Section 5.5 (a) or (b).
Therefore, it is agreed that, in addition to any other remedies that may be
available to Star upon any such violation, Star shall have the right to enforce
such covenants and agreements by specific performance, injunctive relief or by
any other means available to Star at law or in equity.
10.5 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and sufficient if delivered
in person, by cable, telegram or telex, or sent by mail (registered or certified
mail, postage prepaid, return receipt requested) or overnight courier (prepaid)
to the respective parties as follows:
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if to Star: Star Multi Care Services, Inc.
00 Xxxx Xxxxxxx Xxxx
Xxxxxxxxxx Xxxxxxx, Xxx Xxxx 00000
Attn: Chief Executive Officer
Telecopier: 000-000-0000
with copies to: Xxxxxx Xxxxxx Flattau & Klimpl, LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx Xxxxxxxxx, Esq.
Telecopier: (000) 000-0000
if to a Shareholder
or Xxxxxxx: To the address for notice set forth on Annex A
hereto.
with copies to: Meltzer, Lippe, Goldstein, Wolf, & Xxxxxxxxx, P.C.
000 Xxxxxx Xxxxxx
Xxxxxxx, Xxx Xxxx 00000
Attn: Xxxxxxx X. Xxxxx, Esq.
Telecopier: (000) 000-0000
If to EFCC: Extended Family Care Corporation
c/o Arbor Home Healthcare Holdings, LLC
000 Xxxx Xxxxxxxx Xxxxxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attn: Chief Executive Officer
Telecopier: (000) 000-0000
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
10.6 Governing Law. This Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the State of New
York, without regard to principles of conflicts of law.
10.7 Legal Proceedings. Legal proceedings commenced by
Star, the Shareholders, the Voting Trustee or Xx. Xxxx Xxxxxxx or arising out of
any of the transactions or obligations contemplated by this Agreement shall be
brought exclusively in the federal courts or, in the absence of federal
jurisdiction, state courts, in either case in Nassau County, New York. Star, the
Voting Trustee and the Shareholders and Xx. Xxxx Xxxxxxx irrevocably and
unconditionally submit to the jurisdiction of such courts and agree to take any
and all future
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action necessary to submit to the jurisdiction of such courts. Each of Star, the
Shareholders, the Voting Trustee and Xx. Xxxx Xxxxxxx irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding brought in any federal or state court in Nassau County, New
York, and further irrevocably waives any claims that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
10.8 Entire Agreement. This Agreement contains the entire
understanding of the parties in respect of the subject matter hereof, and
supersedes all prior negotiations and understandings between the parties with
respect to such subject matter.
10.9 Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
10.10 Effect of Headings. The section headings herein are
for convenience only and shall not affect the construction or interpretation of
this Agreement.
10.11 Effective Time. This Agreement and the Proxy
delivered in connection herewith shall become effective only upon execution of
the Merger Agreement by each of EFCC, Star and Sub.
10.12 Termination of Voting Trust. Upon the Effective
Time, the Voting Trust shall terminate and be of no further force and effect.
IN WITNESS WHEREOF, the parties have caused this EFCC Shareholders
Agreement to be duly executed on the date and year first above written.
STAR MULTI CARE SERVICES, INC.
By: /s/ Xxxxxxx Xxxxxxxxx
---------------------------
Name: Xxxxxxx Xxxxxxxxx
Title:Chief Executive Officer
SHAREHOLDERS:
XXXX HOLDING CORP.
By: /s/ Xxxx Xxxxxx
---------------------------
Name: Xxxx Xxxxxx
Title: Vice-President
/s/ Xxxx Xxxxxx
------------------------------
Xxxx Xxxxxx, As Voting Trustee
ARBOR HOME HEALTHCARE
HOLDINGS, LLC
By: /s/ Xxxx Xxxxxxx
---------------------------
Name: Xxxx Xxxxxxx
Title:Member and President
/s/ XXXX XXXXXXX
------------------------------
XXXX XXXXXXX
Acknowledged and Accepted by:
EXTENDED FAMILY CARE CORPORATION
By: /s/ Xxxxxx Xxxxxx
-----------------------
Name: Xxxxxx Xxxxxx
Title: Vice-President
ANNEX A TO EFCC SHAREHOLDERS AGREEMENT
LIST OF PERSONS WHO ENTERED INTO EFCC SHAREHOLDERS AGREEMENT
NUMBER OF SHARES
----------------
NAME AND ADDRESS COMMON STOCK
---------------- ------------
Xxxx Holding Corp. 12,749,658
c/o Arbor Home Healthcare Holdings, LLC
000 Xxxx Xxxxxxxx Xxxxxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attention: Chief Executive Officer
Arbor Home Healthcare Holdings, LLC 13,000,000
c/o Arbor Home Healthcare Holdings, LLC
000 Xxxx Xxxxxxxx Xxxxxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attention: Chief Executive Officer
Xx. Xxxx Xxxxxxx 0
c/o Arbor Home Healthcare Holdings, LLC
000 Xxxx Xxxxxxxx Xxxxxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attention: Chief Executive Officer
ANNEX B
IRREVOCABLE PROXY
The undersigned shareholder or affiliate of Extended Family Care
Corporation, a New York corporation ("EFCC"), hereby irrevocably (to the extent
provided for in the New York Business Corporation Law) appoints the directors on
the Board of Directors of Star Multi Care Services, Inc., a New York corporation
("Star"), and each of them, as the sole and exclusive attorneys and proxies of
the undersigned, with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to the shares of capital stock
of EFCC beneficially owned by the undersigned, which shares are listed on the
final page of this Proxy (the "Shares"), and any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof,
until such time as that certain Agreement and Plan of Merger dated as of January
3 , 1997 (the "Merger Agreement"), among Star, EFCC Acquisition Corp., a New
York corporation and a wholly-owned subsidiary of Star ("Merger Sub"), and EFCC,
shall be terminated in accordance with its terms or the Merger (as defined in
the Merger Agreement) is effective. Upon the execution hereof, all prior proxies
given by the undersigned with respect to the Shares and any and all other shares
or securities issued or issuable in respect thereof on or after the date hereof
are hereby revoked and no subsequent proxies will be given.
This proxy is irrevocable (to the extent provided for in the New York
Business Corporation Law), is granted pursuant to the EFCC Shareholders
Agreement dated as of January 3 , 1997 (the "EFCC Shareholders Agreement"),
among Star, the undersigned and certain other shareholders of EFCC, and is
granted in consideration of Star entering into the Merger Agreement. The
attorneys and proxies named above will be empowered at any time prior to
termination of the Merger Agreement to exercise all voting and other rights
(including, without limitation, the power to execute and deliver written
consents with respect to the Shares) of the undersigned at every annual, special
or adjourned meeting of EFCC's shareholders, and in every written consent in
lieu of such a meeting, or otherwise, in favor of approval of the Merger and the
Merger Agreement and any matter that could reasonably be expected to facilitate
the Merger, and against any proposal made in opposition to or competition with
the consummation of the Merger and against any merger, consolidation, sale of
assets, reorganization or recapitalization of EFCC with any party other than
Star and its affiliates and against any liquidation or winding up of EFCC.
The attorneys and proxies named above may only exercise this proxy to
vote the Shares subject hereto at any time prior to termination of the Merger
Agreement, at every annual, special or adjourned meeting of the shareholders of
EFCC and in every written consent in lieu of such meeting, in favor of approval
of the Merger and the Merger Agreement and any matter that could reasonably be
expected to facilitate the Merger, and against any merger, consolidation, sale
of assets, reorganization or recapitalization of EFCC with any party other than
Star and its affiliates, and against any liquidation or winding up of EFCC, and
may not exercise this proxy on any other matter. The undersigned shareholder may
vote the Shares on all other matters, subject only to the
terms of that certain Voting Trust Agreement, entered into as of June ___, 1996
between Cosmetic Sciences, Inc. and the Shareholders.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable.
Dated: January 3, 1997
XXXX HOLDING CORP.
By: /s/ Xxxx Xxxxxx
------------------------------
Name: Xxxx Xxxxxx
Title: Vice-President
/s/ Xxxx Xxxxxx
------------------------------
Xxxx Xxxxxx, As Voting Trustee
ARBOR HOME HEALTHCARE HOLDINGS,
LLC
By: /s/ Xxxx Xxxxxxx
------------------------------
Name: Xxxx Xxxxxxx
Title: Member and President
-2-
Shares Subject to Irrevocable Proxy
-----------------------------------
Xxxx Holding Corp. 12,749,658
Arbor Home Healthcare Holdings, LLC 13,000,000
-3-
ANNEX C
IRREVOCABLE PROXY
Upon the receipt by the undersigned of any and all shares (the "Shares")
of capital stock of Star Multi Care Services, Inc., a New York corporation
("Star"), to be issued pursuant to and in accordance with the terms of that
certain Agreement and Plan of Merger dated as of January 3, 1997 (the "Merger
Agreement"), among Star, EFCC Acquisition Corp., a New York corporation and a
wholly-owned subsidiary of Star, and Extended Family Care Services, a New York
corporation, or otherwise owned thereby, the undersigned hereby irrevocably (to
the extent provided for in the New York Business Corporation Law) appoints the
Board of Directors of Star as the sole and exclusive attorney and proxy of the
undersigned, with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to the Shares, and any and all
other shares or securities issued or issuable in respect thereof on or after the
date hereof and prior to the termination of this proxy.
Upon the execution hereof, all prior proxies given by the undersigned
with respect to the Shares and any and all other shares or securities issued or
issuable in respect thereof are hereby revoked and no subsequent proxies will be
given.
This proxy is irrevocable (to the extent provided for in the New York
Business Corporation Law) is granted by the undersigned in consideration of Star
entering into the Merger Agreement and shall terminate five (5) years from the
date that the undersigned shall become entitled to the Shares pursuant to the
terms of the Merger Agreement. The attorney and proxy named above will be
empowered during the term of this proxy to exercise all voting and other rights
(including, without limitation, the power to execute and deliver written
consents with respect to the Shares) of the undersigned at every annual, special
or adjourned meeting of Star's shareholders, and in every written consent in
lieu of such a meeting, or otherwise.
This proxy shall terminate and be of no further effect as to the
shares of Star Common Stock sold in the manner contemplated by Sections 3(i) or
3(ii) of the EFCC Shareholders Agreement to which this Irrevocable Proxy is
annexed as Annex C.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
Dated: January 3, 1997
XXXX HOLDING CORP.
By: /s/ Xxxx Xxxxxx
------------------------------
Name: Xxxx Xxxxxx
Title: Vice-President
/s/ Xxxx Xxxxxx
------------------------------
Xxxx Xxxxxx, As Voting Trustee
ARBOR HOME HEALTHCARE HOLDINGS,
LLC
By: /s/ Xxxx Xxxxxxx
------------------------------
Name: Xxxx Xxxxxxx
Title: Member and President
EXHIBIT E
---------
ESCROW AGREEMENT
________________, 1997
The parties to this agreement are Xxxx Holding Corp., a New York
corporation ("Xxxx"), Arbor Home Healthcare Holdings, LLC, a New York limited
liability corporation ("Arbor"), Star Multi Care Services, Inc., a New York
corporation ("Star"), and Xxxxxx Xxxxxx Flattau & Klimpl, LLP, a New York
limited liability partnership, as escrow agent (the "Escrow Agent").
Star, EFCC Acquisition Corp. and Extended Family Care Corporation
("EFCC") have entered into an Agreement and Plan of Merger dated as of January
__, 1997 (the "Merger Agreement") pursuant to which, among other things, EFCC is
merging with EFCC Acquisition Corp. (the "Merger").
As contemplated by the Merger Agreement, Star, Xxxx and Arbor desire
to have a portion of the purchase price delivered now to the Escrow Agent to
hold, and the Escrow Agent has agreed to receive, hold and re-deliver said
funds, on the terms set forth below. Capitalized terms used and not otherwise
defined herein shall have the meanings respectively assigned to them in the
Merger Agreement.
The parties therefore agree as follows:
1. ESCROW. Each of Xxxx and Arbor contemporaneously herewith has
delivered to the Escrow Agent a check in good funds, a wire transfer or other
readily available funds in the amount of $125,000 for a total amount of
$250,000(the "Escrow Amount") and the Escrow Agent hereby acknowledges receipt
thereof.
2. INVESTMENTS. The Escrow Agent may invest the Escrow Amount in
securities issued or guarantied by the United States of America or deposit the
funds with, or invest the funds in certificates of deposit, commercial paper or
similar products of, domestic commercial banks that have, or are members of a
group of domestic commercial banks that has, consolidated total assets of at
least $1,000,000,000, or such other banks or other financial institutions to
which Xxxx and Star have consented in writing (hereinafter collectively the
"Investments"). The Escrow Amount and income paid or credited on Investments is
hereinafter referred to as the "Escrow Fund."
3. RELEASE OF ESCROW FUND.
(a) The Escrow Agent shall release the Escrow Fund only as
permitted by this Section 3.
(b) In the event that Star determines that there exists a
claim for which it is entitled to be reimbursed or indemnified pursuant to
Section 6.3 of the EFCC Shareholders Agreement among Star, Xxxx and Arbor or any
other document or agreement delivered in connection therewith, Star shall be
entitled to assert a claim in writing (an "Asserted Claim") against the Escrow
Amount in respect of each such claim and amount, as the case may be, by
notifying Xxxx and Arbor (with a copy of the notification to the Escrow Agent)
in reasonable detail of the basis and amount of such Asserted Claim. If, within
ten (10) days after the sending of such notice by Star, the Escrow Agent shall
not have received from Xxxx and Arbor a written statement disputing all or any
part of such Asserted Claim, then the Escrow Agent shall deliver to Star so much
of the Escrow Amount as may be available and as may be necessary to pay the
amount of such Asserted Claim in full, and the Escrow Agent shall promptly
follow such instructions. If, within ten (10) days after the sending of such
notice by Star, Star and the Escrow Agent shall have received from Xxxx and
Arbor a written statement disputing all or a portion of such Asserted Claim,
then Star may order the Escrow Agent to deliver to Star so much of the Escrow
Amount as may be available and as may be necessary to pay any portion of such
Asserted Claim that is not disputed, and the Escrow Agent shall promptly follow
such instructions. Star shall have the right to notify Xxxx and Arbor of
Asserted Claims at any time and from time to time, but only prior to the
Termination Date (as hereinafter defined).
(c) In the event that Xxxx and Arbor shall dispute all or
a portion of any Asserted Claim within the time and in the manner prescribed in
Section 3(b) hereof, the Escrow Agent shall have the right to act in accordance
with Section 5 hereof and shall not release any disputed amounts of the Escrow
Amount until (i) receipt by the Escrow Agent of joint written instructions from
Star, Xxxx and Arbor directing the manner in which payment of such amounts is to
be made, or (ii) as directed by final order of a court of competent jurisdiction
which is not subject to further appeal or other appellate review, together with
an opinion of counsel to the party which successfully sought such order (or, if
no party sought such order, of counsel reasonably acceptable to the Escrow
Agent) to the effect that such order is not appealable.
(d) Subject to the foregoing and all of the other
provisions hereof, on the second anniversary of the date hereof the Escrow Agent
shall release (the date of such release, the "Termination Date") as much of the
Escrow Fund that is not disputed to Xxxx and Arbor, 50% each.
4. FURTHER ASSURANCES. The parties agree to do such further acts and
things and to execute and deliver such statements, assignments, agreements,
instruments and other documents as the Escrow Agent from time to time reasonably
may request in connection with the administration,
-2-
maintenance, enforcement or adjudication of this agreement in order (a) to give
the Escrow Agent confirmation and assurance of the Escrow Agent's rights,
powers, privileges, remedies and interests under this agreement and applicable
law, (b) to better enable the Escrow Agent to exercise any such right, power,
privilege or remedy, or (c) to otherwise effectuate the purpose and the terms
and provisions of this agreement, each in such form and substance as may be
acceptable to the Escrow Agent.
5. CONFLICTING DEMANDS.
(a) The Escrow Agent shall not be or become liable for
damages, losses, expenses or interest to Xxxx, Arbor or any other person for its
failure to comply with conflicting or adverse demands. The Escrow Agent shall be
entitled to continue to refrain and refuse to act until: (i) the rights of the
adverse claimants have been finally adjudicated in a court assuming and having
jurisdiction and venue over the parties and/or the documents, instruments or
funds involved herein or affected hereby; and/or (ii) the Escrow Agent shall
have received an executed copy of a dispositive settlement agreement to which
the parties and all other adverse claimants, if any, are parties and
signatories.
(b) In the event conflicting claims are made or notices
are received the Escrow Agent may elect to commence an interpleader or other
action for declaratory judgment for the purpose of having the respective rights
of the claimants adjudicated, and may deposit with the court all funds held
pursuant to this agreement; and if it so commences and deposits, the Escrow
Agent shall be relieved and discharged from any further duties and obligations
under this agreement.
6. CONSENT TO JURISDICTION, ETC. The parties hereby covenant and
agree that the federal and/or state courts located in New York County, New York
shall have personal jurisdiction and proper venue over any dispute with the
Escrow Agent. In any action or proceeding involving the Escrow Agent in any
jurisdiction, each of the parties waives trial by jury.
