XXXXX XXXXX
XXXXX XXXXXXXXX
March 24, 2005
New York Health Care, Inc.
NYHC Newco Paxxon, Inc.
0000 XxXxxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Gentlemen:
On February 24, 2005 the undersigned Xxxxx Xxxxx ("Xxxxx") and Xxxxx
Xxxxxxxxx ("Xxxxxxxxx") entered into an agreement with you, a copy of which is
attached hereto as Exhibit A (the "Security Agreement"), pursuant to which,
among other things, you granted the undersigned Xxxxx and Xxxxxxxxx a security
interest in all of the assets of your home health care business (the "Security
Interest") to secure certain obligations you may have to each of the undersigned
as a result of their resignations as executive officers and directors of New
York Health Care, Inc. (the Company") pursuant to either (i) the respective
employment agreements of Xxxxx and Xxxxxxxxx with the Company (the "Employment
Agreements") or (ii) that certain Purchase Agreement, dated as of July 15, 2004,
by and among you and New York Health Care, LLC (the "Purchaser"), an entity
controlled by the undersigned (the "Purchase Agreement").
You have requested that the undersigned Xxxxx and Xxxxxxxxx terminate the
Security Interest and consent to a possible sale of the Company's home health
care business in the State of New Jersey to one or more third parties. The
undersigned believe that such requests are beneficial to the Company and its
stockholders and that as stockholders of the Company the udnersigned would
benefit from the requested changes in the Security Agreement and a sale of the
Company's home health care business in the State of New Jersey.
For good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged by them, the undersigned, Xxxxx and Xxxxxxxxx agree as
follows:
1. The Security Interest is hereby terminated and the undersigned
Xxxxx and Xxxxxxxxx agree to promptly take all actions necessary to terminate
the Security Interest, including, but not limited to, executing and filing UCC-3
or other termination statements and copyright mortgage releases, and executing
terminations of powers of attorney;
2. Xxxxx and Xxxxxxxxx hereby agree that (i) their prior agreements
to irrevocably resign and no longer serve as directors or executive officers of
the Company remain in full force and effect, and (ii) they shall not be entitled
to any consideration from the Company or any of its subsidiaries solely as a
result of the termination of the Security Interest, their consent to a sale of
the Company's home healthcare operations in the State of New Jersey, or their
other agreements set forth herein.
3. Xxxxx and Xxxxxxxxx consent to a sale by the Company and/or it
subsidiary, NYHC Newco Paxxon, Inc. ("NYHC-NJ) of all or a portion of its home
health care operations in the State of New Jersey to one or more third parties
for aggregate consideration of at least $2.7 million (the "NJ Sale") and they
will promptly, and in any event no later than one business day from the date the
Company requests them to take such action, duly and promptly execute and deliver
or cause to be executed any instruments and take all actions and do all things
as may be necessary or proper, in the reasonable judgment of the Company or
NYHC-NJ, to consummate such sale, provided, however, that the execution by each
of Xxxxx and Xxxxxxxxx of a non-competition agreement in favor of the purchaser
in connection with the NJ Sale shall be conditioned upon their being no material
changes to such agreement from the draft of such proposed agreement provided to
them by the Company on March 22, 2005. Xxxxx and Xxxxxxxxx also acknowledge that
all or any of the monies from the NJ Sale may be used to fund the operations of
the Company's subsidiary, The BioBalance Corporation, and that the execution by
the Company of any documents relating to the NJ Sale or the consummation of the
NJ Sale shall not be deemed to be a breach of the Purchase Agreement or create
any payment or other obligations of the Company or any of its subsidiaries to
Xxxxx or Xxxxxxxxx under the Security Agreement or any other agreement to which
the Company, its subsidiaries and Xxxxx and Xxxxxxxxx are parties.
4. Upon the request of the Company or NYHC-NJ Xxxxx and Xxxxxxxxx
agree to duly and promptly execute and deliver, or cause to be duly executed and
delivered, such further instruments and do all things as may be necessary or
proper, in the reasonable judgment of the Company or NYHC-NJ, to carry out the
provisions and purposes of this agreement.
Except as set forth above all provisions of Security Agreement remain in full
force and effect.
Very truly yours,
/s/ Xxxxx Xxxxx
----------------------------
Xxxxx Xxxxx
/s/ Xxxxx Xxxxxxxxx
----------------------------
Xxxxx Xxxxxxxxx
ACKNOWLEDGED AND AGREED:
NEW YORK HEALTH CARE, INC.
By: /s/ Xxxxxx X. X'Xxxxxxx
---------------------------------
Name: Xxxxxx X. X'Xxxxxxx
Title: CEO
NYHC NEWCO PAXXON, INC.
