<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STAR MULTI CARE SERVICES, INC.
(Exact name of Registrant as specified in its charter)
99 Railroad Station Plaza
Hicksville, New York 11801
(516) 938-2016
(Address, including zip code, telephone number and
area code of Registrant's principal executive offices)
<TABLE>
<S> <C> <C>
NEW YORK 11-1975534 7361
(State or other jurisdiction (I.R.S. Employer (Primary Standard Industrial
of Identification Classification Code Number)
incorporation or organization) Number)
</TABLE>
MR. WILLIAM FELLERMAN
SECRETARY
STAR MULTI CARE SERVICES, INC.
99 RAILROAD STATION PLAZA
HICKSVILLE, NEW YORK 11801
(516) 938-2016
(Name, address including zip code, and telephone
number, including area code of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
GARY SIMON, ESQ. SCOTT N. WOLFE, ESQ.
PARKER CHAPIN FLATTAU & KLIMPL, LLP LATHAM & WATKINS
1211 AVENUE OF THE AMERICAS 701 "B" STREET, SUITE 2100
NEW YORK, NEW YORK 10036 SAN DIEGO, CALIFORNIA 92101-8197
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED (1) PER SHARE (2) PRICE (2) FEE (3)
<S> <C> <C> <C> <C>
Common Stock, par value $.001
per share.................... 1,445,496 $6.9529 $10,050,389.14 $3,465.65
</TABLE>
(1) This Registration Statement relates to the Common Stock of the Registrant
issuable to holders of Common Stock of AMSERV HEALTHCARE INC., a Delaware
corporation ("AMSERV"), in the proposed merger of AMSERV with a wholly-owned
subsidiary of the Registrant and the related transactions described herein.
(2) Pursuant to Rule 457(f), the registration fee was computed on the basis of
the market value of the AMSERV Common Stock to be exchanged in the merger,
computed in accordance with Rule 457(c) on the basis of the average of the
high and low prices per share of such stock on The Nasdaq Stock Market on
July 17, 1996.
(3) $1,503 of the registration fee was previously paid with the preliminary
proxy statement/prospectus filings made by the Registrant and AMSERV on
April 18, 1996 pursuant to Rule 457(b).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
STAR MULTI CARE SERVICES, INC.
CROSS-REFERENCE SHEET BETWEEN ITEMS IN FORM S-4 AND
JOINT PROXY STATEMENT/PROSPECTUS PURSUANT TO
ITEM 501(B) OF REGULATION S-K.
<TABLE>
<CAPTION>
ITEM CAPTION IN JOINT PROXY
NO. FORM S-4 CAPTION STATEMENT/PROSPECTUS
- --------- ----------------------------------------------------- -----------------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................. Facing Page of Registration Statement; Outside Front
Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................... Inside Front Cover Page; Available Information; Table
of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information.................................... Summary; Summary Historical Consolidated Financial
Data; Comparative Per Share Data; Risk Factors; The
AMSERV Meeting; The STAR Meeting; The Merger
4. Terms of the Transaction............................. Summary; The Merger; The Merger Agreement; Comparison
of Rights of Holders of AMSERV Common Stock and STAR
Common Stock
5. Pro Forma Financial Information...................... Summary; Summary Unaudited Pro Forma Condensed
Combined Financial Data; Unaudited Pro Forma
Condensed Combined Financial Statements
6. Material Contacts with the Company Being Acquired.... *
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to Be Underwriters........ *
8. Interests of Named Experts and Counsel............... The Merger; Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities....................... *
10. Information With Respect to S-3 Registrants.......... *
11. Incorporation of Certain Information by Reference.... *
12. Information With Respect to S-2 or S-3 Registrants... *
13. Incorporation of Certain Information by Reference.... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM CAPTION IN JOINT PROXY
NO. FORM S-4 CAPTION STATEMENT/PROSPECTUS
- --------- ----------------------------------------------------- -----------------------------------------------------
14. Information With Respect to Registrants Other Than
S-3 or S-2 Registrants............................... Summary; STAR Summary Historical Consolidated
Financial Data; Comparative Per Share Data;
Comparative Market Data; Business of STAR; STAR's
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Ownership of
Certain Beneficial Owners and Management of STAR;
Management of STAR; Executive Compensation of STAR;
Certain Relationships and Related Transactions of
STAR; Unaudited Pro Forma Condensed Combined
Financial Statements; STAR Financial Statements
<S> <C> <C>
15. Information With Respect to S-3 Companies............ *
16. Information With Respect to S-2 or S-3 Companies..... *
17. Information With Respect to Companies Other Than S-2
or S-3 Companies..................................... Summary; AMSERV Summary Historical Consolidated
Financial Data; Comparative Per Share Data;
Comparative Market Data; Business of AMSERV; AMSERV's
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Ownership of
Certain Beneficial Owners and Management of AMSERV;
Executive Officers of AMSERV; Significant Employees
of AMSERV; Certain Relationships and Related
Transactions of AMSERV; Unaudited Pro Forma Condensed
Combined Financial Statements; AMSERV Financial
Statements
18. Information if Proxies, Consents or Authorizations
are to be Solicited.................................. Outside Front Cover Page; Summary; The AMSERV
Meeting; The STAR Meeting; The Merger
19. Information if Proxies, Consents, or Authorizations
are not to be Solicited or in an Exchange Offer...... *
</TABLE>
- ------------------------
*Indicates that Item is not applicable or answer is in the negative.
<PAGE>
[LOGO]
AMSERV HEALTHCARE INC.
3252 HOLIDAY COURT, SUITE NO. 204
LA JOLLA, CALIFORNIA 92037
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders (the
"AMSERV Meeting") of AMSERV HEALTHCARE INC., a Delaware corporation ("AMSERV"),
to be held on Friday, August 23, 1996, at 9:30 a.m., local time, at the Radisson
Hotel La Jolla, 3299 Holiday Court, La Jolla, California.
At the AMSERV Meeting, you will be asked to consider and vote upon the
following matters, all of which are described more completely in the
accompanying Joint Proxy Statement/Prospectus:
(1) To approve and adopt the Agreement and Plan of Merger dated as of
February 9, 1996, as amended on July 18, 1996 (as amended, the "Merger
Agreement"), between AMSERV and STAR MULTI CARE SERVICES, INC., a New York
corporation ("STAR"), providing for the merger (the "Merger") of AHI
Acquisition Corp. ("Merger Sub"), a Delaware corporation and a wholly-owned
subsidiary of STAR, with and into AMSERV, with AMSERV becoming a
wholly-owned subsidiary of STAR and the transactions contemplated thereby.
In accordance with the Merger Agreement, each share of Common Stock, par
value $.01 per share, of AMSERV (the "AMSERV Common Stock") outstanding
immediately prior to the consummation of the Merger will be converted into
the right to receive 0.4090 shares (the "Exchange Ratio") of Common Stock,
par value $.001 per share, of STAR (the "STAR Common Stock"). We urge you to
review carefully the Joint Proxy Statement/Prospectus and the accompanying
appendices;
(2) To elect five persons to AMSERV's Board of Directors to serve until
the earlier of (a) the next Annual Meeting of Shareholders of AMSERV and
until the election and qualification of their respective successors or (b)
the consummation of the Merger contemplated by the Merger Agreement;
(3) To ratify and approve the selection of Ernst & Young LLP as AMSERV's
independent public accountants for the fiscal year ended June 29, 1996; and
(4) To transact such other business as may properly come before the
AMSERV Meeting and any adjournments or postponements thereof.
AFTER CAREFUL CONSIDERATION, THE AMSERV BOARD OF DIRECTORS HAS APPROVED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. THE BOARD BELIEVES
THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE
SHAREHOLDERS OF AMSERV AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
MERGER AT THE AMSERV MEETING. THE AMSERV BOARD OF DIRECTORS ALSO UNANIMOUSLY
RECOMMENDS A VOTE FOR EACH OF THE NOMINEES NAMED IN THE JOINT PROXY
STATEMENT/PROSPECTUS AND FOR THE RATIFICATION OF ERNST & YOUNG LLP AS AMSERV'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDED JUNE 29, 1996.
We urge you to review carefully the Joint Proxy Statement/Prospectus and the
accompanying appendices. We hope you will attend the AMSERV Meeting. However,
whether or not you plan to attend the AMSERV Meeting, it is important that your
shares are represented. Accordingly, please complete, sign and date the enclosed
proxy and promptly return it in the enclosed prepaid envelope. If you are
present at the AMSERV Meeting you may, if you wish, withdraw your proxy and vote
in person.
Very truly yours,
/s/ EUGENE J. MORA
-------------------------------------------------------------------------
EUGENE J. MORA
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
JULY 22, 1996
<PAGE>
[LOGO]
AMSERV HEALTHCARE INC.