7. RELIANCE ON DOCUMENTS AND EXPERTS. The Escrow Agent shall be
entitled to rely upon any notice, consent, certificate, affidavit, statement,
paper, document, writing or communication (which to the extent permitted
hereunder may be by telegram, cable, telex, facsimile transmission, or
telephone) reasonably believed by it to be genuine and to have been signed, sent
or made by the proper person or persons, and upon opinions and advice of legal
counsel (including itself or counsel for any party hereto), independent public
accountants and other experts selected by the Escrow Agent.
8. STATUS OF THE ESCROW AGENT, ETC. The Escrow Agent is acting under
this agreement as a stakeholder only and shall be considered an independent
contractor. No term or provision of this agreement is intended to create, nor
shall any such term or provision be deemed to
-3-
have created, any principal-agent, trust, joint venture, partnership,
debtor-creditor or attorney-client relationship between or among the Escrow
Agent and the parties. This agreement shall not be deemed to prohibit or in any
way restrict the Escrow Agent's representation of Star, which may be advised by
the Escrow Agent on any and all matters pertaining to this agreement and the
escrowed funds and documents. To the extent Star is or has been represented by
the Escrow Agent, Xxxx and Arbor hereby waive any conflict of interest and
authorizes and directs the Escrow Agent to carry out the terms and provisions of
this agreement fairly as to all parties, without regard to any such
representation. The Escrow Agent's only duties are those expressly set forth in
this agreement, and the parties authorize the Escrow Agent to perform those
duties in accordance with its usual practices in holding funds and documents of
its own or those of other escrows. The Escrow Agent may exercise or otherwise
enforce any of its rights, powers, privileges, remedies and interests under this
agreement and applicable law or perform any of its duties under this agreement
by or through its partners, employees, attorneys, agents or designees.
9. EXCULPATION. The Escrow Agent and its designees, and their
respective directors, officers, partners, employees, attorneys and agents, shall
not incur any liability (other than for a person's own acts or omissions
breaching a duty owed to the claimant and amounting to gross negligence or
willful misconduct) whatsoever for the investment or disposition of funds, the
holding or delivery of documents or the taking of any other action in accordance
with the terms and provisions of this agreement, for any mistake or error in
judgment, for compliance with any applicable law or any attachment, order or
other directive of any court or other authority (irrespective of any conflicting
term or provision of this agreement), or for any act or omission of any other
person engaged by the Escrow Agent in connection with this agreement; and each
of Xxxx, Arbor and Star hereby waives any and all claims and actions whatsoever
against the Escrow Agent and its designees, and their respective directors,
officers, partners, employees, attorneys and agents, arising out of or related
directly or indirectly to any and all of the foregoing acts, omissions and
circumstances. Furthermore, the Escrow Agent and its designees, and their
respective directors, officers, partners, employees, attorneys and agents, shall
not incur any liability (other than for a person's own acts or omissions
breaching a duty owed to the claimant and amounting to gross negligence or
willful misconduct) for other acts and omissions arising out of or related
directly or indirectly to this agreement or the escrowed funds or documents; and
each of Xxxx, Arbor and Star hereby expressly waives any and all claims and
actions (other than those attributable to a person's own acts or omissions
breaching a duty owed to the claimant and amounting to gross negligence or
willful misconduct) against the Escrow Agent and its designees, and their
respective directors, officers, partners, employees, attorneys and agents,
arising out of or related directly or indirectly to any and all of the foregoing
acts, omissions and circumstances.
10. INDEMNIFICATION. The Escrow Agent and its designees, and their
respective directors, officers, partners, employees, attorneys and agents, shall
be indemnified, reimbursed, held harmless and, at the request of the Escrow
Agent, defended by the parties, from and against any and
-4-
all claims, liabilities, losses and expenses (including, without limitation, the
reasonable disbursements, expenses and fees of their respective attorneys) that
may be imposed upon, incurred by, or asserted against any of them, or any of
their respective directors, officers, partners, employees, attorneys or agents,
arising out of or related directly or indirectly to this agreement or any
escrowed funds or documents, except such as are occasioned by the indemnified
person's own acts and omissions breaching a duty owed to the claimant and
amounting to gross negligence or willful misconduct.
11. NOTICES. All notices and other communications under this
agreement shall be in writing and shall be deemed given when delivered
personally or mailed by registered mail, return receipt requested, to the
parties at the following addresses (or to such other address as a party may have
specified by notice given to the other party pursuant to this provision):
if to Xxxx:
Xxxx Holding Corp.
c/o Arbor Home Healthcare Holdings, LLC
000 Xxxx Xxxxxxxx Xxxxxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attention: Chief Executive Officer
Telecopier: (000) 000-0000
if to Arbor:
Arbor Home Healthcare Holdings, LLC
000 Xxxx Xxxxxxxx Xxxxxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attn: Chief Executive Officer
Telecopier: (000) 000-0000
in the case of Xxxx and Arbor, with a copy to:
Xxxxxxx, Lippe, Goldstein, Wolf & Xxxxxxxxx, P.C.
000 Xxxxxx Xxxxxx
Xxxxxxx, Xxx Xxxx 00000
Attn: Xxxxxxx X. Xxxxx, Esq.
Telecopier: (000) 000-0000
-5-
if to Escrow Agent:
Xxxxxx Xxxxxx Flattau & Klimpl, LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopier: (000) 000-0000
if to Star:
Star Multi Care Services, Inc.
00 Xxxx Xxxxxxx Xxxx
Xxxxxxxxxx Xxxxxxx, Xxx Xxxx 00000
Attn: Chief Executive Officer
Telecopier: (000) 000-0000
with a copy to:
Xxxxx Xxxxxxxxx, Esq.
Xxxxxx Xxxxxx Flattau & Klimpl, LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
12. SECTION AND OTHER HEADINGS. The section and other headings
contained in this agreement are for reference purposes only and shall not affect
the meaning or interpretation of this agreement.
13. GOVERNING LAW. This agreement has been executed and delivered,
and shall be governed by and construed in accordance with the applicable laws
pertaining, in the state of New York, without regard to principles of conflicts
of law.
14. SEVERABILITY. In the event that any term or provision of this
agreement shall be finally determined to be superseded, invalid, illegal or
otherwise unenforceable pursuant to applicable law by a governmental authority
having jurisdiction and venue, that determination shall not impair or otherwise
affect the validity, legality or enforceability (a) by or before that authority
of the remaining terms and provisions of this agreement, which shall be enforced
as if the unenforceable term or provision were deleted, or (b) by or before any
other authority of any of the terms and provisions of this agreement.
-6-
15. COUNTERPARTS. This agreement may be executed in two or more
counterparts, each of which may be executed by one or more of the parties
hereto, but all of which, when taken together, shall constitute but one
agreement binding upon all of the parties hereto.
16. SUCCESSORS AND ASSIGNS; ASSIGNMENT. Whenever in this agreement
reference is made to any party, such reference shall be deemed to include the
successors, assigns, heirs and legal representatives of such party, and, without
limiting the generality of the foregoing, all representations, warranties,
covenants and other agreements made by or on behalf of each parties in this
agreement shall inure to the benefit of the successors and assigns of the Escrow
Agent; PROVIDED, HOWEVER, THAT nothing herein shall be deemed to authorize or
permit the parties to assign any of their rights or obligations hereunder to any
other person.
17. NO THIRD PARTY RIGHTS. The representations, warranties and other
terms and provisions of this agreement are for the exclusive benefit of the
parties hereto, and no other person, shall have any right or claim against any
party by reason of any of those terms and provisions or be entitled to enforce
any of those terms and provisions against any party.
18. NO WAIVER BY ACTION, ETC. Any waiver or consent respecting any
representation, warranty, covenant or other term or provision of this agreement
shall be effective only in the specific instance and for the specific purpose
for which given and shall not be deemed, regardless of frequency given, to be a
further or continuing waiver or consent. The failure or delay of a party at any
time or times to require performance of, or to exercise its rights with respect
to, any representation, warranty, covenant or other term or provision of this
agreement in no manner (except as otherwise expressly provided herein) shall
affect its right at a later time to enforce any such term or provision. No
notice to or demand on any party in any case shall entitle such party to any
other or further notice or demand in the same, similar or other circumstances.
All rights, powers, privileges, remedies and interests of the Escrow Agent under
this agreement are cumulative and not alternatives, and they are in addition to
and shall not limit (except as otherwise expressly provided herein) any other
right, power, privilege, remedy or interest of the Escrow Agent under this
agreement or applicable law.
19. MODIFICATION, AMENDMENT, ETC. Each and every modification and
amendment of this agreement shall be in writing and signed by all of the parties
hereto, and each and every waiver of, or consent to any departure from, any
covenant, representation, warranty or other provision of this agreement shall be
in writing and signed by each party affected thereby.
-7-
20. ENTIRE AGREEMENT. This agreement contains the entire agreement of
the parties and supersedes all other representations, agreements and
understandings, oral or otherwise, among the parties with respect to the matters
contained herein.
Xxxx Holding Corp.
By: ____________________________
Name:
Title:
Arbor Home Healthcare Holdings, LLC
By: ____________________________
Name:
Title:
Star Multi Care Services. Inc.
By: ____________________________
Name:
Title:
THE ESCROW AGENT:
Xxxxxx Xxxxxx Flattau & Klimpl, LLP
By: ____________________________
EXHIBIT F
---------
[XXXXXXX, LIPPE, GOLDSTEIN, WOLF & XXXXXXXXX, P.C. LETTERHEAD]
[To be dated the Effective Time]
Extended Family Care Corporation, Inc.
Xxx Xxx Xxxxxxx Xxxx
Xxxxx 000
Xxxxx Xxxxx, XX 00000
Star Multi Care Services, Inc.
00 Xxxx Xxxxxxx Xxxx
Xxxxxxxxxx Xxxxxxx, XX 00000
Re: Agreement and Plan of Merger Among Star Multi Care
Services, Inc., EFCC Acquisition Corp. and Extended Family
Care Corporation, Inc. Dated as of January 3, 1997
----------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to the shareholders of Extended Family Care
Corporation, Inc., a New York corporation ("EFCC"), in connection with the
proposed merger (the "Star Merger") of EFCC with and into EFCC Acquisition
Corp., a New York corporation ("Merger Sub") and wholly-owned subsidiary of Star
Multi Care Services, Inc., a New York corporation ("Star"), pursuant to the
Agreement and Plan of Merger Dated as of January 3, 1997 (the "Merger
Agreement"), among Star, Merger Sub and EFCC.
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 2
In so acting, we have participated in the preparation of the Merger
Agreement and the preparation and filing with the Securities and Exchange
Commission of a Joint Proxy Statement of EFCC and Star and Prospectus of Star
relating to the proposed Star Merger and to the shares of common stock, par
value $.001 per share, of Star to be issued to EFCC shareholders in the Star
Merger pursuant to the Merger Agreement (the "Proxy Statement").
As required by Section 6.1(f) of the Merger Agreement, you have
requested that we render the opinion set forth below. In rendering such opinion,
we have made inquiry as to the underlying facts which we consider to be relevant
to the conclusions set forth in this opinion. We have also examined and relied
upon the accuracy as of the date hereof and as of the date of the closing of the
Star Merger of the representations and warranties as to factual matters set
forth in the documents referred to above and the letters of representation,
dated as of the date hereof, that EFCC and Star have provided to us, copies of
which are attached hereto (the "Letters of Representation"). Our opinion is
expressly predicated on the continuing validity of the Letters of
Representation. We have no reason to believe that these representations and
facts are not true, but have not attempted to verify them independently and
expressly disclaim an opinion as to their validity and accuracy.
For purposes of this opinion, we have also reviewed such documents
and materials as in our judgment are necessary or appropriate to enable us to
render the opinions set forth below. We have not, however, undertaken any
independent investigation of any factual matter set forth in any of the
foregoing. In our examination, we have assumed the genuineness of all
signatures, the capacity of each party executing a document to execute such
document, the authenticity of all documents submitted to us as originals and the
conformity to original documents of all documents submitted to us as certified
or photostatic copies. Capitalized terms used but not specifically defined
herein shall have the meanings as defined in the Merger Agreement.
This discussion is based on the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), final, temporary and proposed Treasury
regulations promulgated thereunder (the "Regulations") and administrative and
judicial interpretations thereof, all as in effect as of the date hereof and all
of which are subject to change (possibly on a retroactive basis). Moreover, it
is not possible to know whether any such changes will be made or court decisions
or interpretations will be issued, or the effect, if any, that such changes or
court decisions will have on our opinion. Any such change may adversely affect
our conclusions. No ruling from the Internal Revenue Service (the "IRS") has
been or will be sought on any of the issues discussed below, and there can be no
assurance that the IRS will not take a contrary view as to the federal income
tax consequences discussed below.
This opinion does not address all of the federal income tax
consequences that may be applicable to any particular holder subject to special
treatment under United States federal income
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 3
tax law or to any particular holder in light of such holder's particular facts
and circumstances. Certain holders may be subject to special and/or different
rules not discussed below. In addition, this opinion does not address any aspect
of state, local or foreign taxation.
This opinion is limited solely to the federal law of the United
States as in effect on the date hereof and the relevant facts that exist as of
the date hereof. No assurance can be given that the law or facts will not
change, and we have not undertaken to advise you or any other person with
respect to any event subsequent to the date hereof.
We are delivering this opinion to you and, without our prior written
consent, no other persons are entitled to rely on this opinion. We hereby
consent to the filing of this opinion as an exhibit to the Joint Proxy Statement
and to the use of our name under the captions ["The Merger - Certain Federal
Income Tax Consequences" and "Legal Opinions"] in the Joint Proxy Statement. In
giving such consent, we do not thereby concede that we are within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933 or the Rules and Regulations of the Securities and Exchange Commission
thereunder.
Facts
-----
EFCC is a New York public holding corporation with 32,000,225 shares
of common stock issued and outstanding. Xxxx Holding Corp. ("Xxxx") owns
12,749,658 (39.84%) of such shares, Arbor Home Healthcare Holdings, LLC
("Arbor") owns 13,000,000 (40.63%) of such shares and public shareholders own
6,250,568 (19.53%). Arbor acquired its shares for $1,300,000 on August 21, 1996
and October 31, 1996 through the exercise of options granted on October 31,
1995.
Star is a New York corporation with [_______________] shares of
common stock issued and outstanding.
On [________________], [when EFCC had no current or accumulated
earnings and profits,] EFCC distributed to all of its shareholders with respect
to their shares $750,000 of cash in the aggregate (the "EFCC Dividend"). [Such
distribution reduced the EFCC shareholders' basis in their EFCC shares, but not
below zero.] EFCC's only remaining assets are $[______________] in cash, 83% of
the stock of TPC Home Care Services, Inc., a New York corporation ("TPC") and
$[________________] in intercompany debt from TPC. The other 17% of TPC is owned
by many different shareholders.
On December 6, 1996, TPC sold the assets, subject to liabilities, of
its Jersey City, New Jersey division in a fully taxable transaction to Public
Services, Inc. ("Buyer") for $175,000, evidenced by
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 4
a promissory note, plus an amount equal to 12% of the gross revenues of Buyer in
excess of $90,000 per month for a 24 month period. Buyer is owned 100% by Xxxx
Xxxxxx, who is the husband of a shareholder of Xxxx, the voting trustee of Xxxx'
shares in EFCC and owner of 25,000 shares of EFCC, but does not otherwise own
any direct or indirect interest in TPC and is unrelated to all of the other
shareholders of TPC and EFCC.
In order to effect desired operating efficiencies in the corporate
structure of EFCC by simplifying the current two-tiered structure, which no
longer serves any business purpose and entails a substantial cost to maintain
due to dual financial reporting, disclosure and administrative burdens, and to
make it more attractive to Star or any other potential purchaser if the Star
Merger does not occur, subsequent to the sale of TPC's Jersey City division,
subsequent to the EFCC Dividend and prior to the Star Merger, TPC will merge
into EFCC pursuant to the Business Corporation Law of the State of New York,
with EFCC as the surviving entity (the "TPC Merger"). The shareholders of TPC
(other than EFCC) will receive solely 6,554,264 EFCC shares in the TPC Merger,
which represents 17% of all outstanding EFCC shares after such issuance.
Merger Sub will be a New York corporation formed on [_______________]
for the sole purpose of effecting the Star Merger. Merger Sub will be a wholly
owned subsidiary of Star.
Star and EFCC believe that a combination of their respective
businesses will enable both companies to grow and operate more efficiently. Star
has in place a management infrastructure and can merge the former TPC business
operations with minimal incremental cost. By eliminating the operating and
overhead costs of EFCC, profitability can be greatly enhanced. Such enhanced
profitability will be shared by Star's shareholders, including the former EFCC
shareholders. To achieve this purpose, Star has agreed to acquire all of the
outstanding capital stock of EFCC as more fully described below.
Following the TPC Merger, EFCC will merge with and into Merger Sub
(i.e., the Star Merger). Pursuant to the Star Merger, EFCC's shareholders
(including the former TPC minority shareholders) will receive $2,400,000 in cash
(plus cash payments to dissenting shareholders, if any) and $4,850,000 in Star
common stock (less the amount that would have been paid to dissenting
shareholders, if any), as determined on the third business day prior to the
Effective Time, using the average of the closing sales price of a share of Star
common stock as reported on the NASDAQ National Market during the 120 trading
days immediately preceding the date of determination (such amounts to be
adjusted in the event of payments to dissenting shareholders in the TPC Merger).
Other than cash payments to dissenting shareholders, such proceeds will be
allocated among the non-dissenting shareholders pro rata in proportion to their
relative stock ownership.