By: /s/ Xxxxx Xxxxxxxxx
---------------------------------
Name: Xxxxx Xxxxxxxxx
Title: V.P.
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EXHIBIT A
AGREEMENT
AGREEMENT (this "Agreement"), dated the 24th day of February, 2005, by and
among New York Health Care, Inc., a New York corporation (the "Seller"), NYHC
Newco Paxxon, Inc., a New York corporation ("NYHC-NJ"), Xxxxx Xxxxx ("Xxxxx")
and Xxxxx Xxxxxxxxx ("Xxxxxxxxx" and, together with Xxxxx, collectively, the
"Secured Party")). Capitalized terms used herein which are not otherwise defined
shall have the respective meanings ascribed thereto in the Purchase Agreement
(as defined below).
WHEREAS, pursuant to that certain Purchase Agreement, dated as of July 15,
2004, by and among the Seller, NYHC-NJ and New York Health Care, LLC (the
"Purchaser"), an entity controlled by Xxxxx and Xxxxxxxxx (the "Purchase
Agreement"), the Seller agreed, upon the fulfillment of certain conditions, to
sell its home health care business (the "Business") to the Purchaser;
WHEREAS, as an inducement to allow the Seller to complete the private
placement contemplated by Section 2.02(h) of the Purchase Agreement (the
"Private Placement"), Xxxxx and Xxxxxxxxx have agreed to resign from the Board
of Directors of the Seller and as executive officers of the Seller upon the
consummation of such private placement, notwithstanding the fact that those
actions would be considered resignation for good reason under Xxxxx'x and
Xxxxxxxxx'x respective Employment Agreement and would obligate the Seller to
make certain payments under such Employment Agreements (the "Payments");
WHEREAS, Xxxxx and Xxxxxxxxx have agreed to defer receipt of the Payments
from the Seller and agree to forego such Payments in consideration of the
consummation of the sale of the Business by the Seller and NYHC-NJ to the
Purchaser under the Purchase Agreement;
WHEREAS, the parties hereto desire to set forth the payments that would
payable by Seller and NYHC-NJ to Xxxxx and Xxxxxxxxx under certain circumstances
relating to the Purchase Agreement and the Employment Agreements; and
WHEREAS, as security for the obligations of the Seller and NYHC-NJ to
consummate the purchase of the Business under the Purchase Agreement (the
"Purchase") and the obligations of the Seller under the Employment Agreements
and this Agreement (the "Obligations"), the Seller and NYHC-NJ have agreed to
grant to the Secured Party a security interest in the Collateral (as defined
below);
NOW, THEREFORE, in consideration of the benefits accruing to the Seller
and NYHC-NJ, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Seller and NYHC-NJ covenant
and agree with Xxxxx and Xxxxxxxxx as follows:
1. Definition of Triggering Event. For the purposes of this Agreement a
"Triggering Event" shall mean any of the following:
(a) the Seller or NYHC-NJ breaches the terms of the Purchase
Agreement and such breach is not cured within the time period provided for the
cure of such breach under the Purchase Agreement; provided, however, that for
purposes of this Section 1(a), it shall not be considered a breach of the
Purchase Agreement if (x) the Seller and NYHC-NJ sell their home health care
business in the state of New Jersey to an unaffiliated third party for a cash
purchase price of no less than $2.7 million (the "NJ Sale") and (y) the Purchase
Agreement is amended by the parties thereto to state that the Purchaser will
purchase the assets of the Seller's and NYHC-NJ's home health care business in
the state of New York in exchange for the assumption of liabilities and
contracts and extinguishment of any payment obligations of the Seller under the
Employment Agreement and that the purchase contemplated thereunder and the NJ
Sale shall take place simultaneously;
(b) a change in the majority of the Board of Directors of the Seller
(other than as a result of (x) the resignations of Xxxxx and Xxxxxxxxx, (y) a
reduction in the number of members of the Board of Directors of the Seller
resulting from death, disability or resignation of a member or (z) the addition
of any directors that have been expressly approved in writing by the Secured
Party);
(c) any other event that would be considered a change in control or
would be considered "good reason" for the resignation of Xxxxx or Xxxxxxxxx
under the Employment Agreements occurs after the date of this Agreement;
provided, however; that for purposes of this Section 1(c), the resignations of
Xxxxx and Xxxxxxxxx in connection with the Private Placement shall not be
considered a Triggering Event; or
(d) the Purchase Agreement is terminated or the transactions
contemplated thereby are not consummated before December 31, 2005, including,
without limitation, as a result of failure of Seller to receive approval of the
transaction from its shareholders; provided, however, that for purposes of this
Section 1(d), the termination of the Purchase Agreement or the failure to
consummate the transactions contemplated under the Purchase Agreement as a
result of a breach of the Purchase Agreement by, or a failure to act of, the
Purchaser or Xxxxx or Xxxxxxxxx, shall not be considered a Triggering Event.