3252 HOLIDAY COURT, SUITE NO. 204
LA JOLLA, CALIFORNIA 92037
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, AUGUST 23, 1996
To the Shareholders of
AMSERV HEALTHCARE INC.:
The Annual Meeting of Shareholders (the "AMSERV Meeting") of AMSERV
HEALTHCARE INC., a Delaware corporation ("AMSERV"), will be held at the Radisson
Hotel La Jolla, 3299 Holiday Court, La Jolla, California on Friday, August 23,
1996, at 9:30 a.m., local time, for the following purposes:
1. To approve and adopt the Agreement and Plan of Merger dated as of
February 9, 1996, as amended on July 18, 1996 (as amended, the "Merger
Agreement"), between AMSERV and STAR MULTI CARE SERVICES, INC., a New York
corporation ("STAR"), providing for the merger (the "Merger") of AHI
Acquisition Corp. ("Merger Sub"), a Delaware corporation and a wholly-owned
subsidiary of STAR, with and into AMSERV, with AMSERV becoming a
wholly-owned subsidiary of STAR and the transactions contemplated thereby.
In accordance with the Merger Agreement, each share of Common Stock, par
value $.01 per share, of AMSERV (the "AMSERV Common Stock") outstanding
immediately prior to the consummation of the Merger will be converted into
the right to receive 0.4090 shares (the "Exchange Ratio") of Common Stock,
par value $.001 per share, of STAR (the "STAR Common Stock");
2. To elect five persons to AMSERV's Board of Directors to serve until
the earlier of (a) the next Annual Meeting of Shareholders of AMSERV and
until the election and qualification of their respective successors or (b)
the consummation of the Merger contemplated by the Merger Agreement;
3. To ratify and approve the selection of Ernst & Young LLP as AMSERV's
independent auditors for the fiscal year ended June 29, 1996; and
4. To transact such other business as may properly come before the
AMSERV Meeting and any adjournments or postponements thereof.
The Merger and other related matters are more fully described in the
accompanying Joint Proxy Statement/Prospectus and the appendices thereto, which
form a part of this Notice.
The Board of Directors of AMSERV has fixed the close of business on July 15,
1996 as the record date (the "AMSERV Record Date") for the determination of
shareholders entitled to notice of and to vote at the AMSERV Meeting or any
adjournments or postponements thereof. Only shareholders of record at the close
of business on the AMSERV Record Date are entitled to notice of, and to vote at,
the AMSERV Meeting and any adjournments or postponements thereof.
AFTER CAREFUL CONSIDERATION, THE AMSERV BOARD OF DIRECTORS HAS APPROVED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. THE BOARD BELIEVES
THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE
SHAREHOLDERS OF AMSERV AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
MERGER AT THE AMSERV MEETING. THE AMSERV BOARD OF DIRECTORS ALSO UNANIMOUSLY
RECOMMENDS A VOTE FOR EACH OF THE NOMINEES NAMED IN THE JOINT PROXY
STATEMENT/PROSPECTUS AND FOR THE RATIFICATION OF ERNST & YOUNG LLP AS AMSERV'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDED JUNE 29, 1996.
Whether or not you plan to attend the AMSERV Meeting, please complete, sign,
date and return promptly the enclosed form of proxy. A return envelope is
enclosed for your convenience and requires no postage for mailing in the United
States.
By Order of the Board of Directors,
/s/ LESLIE HODGE
-------------------------------------------------------------------------
LESLIE HODGE
SECRETARY
July 22, 1996
<PAGE>
[LOGO]
STAR MULTI CARE SERVICES, INC.
99 RAILROAD STATION PLAZA
HICKSVILLE, NEW YORK 11801
July 22, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders (the
"STAR Meeting") of STAR MULTI CARE SERVICES, INC., a New York corporation
("STAR"), to be held on Friday, August 23, 1996, at 12:30 p.m., local time, at
the offices of Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas
(18th Floor), New York, New York.
At the STAR Meeting, you will be asked to consider and vote upon a proposal
to approve and adopt the Agreement and Plan of Merger dated as of February 9,
1996, as amended on July 18, 1996 (as amended, the "Merger Agreement"), between
AMSERV HEALTHCARE INC., a Delaware corporation ("AMSERV"), and STAR, providing
for the merger (the "Merger") of AHI Acquisition Corp. ("Merger Sub"), a
Delaware corporation and a wholly-owned subsidiary of STAR, with and into
AMSERV, with AMSERV becoming a wholly-owned subsidiary of STAR and the
transactions contemplated thereby. In accordance with the Merger Agreement, each
share of Common Stock, par value $.01 per share, of AMSERV (the "AMSERV Common
Stock") outstanding immediately prior to the consummation of the Merger will be
converted into the right to receive 0.4090 shares (the "Exchange Ratio") of
Common Stock, par value $.001 per share, of STAR (the "STAR Common Stock"). In
addition, approval and adoption of the Merger Agreement will constitute approval
of the assumption by STAR of AMSERV's stock option plan under which the
outstanding AMSERV stock options were granted.
In connection with the Merger, I have entered into an agreement (the "Voting
Agreement"), pursuant to which I have agreed to vote (or cause to be voted) the
847,155 shares (34.4 %) of STAR Common Stock of which I am the direct beneficial
owner in favor of the Merger and the related matters and have granted an
irrevocable proxy to vote my shares in such a manner.
The Merger, the Voting Agreement and other related matters are more fully
described in the accompanying Joint Proxy Statement/Prospectus. We urge you to
review carefully the Joint Proxy Statement/Prospectus and the accompanying
appendices.
AFTER CAREFUL CONSIDERATION, THE STAR BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. THE
BOARD BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST
INTERESTS OF, THE SHAREHOLDERS OF STAR AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
IN FAVOR OF THE MERGER AT THE STAR MEETING.
We hope you will attend the STAR Meeting. However, whether or not you plan
to attend the STAR Meeting, it is important that your shares are represented.
Accordingly, please complete, sign and date the enclosed proxy and promptly
return it in the enclosed prepaid envelope. If you are present at the meeting
you may, if you wish, withdraw your proxy and vote in person.
Very truly yours,
/s/ STEPHEN STERNBACH
-------------------------------------------------------------------------
STEPHEN STERNBACH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
[LOGO]
STAR MULTI CARE SERVICES, INC.
99 RAILROAD STATION PLAZA
HICKSVILLE, NEW YORK 11801
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, AUGUST 23, 1996
To the Shareholders of
STAR MULTI CARE SERVICES, INC.:
You are hereby notified that a Special Meeting of Shareholders (the "STAR
Meeting") of STAR MULTI CARE SERVICES, INC., a New York corporation ("STAR"),
will be held at the offices of Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue
of the Americas (18th Floor), New York, New York at 12:30 p.m., local time, on
Friday, August 23, 1996, to consider and act upon:
1. A proposal to approve and adopt the Agreement and Plan of Merger
dated as of February 9, 1996, as amended on July 18, 1996 (as amended, the
"Merger Agreement"), between AMSERV HEALTHCARE INC., a Delaware corporation
("AMSERV") and STAR, providing for the merger (the "Merger") of AHI
Acquisition Corp. ("Merger Sub"), a Delaware corporation and a wholly-owned
subsidiary of STAR, with and into AMSERV, with AMSERV becoming a
wholly-owned subsidiary of STAR and the transactions contemplated thereby.
In accordance with the Merger Agreement, each share of Common Stock, par
value $.01 per share, of AMSERV (the "AMSERV Common Stock") outstanding
immediately prior to the consummation of the Merger will be converted into
the right to receive 0.4090 shares (the "Exchange Ratio") of Common Stock,
par value $.001 per share, of STAR (the "STAR Common Stock"). In addition,
approval and adoption of the Merger Agreement will constitute approval of
the assumption by STAR of AMSERV's stock option plan under which the
outstanding AMSERV stock options were granted.
2. Such other business as properly may come before the STAR Meeting and
any adjournments or postponements thereof.
The Merger and other related matters are more fully described in the
accompanying Joint Proxy Statement/Prospectus and the appendices thereto, which
form a part of this Notice.
The Board of Directors of STAR has fixed the close of business on July 15,
1996 as the record date (the "STAR Record Date") for the determination of
shareholders entitled to notice of and to vote at the STAR Meeting or any
adjournments or postponements thereof. Only shareholders of record at the close
of business on the STAR Record Date are entitled to notice of and to vote at the
STAR Meeting and any adjournments or postponements thereof. A list of such
shareholders will be available for inspection at the offices of STAR located at
99 Railroad Station Plaza, Hicksville, New York 11801, at least ten days prior
to the STAR Meeting.
AFTER CAREFUL CONSIDERATION, THE STAR BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. THE
BOARD BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST
INTERESTS OF, THE SHAREHOLDERS OF STAR AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
IN FAVOR OF THE MERGER AT THE STAR MEETING.