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 5
In connection with the Star Merger, EFCC and Star will enter into a
Consulting Agreement pursuant to which Star will render to EFCC consulting and
advisory services in connection with the management, operation and supervision
of EFCC. The term of the Consulting Agreement shall end on the earlier of (i)
one year from the signing of the Star Merger Agreement, (ii) the Effective Time
or (iii) the termination of the Star Merger Agreement. In consideration for the
consulting services to be rendered by Star, EFCC will pay Star $25,000 per
month, payable (a) $15,000 in arrears on the last day of each month and (b) the
remaining $10,000 on the earlier to occur of (x) the Closing Date and (y) the
termination of the Star Merger Agreement.
Alternatively, solely at Star's option, Merger Sub will be merged
with and into EFCC and EFCC's shareholders will receive solely cash in the
amount of $7,250,000 in exchange for their EFCC stock (the "All Cash Option")
(such amount to be adjusted in the event of payments to dissenting shareholders
in the TPC Merger).
Representations
---------------
In connection with the proposed transaction, the following
representations are being made by EFCC and/or Star to us, as set forth in the
Letters of Representation:
1. TPC Merger
----------
(a) The TPC Merger will be effected in accordance with the Agreement
of Merger dated [______________], 1997 by and between EFCC and TPC and pursuant
to New York State law.
(b) The fair market value of the EFCC common stock received by each
TPC shareholder will be approximately equal to the fair market value of the TPC
stock surrendered in the exchange.
(c) The minority shareholders of TPC acquired their TPC stock before
the formulation of any plan in connection with the TPC Merger and not in
contemplation of EFCC's subsequent acquisition of TPC.
(d) As of the Effective Time, there will be no binding commitment or
preconceived plan or arrangement on the part of the shareholders of TPC to sell,
exchange or otherwise dispose of any of their EFCC stock received in the TPC
Merger (including EFCC shares held prior to the TPC Merger), other than pursuant
to the Star Merger.
(e) EFCC has no plan or intention to reacquire any of its stock
issued in the TPC Merger.
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 6
(f) EFCC has no plan or intention to sell or otherwise dispose of any
of the assets or stock of TPC acquired in the TPC Merger, except pursuant to the
Star Merger.
(g) The liabilities of TPC assumed by EFCC and the liabilities to
which the transferred assets of TPC are subject were incurred by TPC in the
ordinary course of its business and are associated with the business of TPC.
(h) EFCC and the shareholders of TPC will pay their respective
expenses, if any, incurred in connection with the TPC Merger and will not pay
any of the expenses of the other in connection with the TPC Merger. EFCC will
pay or assume only those expenses of TPC that are solely and directly related to
the TPC Merger in accordance with the guidelines established in Rev. Rul. 73-54,
1973-1 C.B. 187.
(i) There is no intercorporate indebtedness existing between EFCC and
TPC that was issued, acquired or will be settled at a discount.
(j) EFCC and TPC are not investment companies as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(k) As of the Effective Time, TPC will not be under the jurisdiction
of a court in a title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
(l) The fair market value of the assets of TPC transferred to EFCC
will equal or exceed the sum of the liabilities assumed by EFCC plus the amount
of liabilities, if any, to which the transferred assets are subject.
(m) No cash will be paid to any of the shareholders of TPC pursuant
to the TPC Merger other than cash payments to dissenting shareholders.
(n) None of the compensation received by any shareholder-employees of
TPC will be separate consideration for, or allocable to, any of their shares of
TPC stock; none of the shares of EFCC stock received by any
shareholder-employees of TPC will be separate consideration for, or allocable
to, any employment agreement; and the compensation paid to any
shareholder-employee will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's-length for
similar services.
(o) TPC and EFCC intend to complete the TPC Merger whether or not the
Star Merger is finalized. The Star Merger is not a requirement for the
occurrence of the TPC Merger. TPC and
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 7
EFCC do not have a binding commitment with Star to exchange the stock of EFCC
for the stock of Star prior to the TPC Merger. There are valid business, non-tax
reasons for the TPC Merger, such as to effect desired operating efficiencies in
the corporate structure of EFCC.
2. Star Merger
-----------
Provided that the All Cash Option is not exercised:
(p) The Star Merger will be effected in accordance with the Merger
Agreement and pursuant to New York State law.
(q) No stock of the Merger Sub will be issued to any shareholder of
EFCC in the Star Merger.
(r) As of the Effective Time, to the best of the knowledge of the
management of EFCC, there are no shareholders of EFCC, other than Xxxx and
Arbor, who own 5% or more of the stock of EFCC.
(s) To the best of the knowledge of the management of EFCC, Xxxx
acquired their EFCC stock before the formulation of any plan in connection with
the Star Merger and not in contemplation of Merger Sub's subsequent acquisition
of the outstanding capital stock of EFCC.
(t) As of the Effective Time, Xxxx does not have a binding commitment
or preconceived plan or arrangement for disposing of any of their Star stock
received in the Star Merger.
(u) As of the Effective Time, to the best of the knowledge of the
management of EFCC, none of the shareholders of EFCC have a binding commitment
or preconceived plan or arrangement for disposing of any of their Star stock
received in the Star Merger.
(v) EFCC will transfer to Merger Sub and Merger Sub will acquire at
least 90 percent of the fair market value of EFCC's net assets and at least 70
percent of the fair market value of EFCC's gross assets held immediately prior
to the Star Merger, including, but not limited to, the assets formerly held by
TPC (which includes the consideration received by TPC upon the sale of its
Jersey City division) and the amount of cash distributed in the EFCC Dividend.
For purposes of this representation, amounts paid by EFCC to dissenters, amounts
paid by EFCC to shareholders who receive cash in lieu of fractional shares,
amounts used by EFCC to pay reorganization expenses and all redemptions and
distributions (except for regular, normal dividends) made by EFCC will be
included as assets of EFCC immediately prior to the Star Merger.
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 8
(w) Prior to the Star Merger, Star will be in control of Merger Sub
within the meaning of Section 368(c) of the Code.
(x) Merger Sub has no plan or intention to issue additional shares of
its stock that would result in Star losing control of Merger Sub within the
meaning of Section 368(c) of the Code.
(y) As of the Effective Time, EFCC will not, in anticipation of or as
a part of the plan for the combination of EFCC and Merger Sub have (i) redeemed
any of the EFCC stock or (ii) effected any distributions with respect to any of
its stock, except for normal dividends and except for the EFCC Dividend.
(z) As of the Effective Time, Star or any corporation affiliated with
Star (i) will not be under any obligation and will not have entered into any
agreement or understanding to redeem or repurchase any of its stock issued in
the Star Merger or to make any extraordinary distributions in respect of the
Star common stock and (ii) will have no plan or intention to reacquire any of
its stock issued in the Star Merger.
(aa) As of the Effective Time, there will be no plan or intention on
the part of Star or any corporation affiliated with Star to liquidate Merger
Sub, to merge Merger Sub into another corporation, to sell or otherwise dispose
of the stock of Merger Sub or to cause Merger Sub to sell or otherwise dispose
of any of the assets acquired from EFCC (including the assets that EFCC received
from TPC), except for dispositions to be made in the ordinary course of business
or transfers described in Section 368(a)(2)(C) of the Code.
(bb) Following the Star Merger, Merger Sub will continue the
"historic business" of TPC or use a "significant portion" of TPC's "historic
business assets" in a business (as such terms are defined in Treasury Regulation
Section 1.368-1(d)(2)).
(cc) Star and the shareholders of EFCC will pay (or will have paid)
their respective expenses, if any, incurred in connection with the Star Merger
and will not pay any of the expenses of the other in connection with the Star
Merger. Star will pay or assume only those expenses of EFCC that are solely and
directly related to the Star Merger in accordance with the guidelines
established in Rev. Rul. 73-54, 1973-1 C.B. 187.
(dd) As of the Effective Time, there will be no intercorporate
indebtedness existing between Star and EFCC or between Merger Sub and EFCC that
was issued, acquired or will be settled at a discount.
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 9
(ee) As of the Effective Time, Star and Merger Sub will not be
investment companies as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code.
(ff) At the Effective Time, the fair market value of the assets of
EFCC (including the assets received from TPC) will exceed the sum of its
liabilities, plus the amount of liabilities, if any, to which the assets are
subject. Such liabilities were incurred by EFCC or TPC in the ordinary course of
business and are associated with the business of EFCC or TPC.
(gg) As of the Effective Time, EFCC will not be under the
jurisdiction of a court in a title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
(hh) The payment of cash in lieu of fractional shares of Star common
stock is solely for the purpose of avoiding the expense and inconvenience to
Star of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be paid in
the Star Merger to the EFCC shareholders instead of issuing fractional shares of
Star stock will not exceed one percent of the total consideration that will be
issued in the Star Merger to the EFCC shareholders in exchange for their shares
of EFCC stock. The fractional share interests of each EFCC shareholder will be
aggregated, and no EFCC shareholder will receive cash in an amount greater to or
greater than the value of one full share of Star stock.
(ii) The consideration to be received by the shareholders of EFCC in
the Star Merger is a result of arm's-length bargaining. None of the compensation
received by any shareholder-employees of EFCC will be separate consideration
for, or allocable to, any of their shares of EFCC stock; none of the shares of
Star stock received by any shareholder-employees of EFCC will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employee will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's-length for similar services.
(jj) None of the representations or warranties made by EFCC, Star or
Merger Sub herein or in any Schedule hereto or in any other documents furnished
pursuant to any of the transactions
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 10
described herein contain any untrue statement of fact or omit to state any fact
necessary in order to make the statements and opinions contained herein or
therein, including our Xxxxxxx, Lippe, Goldstein, Wolf & Xxxxxxxxx P.C.
opinions, true and not misleading.
Conclusion
----------
Subject to the foregoing and to the qualifications and limitations
set forth herein, we are of the following opinion that, more likely than not:
1. TPC Merger
----------
1. Assuming that the TPC Merger is consummated strictly in accordance
with the [Agreement] and assuming that TPC is merged into EFCC pursuant to New
York State law, the TPC Merger will be treated for United States federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code.
2. EFCC and TPC will each be a party to the reorganization within the
meaning of Section 368(b) of the Code.
3. No gain or loss will be recognized by TPC shareholders as a result
of the exchange of TPC common stock solely for EFCC common stock pursuant to the
TPC Merger.
4. Each shareholder of TPC who elects to dissent from the TPC Merger
and receive cash in exchange for his shares of TPC common stock will be treated
as receiving such payment in complete redemption of his shares of TPC, provided
such shareholder does not actually or constructively own any TPC common stock
after the exchange under the provisions and limitations of Code Section 302.
5. The tax basis of the EFCC common stock received by TPC common
stockholders will be the same as the basis of the TPC common stock surrendered
in exchange therefor.
6. The holding period of the EFCC common stock received by the TPC
common stockholders will include the period during which the TPC common stock
surrendered in exchange therefor was held, provided that the TPC common stock is
held as a capital asset in the hands of the TPC stockholders on the effective
date of the TPC Merger.
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 11
7. No gain or loss will be recognized by TPC on the transfer of all
of its assets to EFCC pursuant to the plan of reorganization.
8. No gain or loss will be recognized by EFCC in the TPC Merger.
9. The tax basis of TPC's assets in the hands of EFCC will be the
same as the basis of those assets in the hands of TPC immediately prior to the
TPC Merger. The tax basis of TPC's assets in the hands of EFCC will not be
increased by any cash paid to dissenters.
10. The holding period of the assets of TPC in the hands of EFCC will
include the period during which such assets were held by TPC.
2. Star Merger
-----------
Provided that the All Cash Option is not exercised, and assuming that
the Star Merger is consummated strictly in accordance with the Merger Agreement
and as described in the Joint Proxy Statement:
11. On the basis of our conclusion set forth below in the Discussion
section of this opinion letter that the shareholders of EFCC should be deemed to
have received and retained a sufficient amount of stock in Star to satisfy the
continuity of interest requirement, and assuming that EFCC is merged into Merger
Sub pursuant to New York State law, the Star Merger will be treated for United
States federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code.
12. Star, Merger Sub and EFCC will each be a party to the
reorganization within the meaning of Section 368(b) of the Code.
13. No gain or loss will be recognized by EFCC shareholders as a
result of the exchange of EFCC common stock solely for Star common stock
pursuant to the Star Merger, except that gain or loss will be recognized on the
receipt of cash, if any, including cash received in lieu of fractional shares.
The payment of cash in lieu of fractional share interests of Star common stock
will be treated as if each fractional share was distributed as part of the
exchange and then redeemed by Star. Pursuant to Section 302(a) of the Code,
these cash payments will be treated as having been received as distributions in
full payment in exchange for such Star common stock. Any gain or loss recognized
upon such exchange (as determined under Code Section 1001 and subject to the
limitations of Code Section 267) will be capital gain or loss provided the
fractional share would constitute a capital asset in the hands of the exchanging
stockholder.
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 12
14. Each shareholder of EFCC who elects to dissent from the Star
Merger and receive cash in exchange for his shares of EFCC common stock will be
treated as receiving such payment in complete redemption of his shares of EFCC,
provided such shareholder does not actually or constructively own any EFCC
common stock after the exchange under the provisions and limitations of Code
Section 302.
15. The tax basis of the Star common stock received by EFCC common
stockholders will be the same as the basis of the EFCC common stock surrendered
in exchange therefor, decreased by the amount of basis allocated to the
fractional shares that are hypothetically received by the stockholder and
redeemed for cash, and decreased by any money received in the exchange (other
than cash received in lieu of fractional shares) and increased by any gain
recognized on the exchange.
16. The holding period of the Star common stock received by the EFCC
common stockholders will include the period during which the EFCC common stock
surrendered in exchange therefor was held, provided that the EFCC common stock
is held as a capital asset in the hands of the EFCC stockholders at the
Effective Time.
17. No gain or loss will be recognized by EFCC on the transfer of all
of its assets to Merger Sub pursuant to the plan of reorganization.
18. No gain or loss will be recognized by Star or Merger Sub pursuant
to the Star Merger.
19. The tax basis of EFCC's assets in the hands of Merger Sub will be
the same as the basis of those assets in the hands of EFCC immediately prior to
the Star Merger. The tax basis of EFCC's assets in the hands of Merger Sub will
not be increased by any cash paid to dissenters or cash paid in lieu of
fractional shares.
20. The holding period of the assets of EFCC in the hands of Merger
Sub will include the period during which such assets were held by EFCC.
We express no opinion other than as stated above, and any such
opinion is not intended to imply or be an opinion on any other matter. This
opinion represents only counsel's best legal judgment as to the likely outcome
of an issue if properly presented to a court (and assuming the court determines
all facts to be consistent with the facts stated in counsel's opinion). However,
the opinion has no binding effect or official status of any kind, and the
conclusions stated herein are not free from
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 13
doubt. The IRS or a court may disagree with any or all of our conclusions and,
accordingly, there can be no assurance that the IRS will not successfully
contest this opinion in the courts or otherwise.
Discussion
----------
1. General
-------
Section 354(a)(1) of the Code addresses the effects of corporate
reorganizations on shareholders, providing in general that no gain or loss shall
be recognized if stock or securities in a corporation a party to a
reorganization are, in pursuance of the plan of reorganization, exchanged solely
for stock or securities in such corporation or in another corporation a party to
the reorganization.
For purposes of Code Section 354, the term "reorganization" is
defined in Code Section 368(a). Code Section 368(a)(1)(A) states that the term
reorganization includes a statutory merger or consolidation. Regulation Section
1.368-2(b)(1) states that in order for a transaction to qualify as a
reorganization under Code Section 368(a)(1)(A), the transaction must be a merger
or consolidation effected pursuant to the corporation laws of the United States,
a State, territory or the District of Columbia.
The Regulations under Code Section 368 require as a part of a
reorganization a continuity of the business enterprise under the modified
corporate form, a bona fide business purpose for the reorganization and a
"continuity of interest" therein on the part of those persons who, directly or
indirectly, were owners of the enterprise prior to the reorganization.
Regulation Section 1.368-1(d)(2) states that the continuity of business
enterprise requirement is met if the acquiring corporation either continues the
acquired corporation's historic business or uses a significant portion of the
acquired corporation's business assets in the operation of a trade or business.
Regulation section 1.368-2(g) indicates that in addition to coming
within the scope of the specific language of Code Section 368(a), a
reorganization must also be "undertaken for reasons germane to the continuance
of the business of a corporation a party to the reorganization." If the
transaction or series of transactions has no business or corporate purpose, then
the plan is not a reorganization pursuant to Code Section 368(a). Regulation
section 1.368-1(c).
The continuity of interest requirement mandates that the historic
shareholders of the acquired corporation must acquire a definite and substantial
interest in the continuing corporation, and stock must represent a material part
of the consideration transferred. The Supreme Court, in XXXXXX CO. X. XXXXXXXXX,
000 X.X. 000 (1935), held that equity equal to 38% of the entire consideration
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 14
constituted a definite and substantial interest in the purchasing corporation.
The percentage relates to the proportion of the equity consideration received by
the target shareholders in the aggregate to the total consideration paid by the
acquiror for target's assets or stock. An historic shareholder is a person who
owned the target corporation's stock before the acquisition of target commenced
and who purchased such target corporation stock before the formulation of the
transaction not in contemplation of the acquiring corporation's subsequent
acquisition of the target. It is not necessary that all historic shareholders of
the acquired corporation have a proprietary interest in the surviving
corporation after the acquisition. The IRS has announced that it considers a 50
percent continuity-of-equity interest by value to be sufficient.(1)
Nevertheless, pursuant to the XXXXXX case, a 40 percent continuity of interest
by value on the part of the former historic shareholders of the target should be
sufficient.