2. Obligations upon Triggering Event.
(a) Upon the occurrence of the Triggering Event set forth in Section
1(a) above, the Seller and NYHC-NJ shall promptly pay to Xxxxx and Xxxxxxxxx the
aggregate amount due to them under the Employment Agreements in case of
resignation for "good reason" and shall pay to the Purchaser an aggregate of
$250,000 in liquidated damages with respect to such breach.
(b) Upon the occurrence of the Triggering Event set forth in Section
1(b) above, the Seller and NYHC-NJ shall promptly pay to Xxxxx and Xxxxxxxxx the
aggregate amount due to them upon a "change in control" and a "resignation for
good reason" under the Employment Agreements.
(c) Upon the occurrence of the Triggering Event set forth in Section
1(c) above, the Seller and NYHC-NJ shall promptly pay to Xxxxx and Xxxxxxxxx the
aggregate amount due to them under the Employment Agreements; provided, that if
Xxxxx and Xxxxxxxxx receive payments pursuant to Section 2(b), they shall not be
entitled to payments under this Section 2(c).
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(d) Upon the occurrence of the Triggering Event set forth in Section
1(d) above, the Seller and NYHC-NJ shall promptly pay to Xxxxx and Xxxxxxxxx the
aggregate amount due to them upon a "resignation for good reason" under the
Employment Agreements.
(e) Upon receipt of the payments set forth in any of Sections
2(a)-(d), Xxxxx and Xxxxxxxxx hereby agree that Seller and NYHC-NJ shall be
released from their obligations under the Purchase Agreement, the Employment
Agreements and this Agreement.
3. Security Interest. The Seller and NYHC-NJ, as security for the
consummation of the Purchase and the due and punctual completion of payment of
the Obligations, hereby assign, grant, convey, pledge and set over to the Xxxxx
and Xxxxxxxxx and xxxxx to the Xxxxx and Xxxxxxxxx a security interest in all of
the right, title and interest of the Seller and NYHC-NJ in the Collateral.
4. Definition of Collateral. As used herein, the term "Collateral" shall
mean with respect to the Seller and NYHC-NJ, all amounts deposited in the
Collateral Account (as defined below) and all of the other assets of the
Business.
5. Remedies in Case of Event of Default.
(a) Subject to Section 5(d) below, if an Event of Default (as
defined below) shall have occurred and be continuing, the Secured Party shall be
entitled to exercise all of the rights, powers and remedies for the protection
and enforcement of its rights in respect of the Collateral at law or equity and,
in addition, the Secured Party may, without being required to give any notice,
except as herein provided or as may be required by mandatory provisions of law,
sell the Collateral, or any part thereof, at public or private sale, for cash,
upon credit or for future delivery, and at such price or prices as the Secured
Party may deem commercially reasonable. The Secured Party shall have the right
to take immediate possession of the Collateral. The Seller and NYHC-NJ hereby
expressly consent to such repossession of the Collateral and waive all rights to
demand any notice with respect thereto.
(b) For purposes of this Agreement, an "Event of Default" shall mean
the occurrence of a Triggering Event.
(c) Limitations on Rights in Collateral. The rights of the Secured
Party to take possession of or sell the Collateral pursuant to this Agreement
shall be limited to the Obligations set forth in Section 2 of this Agreement.
6. Cash Collateral Account. The Seller and NYHC-NJ shall deposit an amount
equal to $3.55 million upon the execution of this agreement into an
interest-bearing cash collateral account at [Citibank, N.A.], in favor of the
Secured Party (together with any interest earned thereon, the "Collateral
Account"), pursuant to the terms of a Control Agreement in a form to be agreed
upon by the parties hereto which shall provide that the Seller shall not
withdraw such funds without the prior written consent of the Secured Party.
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7. Power of Attorney. Upon the occurrence and during the continuance of an
Event of Default, the Seller and NYHC-NJ hereby appoint Secured Party and any
designee of Secured Party as their attorney-in-fact, at Seller's own cost and
expense, to exercise at any time after the occurrence of an Event of Default all
or any of the powers, authorities, and discretions conferred on or reserved to
Secured Party by or pursuant to this Agreement or applicable law, and (without
prejudice to the generality of any of the foregoing) to seal and deliver or
otherwise perfect any deed, assurance, agreements, instrument or act as Secured
Party may deem proper in or for the purpose of exercising any of such powers,
authorities or discretions. The Seller and NYHC-NJ hereby ratify and confirm,
and hereby agree to ratify and confirm, whatever lawful acts Secured Party or
any of Secured Party's sub-agents or attorneys shall do or purport to do in the
exercise of the power of attorney granted to Secured Party pursuant to this
Agreement, which power of attorney, being given for consideration, is
irrevocable.