IF YOU DO NOT EXPECT TO BE PRESENT PERSONALLY AND YOU WISH YOUR SHARES TO BE
VOTED AT THE STAR MEETING, PLEASE SIGN, DATE AND RETURN THE PROXY BY MAIL IN THE
POSTAGE-PAID ENVELOPE SENT TO YOU HEREWITH FOR THAT PURPOSE. IF YOU LATER FIND
THAT YOU CAN BE PRESENT AT THE SPECIAL MEETING OR FOR ANY OTHER REASON DESIRE TO
REVOKE OR CHANGE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS VOTED.
By Order of the Board of Directors,
/s/ STEPHEN STERNBACH
STEPHEN STERNBACH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
July 22, 1996
YOUR VOTE IS IMPORTANT
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY AND
MAIL IT PROMPTLY. A RETURN ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE AND
REQUIRES NO POSTAGE FOR MAILING IN THE UNITED STATES.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 19, 1996
PROSPECTUS
AMSERV HEALTHCARE INC.
STAR MULTI CARE SERVICES, INC.
JOINT PROXY STATEMENT
FOR MEETINGS OF SHAREHOLDERS
TO BE HELD ON FRIDAY, AUGUST 23, 1996
------------------
STAR MULTI CARE SERVICES, INC.
------------------
This Joint Proxy Statement/Prospectus is being furnished to the shareholders
of AMSERV HEALTHCARE INC., a Delaware corporation ("AMSERV"), and to the
shareholders of STAR MULTI CARE SERVICES, INC., a New York corporation ("STAR"),
in connection with the solicitation of proxies by their respective Boards of
Directors to be used at the Annual Meeting of Shareholders of AMSERV (the
"AMSERV Meeting") and a Special Meeting of Shareholders of STAR (the "STAR
Meeting"), each of which is to be held on Friday, August 23, 1996, and at any
adjournments or postponements thereof.
At each of the AMSERV Meeting and STAR Meeting, the respective shareholders
will be asked to consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of February 9, 1996, as amended on July
18, 1996 (as amended, the "Merger Agreement"), between STAR and AMSERV,
providing for the merger (the "Merger") of AHI Acquisition Corp. ("Merger Sub"),
a Delaware corporation and a wholly-owned subsidiary of STAR, with and into
AMSERV, with AMSERV becoming a wholly-owned subsidiary of STAR and the
transactions contemplated thereby. Upon consummation of the Merger, each share
of Common Stock, par value $.01 per share, of AMSERV (the "AMSERV Common Stock")
outstanding immediately prior to the consummation of the Merger will be
converted into the right to receive 0.4090 shares (the "Exchange Ratio") of
Common Stock, par value $.001 per share, of STAR (the "STAR Common Stock"). In
addition, approval and adoption of the Merger Agreement will constitute approval
of the assumption by STAR of the AMSERV Stock Option Plan (as defined below)
under which the outstanding AMSERV stock options were issued. See "THE MERGER
AGREEMENT -- Treatment of Stock Options." A copy of the Merger Agreement is
attached as Appendix A to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference.
AMSERV's shareholders will also elect five persons to AMSERV's Board of
Directors. The directors elected at the AMSERV Meeting will, if the Merger is
not consummated, hold office until the next Annual Meeting of Shareholders of
AMSERV and until their respective successors are elected and qualified. However,
if the Merger is consummated, the directors elected at the AMSERV Meeting will
hold office only until consummation of the Merger. See "ELECTION OF AMSERV
DIRECTORS." AMSERV's shareholders will further be asked to ratify the selection
of Ernst & Young LLP as AMSERV's independent auditors for the fiscal year ended
June 29, 1996. See "RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC
ACCOUNTANTS OF AMSERV."
IN CONSIDERING THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF AMSERV AND
THE BOARD OF DIRECTORS OF STAR WITH RESPECT TO THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, SHAREHOLDERS SHOULD BE AWARE THAT CERTAIN
MEMBERS OF AMSERV'S MANAGEMENT AND AMSERV'S BOARD HAVE INTERESTS IN THE MERGER
THAT ARE IN ADDITION TO AND MAY CONFLICT WITH THE INTERESTS OF SHAREHOLDERS OF
AMSERV AND STAR GENERALLY. SEE "THE MERGER -- INTERESTS OF CERTAIN PERSONS IN
THE MERGER; CONFLICTS OF INTEREST" AND "THE MERGER AGREEMENT -- TREATMENT OF
STOCK OPTIONS."
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED IN EVALUATING THE MERGER DESCRIBED HEREIN AND THE
SECURITIES OFFERED HEREBY.
STAR has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (the "Registration Statement") on Form
S-4 (Commission File No. 333- ) under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the shares of STAR Common Stock to be
issued pursuant to the Merger Agreement. This Joint Proxy Statement/ Prospectus
constitutes the Prospectus of STAR filed as part of the Registration Statement.
All information contained herein with respect to STAR has been furnished by
STAR. All information contained herein with respect to AMSERV has been furnished
by AMSERV.
The AMSERV Common Stock and STAR Common Stock are quoted in the
over-the-counter market on The Nasdaq Stock Market's National Market System (the
"Nasdaq National Market") under the symbols "AMSR" and "SMCS", respectively. On
July 17, 1996, the high and low sales prices for a share of AMSERV Common Stock
and STAR Common Stock on the Nasdaq National Market were $2 7/8 and $2 13/16 and
$8 and $6 3/4, respectively. Based on the average of the high and low sales
prices of AMSERV Common Stock on July 17, 1996 the maximum aggregate value of
the transactions contemplated by the Merger Agreement is $10,050,389.
Based on the Exchange Ratio and based upon the average of the high and low
sales prices of STAR Common Stock on July 17, 1996, the dollar value of the STAR
Common Stock to be received for each share of AMSERV Common Stock exchanged is
$3.02.
--------------------------
THE SECURITIES ISSUABLE PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE ACCOMPANYING FORM OF PROXY ARE
FIRST BEING MAILED OR DELIVERED TO THE SHAREHOLDERS OF STAR AND AMSERV ON OR
ABOUT JULY 22, 1996.
--------------------------
The date of this Joint Proxy Statement/Prospectus is July 19, 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION...................................................................................... iv
SUMMARY.................................................................................................... 1
General.................................................................................................. 1
STAR..................................................................................................... 1
Merger Sub............................................................................................... 2
AMSERV................................................................................................... 2
The Meetings............................................................................................. 3
The Merger............................................................................................... 4
Election of AMSERV Directors............................................................................. 10
Ratification of Appointment of Independent Public Accountants of AMSERV.................................. 10
Summary Historical Consolidated Financial Data........................................................... 11
Summary Unaudited Pro Forma Condensed Combined Financial Data............................................ 14
RISK FACTORS............................................................................................... 15
COMPARATIVE PER SHARE DATA................................................................................. 18
COMPARATIVE MARKET DATA.................................................................................... 19
THE AMSERV MEETING......................................................................................... 20
General.................................................................................................. 20
Matters to Be Considered at the AMSERV Meeting........................................................... 20
AMSERV Record Date....................................................................................... 20
Proxies.................................................................................................. 20
Quorum................................................................................................... 21
Vote Required............................................................................................ 21
THE STAR MEETING........................................................................................... 22
General.................................................................................................. 22
Matters to be Considered at the STAR Meeting............................................................. 22
STAR Record Date......................................................................................... 22
Proxies.................................................................................................. 22
Quorum................................................................................................... 23
Vote Required............................................................................................ 23
Voting Agreement......................................................................................... 23
THE MERGER................................................................................................. 24
Background of the Merger................................................................................. 24
STAR's Reasons for the Merger; Recommendation of the STAR Board.......................................... 34
AMSERV's Reasons for the Merger; Recommendation of the AMSERV Board...................................... 38
Financial Advisor; Fairness Opinion...................................................................... 40
Certain Federal Income Tax Consequences.................................................................. 44
Interests of Certain Persons in the Merger; Conflicts of Interest........................................ 45
No Dissenters' Rights of Appraisal....................................................................... 46
Regulatory Approvals..................................................................................... 46
Accounting Treatment..................................................................................... 46
Resale Restrictions...................................................................................... 47
THE MERGER AGREEMENT....................................................................................... 47
The Merger............................................................................................... 47
Effective Time of the Merger............................................................................. 47
Conversion of Securities................................................................................. 48
Treatment of Stock Options............................................................................... 48
Exchange of Certificates................................................................................. 48
Treatment of AMSERV Class B Preferred.................................................................... 49
Representations and Warranties........................................................................... 49
Covenants; Conduct of Business Prior to Effective Time................................................... 50
Negotiations with Others................................................................................. 50
</TABLE>
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TABLE OF CONTENTS (CONTINUED)
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Management after the Merger.............................................................................. 51
Conditions of the Merger................................................................................. 51
Termination.............................................................................................. 52
Effect of Termination and Abandonment.................................................................... 52
Amendment and Waiver..................................................................................... 52
COMPARISON OF RIGHTS OF HOLDERS OF AMSERV COMMON STOCK AND STAR COMMON STOCK............................... 53
General.................................................................................................. 53
Voting Rights............................................................................................ 53
Amendments to Certificate of Incorporation............................................................... 54
Special Meetings......................................................................................... 54
Shareholders' Action Without a Meeting................................................................... 54
Preemptive Rights........................................................................................ 55
Dividends................................................................................................ 55