In addition to meeting the continuity of interest requirement
immediately after the reorganization, the former shareholders of the acquired
corporation must retain their interest in the acquiring corporation for some
unspecified time after the reorganization. The courts have ruled that the
tax-free nature of the reorganization may be retroactively invalidated if the
continuity of interest is not maintained either because, at the time of the
reorganization, the shareholders intended to dispose of the proprietary interest
soon after the reorganization(2) or because a shareholder disposes of stock
immediately following the reorganization in accordance with a pre-existing
commitment to sell.(3)
In Rev. Rul. 66-23, 1966-1 C.B. 67, the IRS held that the target
shareholders must not have a preconceived plan or arrangement for disposing of
their acquiring corporation stock; if such plan or arrangement exists, any
post-reorganization dispositions of the stock of the acquiring corporation may
be stepped together with the initial receipt of such stock in the
reorganization. The consequence of applying step transaction principles(4) to
the subsequent stock disposition is to treat the selling shareholder as having
received the sales proceeds on the date of the reorganization for purposes of
--------------------------------
1 Rev. Proc. 77-37, 1977-2 C.B. 568. This is merely a guideline
established by the IRS for purposes of obtaining a private letter
ruling, and is not a requirement of substantive law.
2 XXXXXXXX'X RESTAURANTS OF ILLINOIS, INC.. V. COMMISSIONER, 688 F.2d 520
(7th Cir. 1982).
3 AMERICAN WIRE FABRICS CORP. V. COMMISSIONER, 16 T.C. 607 (1951).
4 See infra notes 11-13 and accompanying text.
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 15
testing continuity of interest. Nevertheless, target shareholders are free to
dispose of their acquiring corporation stock at any time following the
reorganization, as long as the disposition results from circumstances existing
after the reorganization and not from a preexisting plan.(5) During the period
of ownership of the acquiring corporation stock, the target shareholders must
have unrestricted rights of ownership for an unspecified period of time
sufficient to warrant the conclusion that such ownership is definite and
substantial.(6)
For purposes of Code Section 354, the term "party to a
reorganization" is defined in Code Section 368(b), which provides that the term
"party to a reorganization" includes both corporations in the case of a
reorganization resulting from the acquisition by one corporation of stock or
properties of another. In the case of a reorganization qualifying under Code
Section 368(a)(1)(A) by reason of Code Section 368(a)(2)(D), the term "party to
a reorganization" includes the corporation which is in control of the acquiring
corporation.
Code Section 356(a)(1) provides that if Code Section 354 would apply
to an exchange but for the fact that the property received in the exchange
consists not only of property permitted to be received under Code Section 354
without the recognition of gain but also of other property or money then the
gain, if any, to the recipient shall be recognized but not in excess of the sum
of money and the fair market value of such other property. Code Section 356(c)
states that no loss from the exchange may be recognized by the shareholder.
------------------------
5 Rev. Rul. 66-23. See also XXXXXX V. COMMISSIONER, 88 T.C. 1415 (1987);
ESTATE OF XXXXXXXXX X. COMMISSIONER, 57 T.C.M. (CCH) 1231 (1989). Under
Proposed Regulation Section 1.368-1(e), the IRS states that stock
dispositions of the acquiring corporation by a former target shareholder
generally are not considered for determining continuity of interest.
However, under the Proposed Regulations, if the acquiring corporation or
a related party purchases the acquiring corporation stock shortly after
the reorganization, the facts and circumstances may indicate that the
transaction should be recast to treat the acquiring corporation as
furnishing cash in the reorganization and not satisfying the continuity
of interest requirement. Proposed regulations do not become law until
adopted as final regulations, and generally are applied prospectively
once adopted. Therefore, Proposed Regulation Section 1.368-1(e) is
inapplicable to this transaction. See also infra note 23 and
accompanying text.
6 Id.
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 16
The IRS, in Rev. Rul. 74-515, 1974-2 C.B. 118 and Rev. Rul. 74-516,
1974-2 C.B. 121, treated the distribution of cash as part of a reorganization
and in a transaction subject to Code Section 356 (including cash payments made
to dissenting shareholders of the acquired corporation) by applying the
redemption principles under Code Section 302. Code Section 302 provides, in
part, that a redemption will be treated as a distribution in part or full
payment in exchange for stock if it can meet the tests of that section. The
Supreme Court in XXXXX X. COMMISSIONER., 000 X.X. 000 (1989), applied the tests
of Code Section 302 by viewing the exchange involving cash or other property as
a "hypothetical post-reorganization redemption." The Court viewed the exchange
as first an exchange of solely stock of the acquiring corporation for the
acquired company stock, followed by an exchange by the shareholder of the newly
acquired stock for cash from the acquiring corporation. The Code Section 302
tests are applied to the second hypothetical exchange.
One of the tests of Code Section 302 provides that where there is a
complete redemption of all of a shareholder's stock in a corporation (after
consideration of the constructive ownership rules of Code Section 302(c)), the
redemption payment is treated as made entirely in exchange for the shareholder's
stock in the corporation. Code Section 302(b)(3). The constructive ownership
rules of Code Section 302(c) are generally contained in Code Section 318 and
provide that an individual or entity is treated as owning the stock owned by
certain other related individuals and entities. Where there is a complete
termination of the shareholder's interest, the constructive ownership rules may
be waived if certain conditions are met.
In Rev. Rul. 66-365, 1966-2 C.B. 116, the IRS announced that in a
transaction qualifying as a reorganization under Section 368(a)(1)(A) of the
Code where a cash payment is made by the acquiring corporation in lieu of
fractional shares and is not separately bargained for, such cash payment will be
treated under Section 302 of the Code as in redemption of fractional share
interests. Therefore, each shareholder's redemption will be treated as a
distribution in full payment in exchange for his or her fractional share
interest under Section 302(a) of the Code and accorded capital gain or loss
treatment provided the redemption is not essentially equivalent to a dividend
and that the fractional shares redeemed constitute a capital asset in the hands
of the holder as discussed below. In Rev. Proc. 77-41, 1977-2 C.B. 574, the IRS
stated that "a ruling will usually be issued under Section 302(a) of the Code
that cash to be distributed to shareholders in lieu of fractional share
interests arising in corporate reorganizations will be treated as having been
received in part or in full payment in exchange for the stock redeemed if the
cash distribution is undertaken solely for the purpose of saving the corporation
the expense and inconvenience of issuing and transferring fractional shares, and
is not separately bargained-for consideration."
Under Code Section 358(a)(1), in the case of an exchange to which
Code Section 354 or Code Section 356 applies, the basis of property which is
permitted to be received under such sections
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 17
without the recognition of gain or loss shall be the same as that of the
property exchanged, decreased by the amount of any money received by the
recipient and the amount of loss recognized by the recipient as a result of the
exchange and increased by the amount which was treated as a dividend and the
amount of other gain recognized by the recipient as a result of the transaction.
As described above, where cash is received in lieu of fractional
shares, the substance of the transaction is that of a hypothetical receipt of
the fractional shares and then a redemption of such shares. Therefore, the basis
that is to be allocated to the stock of the acquiring corporation received must
be allocated to the shares retained and the fractional shares hypothetically
received. The gain or loss attributable to the receipt of cash in lieu of
fractional shares is measured by comparing the cash received with the basis
allocated to the fractional shares that are hypothetically received, and such
gain or loss is recognized as discussed earlier pursuant to Rev. Rul. 66-365.
Code Section 361(a) states that, as a general rule, no gain or loss
is to be recognized by a corporation if such corporation is a party to a
reorganization and exchanges property, in pursuance of the plan or
reorganization, solely for stock or securities in another corporation a party to
the reorganization. Code Section 361(b) states that if Code Section 361(a) would
apply to an exchange but for the fact that the property received in the exchange
consists not only of stock or securities afforded nonrecognition treatment under
Code Section 361(a), but also of other property or money, then provided the
corporation receiving such other property or money distributes it in pursuance
of the plan of reorganization, no gain to the corporation shall be recognized
from the exchange. Code Section 361(c) states that as a general rule no gain or
loss shall be recognized by a corporation a party to a reorganization on the
distribution to its shareholders of any stock in another corporation which is a
party to the reorganization if such stock was received by the distributing
corporation in the exchange.
Code Section 1032(a) states that no gain or loss shall be recognized
to a corporation on the receipt of money or other property in exchange for such
corporation's stock, including treasury stock.
Code Section 362(a) states that the basis of property received by the
acquiring corporation in a reorganization is the same as it would be in the
hands of the transferor of the assets, increased by any gain recognized by the
transferor. The transferors for purposes of the preceding sentence in the
instant case is TPC and EFCC.
Code Section 1221 defines a capital asset as property held by the
taxpayer which is not inventory or other property held by the taxpayer primarily
for sale to customers in the ordinary course of a trade or business, property
used in the taxpayer's trade or business subject to the allowance for
depreciation under Code Section 167, a copyright, literary, musical or artistic
composition, a letter
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 18
or memorandum, or similar property created by the personal efforts of the
taxpayer, accounts or notes receivable acquired in the ordinary course of a
trade or business for services rendered or from the sale of inventory or other
property held by the taxpayer primarily for sale to customers in the ordinary
course of business, or a publication of the United States Government which is
received from the United States Government or any agency thereof other than by
purchase at the price at which it is offered for sale to the public.
Code Section 1223(1) states that in determining the period for which
a taxpayer has held property received in an exchange, there shall be included
the period for which he or she held the property exchanged if the property has,
for the purpose of determining gain or loss from a sale or exchange, the same
basis as the property exchanged and the property exchanged was a capital asset
as defined in Code Section 1221 as of the date of the exchange. Code Section
1223(2) states that for determining the period for which the taxpayer has held
property however acquired there shall be included the period for which such
property was held by another person if the property has the same basis in whole
or in part in his hands as it would have had in the hands of such other person.
2. TPC Merger
----------
Code Section 332 provides that under certain conditions a parent
corporation will not recognize gain or loss on the receipt of property
distributed in complete liquidation of an 80 percent or greater controlled
subsidiary. Code Section 337 provides that such subsidiary does not recognize
gain or loss on such distributions. Minority shareholders participating in a
Code Section 332 liquidation, who receive stock of the parent in a statutory
merger of the subsidiary into the parent, may avoid recognition of gain or loss
if the transaction also qualifies as a reorganization under Code Section 368(a).
If the parent's stock interest in the subsidiary is "old and cold,"
there should be continuity of interest to support tax-free reorganization
treatment for the minority shareholders on the receipt of the stock of the
parent in a statutory merger of the subsidiary into the parent. The last
sentence of Section 332(b) of the Code provides, in effect, that the transfer of
a subsidiary's property to a parent corporation is not disqualified as a
complete liquidation merely because it involves a transfer to the parent of
property not attributable to shares owned by the parent, in an exchange
described in Code Section 361, and involves the complete cancellation or
redemption of minority shares not owned by the parent as a result of exchanges
described in Section 354 of the Code.
Regulation Section 1.332-2(d) provides, in effect, that a complete
liquidation otherwise meeting the requirements of Section 332 of the Code is not
disqualified from the application of Code Section 332 even though, for purposes
of the corporate reorganization provisions, the parent receives
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 19
property attributable to minority shares not owned by it, and the minority
shares are canceled as a result of a tax-free exchange described in Section 354
of the Code. The regulatory example illustrating these rules does not, however,
describe the tax consequences to the minority shareholders.
See Regulations Section 1.332-2(e).
There appears to be no judicial decision holding that a merger of a
subsidiary into its parent qualifying under Section 332 of the Code is also a
Code Section 368(a)(1)(A) tax-free reorganization as to the minority
shareholders. In Rev. Rul. 58-93, 1958-1 C.B. 188, however, the IRS ruled that a
merger of a 79% owned subsidiary into its parent (which could not have qualified
as a Code Section 332 liquidation) qualified as a tax-free Code Section
368(a)(1)(A) reorganization both as to the corporate entities and as to the
minority shareholders who received stock of the parent.(7)
In Rev. Rul. 69-617, 1969-2 C.B. 57, the IRS ruled that a merger of a
more-than 80% owned subsidiary into its parent, which did not qualify as a
liquidation under Code Section 332 because the assets were dropped into another
subsidiary of the parent, qualified as a tax-free Code Section 368(a)(1)(A)
reorganization as to all parties where the minority shareholders received stock
of the parent in the merger.(8)
In Priv. Let. Rul. 9351028 (Sept. 28, 1993)(9), the IRS ruled that
the merger of Corporation S into Corporation P would qualify under Code Section
332(a), where P owned more than 80% of the stock of S. With regard to the
minority shareholder of S, the IRS, citing its annual "no-ruling" revenue
procedure, did not rule as to whether the transaction would qualify under Code
Section
-----------------------------
7 On the facts of this ruling, the merger would not have qualified under
Code Section 332 even if the parent had owned 80% of the subsidiary's
stock because, immediately prior to the merger, the subsidiary
transferred all of its operating assets to its new wholly owned
subsidiary which then became a wholly owned subsidiary of the parent.
Thus, the business of the subsidiary was not liquidated but was
reincorporated in a new subsidiary.
8 The ruling stated that "the fact that [the parent] owned more than 80%
of the stock of [the subsidiary] does not prevent the transfer of the
assets of [the subsidiary] to [the parent] from qualifying as a
statutory merger, where such assets are transferred to another
subsidiary."
9 Private Letter Rulings may not be relied upon or otherwise cited as
precedent. However, we believe it is appropriate to refer to them in
order to demonstrate an administrative position previously taken by the
Service.
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 20
368(a)(1)(A), but did rule that several of the Code Section 368(a)(1)(A)
requirements would be met. The IRS concluded that if the merger of S into P
otherwise qualified as a Code Section 368(a)(1)(A) reorganization, the minority
shareholder would not recognize gain or loss on the exchange of his minority
interest in S stock for P stock, pursuant to Code Section 354(a)(1). Thus, the
IRS appears to agree that a merger of a subsidiary into a more than 80%
controlling parent may qualify as a reorganization with respect to the minority
shareholders, while being treated as a Code Section 332 liquidation with respect
to the parent.(10)
Since a sufficiently large portion of the ownership of the stock of
TPC is "old and cold," and since EFCC owns approximately 83 percent of TPC, a
statutory merger of TPC into EFCC should satisfy the continuity of interest
requirement (as well as the other requirements) for a valid Code Section
368(a)(1)(A) reorganization, and the receipt of EFCC's stock by the TPC minority
shareholders should be tax free under Code Section 354. In addition, EFCC and
TPC will not recognize any gain or loss pursuant to Code Sections 332 and 337.
A tax-free transaction in which a target corporation's stock is
transferred to new shareholders followed by a subsequent tax-free reorganization
of the target corporation into another corporation should be respected if such
initial transaction has independent significance and a business purpose.(11)
Under the step transaction doctrine, an analysis is made of the separate steps
of a transaction to determine whether each step should be accorded independent
legal significance or whether the steps should be treated as related steps in
one unified transaction and "stepped together" to produce the actual result.(12)
The courts have established several tests to determine whether the doctrine is
applicable -- the "end result" test, the "interdependence test" and the "binding
commitment test."(13)
-----------------------
10 See also Priv. Let. Rul. 8825048 (Mar. 23, 1988).
11 See XXXXXX V. COMMISSIONER, 51 T.C.M. (CCH) 432 (1986). Even if the TPC
Merger is not respected as a separate Code Section 368(a)(1)(A)
reorganization, it should be treated as a Code Section 332 liquidation.
See Priv. Let. Rul. 8713033 (Dec. 29, 1986); Priv. Let. Rul. 8425081
(Mar. 21, 1984); Priv. Let. Rul. 8032114 (May, 1980); Priv. Let. Rul.
8024137 (Mar. 20, 1980). See also infra notes 21-22 and accompanying
text.
12 KING ENTERPRISES, INC. V. U.S., 418 F.2d 511 (Ct. Cl. 1969).
13 Id; MCDONALD'S RESTAURANT OF ILLINOIS, INC. V. COMMISSIONER, 688 F.2d
520 (7th Cir. 1982); REDDING V. COMMISSIONER, 630 F.2d 1169 (7th Cir.
1980) CERT. DENIED 000 X.X. 000 (1981); COMMISSIONER X. XXXXXX, 391 U.S.
83 (1968).
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 21
Although it is generally unclear which of these tests should be given the
greatest weight in any particular case, we believe the interdependence test is
the most relevant to this transaction.
In the instant case, the TPC Merger should be deemed to have
independent significance and a business purpose and, therefore, should be
respected. Under the "end result" test, since the TPC Merger is a separate
transaction grounded in economic and legal reality, its form should be
respected. We believe that the IRS would not have a reasonable justification for
disregarding or otherwise rearranging the steps in a less advantageous manner
for the taxpayers even if a less advantageous structure could be construed.
Under the "binding commitment test", TPC and EFCC do not have a binding
commitment with Star to exchange the stock of EFCC for the stock of Star prior
to the approval and commitment to the TPC Merger. Under the interdependence
test, TPC and EFCC intended to complete the TPC Merger whether or not the Star
Merger was finalized. The Star Merger is not a condition to the occurrence of
the TPC Merger (although the TPC Merger is a condition to the Star Merger).