8. Board of Directors. Notwithstanding anything to the contrary contained
herein or in any other agreement, Xxxxx and Xxxxxxxxx hereby agree that they
will no longer serve as directors or executive officers of the Seller.
9. Miscellaneous. This Agreement shall create a continuing security
interest in the Collateral and shall be binding upon the successors and assigns
of the Seller and NYHC-NJ and shall inure to the benefit of and be enforceable
by Secured Party and its permitted successors and assigns. The headings in this
Agreement are for purposes of reference only and shall not limit or define the
meaning hereof. This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which shall constitute one
instrument. In the event that any provision of this Agreement shall prove to be
invalid or unenforceable, such provision shall be deemed to be severable from
the other provisions of this Agreement which shall remain binding on all parties
hereto. This Agreement contains the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior agreements or
understandings among the parties related to such matters. This Agreement may be
amended or modified only by a writing signed by both parties hereto. This
Agreement is not assignable or transferable by either party.
10. Financing Statements. The Seller and NYHC-NJ hereby authorize the
Secured Party to file any initial financing statements and any amendments
thereto or continuations thereof and to give any notices necessary or desirable
to perfect the security interest of the Secured Party in the Collateral, in all
cases without the signature of the Seller or NYHC-NJ or to execute such items as
attorney-in-fact for either of them.
11. Further Assurances. Upon the request of the Secured Party, the Seller
and NYHC-NJ hereby agree to duly and promptly execute and deliver, or cause to
be duly executed and delivered, such further instruments as may be necessary or
proper, in the reasonable judgment of the Secured Party, to carry out the
provisions and purposes of this Agreement or to perfect and preserve the
security interest of the Secured Party hereunder, in the Collateral or any
portion thereof.
12. Termination and Release. Upon such time, if any, as (a) the Purchase
shall be consummated or (b) the Seller or NYHC-NJ shall pay, satisfy or
otherwise discharge in full the Obligations, this Agreement shall be null and
void and the security interests granted hereunder shall terminate. Upon request
by the Seller and NYHC-NJ after such termination, the Secured Party will take
all reasonable action and do all things reasonably necessary, including
executing and filing termination statements and copyright mortgage releases, and
executing terminations of powers of attorney to terminate the security interest
granted to it hereunder.
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13. Payment of Costs; Interest. In the event of any breach of this
Agreement by the Seller or NYHC-NJ or any dispute relating to this Agreement,
the Seller shall pay all costs and expenses, including, but not limited to,
reasonable attorneys' fees, incurred by the Secured Parties in connection with
the resolution of such breach or dispute. In addition, in the event of any
breach or dispute, any interest that accrues on the funds in the Collateral
Account shall be paid to the Secured Party.
14. Governing Law. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of New York as applied to contracts made
and to be performed entirely in the State of New York, without regard to
principles of conflicts of law
15. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and all of which together shall constitute a
single agreement. This Agreement may be evidenced by facsimile signatures.
16. Severability. In the event that any one or more of the immaterial
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable, the same shall not affect any other provision
of this Agreement, but this Agreement shall be construed in a manner which, as
nearly as possible, reflects the original intent of the parties.
17. No Prejudice. This Agreement has been jointly prepared by the parties
hereto and the terms hereof shall not be construed in favor of or against any
party on account of its participation in such preparation.
18. Amendment and Modification. This Agreement may be amended or modified
only by written agreement executed by each of the parties hereto.
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IN WITNESS WHEREOF, the Seller, NYHC-NJ, Xxxxx and Xxxxxxxxx have caused
this Agreement to be executed as of the date first above written.
NEW YORK HEALTH CARE, INC.
By: /s/ Xxxx X. Xxxxxxxx
-------------------------------------
Name: Xxxx X. Xxxxxxxx
Title: Chairman of the Board
NYHC NEWCO PAXXON, INC.
By: /s/ Xxxxx Xxxxxxxxx
-------------------------------------
Name: Xxxxx Xxxxxxxxx
Title: Sec
/s/ Xxxxx Xxxxx
-------------------------------------
Xxxxx Xxxxx
/s/ Xxxxx Xxxxxxxxx
-------------------------------------
Xxxxx Xxxxxxxxx
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