Stock Repurchases........................................................................................ 55
Issuance of Rights or Options to Purchase Shares to Directors, Officers and Employees.................... 56
Loans to Directors....................................................................................... 56
Classification of the Board of Directors................................................................. 56
Duties of Directors...................................................................................... 56
Interested Director Transactions......................................................................... 57
Limitations on Directors' Liability...................................................................... 57
Indemnification of Directors and Officers................................................................ 58
Removal of Directors..................................................................................... 59
DESCRIPTION OF STAR CAPITAL STOCK.......................................................................... 60
STAR Common Stock........................................................................................ 60
Certain Provisions of the Certificate of Incorporation and By-Laws....................................... 60
BUSINESS OF STAR........................................................................................... 62
General.................................................................................................. 62
Home Care Services....................................................................................... 63
Hospital Staffing........................................................................................ 64
Competition.............................................................................................. 64
Marketing................................................................................................ 65
Customers................................................................................................ 65
Government Regulations and Licensing..................................................................... 65
Liability Insurance...................................................................................... 66
Employees................................................................................................ 66
Description of Properties................................................................................ 67
Legal Proceedings........................................................................................ 67
STAR'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 68
Results of Operations.................................................................................... 68
Financial Condition, Liquidity and Capital Resources..................................................... 69
Inflation and Seasonality................................................................................ 70
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF STAR.............................................. 71
MANAGEMENT OF STAR......................................................................................... 72
EXECUTIVE COMPENSATION OF STAR............................................................................. 73
Summary Compensation Table............................................................................... 73
Option Grants in Last Fiscal Year........................................................................ 73
</TABLE>
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TABLE OF CONTENTS (CONTINUED)
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Option Exercises in Last Fiscal Year and Year-End Values................................................. 73
Standard Remuneration of Directors....................................................................... 73
Employment and Management Agreements..................................................................... 73
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF STAR..................................................... 74
BUSINESS OF AMSERV......................................................................................... 74
General.................................................................................................. 74
Description of Properties................................................................................ 74
Legal Proceedings........................................................................................ 75
AMSERV'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 76]
Liquidity and Capital Resources.......................................................................... 76
Results of Operations.................................................................................... 76
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF AMSERV............................................ 79
ELECTION OF AMSERV DIRECTORS............................................................................... 80
Nominees for Election.................................................................................... 80
Certain Committees of the Board.......................................................................... 81
Attendance at Meetings................................................................................... 81
Compliance with Section 16(a) of the Exchange Act........................................................ 82
Compensation of Directors................................................................................ 82
EXECUTIVE OFFICERS OF AMSERV............................................................................... 82
SIGNIFICANT EMPLOYEES OF AMSERV............................................................................ 82
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF AMSERV................................................... 83
EXECUTIVE COMPENSATION OF AMSERV........................................................................... 84
Summary Compensation Table............................................................................... 84
Aggregated AMSERV Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values................. 84
Employment Agreements.................................................................................... 84
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS OF AMSERV.................................... 85
LEGAL MATTERS.............................................................................................. 86
EXPERTS.................................................................................................... 86
PROPOSALS BY AMSERV SHAREHOLDERS........................................................................... 86
OTHER BUSINESS............................................................................................. 86
UNAUDITED PRO FORMA CONDENSED-COMBINED FINANCIAL STATEMENTS................................................ 87
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
APPENDIX A -- Merger Agreement, as amended
APPENDIX B -- Opinion of Batchelder & Partners, Inc.
</TABLE>
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AVAILABLE INFORMATION
STAR and AMSERV are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Commission. The Registration Statement, as well as reports, proxy statements
and other information filed by each of STAR and AMSERV can be inspected and
copied at the Commission's Public Reference Room, Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the public reference
facilities maintained by the Commission at its regional offices located at Suite
1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661 and 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
materials can be obtained from the Commission at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Electronic registration statements filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval system are
publicly available through the Commission's Website (http:// www.sec.gov).
Additionally, material filed by STAR and AMSERV can be inspected at the offices
of the Nasdaq National Market System Reports Section, 1735 K Street, N.W.,
Washington, D.C. 20006.
STAR has filed the Registration Statement with the Commission covering the
STAR Common Stock to be issued pursuant to the Merger Agreement. As permitted by
the rules and regulations of the Commission, this Joint Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits thereto. For further information, please
refer to the Registration Statement, including the exhibits thereto. Statements
contained in this Joint Proxy Statement/Prospectus relating to the contents of
any contract or other document referred to herein are not necessarily complete,
and reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
All information concerning STAR contained in this Joint Proxy
Statement/Prospectus has been furnished by STAR and all information concerning
AMSERV contained in this Joint Proxy Statement/Prospectus has been furnished by
AMSERV. No person is authorized to provide any information or to make any
representation with respect to the matters described in this Joint Proxy
Statement/Prospectus other than those contained herein and, if given or made,
such information or representation must not be relied upon as having been
authorized by STAR, AMSERV or any other person. This Joint Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
any offer to purchase, any securities, or a solicitation of a proxy, in any
jurisdiction in which, or to or from any person to or from whom, it is unlawful
to make such an offer or solicitation. Neither the delivery of this Joint Proxy
Statement/Prospectus nor any distribution of securities hereunder shall under
any circumstances be deemed to imply that there has been no change in the
assets, properties or affairs of STAR or AMSERV since the date hereof or that
the information set forth herein is correct as of any time subsequent to the
date hereof.
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS JOINT PROXY STATEMENT/ PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY
IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED
ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE APPENDICES HERETO.
ALL SHAREHOLDERS ARE URGED TO READ THIS JOINT PROXY STATEMENT/PROSPECTUS AND ITS
APPENDICES BEFORE VOTING ON THE MATTERS DISCUSSED HEREIN. AS USED HEREIN, THE
TERM "STAR" REFERS TO STAR MULTI CARE SERVICES, INC. AND THE TERM "AMSERV"
REFERS TO AMSERV HEALTHCARE INC., IN BOTH CASES INCLUDING, UNLESS THE CONTEXT
OTHERWISE REQUIRES, THEIR RESPECTIVE SUBSIDIARIES.
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to shareholders of
STAR MULTI CARE SERVICES, INC., a New York corporation ("STAR"), in connection
with the solicitation of proxies by the Board of Directors of STAR, for use at a
Special Meeting of Shareholders of STAR (the "STAR Meeting") which is scheduled
to be held on Friday, August 23, 1996. This Joint Proxy Statement/Prospectus is
also being furnished to shareholders of AMSERV HEALTHCARE INC., a Delaware
corporation ("AMSERV"), in connection with the solicitation of proxies by the
Board of Directors of AMSERV, for use at the Annual Meeting of Shareholders of
AMSERV (the "AMSERV Meeting") which is also scheduled to be held on Friday,
August 23, 1996. At the STAR Meeting and the AMSERV Meeting, the shareholders of
STAR and the shareholders of AMSERV will be asked to consider and vote upon,
among other things, the proposed merger (the "Merger") of AHI Acquisition Corp.,
a Delaware corporation ("Merger Sub"), with and into AMSERV pursuant to the
terms of the Agreement and Plan of Merger dated February 9, 1996, as amended on
July 18, 1996 (as amended, the "Merger Agreement"). The Merger Agreement is
included in this Joint Proxy Statement/Prospectus as Appendix A. In connection
with the Merger, all of the outstanding shares of Common Stock, $.01 par value
per share, of AMSERV (the "AMSERV Common Stock") will be exchanged for shares of
Common Stock, $.001 par value per share, of STAR (the "STAR Common Stock") at
the rate of 0.4090 shares (the "Exchange Ratio") of STAR Common Stock for each
share of AMSERV Common Stock and all outstanding options to acquire AMSERV
Common Stock will be assumed by STAR, together with the AMSERV Stock Option Plan
under which those options were granted, and the assumed options will be
converted into options to purchase STAR Common Stock based on the Exchange
Ratio. In addition, at the AMSERV Meeting, the shareholders of AMSERV will be
asked to (i) elect five persons to AMSERV's Board of Directors to serve until
the earlier of (a) the next Annual Meeting of Shareholders of AMSERV and until
the election and qualification of their respective successors or (b) the
consummation of the Merger contemplated by the Merger Agreement and (ii) ratify
and approve the selection of Ernst & Young LLP as AMSERV's independent public
accountants for the fiscal year ended June 29, 1996. The information in this
Joint Proxy Statement/Prospectus concerning STAR and AMSERV has been furnished
by each of such entities respectively.