There is a real possibility that the TPC Merger will occur without the closing
of the Star Merger. The TPC Merger will not be fruitless without the Star
Merger.
There are real legal implications and potential economic consequences
to the TPC Merger; for example, the TPC minority shareholders will acquire
rescission rights in the TPC Merger. There are valid business reasons for the
TPC Merger, such as to effect desired operating efficiencies in the corporate
structure of EFCC by simplifying the current two-tiered structure, which no
longer serves any business purpose and entails a substantial cost to maintain
due to dual financial reporting, disclosure and administrative requirements, and
to make it more attractive to Star or any other potential purchaser if the Star
Merger does not close. Thus, the subsequent Star Merger should not disqualify
the TPC Merger as a tax-free reorganization.
3. Star Merger
-----------
(a) General
Code Section 368(a)(2)(D) provides that the acquisition by one
corporation, in exchange for stock of a corporation which is in control of the
acquiring corporation, of substantially all of the properties of another
corporation shall not disqualify a transaction under Code Section 368(a) if no
stock of the acquiring corporation is used in the transaction and such
transaction would have qualified under Code Section 368(a)(1)(A) had the merger
been into the controlling corporation. Regulations permit the acquiring
corporation or its parent or both to pay some cash, subject to the continuity of
interest requirement discussed above.
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 22
Accordingly, an acquisition by Merger Sub in exchange for stock of
Star should qualify as a Code Section 368(a)(1)(A) reorganization via Code
Section 368(a)(2)(D) if (1) substantially all of the properties of EFCC are
acquired by Merger Sub; (2) EFCC is merged into Merger Sub pursuant to state
law; (3) the Star Merger would have qualified under Code Section 368(a)(1)(A)
had it been effected directly into Star; and (4) no stock of the Merger Sub is
used in the Star Merger.
(b) The "Substantially All" Requirement
The "substantially all" requirement has not been statutorily defined.
The determination of "substantially all" is based upon all the facts and
circumstances of each transaction. The IRS's advance ruling guidelines, Rev.
Proc. 77-37, 1977-2 C.B. 568,(14) provide that the "substantially all"
requirement will be met if at least 90% of the fair market value of the net
assets and at least 70% of the fair market value of the gross assets of the
acquired corporation immediately before the merger are transferred to the
acquiring corporation. All payments to dissenters and all redemptions and
distributions (except for regular, normal distributions) made by the corporation
immediately preceding the transfer and which are part of the plan of
reorganization will be considered as assets held by the corporation immediately
prior to the transfer. In addition, where a corporate division effected prior to
and in contemplation of the reorganization removes assets from target, the
reorganization may be taxable on the ground that the acquiror has not acquired
substantially all of target's "historic" assets.(15)
Unlike a spin-off of unwanted assets, a sale of a portion of target's
assets prior to the reorganization does not deplete the aggregate amount of
target's assets -- it only changes the makeup of those assets. That is, the
assets sold are replaced with the consideration received on the sale, whether it
is cash, notes or other assets. Provided the sale of assets does not destroy
continuity of business enterprise, the nature and amount of the assets sold
should have no bearing on the qualification of the reorganization so long as the
sale proceeds remain with the target's other assets and are not distributed to
the shareholders.
In Rev. Rul. 88-48, 1988-1 C.B. 117, target sold one of its two
significant lines of business (constituting 50% of its historic business assets)
for cash and then transferred its other line of business together with the cash
proceeds to acquiror in exchange for acquiror voting stock in a Code Section
368(a)(1)(C) reorganization. The IRS held that because the cash proceeds were
not retained by
--------------------------
14 SEE ALSO Rev. Proc. 86-42, 1986-2 C.B. 722.
15 SEE HELVERING V. ELKHORN COAL CO., 95 F.2d 732 (4th Cir. 1938), CERT.
DENIED, 000 X.X. 000 (1938).
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 23
target or its shareholders but were transferred to acquiror, the transaction was
not divisive in nature. Also, because the sale of the historic business assets
was to "unrelated purchasers," the former target shareholders retained no direct
or indirect interest in those assets. The term "unrelated purchaser" was not
defined or specified. Under those circumstances, the IRS ruled, the
"substantially all" requirement was met.
In the instant case, the sale of TPC's Jersey City, New Jersey
division was to a person who should be treated as an unrelated purchaser for
purposes of the "substantially all" requirement for full and adequate
consideration in a fully taxable transaction. Such consideration was
subsequently transferred to EFCC in the TPC/EFCC merger and will then be
transferred to Merger Sub in the Star Merger of EFCC with and into Merger Sub.
Thus, such sale should not impact the "substantially all" requirement. Based on
the above analysis and on the representation in the Letters of Representation
that EFCC will transfer to Merger Sub and Merger Sub will acquire at least 90
percent of the fair market value of EFCC's net assets and at least 70 percent of
the fair market value of EFCC's gross assets held immediately prior to the Star
Merger, including, but not limited to, the assets formerly held by TPC, the
"substantially all" requirement should be met with respect to the properties of
EFCC acquired by Merger Sub in the Star Merger.
(c) Continuity of Business Enterprise
Based on representations included in the Letters of Representation
that following the Star Merger, Merger Sub will continue the historic business
of TPC or use a significant portion of TPC's historic business assets in a
business (as such terms are defined in Treasury Regulation Section 1.368-
1(d)(2)), the continuity of business enterprise requirement should be met with
respect to the assets and business operations of TPC, EFCC and Merger Sub.
(d) Business Purpose
In general, Star and EFCC believe that a combination of their
respective businesses will enable both companies to grow and operate more
efficiently. Based on these reasons, the Star Merger should meet the business
purpose requirement.
(e) Continuity of Interest
1. Arbor Options
For purposes of the Star Merger, continuity of interest must exist in
the "historic shareholders" of EFCC. The exercise of Arbor's options in
contemplation of the Star Merger raises
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 24
two continuity of interest issues: (1) does the EFCC stock issued upon exercise
of the Arbor options count as outstanding EFCC stock in applying the continuity
of interest test and (2) if the EFCC stock does count, is Arbor considered to be
an historic EFCC shareholder?
In General Counsel Memoranda ("GCM") 36040 and 36041 (Oct. 8, 1974),
as part of a plan of reorganization, the holders of target warrants and
convertible target debt converted these instruments into target stock and then,
along with the other target shareholders, exchanged their target stock for
acquiror stock in the reorganization. At issue was whether the step-transaction
doctrine should apply to treat the transactions as though the target warrants
and target convertible debt were exchanged directly for acquiror stock. The IRS
concluded that the step-transaction doctrine should not apply because to do so
would ignore the right inherent in the warrants and debentures that allows the
holder thereof to acquire an equity interest in target. Thus, the IRS honored
the form of the transactions and preserved tax-free reorganization treatment for
the warrant holders and convertible debenture holders.
It is unclear whether the IRS would apply the same rationale for
purposes of measuring continuity of interest.(16)1 On the one hand, the holdings
in GCM 36040 and 36041 imply that the IRS might conclude that the newly issued
EFCC shares count in applying the continuity of interest test. A representation
obtained by the IRS from a taxpayer in a 1993 private letter ruling also
suggests this result.(17) On the other hand, taxpayer representations in two
other private letter rulings indicate that the IRS might ignore the newly issued
EFCC shares in applying the continuity of interest test.(18)
If the IRS in fact counts the newly issued EFCC shares in measuring
continuity, does Arbor qualify as an historic EFCC shareholder? This issue could
be resolved in three ways:
(i) Arbor automatically could be treated as a nonhistoric EFCC
shareholders, i.e., as bad continuity.
-------------------------
16 SEE Priv. Let. Rul. 9008028 (Nov. 21, 1989) (the target shares acquired
on exercise of the options are not excluded from the 50% continuity
representation); BUT SEE Priv. Let. Rul. 9105028 (Nov. 6, 1990) (the
target shares acquired on exercise of the options are excluded from the
50% continuity representation).
17 Priv. Let. Rul. 9324021 (Mar. 19, 1993) (representation c).
18 SEE Priv. Let. Rul. 9105028 (Nov. 6, 1990) (representation b),
supplemented by Priv. Let. Rul. 9132068 (Apr. 19, 1991) (representation
b); Priv. Let. Rul. 9136027 (June 11, 1991) (representation c).
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 25
(ii) Arbor automatically could be treated as an historic EFCC
shareholders, i.e., as good continuity.
(iii) The determination of whether Arbor is an historic EFCC
shareholder could be based on whether it was an historic holder of the options,
i.e., whether it acquired the options in contemplation of the Star Merger.
Some commentators favor approach (iii),(19) although there is no
authority directly on point. The risk that the IRS will disagree and analyze
Arbor's stock ownership in EFCC under approach (i), i.e., the least favorable
approach, exists. In the absence of a private letter ruling from the IRS,
prudence dictates that Arbor be treated as a nonhistoric shareholder of EFCC for
purposes of calculating the EFCC shareholders' continuity of interest in the
merged entity. Thus, the other historic EFCC shareholders must hold, with the
requisite intent and for the requisite period, Star stock equal to at least 40%
of the fair market value of all of the EFCC shares outstanding immediately prior
to the Star Merger (including the shares received by Arbor pursuant to the
exercise of its options) to satisfy the continuity of interest test.
2. Pre-Merger Dividend
We believe that the $750,000 of cash distributed by EFCC to all of
its shareholders with respect to their shares prior to the Star Merger should
not be taken into account for purposes of the continuity of interest test. In
Private Letter Ruling 9041084 (July 19, 1990), three corporations paid
significant dividends to their shareholders immediately prior to merging into an
acquiring corporation and as part of the same plan. The IRS ruled that the
mergers qualified as tax-free Code Section 368(a)(1)(A) reorganizations. We
believe the salient point is that the $750,000 dividend did not come from Star
or the Merger Sub. There is no justification for the IRS to conclude that this
cash should be deemed to have come from Star or the Merger Sub, especially since
the cash is proceeds from the exercise of Arbor's options, and not from a
disposition or liquidation of operating assets or equity interests.(20)
Nevertheless it is possible that the IRS may assert that the $750,000
distribution paid by
-------------------------
19 Xxxxxx X. Xxxxxxxx and Xxxx X. Xxxxx, Mergers, Acquisitions, and
Buyouts, ss. 610.3.2 (Jan. 1996).
20 See XXXXXX INDUSTRIES INC. V. COMMISSIONER, 89 T.C. 1086 (1987), ACQ. IN
RESULT, 1988- 2 C.B. 1; TSN LIQUIDATING CORP. V. U.S., 624 F.2d 1328
(5th Cir. 1980). Accord UNIROYAL INC. V. COMMISSIONER, 65 T.C.M. 2690
(1993).
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 26
EFCC must be taken into account in applying the continuity of interest test,
which could cause continuity of interest to fall below an acceptable level to
preserve tax-free reorganization treatment.
3. Less than 5% Shareholders
As a practical matter, in the case of a widely held and publicly
traded target corporation, it is difficult to determine which of the target
corporation's public shareholders have held their target stock long enough to
become historic target shareholders and whether such target corporation's less
than 5% public shareholders intended at the time of the reorganization to retain
their acquiring corporation stock and whether and for how long they in fact
retain such stock following the reorganization. The IRS seems to have recognized
this reality and for purposes of issuing private rulings has focused only on
target shareholders owning at least 5% of the outstanding target stock as well
as target insiders. See Rev. Proc. 77-37, section 7, added by Rev. Proc. 86-42.
The Tax Court seems to agree. In the SEAGRAM CORP. V. COMMISSIONER, 104 T.C. 75
(1995), the Tax Court stated, "[a] requirement that the identity of the acquired
corporation's shareholders be tracked to assume a sufficient number of
'historic' shareholders to satisfy some arbitrary minimal percentage receiving
the acquiring corporation's stock would be completely unrealistic." 104 T.C. at
103. Thus, since we believe EFCC should be considered to be widely held for
these purposes, noninsiders who own less than 5% of the outstanding EFCC stock
and who exchange their EFCC stock for Star stock in the Star Merger generally
should be counted toward satisfying the continuity of interest requirement.
4. Prior Merger of TPC Into EFCC
As discussed above, a tax-free transaction in which a target
corporation's stock is transferred to new shareholders followed by a subsequent
tax-free reorganization of the target corporation into another corporation
should be respected if such initial transaction has independent significance and
a business purpose.(21) The issue addressed is whether the subsequent merger
affects the qualification of the original reorganization, but implicit in this
analysis is the notion that the new target corporation shareholders may supply
the necessary continuity of interest to qualify the subsequent merger as a
tax-free transaction even though the original reorganization and the subsequent
merger occur pursuant to an overall plan.
In several private letter rulings, the IRS has held that a merger of
a parent corporation into another corporation preceded by an upstream merger or
liquidation of a wholly-owned subsidiary into
---------------------------
21 See supra notes 11-13 and accompanying text.
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 27
the target parent corporation qualified as tax-free reorganization under Code
Section 368(a).(22) Although we are unaware of any direct case law authority
supporting this proposition, we believe the conclusion is consistent with the
policies underlying the reorganization provisions of Code Section 368 et. seq.
since the shareholders in the TPC Merger principally changed the form of their
ownership but retained the requisite proprietary interest. Therefore, subsequent
to their exchange of TPC stock for EFCC stock pursuant to the TPC Merger and
based on the representations in the Letters of Representation, the former
shareholders of TPC should be treated as historic shareholders of EFCC for
purposes of satisfying the Star Merger's continuity of interest requirement. In
addition, based on the representations in the Letters of Representation and the
discussion above, Xxxx and the public shareholders are historic shareholders of
EFCC.
5. Post-Reorganization Continuity of Interest
Based on the representations in the Letters of Representation that as
of the Effective Time, Xxxx, the shareholders of Xxxx and any other shareholder
of EFCC, including the former shareholders of TPC, will not have a binding
commitment or preconceived plan or arrangement for disposing of any of their
Star common stock received in the Star Merger, the former EFCC shareholders will
satisfy the continuity of interest requirement that they retain their interest
in Star for some unspecified time after the reorganization.(23)
6. Value of Star Common Stock
The IRS position in connection with determining whether at least
50%(24) by value of the target corporation's outstanding stock is exchanged for
the acquiring corporation's stock in the reorganization is that the value of the
target corporation stock is determined "as of the effective time
----------------------------
22 See Priv. Let. Rul. 8713033 (Dec. 29, 1986); Priv. Let. Rul. 8425081
(Mar. 21, 1984); Priv. Let. Rul. 8032114 (May, 1980); Priv. Let. Rul.
8024137 (Mar. 20, 1980).
23 See supra notes 3-6 and accompanying text.
24 As discussed above at note 1 and accompanying text, the IRS has
announced that it considers a 50 percent continuity-of-equity interest
by value to be sufficient. Rev. Proc. 77-37. Nevertheless, pursuant to
the XXXXXX case and as discussed above, a 40 percent continuity of
interest by value on the part of the former historic shareholders of the
target should be sufficient.
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 28
of the reorganization."(25) Nevertheless, assuming that the fair market value of
the outstanding EFCC stock at the Effective Time is determined by reference to
the exchange value of the EFCC stock in terms of Star stock and cash, and
assuming that the parties to the Star Merger make a good faith and reasonable
effort to achieve a consideration mix consisting of at least 40% Star stock, the
use of a value as determined on the third business day prior to the Effective
Time, using the average of the closing sales price of a share of Star common
stock as reported on the NASDAQ National Market during the 120 trading days
immediately preceding the date of determination should be sufficient for
purposes of determining whether the 40% continuity of interest requirement is
met in the Star Merger if, solely as a result of market fluctuations between the
date that the Merger Agreement is signed and the Effective Time, the
consideration paid to the EFCC historic shareholders turns out to be less than
40% Star stock.(26)
This formula was devised by the parties in an attempt to minimize the
impact on the business arrangement of temporary market fluctuations of Star
stock. In addition, since (1) there was an unusually protracted time period
between the parties agreement in concept and an actual contract and closing, (2)
the shareholders of EFCC had locked in their investment during the 120 days
since the principal economic terms of the transaction were in place, (3) Star
assumed the management of EFCC and the profits therefrom were largely payable to
Star in the form of consulting fees so that the EFCC shareholders could share in
those profits during such period only through this pricing mechanism and (4) the
principal reason for not closing the Star Merger immediately was the need to
secure approvals of governmental authorities, the adjustment mechanism merely
reflects the fact that the economic merger of EFCC and Star does not occur
solely on the closing date, but rather will occur incrementally over time so
that a valuation as of the closing date is less likely to accurately reflect the
true value of the continuity of interest of the EFCC shareholders. However,
there is no authority that addresses whether an average trading price may be
used and there is a risk that this issue could be resolved unfavorably. If the
price of the Star stock declines prior to the Effective Time, the risk that the
Star Merger will be treated as a taxable transaction by the IRS becomes greater.
Immediately prior to the Effective Time, the historic shareholders of
EFCC (i.e., Xxxx, the former TPC minority shareholders and the other public
shareholders of EFCC, assuming Arbor is not an historic shareholder of EFCC)
will own 66.8% of the stock of EFCC. For purposes of calculating continuity of
interest, the value of the stock consideration paid by Star ($4,400,000) to the
EFCC shareholders in the Star Merger will equal 60.69% of the total
consideration paid by Star
---------------------------
25 Id.
26 SEE Rev. Rul. 81-190, 1981-2 C.B. 84.
Extended Family Care Corporation, Inc.
Star Multi Care Services, Inc.