STAR
STAR is in the business of providing placement services of registered and
licensed nurses and home health aides to patients for care at home ("Home Care")
and to a lesser extent temporary health care personnel recruiting to hospitals
and nursing homes ("Hospital Staffing"). In addition, STAR maintains registries
of registered nurses, licensed practical nurses, nurses' aides, certified home
health aides and certified personal care workers from which personnel are
recruited on a per diem basis to meet the requirements of STAR's clients.
Prior to its acquisition by present management in 1987, STAR's business
related primarily to providing private duty nurses to patients in hospitals and
staffing to hospitals. Under its current management, STAR expanded its Hospital
Staffing arrangements to nursing homes and additional hospitals to provide
licensed nurses on a per diem basis for general staff. In 1988, STAR further
extended its Hospital Staffing business to include providing licensed practical
nurses and nurses' aides. In 1989, STAR began providing Home Care services in
New York City pursuant to a license from the New York State Health Department.
In 1990, STAR expanded its Home Care services to include transportation of
patients from hospital to home in ambulettes,
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arrangements to purchase and supply equipment and pharmaceuticals as prescribed
by the patient's physicians, and home infusion care. In 1991, STAR was licensed
by the New York State Department of Health to operate an office in Nassau
County, New York.
In 1992, STAR expanded its existing Home Care business through the
acquisition of certain assets from Unity Healthcare Holding Company, Inc. and
its subsidiaries ("Unity"), including contract rights to provide Home Care
services through various hospitals, community agencies and other institutional
health care providers. These contract rights complemented the existing home
health care businesses of STAR in geographic areas such as New Jersey and New
York where STAR already operated. In addition, in these locations, STAR obtained
from Unity client referral lists to further expand existing operations.
In addition to expanding STAR's existing regional business, the Unity
acquisition added new operations to STAR in new geographic locations. STAR
acquired Unity's Florida operations, which included certification to receive
reimbursement from Medicare and Medicaid in Broward and Dade Counties. Most of
such Medicare and Medicaid reimbursed operations are located in Dade County.
STAR also acquired the assets representing Unity's operations in Florida that do
not have Medicare and Medicaid certification, but which operate under state
license.
In 1993, STAR further expanded its existing Home Care business through the
acquisition of certain assets of DSI Health Care Services, Inc. ("DSI")
including contract rights to provide Home Care services through various
hospitals, community agencies and other institutional health care providers.
These contract rights complimented the existing Home Care business of STAR in
the Long Island, New York area.
In May 1995, STAR acquired certain assets of Long Island Nursing Registry,
Inc. ("LINR") thereby further expanding its Home Care business. LINR provided
nursing and other skilled health care services with both Medicaid and
non-Medicaid reimbursement eligibility compatible with the business of STAR.
LINR maintains offices and does business under the STAR name in the Long Island
area and as "Comprehensive Care America" in the Syracuse area. The acquired
assets included all of the fixed assets, certain of the contract and
intellectual property rights and all of the records, lists, files and books
(including certain customer and personnel lists) with respect to or in
connection with the health care business conducted by LINR. The acquisition
expanded STAR's market area into Suffolk County, augmented its presence in
Nassau County and gave it significant market share in Central New York.
Historically, a greater portion of STAR's revenues have been derived from
Home Care services and a lesser portion of such revenues have been derived from
Hospital Staffing. STAR believes that this is a result of changing social and
economic attitudes toward the de-institutionalization of patients as well as
STAR's changing customer base.
STAR's principal executive offices are located at 99 Railroad Station Plaza,
Hicksville, New York 11801, and its telephone number is (516) 938-2016.
MERGER SUB
Merger Sub is a Delaware corporation recently organized as a wholly-owned
subsidiary of STAR for the purpose of effecting the Merger. It has no material
assets and has not engaged in any activities except in connection with such
proposed acquisition.
Merger Sub's principal executive offices are located at 99 Railroad Station
Plaza, Hicksville, New York 11801, and its telephone number is (516) 938-2016.
AMSERV
AMSERV was originally incorporated under the name of Phone-A-Gram System,
Inc. in the State of California on July 7, 1966, and was subsequently
reincorporated under the laws of the State of Delaware on September 29, 1983. On
October 2, 1987, AMSERV's name was changed to AMSERV, INC., and on August 24,
1992, its name was again changed to AMSERV HEALTHCARE INC.
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AMSERV operates in a one-industry segment as a health care services company.
During the fiscal year ended June 24, 1995, AMSERV provided Home Care services
to individuals from its six branch offices in New Jersey and Ohio. Home Care
services provided by AMSERV include personal care, such as assistance with the
activities of daily living (E.G., eating, walking and grooming), and skilled
nursing services, such as wound care, and assistance with medications,
injections and patient education. Fiscal 1995 was the first full year of
operations for AMSERV's Ohio office, which was acquired on June 10, 1994, by the
purchase of substantially all of the assets and property of North Central
Personnel, Inc. On November 9, 1994, AMSERV sold substantially all of the fixed
and intangible assets of its eight branch offices that provided primarily
temporary nursing services.
AMSERV receives payment for its Home Care services from several sources.
Revenues from Medicaid and other local government programs represented
approximately 75% of net sales from continuing operations in the fiscal year
ended June 24, 1995. The balance is paid to AMSERV from insurance companies,
private payors and others.
Home Care services are marketed through referrals from public agencies,
hospitals, nursing homes and insurance companies. Both non-licensed and licensed
personnel provide services to individuals in their homes. Home Care personnel
are recruited by AMSERV through newspaper advertisements and personal referrals.
AMSERV's principal executive offices are located at 3252 Holiday Court, No.
204, La Jolla, California 92037, and its telephone number is (619) 597-1000.
THE MEETINGS
THE AMSERV MEETING
The AMSERV Meeting will be held on Friday, August 23, 1996 at 9:30 a.m.,
local time, at the Radisson Hotel La Jolla, 3299 Holiday Court, La Jolla,
California. At the AMSERV Meeting, including any adjournments or postponements
thereof, the shareholders of AMSERV will consider and vote on (i) a proposal to
approve and adopt the Merger Agreement and the transactions contemplated
thereby, (ii) the election of five members of the AMSERV Board of Directors to
serve until the earlier of (a) AMSERV's next Annual Meeting of Shareholders and
until the election and qualification of their respective successors or (b)
consummation of the Merger, (iii) a proposal to ratify and approve the selection
of Ernst & Young LLP as AMSERV's independent public accountants for the fiscal
year ended June 29, 1996 and (iv) such other business as properly may come
before the AMSERV Meeting.
The close of business on July 15, 1996, has been fixed as the record date
(the "AMSERV Record Date") for the determination of the shareholders of AMSERV
entitled to notice of and to vote at the AMSERV Meeting. Holders of AMSERV
Common Stock and holders of outstanding shares of AMSERV Class B Preferred
Stock, par value $.01 per share (the "AMSERV Class B Preferred," and together
with the AMSERV Common Stock, the "AMSERV Voting Stock") are entitled to one
vote for each share of AMSERV Voting Stock held by them. The holders of a
majority of the outstanding shares of AMSERV Voting Stock, present either in
person or by properly executed proxies, will constitute a quorum at the AMSERV
Meeting.
The affirmative vote of holders of a majority of the outstanding shares of
AMSERV Voting Stock entitled to vote thereon is required to approve and adopt
the Merger Agreement. The affirmative vote of a majority of the outstanding
shares of AMSERV Voting Stock present at the AMSERV Meeting, either in person or
by properly executed proxies, and entitled to vote is required to elect each
member of the AMSERV Board of Directors and to ratify the selection of AMSERV's
independent public accountants. As of the AMSERV Record Date, 3,436,024 shares
of AMSERV Voting Stock were issued and outstanding, of which approximately 22%
were beneficially owned by directors, executive officers and affiliates of
AMSERV (excluding 72,316 shares which may be acquired upon exercise of options
which are exercisable within 60 days of the AMSERV Record Date). See "THE AMSERV
MEETING -- Vote Required."
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THE STAR MEETING
The STAR Meeting will be held on Friday, August 23, 1996 at 12:30 p.m.,
local time, at the offices of Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue
of the Americas (18th Floor), New York, New York. At the STAR Meeting, including
any adjournments or postponements thereof, the shareholders of STAR will
consider and vote on a proposal to approve and adopt the Merger Agreement and
the transactions contemplated thereby, and such other business as properly may
come before the STAR Meeting. A vote in favor of the Merger will also constitute
a vote in favor of STAR's assumption of the AMSERV Stock Option Plan and the
outstanding options thereunder. The Merger Agreement provides that as of the
effective time of the Merger, Merger Sub, a wholly-owned subsidiary of STAR,
will be merged with and into AMSERV, with AMSERV being the surviving
corporation, whereupon AMSERV will become a wholly-owned subsidiary of STAR.
The close of business on July 15, 1996, has been fixed as the record date
(the "STAR Record Date") for the determination of the shareholders of STAR
entitled to notice of and to vote at the STAR Meeting. Holders of STAR Common
Stock are entitled to one vote for each share of STAR Common Stock held by them.
The holders of a majority of the outstanding shares of STAR Common Stock,
present either in person or by properly executed proxies, will constitute a
quorum at the STAR Meeting.
The affirmative vote of the holders of a majority of the shares of STAR
Common Stock voted at the STAR Meeting is required to approve and adopt the
Merger Agreement. As of the STAR Record Date, 2,463,079 shares of STAR Common
Stock were issued and outstanding, of which approximately 40.5% were
beneficially owned by directors, executive officers and affiliates of STAR
(excluding 181,986 shares which may be acquired upon exercise of options which
are exercisable within 60 days of the STAR Record Date). See "THE STAR MEETING
- -- Vote Required."
THE MERGER
CONVERSION OF SECURITIES. Upon consummation of the transactions
contemplated by the Merger Agreement, Merger Sub will be merged with and into
AMSERV, with AMSERV being the surviving corporation, and each share of AMSERV
Common Stock outstanding immediately prior to the consummation of the Merger
will be converted into the right to receive 0.4090 shares of STAR Common Stock
and all AMSERV Options (as defined below) will be assumed by STAR and converted
into options exercisable for STAR Common Stock based on the Exchange Ratio
(collectively, the "Merger Consideration"). STAR Common Stock is quoted on the
Nasdaq National Market under the symbol "SMCS." No certificates or scrip
representing fractional shares of STAR Common Stock will be issued in the
Merger, but cash will be paid to shareholders in lieu thereof. See "THE MERGER
AGREEMENT -- Conversion of Securities."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS. The AMSERV Board of Directors
believes that the terms of the Merger are fair to, and in the best interests of,
AMSERV and its shareholders. Accordingly, AMSERV's Board of Directors has
approved the Merger Agreement and unanimously recommends a vote FOR approval and
adoption of the Merger Agreement by the shareholders of AMSERV. The AMSERV Board
of Directors considered a number of positive, negative and neutral factors
concerning the Merger. The positive factors the AMSERV Board considered included
the AMSERV Board's determination that the consideration to be received by
AMSERV's shareholders in the Merger reflected an appropriate valuation of
AMSERV; the ability of the combined company to better compete in a rapidly
consolidating health care industry; a review of the possible alternatives to a
sale of AMSERV; that the AMSERV Board approved the Merger Agreement after
significant publicity concerning AMSERV's review of its strategic alternatives;
that AMSERV had contact with a large number of bidders in a lengthy auction
process; that the Merger Consideration represented a premium for AMSERV Common
Stock on the last trading day prior to the public announcement of the letter of
intent to merge and the last trading day prior to the public announcement of the
execution of the Merger Agreement; the AMSERV Board's determination that STAR's
proposal included a premium for obtaining control of AMSERV; the financial
presentation of AMSERV's financial advisor and the advisor's opinion as of
February 9, 1996 that the terms of the Merger are fair to the shareholders of
AMSERV from a financial point of view; that the Merger Agreement permits AMSERV
to
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consider unsolicited third party offers to acquire AMSERV; that the Merger
Agreement permits the AMSERV Board to modify its fairness determination if
required by the AMSERV Board's fiduciary duties; that consummation of the Merger
is conditioned on the Merger's qualifying as a pooling of interests for
accounting purposes; that the Merger Agreement was approved by the unanimous
vote of the AMSERV Board (other than Mr. Mora, who did not vote on the Original
Merger Agreement, as hereinafter defined, or the Amendment, as hereinafter
defined, due to the expected assumption by STAR of the provisions set forth in
Mr. Mora's employment agreements, and Mr. Katten, who did not vote on the
Amendment due to his expected position as a director of STAR following the
Merger); that STAR is a public company that has experienced substantial growth
in revenues and income and has a management team with a proven track record; the
synergies and costs savings offered by the consolidation of certain corporate
functions; the expectation that AMSERV shareholders will receive STAR Common
Stock in a transaction that is nontaxable for federal income tax purposes; and
that Mr. Sternbach has agreed to vote the shares of STAR Common Stock of which
he is the direct beneficial owner in favor of the Merger. The negative factors
considered by the AMSERV Board were that AMSERV's financial advisor is not
required to reaffirm its fairness opinion at any time after February 9, 1996;
that the Merger Agreement places restrictions on the conduct of AMSERV's
business pending the closing and requires AMSERV to pay significant fees and
expenses in the event of a termination of the Merger Agreement; that the Merger
Agreement prohibits AMSERV from soliciting, encouraging or initiating any
additional proposals from third parties; and the risks to AMSERV shareholders
described under the heading "RISK FACTORS." The AMSERV Board determined that the
following factors were neither positive nor negative: that, as a result of the
fixed Exchange Ratio, changes in the relative share prices of AMSERV and STAR
Common Stock could materially affect, positively or negatively, the value of the
Merger Consideration to be received by AMSERV shareholders; the possible
conflicts of interest based on the expected equity participation in STAR of
certain directors and officers of AMSERV and Mr. Mora's expected position as a
director of STAR following the Merger (although the Merger Agreement, as
amended, now provides that Mr. Katten, instead of Mr. Mora, would become a
director of STAR following the Merger); and that the AMSERV Board did not use a
special committee to evaluate the Merger. The primary factors considered and
conclusions reached and relied upon by the AMSERV Board of Directors in reaching
its recommendation are described in greater detail in "THE MERGER -- Background
of the Merger," "-- AMSERV's Reasons for the Merger; Recommendation of the
AMSERV Board," "-- Financial Advisor; Fairness Opinion" and "-- Interests of
Certain Persons in the Merger; Conflicts of Interest."
The Board of Directors of STAR believes that the terms of the Merger are
fair to, and in the best interests of, STAR and its shareholders. Accordingly,
STAR's Board of Directors has unanimously approved the Merger Agreement and
unanimously recommends a vote FOR approval and adoption of the Merger Agreement
by the shareholders of STAR. The STAR Board of Directors considered a number of
positive factors concerning the Merger, including that since both STAR and
AMSERV are engaged in the Home Care services business, the businesses of STAR
and AMSERV are complimentary; its concurrence with STAR's management's analysis
that the Merger would increase STAR's cash flow, reduce STAR's financial
leverage and improve STAR's overall financial position and results of
operations; that since AMSERV is also engaged in the Home Care services business
the Merger fits within STAR's strategic objective to acquire complimentary
businesses; that the Merger will permit STAR to achieve significant cost savings
and economies of scale and will provide other synergistic benefits; that
approximately $1.2 million in selling, general and administrative expenses would
be eliminated as a result of increased efficiencies; that the terms of the
Merger Agreement are generally fair to the shareholders of STAR; and its
conclusion that, based upon preliminary discussions with its auditors, the
Merger would be accounted for as a pooling of interests for accounting purposes.
The Board of Directors of STAR also considered a number of negative factors
concerning the Merger, including the fact that a dissident shareholder group had
commenced a consent solicitation and certain litigation against AMSERV; the fact
that the Exchange Ratio was fixed; the factors described under the heading "RISK
FACTORS"; and the fact that STAR agreed to honor certain agreements between
AMSERV and Mr. Mora. The factors considered and conclusions reached and relied
upon
5
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by the STAR Board of Directors in reaching its recommendation are described in
greater detail in "THE MERGER -- Background of the Merger," "-- STAR's Reasons
for the Merger; Recommendation of the STAR Board" and "-- Interests of Certain
Persons in the Merger; Conflicts of Interest."
OPINION OF FINANCIAL ADVISOR. Batchelder & Partners, Inc. ("Batchelder")
delivered to the Board of Directors of AMSERV a written opinion dated February
9, 1996 that, as of such date and based upon and subject to certain matters as
stated therein, the terms of the Merger are fair to the shareholders of AMSERV
from a financial point of view. See "THE MERGER -- Financial Advisor; Fairness
Opinion." The full text of the written opinion of Batchelder, which sets forth
the assumptions made, matters considered and limitations on the review
undertaken by Batchelder, is attached as Appendix B hereto and is incorporated
herein by reference. AMSERV shareholders are urged to read the opinion carefully
in its entirety.