[To be dated the Effective Time]
Page 29
($7,250,000) in the Star Merger. Thus, 40.54% of the total consideration paid by
Star to the historic shareholders of EFCC will consist of Star stock.
Based on the representations in the Letters of Representation, and
assuming that (1) EFCC's shareholders receive Star common stock with a value of
at least $4,607,506(27) as determined on the third business day prior to the
Effective Time, using the average of the closing sales price of a share of Star
common stock as reported on the NASDAQ National Market during the 120 trading
days immediately preceding the date of determination and that (2) all
shareholders receive, at a maximum, aggregate cash in the amount of
$2,714,998,(28) which amount includes total cash paid to dissenting
shareholders, it is our opinion that, although not free from doubt, the
continuity of interest requirement should be met with respect to the Star
Merger.
Very truly yours,
Xxxxxxx, Lippe, Goldstein, Wolf & Xxxxxxxxx, P.C.
-------------------------
27 See infra note 28.
28 These numbers are based on certain assumptions as to possible payments
to dissenting shareholders. If the value of the stock received by the
EFCC shareholders is less than $4,607,506 and/or the amount of cash
received is greater than $2,714,998, the continuity of interest test
will be below 40% and, therefore, tax-free reorganization treatment may
be jeopardized.
[STAR LETTERHEAD]
[To be dated the Effective Time]
Xxxxxxx, Lippe, Goldstein,
Wolf & Xxxxxxxxx, P.C.
000 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Ladies and Gentlemen:
The following facts and representations are being furnished to you in
connection with the preparation of your tax opinion to be provided in connection
with the Merger of Extended Family Care Corporation, Inc. ("EFCC") with and into
EFCC Acquisition Corp. ("Merger Sub") (the "Star Merger") and we understand that
you will be relying on such facts and representations in delivering your
opinion. Unless otherwise defined herein, capitalized terms shall have the
meanings ascribed to them in the Agreement and Plan of Merger Among Star Multi
Care Services, Inc., EFCC Acquisition Corp. and Extended Family Care
Corporation, Inc. Dated as of January 3, 1997 (the "Merger Agreement").
Provided that the All Cash Option is not exercised:
(a) The Star Merger will be effected in accordance with the Merger
Agreement and pursuant to New York State law.
(b) No stock of the Merger Sub will be issued to any shareholder of
EFCC in the Star Merger.
(c) Prior to the Star Merger, Star will be in control of Merger Sub
within the meaning of Section 368(c) of the Internal Revenue Code of 1986, as
amended (the "Code").
Meltzer, Lippe, et. al.
[To be dated the Effective Time]
Page 2
(d) Merger Sub has no plan or intention to issue additional shares of
its stock that would result in Star losing control of Merger Sub within the
meaning of Section 368(c) of the Code.
(e) As of the Effective Time, Star or any corporation affiliated with
Star (i) will not be under any obligation and will not have entered into any
agreement or understanding to redeem or repurchase any of its stock issued in
the Star Merger or to make any extraordinary distributions in respect of the
Star common stock and (ii) will have no plan or intention to reacquire any of
its stock issued in the Star Merger.
(f) As of the Effective Time, there will be no plan or intention on
the part of Star or any corporation affiliated with Star to liquidate Merger
Sub, to merge Merger Sub into another corporation, to sell or otherwise dispose
of the stock of Merger Sub or to cause Merger Sub to sell or otherwise dispose
of any of the assets acquired from EFCC (including the assets that EFCC received
from TPC), except for dispositions to be made in the ordinary course of business
or transfers described in Section 368(a)(2)(C) of the Code.
(g) Following the Star Merger, Merger Sub will continue the "historic
business" of TPC or use a "significant portion" of TPC's "historic business
assets" in a business (as such terms are defined in Treasury Regulation Section
1.368-1(d)(2)).
(h) Star and the shareholders of EFCC will pay (or will have paid)
their respective expenses, if any, incurred in connection with the Star Merger
and will not pay any of the expenses of the other in connection with the Star
Merger. Star will pay or assume only those expenses of EFCC that are solely and
directly related to the Star Merger in accordance with the guidelines
established in Rev. Rul. 73-54, 1973-1 C.B. 187.
(i) As of the Effective Time, there will be no intercorporate
indebtedness existing between Star and EFCC or between Merger Sub and EFCC that
was issued, acquired or will be settled at a discount.
(j) As of the Effective Time, Star and Merger Sub will not be
investment companies as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code.
(k) The payment of cash in lieu of fractional shares of Star common
stock is solely for the purpose of avoiding the expense and inconvenience to
Star of issuing fractional shares and does not
Meltzer, Lippe, et. al.
[To be dated the Effective Time]
Page 3
represent separately bargained-for consideration. The total cash consideration
that will be paid in the Star Merger to the EFCC shareholders instead of issuing
fractional shares of Star stock will not exceed one percent of the total
consideration that will be issued in the Star Merger to the EFCC shareholders in
exchange for their shares of EFCC stock. The fractional share interests of each
EFCC shareholder will be aggregated, and no EFCC shareholder will receive cash
in an amount greater than the value of one full share of Star stock.
(l) The consideration to be received by the shareholders of EFCC in
the Star Merger is a result of arm's-length bargaining. None of the compensation
received by any shareholder-employees of EFCC will be separate consideration
for, or allocable to, any of their shares of EFCC stock; none of the shares of
Star stock received by any shareholder-employees of EFCC will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employee will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's-length for similar services.
(m) None of the representations or warranties made by EFCC, Star or
Merger Sub herein or in any Schedule hereto or in any other documents furnished
pursuant to any of the transactions described herein contain any untrue
statement of fact or omit to state any fact necessary in order to make the
statements and opinions contained herein or therein, including our Xxxxxxx,
Xxxxx Xxxxxxxxx, Xxxx & Xxxxxxxxx P.C. opinions, true and not misleading.
Star acknowledges that your tax opinion may not accurately describe
the effects of the Star Merger if any of the foregoing facts or representations
are inaccurate.
Very truly yours,
Star Multi Care Services, Inc.
[EFCC LETTERHEAD]
[To be dated the Effective Time]
Xxxxxxx, Lippe, Goldstein,
Wolf & Xxxxxxxxx, P.C.
000 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Ladies and Gentlemen:
The following facts and representations are being furnished to you in
connection with the preparation of your tax opinion to be provided in connection
with the TPC Merger and the Star Merger (each as defined below) and we
understand that you will be relying on such facts and representations in
delivering your opinion. Unless otherwise defined herein, capitalized terms
shall have the meanings ascribed to them in the Agreement and Plan of Merger
Among Star Multi Care Services, Inc., EFCC Acquisition Corp. and Extended Family
Care Corporation, Inc. Dated as of January 3, 1997 (the "Merger Agreement").
1. TPC MERGER
(a) The merger of TPC Home Care Services, Inc. ("TPC") with and into
Extended Family Care Corporation, Inc. ("EFCC") (the "TPC Merger") will be
effected in accordance with the Agreement of Merger dated [_____________], 1997
by and between EFCC and TPC and pursuant to New York State law.
(b) The fair market value of the EFCC common stock received by each
TPC shareholder will be approximately equal to the fair market value of the TPC
stock surrendered in the exchange.
Meltzer, Lippe, et. al.
[To be dated the Effective Time]
Page 2
(c) The minority shareholders of TPC acquired their TPC stock before
the formulation of any plan in connection with the TPC Merger and not in
contemplation of EFCC's subsequent acquisition of TPC.
(d) As of the Effective Time, there will be no binding commitment or
preconceived plan or arrangement on the part of the shareholders of TPC to sell,
exchange or otherwise dispose of any of their EFCC stock received in the TPC
Merger (including EFCC shares held prior to the TPC Merger), other than pursuant
to the merger of EFCC with and into EFCC Acquisition Corp. ("Merger Sub") (the
"Star Merger").
(e) EFCC has no plan or intention to reacquire any of its
stock issued in the TPC Merger.
(f) EFCC has no plan or intention to sell or otherwise dispose of any
of the assets or stock of TPC acquired in the TPC Merger, except pursuant to the
Star Merger.
(g) The liabilities of TPC assumed by EFCC and the liabilities to
which the transferred assets of TPC are subject were incurred by TPC in the
ordinary course of its business and are associated with the business of TPC.
(h) EFCC and the shareholders of TPC will pay their respective
expenses, if any, incurred in connection with the TPC Merger and will not pay
any of the expenses of the other in connection with the TPC Merger. EFCC will
pay or assume only those expenses of TPC that are solely and directly related to
the TPC Merger in accordance with the guidelines established in Rev. Rul.
73-54, 1973-1 C.B. 187.
(i) There is no intercorporate indebtedness existing between EFCC and
TPC that was issued, acquired or will be settled at a discount.
(j) EFCC and TPC are not investment companies as defined in Section
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as amended (the
"Code").
(k) As of the Effective Time, TPC will not be under the jurisdiction
of a court in a title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
Meltzer, Lippe, et. al.
[To be dated the Effective Time]
Page 3
(l) The fair market value of the assets of TPC transferred to EFCC
will equal or exceed the sum of the liabilities assumed by EFCC plus the amount
of liabilities, if any, to which the transferred assets are subject.
(m) No cash will be paid to any of the shareholders of TPC pursuant
to the TPC Merger other than cash payments to dissenting shareholders.
(n) None of the compensation received by any shareholder-employees of
TPC will be separate consideration for, or allocable to, any of their shares of
TPC stock; none of the shares of EFCC stock received by any
shareholder-employees of TPC will be separate consideration for, or allocable
to, any employment agreement; and the compensation paid to any
shareholder-employee will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's-length for
similar services.
(o) TPC and EFCC intend to complete the TPC Merger whether or not the
Star Merger is finalized. The Star Merger is not a requirement for the
occurrence of the TPC Merger. TPC and EFCC do not have a binding commitment with
Star to exchange the stock of EFCC for the stock of Star prior to the TPC
Merger. There are valid business, non-tax reasons for the TPC Merger, such as to
effect desired operating efficiencies in the corporate structure of EFCC.
2. STAR MERGER
Provided that the All Cash Option is not exercised:
(p) The Star Merger will be effected in accordance with the Merger
Agreement and pursuant to New York State law.
(q) At the Effective Time, the fair market value of the Star Multi
Care Services, Inc. ("Star") common stock or cash received by each holder of
shares of EFCC common stock will be approximately equal to the fair market value
of the shares of EFCC common stock surrendered by each holder in connection with
the Star Merger.
(r) No stock of the Merger Sub will be issued to any shareholder of
EFCC in the Star Merger.
(s) As of the Effective Time, to the best of the knowledge of
the management of EFCC, there are no shareholders of EFCC, other
than Xxxx Holding Corp. ("Xxxx") and Arbor Home Healthcare
Meltzer, Lippe, et. al.
[To be dated the Effective Time]
Page 4
Holdings, LLC ("Arbor"), who own 5% or more of the stock of EFCC.
(t) To the best of the knowledge of the management of EFCC, Xxxx
acquired their EFCC stock before the formulation of any plan in connection with
the Star Merger and not in contemplation of Merger Sub's subsequent acquisition
of the outstanding capital stock of EFCC.
(u) As of the Effective Time, to the best of the knowledge of the
management of EFCC, none of the shareholders of EFCC have a binding commitment
or preconceived plan or arrangement for disposing of any of their Star stock
received in the Star Merger.
(v) EFCC will transfer to Merger Sub and Merger Sub will acquire at
least 90 percent of the fair market value of EFCC's net assets and at least 70
percent of the fair market value of EFCC's gross assets held immediately prior
to the Star Merger, including, but not limited to, the assets formerly held by
TPC (which includes the consideration received by TPC upon the sale of its
Jersey City division) and the amount of cash distributed in the EFCC Dividend
(as defined below). For purposes of this representation, amounts paid by EFCC to
dissenters, amounts paid by EFCC to shareholders who receive cash in lieu of
fractional shares, amounts used by EFCC to pay reorganization expenses and all
redemptions and distributions (except for regular, normal dividends) made by
EFCC will be included as assets of EFCC immediately prior to the Star Merger.
(w) As of the Effective Time, EFCC will not, in anticipation of or as
a part of the plan for the combination of EFCC and Merger Sub have (i) redeemed
any of the EFCC stock or (ii) effected any distributions with respect to any of
its stock, except for normal dividends and except for the distribution of
$750,000 to its shareholders on [___________________] (the "EFCC Dividend").
(x) Star and the shareholders of EFCC will pay (or will have paid)
their respective expenses, if any, incurred in connection with the Star Merger
and will not pay any of the expenses of the other in connection with the Star
Merger. Star will pay or assume only those expenses of EFCC that are solely and
directly related to the Star Merger in accordance with the guidelines
established in Rev. Rul. 73-54, 1973-1 C.B. 187.
(y) As of the Effective Time, there will be no intercorporate
indebtedness existing between Star and EFCC or between Merger Sub and EFCC that
was issued, acquired or will be settled at a discount.
Meltzer, Lippe, et. al.
[To be dated the Effective Time]
Page 5
(z) At the Effective Time, the fair market value of the assets of
EFCC (including the assets received from TPC) will exceed the sum of its
liabilities, plus the amount of liabilities, if any, to which the assets are
subject. Such liabilities were incurred by EFCC or TPC in the ordinary course of
business and are associated with the business of EFCC or TPC.
(aa) As of the Effective Time, EFCC will not be under the
jurisdiction of a court in a title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
(bb) The payment of cash in lieu of fractional shares of Star common
stock is solely for the purpose of avoiding the expense and inconvenience to
Star of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be paid in
the Star Merger to the EFCC shareholders instead of issuing fractional shares of
Star stock will not exceed one percent of the total consideration that will be
issued in the Star Merger to the EFCC shareholders in exchange for their shares
of EFCC stock. The fractional share interests of each EFCC shareholder will be
aggregated, and no EFCC shareholder will receive cash in an amount greater to or
greater than the value of one full share of Star stock.
(cc) The consideration to be received by the shareholders of EFCC in
the Star Merger is a result of arm's-length bargaining. None of the compensation
received by any shareholder-employees of EFCC will be separate consideration
for, or allocable to, any of their shares of EFCC stock; none of the shares of
Star stock received by any shareholder-employees of EFCC will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employee will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's-length for similar services.
(dd) None of the representations or warranties made by EFCC herein or
in any Schedule hereto or in any other documents furnished pursuant to any of
the transactions described herein contain any untrue statement of fact or omit
to state any fact necessary in order to make the statements and opinions
contained herein or therein, including our Xxxxxxx, Xxxxx Xxxxxxxxx, Xxxx &
Xxxxxxxxx P.C. opinions, true and not misleading.
Meltzer, Lippe, et. al.
[To be dated the Effective Time]
Page 6
EFCC acknowledges that your tax opinion may not accurately describe
the effects of the TPC Merger and the Star Merger if any of the foregoing facts
or representations are inaccurate.
Very truly yours,
Extended Family Care
Corporation, Inc.
[XXXX LETTERHEAD]
[To be dated the Effective Time]
Xxxxxxx, Lippe, Goldstein,
Wolf & Xxxxxxxxx, P.C.
000 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Ladies and Gentlemen:
The following facts and representations are being furnished to you in
connection with the preparation of your tax opinion to be provided in connection
with the merger of TPC Home Care Services, Inc. with and into Extended Family
Care Corporation, Inc. ("EFCC") and the merger of EFCC with and into EFCC
Acquisition Corp. (the "Star Merger") and we understand that you will be relying
on such facts and representations in delivering your opinion. Unless otherwise
defined herein, capitalized terms shall have the meanings ascribed to them in
the Agreement and Plan of Merger Among Star Multi Care Services, Inc. ("Star"),
EFCC Acquisition Corp. and Extended Family Care Corporation, Inc. Dated as of
January 3, 1997.
(a) As of the Effective Time, Xxxx Holding Corp. ("Xxxx") does not
have a binding commitment or preconceived plan or arrangement for disposing of
any of their Star common stock received in the Star Merger.
(b) None of the representations or warranties made by Xxxx herein or
in any schedule hereto or in any other documents furnished pursuant to any of
the transactions described herein contain any untrue statement of fact or omit
to state any fact necessary in order to make the statements and opinions
contained herein or therein, including our Xxxxxxx, Xxxxx Xxxxxxxxx, Xxxx &
Xxxxxxxxx P.C. opinions, true and not misleading.
Meltzer, Lippe, et. al.
January __, 1997
Page 2
Xxxx acknowledges that your tax opinion may not accurately describe
the effects of the Star Merger if any of the foregoing facts or representations
are inaccurate.
Very truly yours,
Xxxx Holding Corp.
EXHIBIT G
---------
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT, dated January 3, 1997 is between Extended
Family Care Corporation, a New York corporation (the "Company"), and Star Multi
Care Services, Inc., a New York corporation (the "Consultant").
W I T N E S S E T H :
WHEREAS, the Company has entered into an Agreement and Plan of Merger
(the "Merger Agreement") dated as of January 3, 1997 among the Consultant, EFCC
Acquisition Corp., a New York corporation and a wholly-owned subsidiary of the
Consultant ("Merger Sub") and the Company which provides for the merger (the
"Merger") of the Company with Merger Sub; and
WHEREAS, the Consultant, by and through its officers and other
employees, has developed, in connection with the conduct of its business and
affairs, various areas of expertise in the management and operation of a home
care services business; and
WHEREAS, the Company desires to obtain the advice and assistance of
the Consultant in such areas of expertise;
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration hereinafter stated, the parties hereby agree as follows:
1. APPOINTMENT. The Company hereby appoints the Consultant to render
to the Company during the Term (as defined below) the services provide for in
Section 3 hereof.
2. TERM. The Consultant shall render the services provided for in
Section 3 hereof for a period (the "Term") commencing on the date hereof and
ending on the earlier of (i) the date on which the Merger Agreement shall have
been terminated pursuant to the terms thereof other than by reason of the
default of the Company thereunder, (ii) the Effective Date of the Management
Agreement (as defined in the Merger Agreement) or (iii) the Effective Time (as
defined in the Merger Agreement) PROVIDED, that the Consultant shall have the
right to terminate its obligation to render services hereunder at any time upon
forty-five (45) days prior notice to the Company.
3. SERVICES. During the Term, upon the Company's request, the
Consultant shall render to the Company, by and through such of its officers,
employees and agents as the Consultant, in its sole discretion, shall designate
from time to time, consulting services with respect to the management and
operation of the Company. The consulting services to be rendered by the
Consultant hereunder shall consist of those consulting services relating to the
management and operation of the Company's healthcare business reasonably
requested by the Company. The Company
and the Consultant agree that the Consultant's role is that of a consultant and
advisor to, and not that of a manager of, the Company. The Consultant shall have
no duty or responsibility to manage the affairs of the Company which duty and
responsibility shall remain at all times with the Board of Directors and
management of the Company. In particular, without limiting the generality of the
foregoing provisions of this Section, the powers and responsibilities of the
Consultant hereunder shall be subject to the limitations and conditions imposed
on the Manager (as defined in the Management Agreement) under the Management
Agreement.
4. CONSULTING COMPENSATION. For the consulting services to be
rendered by the Consultant under Section 3 hereof, the Company agrees to pay the
Consultant fees in the amount of Twenty-five Thousand Dollars ($25,000) per
month, payable (a) $15,000 in arrears on the last day of each month, pro rated
for any partial month, and (b) the remaining $10,000 on the earlier to occur of
(x) the Effective Time, as defined in the Merger Agreement, and (y) the
termination of the Merger Agreement in accordance with Article VII thereof.
5. PERMISSIBLE ACTIVITIES. Nothing herein shall be deemed to restrict
the Consultant from engaging in any business or performing any services for its
own account or the account of others during the Term. The Company acknowledges
that the Consultant is engaged in substantially the same line of business as the
Company.
6. APPLICABLE LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York, without giving effect to
conflicts of law principles.
7. LEGAL PROCEEDINGS. Legal proceedings commenced by the Company or
the Consultant arising out of any of the transactions or obligations
contemplated by this Agreement shall be brought exclusively in the federal
courts or, in the absence of federal jurisdiction, state courts, in either case
in Nassau County, New York. The Company and the Consultant irrevocably and
unconditionally submit to the jurisdiction of such courts and agree to take any
and all future action necessary to submit to the jurisdiction of such courts.
Each of the Company and the Consultant irrevocably waives any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding brought in any federal or state court in Nassau County, New York, and
further irrevocably waives any claims that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
8. NO CONTINUING WAIVER. The waiver of any party of any breach of
this Agreement shall not operate as, or be construed to be, a waiver of any
subsequent breach.
9. INDEMNIFICATION. If, in connection with the Consultant's rendering
of services hereunder, the Consultant is named as a party to any action or legal
proceeding, the Company agrees to indemnify the Consultant, its affiliates and
their respective directors, officers, employees, agents and controlling persons
(each, an "Indemnified Party") against all losses, claims, damages or
liabilities, joint or several, including reasonable attorneys' fees and
expenses, to which such Indemnified Party may become subject in connection with
the Consultant's rendering of services hereunder; PROVIDED,
-2-
that the Company shall not be liable under the foregoing indemnity provision in
respect of any loss, claim, damage or liability to the extent that such loss,
claim, damage or liability results from the willful misfeasance or gross
negligence of such Indemnified Party. The Company further agrees to consult in
advance with the Consultant with respect to the terms of any proposed waiver,
release or settlement of any claim, action or proceeding to which an Indemnified
Party may be subject as a result of the Consultant's engagement hereunder and
agrees not to enter into any such waiver, release or settlement without the
prior written consent of such Indemnified Party, unless such waiver, release or
settlement includes an unconditional release of such Indemnified Party from all
liability arising out of such claim, action or proceeding.
If any legal proceeding shall be instituted, or any claim or demand
made, against an Indemnified Party such Indemnified Party shall give prompt
written notice of the claim to the party obliged or alleged to be so obliged so
to indemnify such Indemnified Party (the "Indemnitor"). The omission so to
notify such Indemnitor, however, shall not relieve such Indemnitor from any duty
to indemnify which otherwise might exist with regard to such claim unless (and
only to the extent that) the omission to notify materially prejudices the
ability of the Indemnitor to assume the defense of such claim.
After any Indemnitor has received notice from an Indemnified Party
that a claim has been asserted against such Indemnified Party, the Indemnitor
shall promptly pay to the Indemnified Party the amount of such damages in
accordance with and subject to the provisions of this Section; PROVIDED,
HOWEVER, that no such payment shall be due during any period in which the
Indemnitor is contesting in good faith either its obligation to make such
indemnification or the amount of damages payable or both. After any Indemnitor
has received notice from an Indemnified Party that a claim has been asserted
against it by a third party, the Indemnitor shall have the right, upon giving
written notice to the Indemnified Party, to participate in the defense of such
claim and to elect to assume the defense against the claim, at its own expense,
through the Indemnified Party's attorney or an attorney selected by the
Indemnitor and approved by the Indemnified Party, which approval shall not be
unreasonably withheld; PROVIDED, HOWEVER, that it shall be a condition to such
election to assume such defense that (i) the Indemnitor shall provide the
Indemnified Party with evidence reasonably acceptable to the Indemnified Party
that the Indemnitor will have the financial resources to defend against the
claim and to fulfill its indemnification obligations hereunder and (ii) the
Indemnitor conducts the defense of the claim actively and diligently. If the
Indemnitor fails to give notice of such election within thirty days (30) after
notice, then the Indemnitor shall be deemed to have elected not to assume the
defense of such claim and the Indemnified Party may defend against the claim
with its own attorney.
If the Indemnitor so elects to participate in the defense of such
claim or to assume the defense against a claim within thirty (30) days after
notice and the conditions set forth above are satisfied, then the Indemnified
Party will cooperate and make available to the Indemnitor (and its
representatives) all employees, information, books and records in its possession
or under its control which are reasonably necessary or useful in connection with
such defense; and if the Indemnitor shall have elected to assume the defense of
a claim, then the Indemnitor shall have the right to compromise and settle in
good faith any such claim with the consent of the Indemnified Party (such
consent not
-3-
to be unreasonably withheld) provided that the conditions set forth above are
satisfied. If the Indemnitor shall elect to defend or to agree in writing to
compromise or to settle any such claim, then it shall be bound by any ultimate
judgment or settlement as to the existence and amount of the claim, and the
amount of said judgment or settlement shall be conclusively deemed for all
purposes of this Agreement to be a liability on account of which the Indemnified
Party is entitled to be indemnified hereunder. If the Indemnitor is conducting
the defense of a claim, the Indemnified Party may retain separate co-counsel at
its cost and expense and participate in such defense.
If the Indemnitor does not elect to assume or is deemed to have
elected not to assume the defense of a claim or in the event any of the
conditions set forth above becomes unsatisfied then: (i) the Indemnified Party
alone shall have the right to conduct such defense but shall use its best
efforts to inform the Indemnitor as to the status of any proceedings; (ii) the
Indemnified Party shall have the right to compromise and to settle, in good
faith, the claim without the prior consent of the Indemnitor; (iii) the
Indemnitor will periodically reimburse the Indemnified Party for costs
(including reasonable legal fees); and (iv) if it is ultimately determined the
claim of loss which shall form the basis of such judgment or settlement is one
that is validly an obligation of the Indemnitor that elected not to assume the
defense, then such Indemnitor shall be bound by any ultimate judgment or
settlement as to the existence and the amount of the claim and the amount of
said judgment or settlement (including the costs and expenses of defending such
claims) shall be conclusively deemed for all purposes of this Agreement to be a
liability on account of which the Indemnified Party is entitled to be
indemnified hereunder.
A claim for indemnification for any matter not involving a third
party claim may be asserted by notice to the party for whom indemnification is
sought. After receipt of such notice, the Indemnitor shall pay the Indemnified
Party the amount of such damages within thirty (30) days; PROVIDED, HOWEVER,
that no such payments shall be due during any period in which the Indemnitor is
contesting in good faith either its obligation to make such indemnification or
the amount of damages payable or both.
10. BURDEN AND BENEFIT; LIABILITY OF CONSULTANT. This Agreement shall
inure to the benefit of, and be binding upon, the Consultant and the Company and
their respective successors and assigns. In the event of a default by the
Consultant of any of its obligations (other than for willful misfeasance or
gross negligence), the sole and exclusive recourse and remedy of the Company
shall be against the Consultant and its assets and under no circumstances shall
any officer, director, stockholder or affiliate of the Consultant be liable in
law or equity for any obligations to the Company. The remedy of the Company for
such default shall be limited to the recovery of the consulting fees actually
paid to the Consultant.
11. NOTICES.. All notices, requests and other communications pursuant
to this Agreement shall be in writing and shall be deemed to have been duly
given, if delivered in person or by courier, telegraphed, telexed or by
facsimile transmission or sent by express, registered or certified mail, postage
prepaid, addressed as follows:
-4-
If to the Company:
Extended Family Care Corporation
c/o Arbor Home Healthcare Holdings, LLC
000 Xxxx Xxxxxxxx Xxxxxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attention: Chief Executive Officer
with a copy to:
Xxxxxxx, Lippe, Goldstein, Wolf & Xxxxxxxxx, P.C.
000 Xxxxxx Xxxxxx
Xxxxxxx, Xxx Xxxx
Attention: Xxxxxxx X. Xxxxx, Esq.
If to the Consultant:
Xxxxxxx Xxxxxxxxx
c/o Star Multi Care Services, Inc.
00 Xxxx Xxxxxxx Xxxx
Xxxxxxxxxx Xxxxxxx, Xxx Xxxx 00000
with a copy to:
Xxxxxx Xxxxxx Flattau & Klimpl, LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxxxx, Esq.
-5-
Any party may, by written notice to the other, change the address to which
notices to such party are to be delivered or mailed.
IN WITNESS WHEREOF, the parties have caused this Consulting Agreement
to be executed and delivered by their respective duly authorized officers as set
forth below as of the date first above written.
STAR MULTI CARE SERVICES, INC.
By: /s/ Xxxxxxx Xxxxxxxxx
-------------------------
Name: Xxxxxxx Xxxxxxxxx, President
Title:President
EXTENDED FAMILY CARE CORPORATION
By: /s/ Xxxxxx Xxxxxx
-------------------------
Name: Xxxxxx Xxxxxx
Title:Vice-President
-6-
EXHIBIT H
---------
MANAGEMENT AGREEMENT
THIS AGREEMENT entered into this 3rd day of January, 1997 by and
between Star Multi Care Services, Inc., a New York corporation (hereinafter
referred to as the "Manager"), and Extended Family Care Corporation, a New York
corporation (hereinafter referred to as the "Agency").
WHEREAS, the Agency desires to employ Manager, under the terms of
this Agreement, to provide its experience, skills and supervision and to make
available certain personnel in the operations of a licensed home care services
agency with the full authority and ultimate control of the Agency remaining with
its Board of Directors (hereinafter the "Board"); and
WHEREAS, Manager has entered into an Agreement and Plan of Merger
(the "Merger Agreement") dated as of January 3, 1997 among the Manager, EFCC
Acquisition Corp., a New York corporation and a wholly-owned subsidiary of the
Manager ("Merger Sub") and the Agency which provides for the merger (the
"Merger") of the Agency with Merger Sub.
NOW, THEREFORE, in consideration of the premises and the obligations
undertaken by the parties pursuant hereto, the parties hereby agree as follows:
1. EMPLOYMENT, SERVICES AND DUTIES.
1.1 EMPLOYMENT. Agency hereby retains Manager, and Manager
hereby agrees to act as manager of the Agency, subject to all the provisions
hereof; PROVIDED that Manager shall not render any services or receive any
compensation hereunder until the Effective Date (as hereinafter defined).
1.2 AUTHORITY AND RESPONSIBILITIES OF MANAGER. Manager
shall have the authority and responsibility to conduct, supervise and
effectively manage the day-to-day operation of the Agency. In the absence of
oral or written direction or written policies of the Board of Directors of the
Agency (the "Board"), Manager shall be expected to exercise the reasonable
judgment of a management company in its management activities. Manager shall
specifically have responsibility and commensurate authority, subject to the
direction of the Board to act on its behalf under this Agreement, in accordance
with the written policies of the Board, and the budgets approved by the Board as
hereinafter provided, for the following activities:
(a) CHARGES. The establishment, maintenance, revision and
administration of the overall charge structure of the Agency pursuant to
pertinent regulations, including, but not limited to, patient charges, charges
for ancillary services, charges for supplies and special services.
(b) PERSONNEL ADMINISTRATION. The hiring, discharge,
supervision and management of all employees of the Agency, including the
determination, from time to time, of the numbers and qualifications of employees
needed in the various departments and services of the Agency. The establishment,
revision and administration of wage scales, rates of compensation, employee
benefits, rates and conditions of employment, in-service training, attendance at
seminars or conferences, staffing schedules, and job and position descriptions
with respect to all employees of the Agency. Manager shall hire and discharge
the staff of the Agency, including professional employees pursuant to misconduct
of such employees or the staffing requirements of the Agency necessary for
quality patient care.
(c) COLLECTION OF ACCOUNTS. The issuance of bills for
services and materials furnished by the Agency, and the collection of accounts
and monies owed to the Agency, including the responsibility to enforce the
rights of the Agency as creditor under any contract or in connection with the
rendering of any service.
(d) PAYMENT OF ACCOUNTS AND INDEBTEDNESS. The payment of
payroll, trade accounts, amounts due on short and long-term indebtedness, taxes
and all other obligations of the Agency; PROVIDED, HOWEVER, that the
responsibility under this paragraph shall be limited to the exercise of
reasonable diligence and care to apply the funds collected in the operation of
the Agency to its obligations in a timely and prudent manner, and Manager shall
not become personally liable or act in a guarantor capacity with respect to any
obligation of the Agency.
(e) ACCOUNTING AND FINANCIAL RECORDS. The establishment
and administration of accounting procedures and controls, in accordance with
generally accepted accounting principles and the establishment and
administration of systems for the development, preparation and safekeeping of
records and books of account relating to the business and financial affairs of
the Agency (the originals to remain at the Agency).
(f) DEPOSITORIES FOR FUNDS. The maintenance of accounts in
such banks, savings and loan associations, and other financial institutions as
the Board may, from time to time, select (including certificates of deposit)
with such balances therein (which may be interest bearing or non-interest
bearing) as Manager shall, from time to time, deem appropriate, taking into
account the operating needs of the Agency and the disbursements from such
accounts of such amounts of the Agency's funds as Manager shall, from time to
time, determine is appropriate in the discharge of its responsibilities under
this Agreement; PROVIDED, HOWEVER, that Manager shall not, in any case, have any
obligation to supply, out of its own funds, working capital for the Agency.
(g) PURCHASES AND LEASES. The management of all purchases
and leases of real property, equipment, supplies and all materials and services
which Manager shall deem to be necessary in the operation of the Agency. Any
purchase agreement which will obligate the Agency beyond the term of this
Agreement, and any purchase or lease of real property or capital equipment,
shall be subject to approval of the Board.
-2-
(h) QUALITY CONTROL. The evaluation of all quality control
aspects of the Agency operation, and the implementation, with Board approval, of
quality control programs designed to meet standards imposed by appropriate
certifying agencies and to bring about a high standard of health care in
accordance with Board policies and resources available to the Agency.
1.3 CONTRACTS FOR SERVICES. Manager, shall be empowered to
negotiate, enter into, terminate and administer on behalf of the Agency
contracts for services by medical, paramedical and other persons and
organizations.
1.4 PROHIBITED ACTS AND RETENTION OF POWERS AGENCY.
Notwithstanding any other provision of this Agreement the Board retains and the
Manager is prohibited from exercising:
(a) direct independent authority to hire or fire
the Manager or the Agency's Administrator;
(b) independent control of the Agency's books and
records;
(c) authority over the disposition of assets and
the authority to incur on behalf of the Agency
liabilities not normally associated with the
day- to-day operation of the Agency; and
(d) authority for the independent adoption and
enforcement of policies affecting the delivery
of health care services.
1.5 COMMISSIONER'S APPROVAL. This Agreement, when approved
by the Commissioner (the "Commissioner") of the New York State Department of
Health (the "Department"), is the sole agreement between Manager and the Agency
for the purpose of managing the day-to-day activities of the Agency, or any
portion thereof, and any amendments or revisions to this Agreement which
increase the amount or extent of authority delegated to Manager shall be
effective only with the prior written consent of the Commissioner.