EFFECTIVE TIME OF THE MERGER. The Merger will be effected at the time of
the filing of a Certificate of Merger (the "Certificate of Merger") with the
Delaware Secretary of State. The date and time of such filing (the "Effective
Time") is currently expected to occur on or shortly after the date of the AMSERV
Meeting and the STAR Meeting and satisfaction or waiver of the conditions
precedent to the Merger set forth in the Merger Agreement. See "THE MERGER
AGREEMENT -- Effective Time of the Merger" and "-- Conditions of the Merger."
CONDITIONS TO THE MERGER; TERMINATION. The obligations of AMSERV and STAR
to consummate the Merger are subject to the satisfaction of certain conditions,
certain of which may be waived by the mutual consent of AMSERV and STAR,
including, among others, (i) obtaining requisite AMSERV and STAR shareholder
approvals and requisite regulatory approvals, (ii) the effectiveness of the
Registration Statement and the receipt by STAR of all necessary approvals under
applicable state securities laws, (iii) the absence of a material adverse change
in the financials of AMSERV, (v) the receipt by AMSERV of a legal opinion
addressed to the shareholders of AMSERV from Latham & Watkins with respect to
the tax consequences of the Merger and certain other matters and (vi) the
receipt by STAR of a letter from Holtz Rubenstein & Co., LLP with respect to the
qualification of the Merger as a pooling of interests. There is currently no
intention on the part of either AMSERV or STAR to waive any of the conditions
set out above, including without limitation, (v) and (vi). In the event that the
conditions set forth above in (v) or (vi) were to be waived, STAR would file a
post-effective amendment to the Registration Statement and both STAR and AMSERV
would resolicit their respective shareholders regarding their approval and
adoption of the Merger Agreement. See "THE MERGER AGREEMENT -- Conditions of the
Merger."
The Merger Agreement is subject to termination by either AMSERV or STAR if
the Merger is not consummated by September 15, 1996. In addition, the Merger
Agreement may be terminated under certain circumstances by either AMSERV or
STAR, including circumstances under which STAR may be entitled to receive a
termination fee of $250,000, plus reasonable out-of-pocket fees and expenses up
to $200,000. See "THE MERGER AGREEMENT -- Termination" and "-- Effect of
Termination and Abandonment."
SURRENDER OF AMSERV COMMON STOCK CERTIFICATES. After the Effective Time,
holders of AMSERV Common Stock will be furnished with a transmittal letter to be
used to exchange their certificates for the Merger Consideration. Holders of
AMSERV Common Stock should not return any stock certificates with the form of
proxy accompanying this Joint Proxy Statement/Prospectus. See "THE MERGER
AGREEMENT -- Exchange of Certificates."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. Assuming the Merger is consummated
at the Effective Time pursuant to the terms of the Merger Agreement, Latham &
Watkins (counsel to AMSERV) is of the opinion (and, at the Effective Time, will
issue its opinion to AMSERV) that the Merger will qualify as a tax-free
reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code") and that no gain or loss will be recognized by any holder
whose shares of AMSERV Common Stock (with the possible exception of shares of
AMSERV Common Stock acquired by a holder pursuant to an employee stock option
plan or other compensation agreement in anticipation of the Merger) are
converted into and exchanged for shares of STAR Common Stock (except to the
extent of any cash received in lieu of fractional shares of STAR Common Stock).
In addition, Latham & Watkins is of the opinion that as a result
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<PAGE>
of the Merger: (i) each holder of AMSERV Common Stock receiving cash in lieu of
a fractional share of STAR Common Stock will be treated for federal income tax
purposes as having received such fractional share interest and as having sold it
for the cash received, and will recognize capital gain or loss (long- or
short-term depending on whether the holder's holding period is more or less than
12 months) equal to the difference between the amount of cash received and the
portion of that holder's basis in the shares of AMSERV Common Stock deemed
exchanged for the fractional share interest; (ii) the tax basis of the STAR
Common Stock received by the holders of AMSERV Common Stock will be equal to the
basis of the AMSERV Common Stock exchanged therefor (except for the basis
attributable to any fractional share interest in STAR Common Stock); and (iii)
the holding period of the STAR Common Stock received by the holders of AMSERV
Common Stock will include the holding period of the AMSERV Common Stock
surrendered in exchange therefor. Latham & Watkins' opinion is based on the
accuracy of certain representations that it will receive from STAR and AMSERV at
the Effective Time. See "THE MERGER -- Certain Federal Income Tax Consequences"
and "THE MERGER AGREEMENT -- Conditions of the Merger."
ACCOUNTING TREATMENT. The Merger is intended to qualify as a pooling of
interests for accounting and financial reporting purposes. Consummation of the
Merger is conditioned upon STAR receiving a letter from Holtz Rubenstein & Co.,
LLP (STAR's auditors) regarding its concurrence with STAR's management's
conclusion as to the appropriateness of pooling of interests accounting for the
Merger under Accounting Principles Board Opinion No. 16 if it is consummated in
accordance with the Merger Agreement. See "THE MERGER -- Accounting Treatment"
and "THE MERGER AGREEMENT -- Conditions of the Merger."
TREATMENT OF STOCK OPTIONS. All options to purchase shares of AMSERV Common
Stock (individually, an "AMSERV Option" and collectively, the "AMSERV Options")
outstanding under AMSERV's 1991 Stock Option Plan (the "AMSERV Stock Option
Plan"), granted on or prior to the Effective Time, whether or not currently
exercisable, will become exercisable immediately prior to the Effective Time,
will remain outstanding and will be assumed by STAR. Thereafter, the material
terms and conditions pursuant to which such options will be exercisable will be
the same as under the AMSERV Stock Option Plan and the applicable option
agreement issued thereunder, except that (i) the number of shares of STAR Common
Stock subject to each AMSERV Option will be determined by multiplying the number
of shares of AMSERV Common Stock subject to the AMSERV Option immediately prior
to the Effective Time by the Exchange Ratio and (ii) the per share exercise
price will be determined by dividing the per share exercise price in effect
immediately prior to the Effective Time under the AMSERV Option by the Exchange
Ratio. As of July 17, 1996, options to acquire 228,266 shares of AMSERV Common
Stock were outstanding under the AMSERV Stock Option Plan. Approval of the
Merger Agreement by the shareholders of STAR will constitute shareholder
approval of the assumption by STAR of the AMSERV Stock Option Plan. See "THE
MERGER AGREEMENT -- Treatment of Stock Options."
AMSERV CLASS B PREFERRED. The Merger Agreement provides that the AMSERV
Class B Preferred shall not be converted into any other security in connection
with the Merger. Pursuant to the terms of the Certificate of Designations,
Preferences and Rights of the AMSERV Class B Preferred (the "Class B
Certificate"), upon a change in control of AMSERV (such as the Merger) any
holder of AMSERV Class B Preferred then outstanding may request that AMSERV
redeem all, but not less than all, of the AMSERV Class B Preferred at a
redemption price of $2.625 per share in cash (the "Redemption Price"). The
Redemption Price with respect to the 130,071 shares of AMSERV Class B Preferred
currently outstanding totals $341,436 in the aggregate. Following consummation
of the Merger, STAR will become obligated to pay such amount in the event any
holder of AMSERV Class B Preferred exercises its redemption rights. STAR expects
that the cash and cash equivalents of AMSERV will be sufficient to meet this
obligation, when it arises.
The Class B Certificate also provides that AMSERV may at any time redeem
all, but not less than all, of the outstanding shares of AMSERV Class B
Preferred at the Redemption Price. Pursuant to the Merger Agreement, however,
AMSERV has agreed that it will not redeem, retire or purchase such shares except
as required by the Class B Certificate. See "THE MERGER AGREEMENT -- Treatment
of AMSERV
7
<PAGE>
Class B Preferred." It is the intention of the parties that following the
approval of the Merger by the respective shareholders of STAR and AMSERV, but
prior to consummation of the Merger, STAR will waive this restriction on
redemption of the AMSERV Class B Preferred and AMSERV will redeem all
outstanding shares of the AMSERV Class B Preferred.
EMPLOYMENT AGREEMENTS. STAR has agreed to honor the provisions of the
employment agreement dated February 27, 1987, as amended August 8, 1989 (the
"Mora Employment Agreement"), and the consulting agreement dated August 23,
1990, as amended August 15, 1991 (the "Mora Consulting Agreement," and together
with the Mora Employment Agreement, the "Mora Agreements"), both between AMSERV
and Eugene J. Mora. Pursuant to the Mora Employment Agreement, if Mr. Mora is
terminated without cause, AMSERV is obligated to pay to Mr. Mora the
compensation he earned in the final year of his employment in each of the
immediately following five years and transfer to Mr. Mora any individual life
insurance policies owned by AMSERV. In fiscal 1995, Mr. Mora's compensation
totaled approximately $300,000. See "EXECUTIVE COMPENSATION OF AMSERV." Assuming
Mr. Mora is terminated without cause and receives compensation of $300,000 in
the final year of his employment, Mr. Mora would be entitled to receive
$1,500,000 in the aggregate over the immediately following five years under the
Mora Employment Agreement (excluding the value of any individual life insurance
policies transferred to Mr. Mora). In the event that such payments are made by
STAR pursuant to the Mora Employment Agreement, there can be no assurance that
such payments will be deductible for income tax purposes for the full amount
thereof. In addition, the Mora Consulting Agreement provides that Mr. Mora will
be retained as a consultant to AMSERV for the two years immediately following
termination of his employment for which he will receive $129,200 per year in
compensation. The Merger Agreement provides that the parties understand that
STAR and Mr. Mora will be discussing possible modifications or amendments to the
Mora Agreements. Such modifications or amendments to the Mora Agreements may not
be entered into, however, without the mutual agreement of STAR, AMSERV and Mr.