2. ADMINISTRATOR AND OTHER PERSONNEL.
2.1 ADMINISTRATOR. Manager may, during the term hereof,
provide the services of a qualified agency administrator (the "Administrator") ,
whose initial and continuing appointment and term of appointment shall be
subject to the approval of the Board and who will act as the chief
administrative officer of the Agency. The Administrator will be and remain the
employee of Manager for the term of this Agreement. His duties shall be, to the
extent the Manager is authorized hereunder, to effect or deal with any of the
following, to:
(a) Equip the Agency with all necessary and needed
facilities for the care and treatment of patients and for the use of officers
and employees thereof, and purchase all necessary supplies.
-3-
(b) Have general supervision and control of the records
and accounts of the Agency and all its internal affairs; maintain discipline
therein, and enforce compliance with and obedience to all rules, bylaws, and
regulations adopted by the Board for the discipline and management of said
Agency, and the employees thereof, and make and enforce such further rules,
regulations and orders as it may deem necessary, not inconsistent with law, or
with the rules, regulations and directions of the Board.
(c) Appoint such employees as it may reasonably think
proper and necessary for the efficient performance of the business of the
Agency, prescribe their duties and discharge any such employee pursuant to the
provisions of law.
(d) Cause proper accounts and records of the business and
operations of the Agency to be kept regularly from day to day, in books and on
forms provided for that purpose; see that such accounts and records are
correctly made up for the annual report to the Board; and present the same to
the Board on request, who shall incorporate them in their annual report.
(e) Cause a careful examination to be made of the physical
condition of all persons treated by the Agency; and shall cause a record to be
kept of the condition of each patient when treated, and from time to time
thereafter.
(f) Collect and receive all money due the Agency, keep an
accurate account of the same, and report the same at the ensuing monthly meeting
of the Board.
2.2 CONTROLLER. Manager may provide, during the term
hereof, a qualified agency controller (the "Controller"), whose initial and
continuing appointment and the term of appointment shall be subject to the
approval of the Board, who shall act as the chief accounting and financial
officer of the Agency. The Controller will be and remain an employee of Manager
for the term of this Agreement.
3. DIVISION OF AUTHORITY AND RESPONSIBILITY.
3.1 THE BOARD. The Board shall retain full legal authority
over the operation of the Agency and ongoing responsibility for compliance with
all statutory and regulatory requirements. Any powers not delegated specifically
to Manager through the provisions of this Agreement shall remain with the Board.
The Board shall represent the Agency in matters pertaining to the interpretation
of this Agreement; PROVIDED that in any situation in which, pursuant to the
terms of this Agreement, the Board shall be required or permitted to take any
action, to give any approval or to receive any report, Manager shall be entitled
to rely upon the written statement of the Chairman of the Board of the Agency to
the effect that any such action or approval has been taken or given.
-4-
4. COMMUNICATIONS AND REPORTS.
Manager shall be available to report to and consult with the Board on
such matters and at such times as the Board shall reasonably request.
5. LICENSING; ACCREDITATION.
Both Manager and Agency agree to abide by all laws, ordinances, rules
and regulations of state, local or Federal governments pertaining to operation
of the Agency and to the operation of this Agreement. Notwithstanding any other
provision in this Agreement, the Agency remains responsible for insuring that
any service provided pursuant to this Agreement complies with all pertinent
provisions of Federal, State and local statutes, rules and regulations.
6. COMPENSATION.
As compensation for the management services to be rendered hereunder,
the Agency shall pay to Manager a management fee in the amount of Twenty-five
Thousand Dollars ($25,000) per month, payable (a) $15,000 in arrears on the last
day of each month, pro rated for any partial month, and (b) the remaining
$10,000 on the earlier to occur of (x) the Closing Date, as defined in the
Merger Agreement, and (y) the termination of the Merger Agreement for any
reason, including in accordance with Article VII thereof.
7. TERM OF AGREEMENT.
7.1 This Agreement shall become effective upon the date it
is approved by the Commissioner (the "Effective Date").
7.2 This Agreement may be terminated by the Commissioner,
without financial penalty to the Board, not more than sixty (60) days after
notification to the parties by the Department of a determination that the
management of the Agency is so deficient that the health and safety of patients
would be threatened by continuation of this Agreement.
7.3 Unless sooner terminated as elsewhere provided in this
Agreement, or extended or renewed by mutual agreement of the parties hereto,
this Agreement shall remain in effect until the Effective Time of the Merger or
December 31, 1998, whichever is sooner.
7.4 The Board may terminate this Agreement and discharge
Manager and any employee appointed by the Manager from their positions at the
Agency without Cause (as hereinafter defined) upon 60 days prior notice to
Manager or with Cause upon 14 business days prior notice to Manager. For this
purpose "Cause" means intentional misconduct or violation of this Agreement by
Manager that causes material loss or injury to the Agency or materially
interferes with its performing health care services if such conduct or violation
is not cured within 10 business days after notice, specifying such conduct or
violation in reasonable detail, is given to Manager by the Board.
-5-
7.5 This Agreement may be terminated by Manager upon the
occurrence of an Event of Default (as hereinafter defined).
8. DEFAULT.
8.1 EVENTS OF DEFAULT. It shall be an event of default
("Event of Default") hereunder if the Agency shall fail to make or cause to be
made any payment to Manager required to be made hereunder, and such failure
shall continue for five (5) days after notice thereof shall have been given to
the Board.
9. MISCELLANEOUS.
9.1 INSURANCE. The Agency shall secure and maintain, or
cause to be secured and maintained, with respect to the Agency, during the term
of this Agreement, Worker's Compensation Disability and Employer's Liability,
and Comprehensive General and Professional Liability (including Personal Injury,
Products and Completed Operations Liability, and Blanket Automobile Liability)
Insurance providing-reasonable limits of liability. It is further agreed that
all such policies of insurance, except Worker's Compensation insurance policies,
are to be written or amended to include Manager, its agents, servants,
employees, officers and directors as Additional Named Insureds if possible.
Notwithstanding the foregoing, the Agency shall indemnify and hold Manager
harmless from any and all liability, including reasonable attorney's fees,
caused by or resulting from the negligent or intentional acts or omissions of
any member of the Board or any employee of the Agency, unless such liability is
primarily caused by the intentional misconduct of Manager.
If any legal proceeding shall be instituted, or any claim
or demand made, against a Manager such Manager shall give prompt written notice
of the claim to the Agency. The omission so to notify the Agency, however, shall
not relieve the Agency from any duty to indemnify which otherwise might exist
with regard to such claim unless (and only to the extent that) the omission to
notify materially prejudices the ability of the Agency to assume the defense of
such claim.
After the Agency has received notice from the Manager that
a claim has been asserted against the Manager, the Agency shall promptly pay to
the Manager the amount of such damages in accordance with and subject to the
provisions of this Section; PROVIDED, HOWEVER, that no such payment shall be due
during any period in which the Agency is contesting in good faith either its
obligation to make such indemnification or the amount of damages payable or
both. After the Agency has received notice from the Manager that a claim has
been asserted against it by a third party, the Agency shall have the right, upon
giving written notice to the Manager, to participate in the defense of such
claim and to elect to assume the defense against the claim, at its own expense,
through the Manager's attorney or an attorney selected by the Agency and
approved by the Manager, which approval shall not be unreasonably withheld;
PROVIDED, HOWEVER, that it shall be a condition to such election to assume such
defense that (i) the Agency shall provide the Manager with evidence reasonably
acceptable to the Manager that the Agency will have the financial resources to
defend against the claim and to fulfill its indemnification obligations
hereunder and (ii) the Agency conducts the defense of the claim actively and
diligently. If the Agency fails to give notice of such election
-6-
within thirty days (30) after notice, then the Agency shall be deemed to have
elected not to assume the defense of such claim and the Manager may defend
against the claim with its own attorney.
If the Agency so elects to participate in the defense of
such claim or to assume the defense against a claim within thirty (30) days
after notice and the conditions set forth above are satisfied, then the Manager
will cooperate and make available to the Agency (and its representatives) all
employees, information, books and records in its possession or under its control
which are reasonably necessary or useful in connection with such defense; and if
the Agency shall have elected to assume the defense of a claim, then the Agency
shall have the right to compromise and settle in good faith any such claim with
the consent of the Manager (such consent not to be unreasonably withheld)
provided that the conditions set forth above are satisfied. If the Agency shall
elect to defend or to agree in writing to compromise or to settle any such
claim, then it shall be bound by any ultimate judgment or settlement as to the
existence and amount of the claim, and the amount of said judgment or settlement
shall be conclusively deemed for all purposes of this Agreement to be a
liability on account of which the Manager is entitled to be indemnified
hereunder. If the Agency is conducting the defense of a claim, the Manager may
retain separate co-counsel at its cost and expense and participate in such
defense.
If the Agency does not elect to assume or is deemed to
have elected not to assume the defense of a claim or in the event any of the
conditions set forth above becomes unsatisfied then: (i) the Manager alone shall
have the right to conduct such defense but shall use its best efforts to inform
the Agency as to the status of any proceedings; (ii) the Manager shall have the
right to compromise and to settle, in good faith, the claim without the prior
consent of the Agency; (iii) the Agency will periodically reimburse the Manager
for costs (including reasonable legal fees); and (iv) if it is ultimately
determined the claim of loss which shall form the basis of such judgment or
settlement is one that is validly an obligation of the Agency that elected not
to assume the defense, then the Agency shall be bound by any ultimate judgment
or settlement as to the existence and the amount of the claim and the amount of
said judgment or settlement (including the costs and expenses of defending such
claims) shall be conclusively deemed for all purposes of this Agreement to be a
liability on account of which the Manager is entitled to be indemnified
hereunder.
A claim for indemnification for any matter not involving a
third party claim may be asserted by notice to the party for whom
indemnification is sought. After receipt of such notice, the Agency shall pay
the Manager the amount of such damages within thirty (30) days; PROVIDED,
HOWEVER, that no such payments shall be due during any period in which the
Agency is contesting in good faith either its obligation to make such
indemnification or the amount of damages payable or both.
9.2 DISCLAIMER OF EMPLOYMENT OF AGENCY EMPLOYEES. No
person employed by the Agency shall be an employee of Manager, and Manager shall
have no liability for payment of their wages, payroll taxes, and other expenses
of employment. All such persons shall be employees of the Agency, or, pursuant
to Section 1.3 hereof, independent contractors or the employees of independent
contractors.
-7-
9.3 NON-ASSUMPTION OF LIABILITIES. Manager shall not, by
entering into and performing this Agreement, become liable for, and the Agency
shall indemnify Manager against, any of the existing or future obligations,
liabilities or debts of the Agency, unless such liability is primarily caused by
the intentional misconduct or gross negligence of Manager, and Manager shall in
its role as manager have only an obligation to exercise reasonable care in the
management and handling of the funds generated from the operation of the Agency.
9.4 ACCESS TO THE AGENCY; CONFIDENTIALITY OF RECORDS.
Manager shall, during the term hereof, be given complete access to the Agency,
its records, offices and facilities in order that it may carry out its
obligations hereunder, subject to confidential requirements of patient medical
records as established by the Board. Manager shall use its best efforts to
maintain the confidentiality of all files and records, including patient
records, of the Agency, disclosing the same only as directed by law or by the
Board in any particular instance.
9.5 DISCLAIMER OF INTENT TO BECOME PARTNERS. Manager and
the Agency shall not, by virtue of this Agreement, be deemed partners or joint
venturers in the operation of the Agency or any related facility. It is
expressly understood that Manager is hereby retained by Agency to manage the
Agency on behalf of the Agency, and that Manager is constituted the agent of the
Agency only for the purpose of carrying out its obligations under this
Agreement.
9.6 RESTRICTION ON ASSIGNMENT. Neither party hereto may
assign its interest in nor delegate the performance of its obligations under
this Agreement to any other person without obtaining the prior written consent
of the other party and, if required, prior approval pursuant to law, except that
Manager may assign its interest or delegate the performance of its obligations
to a wholly-owned subsidiary of Manager, which is qualified to manage agencies
in the State of New York and approved by the Commissioner.
9.7 HEADINGS. The headings to the various sections of this
Agreement have been inserted for convenient reference only and shall not modify,
define, limit or expand the expressed provisions of this Agreement.
9.8 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, and all such
counterparts shall together constitute but one and the same agreement.
9.9 APPLICABLE LAW. This Agreement shall be construed and
enforced in accordance with the laws of the State of New York, without giving
effect to conflicts of law principles.
9.10 LEGAL PROCEEDINGS. Legal proceedings commenced by the
Agency or the Manager arising out of any of the transactions or obligations
contemplated by this Agreement shall be brought exclusively in the federal
courts or, in the absence of federal jurisdiction, state courts, in either case
in Nassau County, New York. The Agency and the Manager irrevocably and
unconditionally submit to the jurisdiction of such courts and agree to take any
and all future action
-8-
necessary to submit to the jurisdiction of such courts. Each of the Agency and
the Manager irrevocably waives any objection which it may now or hereafter have
to the laying of venue of any suit, action or proceeding brought in any federal
or state court in Nassau County, New York, and further irrevocably waives any
claims that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.
9.11 NO CONTINUING WAIVER. The waiver of any party of any
breach of this Agreement shall not operate as, or be construed to be, a waiver
of any subsequent breach.
9.12 NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given, if mailed by certified or registered mail, postage prepaid:
If to the Agency:
Extended Family Care Corporation
c/o Arbor Home Healthcare Holdings, LLC
000 Xxxx Xxxxxxxx Xxxxxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attention: Chief Executive Officer
with a copy to:
Xxxxxxx, Lippe, Goldstein, Wolf & Xxxxxxxxx, P.C.
000 Xxxxxx Xxxxxx
Xxxxxxx, Xxx Xxxx
Attention: Xxxxxxx X. Xxxxx, Esq.
If to the Manager:
Xxxxxxx Xxxxxxxxx
c/o Star Multi Care Services, Inc.
00 Xxxx Xxxxxxx Xxxx
Xxxxxxxxxx Xxxxxxx, Xxx Xxxx 00000
with a copy to:
Xxxxxx Xxxxxx Flattau & Klimpl, LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxxxx, Esq.
or to such other person and address as either party may designate in writing.
-9-
9.13 EFFECT OF INVALIDITY. Should any part of this
Agreement, for any reason, be declared invalid, such decision shall not affect
the validity of any remaining portion, which remaining portion shall remain in
force and effect as if this Agreement had been executed with the invalid portion
thereof eliminated.
9.14 AMENDMENTS.. Any amendments to this Agreement, which
shall be provided to and approved by the Commissioner, shall be in writing and
signed by the parties and the Board.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
STAR MULTI CARE SERVICES, INC.
By: /s/ Xxxxxxx Xxxxxxxxx
-------------------------
Xxxxxxx Xxxxxxxxx, President
EXTENDED FAMILY CARE CORPORATION
By: /s/ Xxxxxx Xxxxxx
-------------------------
Xxxxxx Xxxxxx, Vice-President
-10-
EXHIBIT I
---------
XXXXXXXXX PROXY
The undersigned shareholder of Star MultiCare Services, Inc., a New
York corporation ("Star"), hereby irrevocably (to the extent provided for in the
New York Business Corporation Law) appoints the directors on the Board of
Directors of Extended Family Care Corporation, a New York corporation ("EFCC"),
and each of them, as the sole and exclusive attorneys and proxies of the
undersigned, with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to the shares of capital stock
of Star beneficially owned by the undersigned, which shares are listed on the
final page of this Proxy (the "Shares"), and any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof,
until such time as that certain Agreement and Plan of Merger dated as of January
3, 1997 (the "Merger Agreement"), among Star, EFCC Acquisition Corp., a New York
corporation and a wholly-owned subsidiary of Star ("Merger Sub"), and EFCC,
shall be terminated in accordance with its terms or the Merger (as defined in
the Merger Agreement) is effective. Upon the execution hereof, all prior proxies
given by the undersigned with respect to the Shares and any and all other shares
or securities issued or issuable in respect thereof on or after the date hereof
are hereby revoked and no subsequent proxies will be given.
This proxy is irrevocable (to the extent provided for in the New York
Business Corporation Law), is granted pursuant to the Merger Agreement, and is
granted in consideration of Star entering into the Merger Agreement. The
attorneys and proxies named above will be empowered at any time prior to
termination of the Merger Agreement to exercise all voting and other rights
(including, without limitation, the power to execute and deliver written
consents with respect to the Shares) of the undersigned at every annual, special
or adjourned meeting of Star's shareholders, and in every written consent in
lieu of such a meeting, or otherwise, in favor of approval of the Merger and the
Merger Agreement and any matter that could reasonably be expected to facilitate
the Merger, and against any proposal made in opposition to or competition with
the consummation of the Merger.
The attorneys and proxies named above may only exercise this proxy to
vote the Shares subject hereto at any time prior to termination of the Merger
Agreement, at every annual, special or adjourned meeting of the shareholders of
Star and in every written consent in lieu of such meeting, in favor of approval
of the Merger and the Merger Agreement reasonably be expected to facilitate the
Merger. The undersigned shareholder may vote the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable.
Dated: January 3, 1997
/s/ Xxxxxxx Xxxxxxxxx
_____________________________
Xxxxxxx Xxxxxxxxx
Shares Subject to the Xxxxxxxxx Proxy
-------------------------------------
Xxxxxxx Xxxxxxxxx 863,262*
--------------------
* Xx. Xxxxxxxxx also has currently exercisable options to purchase 162,574
shares of Star Common Stock, par value $.001 per share. Upon exercise of
such options, which exercise shall be in the sole discretion of Xx.
Xxxxxxxxx, the shares of Star Common Stock issuable thereunder will also
be covered by this Xxxxxxxxx Proxy.