Mora and unless such modifications or amendments would not jeopardize the
ability of the parties to treat the Merger as a tax free reorganization or to
utilize pooling of interests accounting for accounting purposes. See "THE MERGER
- -- Interests of Certain Persons in the Merger; Conflicts of Interest."
Leslie Hodge, Secretary and Vice President -- Administration of AMSERV, and
Lori Anderson, Treasurer and Controller of AMSERV, are parties to employment
agreements with AMSERV which contain severance provisions under which the Merger
would constitute a "board approved change in control." As a result, if within 24
months following the consummation of the Merger, Ms. Hodge is terminated without
cause or Ms. Hodge terminates her employment for good reason, the combined
company will be obligated to (i) pay to Ms. Hodge a lump sum payment equal to 12
months of the highest monthly base salary received by Ms. Hodge in any one of
the past 60 months and (ii) continue Ms. Hodge's benefits for a period of 12
months. Similarly, if within 24 months following the consummation of the Merger,
Ms. Anderson is terminated without cause or Ms. Anderson terminates her
employment for good reason, the combined company will be obligated to (a) pay to
Ms. Anderson a lump sum payment equal to six months of the highest monthly base
salary received by Ms. Anderson in any one of the past 60 months and (b)
continue Ms. Anderson's benefits for a period of six months. Using the highest
monthly base salaries received by each of Ms. Hodge and Ms. Anderson during the
last 60 months, Ms. Hodge and Ms. Anderson would be entitled to lump sum
payments of $69,000 and $23,568, respectively, upon termination without cause or
termination by either of them for good reason. See "THE MERGER -- Interests of
Certain Persons in the Merger; Conflicts of Interest."
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST. In
considering the recommendation of the Board of Directors of AMSERV and the Board
of Directors of STAR with respect to the Merger Agreement and the transactions
contemplated thereby, shareholders should be aware that certain members of
AMSERV's management and AMSERV's Board have interests in the Merger that are in
addition to and may conflict with the interests of shareholders of AMSERV and
STAR generally. The Boards of Directors of AMSERV and STAR were aware of these
interests and considered them, among other factors, in approving
8
<PAGE>
the Merger Agreement and the transactions contemplated thereby. See "THE MERGER
- -- Interests of Certain Persons in the Merger; Conflicts of Interest" and "THE
MERGER AGREEMENT -- Treatment of Stock Options."
Following the Merger, AMSERV's Board of Directors would be filled with
STAR's designees. The Merger Agreement, as amended, provides that after the
Merger is effected, Melvin L. Katten, a director of AMSERV, will be appointed to
the Board of Directors of STAR. AMSERV does not anticipate that any officers or
directors of AMSERV, other than Mr. Katten, would become officers or directors
of STAR or the surviving entity. See "THE MERGER -- Interest of Certain Persons
in the Merger; Conflicts of Interest" and "THE MERGER AGREEMENT -- Management
after the Merger."
Under the Merger Agreement, STAR has agreed to honor the provisions set
forth in employment agreements to which AMSERV is a party. See "SUMMARY -- The
Merger -- Employment Agreements" and "EXECUTIVE COMPENSATION OF AMSERV --
Employment Agreements." Using Mr. Mora's base salary for 1995, Mr. Mora would be
entitled under the Mora Employment Agreement to receive approximately $1,500,000
in the aggregate over the five years immediately following his termination
without cause. In addition, the Mora Consulting Agreement calls for Mr. Mora to
receive $129,200 per year in compensation as a consultant to AMSERV for the two
years immediately following termination of his employment. Using the highest
monthly base salary received by each of Ms. Hodge and Ms. Anderson during the
last 60 months, Ms. Hodge and Ms. Anderson would be entitled under their
employment contracts to lump sum payments of $69,000 and $23,568, respectively,
upon termination without cause or if either of them terminates her employment
for good reason.
Pursuant to the AMSERV Stock Option Plan and under the terms of the Merger
Agreement, all outstanding AMSERV Options, whether or not exercisable, will
become exercisable immediately prior to the Effective Time, will remain
outstanding and will be assumed by STAR. As of July 17, 1996, directors and
executive officers of AMSERV held, in the aggregate, non-qualified stock options
granted pursuant to the AMSERV Stock Option Plan to purchase 87,691 shares of
AMSERV Common Stock at exercise prices ranging from $1.00 to $3.125 per share.
The AMSERV directors, including Mr. Mora, Mr. Katten, Mr. Robinton, Mr. Rogers
and Mr. Spinelli, held options to purchase 35,000, 12,615, 12,615, 10,961, and
1,500 shares of AMSERV Common Stock, respectively. In addition, Ms. Hodge and
Ms. Anderson held options to purchase 5,000 and 10,000 shares of AMSERV Common
Stock, respectively. See "SUMMARY -- The Merger -- Treatment of Stock Options,"
"THE MERGER -- Interest of Certain Persons in the Merger; Conflicts of Interest"
and "THE MERGER AGREEMENT -- Treatment of Stock Options."
Under the terms of the Merger Agreement, STAR has agreed to insure and
guaranty that any provision with respect to indemnification by AMSERV and its
subsidiaries existing in favor of any present or former director, officer,
employee or agent of AMSERV or an AMSERV subsidiary, set forth in the
Certificate of Incorporation or by-laws of AMSERV and its subsidiaries or
pursuant to any other agreements (including insurance policies), will survive
the Merger, will not be amended, repealed or modified in any manner that would
adversely affect an indemnified party, and will continue in full force and
effect for a period of at least six years from the effectiveness of the Merger.
STAR has agreed to maintain or retain the same level of insurance coverage as
currently maintained by AMSERV only (i) if it is available for an annual premium
not in excess of 125% of the last annual premium paid by AMSERV or the AMSERV
subsidiaries prior to the date of the Merger Agreement, and (ii) for six years
after the Effective Time. If such insurance were not available for 125% or less
of the amount of the last annual premium paid by AMSERV or its subsidiaries
prior to the date of the Merger Agreement, STAR would be obligated to purchase
as much coverage as possible for an amount not to exceed 125% of the last
premium paid AMSERV or its subsidiaries. See "THE MERGER -- Interests of Certain
Persons in the Merger; Conflicts of Interest."
VOTING AGREEMENT. Stephen Sternbach, Chairman, President and Chief
Executive Officer of STAR and the direct beneficial owner of 847,155 shares
(34.4%) of STAR Common Stock, entered into an agreement (the "Voting Agreement")
pursuant to which he agreed to vote (or cause to be voted) his shares in favor
of the Merger, the execution and delivery by STAR of the Merger Agreement and
the approval of the terms thereof and each of the other actions contemplated by
the Merger Agreement and the Voting Agreement. In
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<PAGE>
addition, Mr. Sternbach granted to AMSERV and the Secretary and the Chief
Financial Officer of AMSERV an irrevocable proxy to vote his shares in the
manner described above. See "THE STAR MEETING -- Voting Agreement."
DISSENTERS' RIGHTS. Under the General Corporation Law of the State of
Delaware (the "DGCL"), holders of AMSERV Common Stock are not entitled to
dissenters' rights of appraisal in connection with the Merger, because at the
AMSERV Record Date, shares of STAR Common Stock were quoted on the Nasdaq
National Market. The STAR Common Stock is currently quoted on the Nasdaq
National Market. See "THE MERGER -- No Dissenters' Rights of Appraisal."
RESALES OF STAR COMMON STOCK. The shares of STAR Common Stock to be issued
pursuant to the Merger Agreement have been registered under the Securities Act,
and therefore may be resold without restriction by persons who are not deemed to
be "affiliates" (as such term is defined under the Securities Act) of either
STAR or AMSERV. See "THE MERGER -- Resale Restrictions."
RISK FACTORS. There are a number of risks relating to an investment in
STAR, including those relating to: (i) STAR's liquidity and possible cash flow
difficulties; (ii) adverse effects of possible health care reform; (iii) the
regulatory environment in which the parties operate; (iv) competition in the
home health care and temporary health care personnel placement markets; (v) a
shortage of qualified personnel; (vi) government regulation and licensing
regulations relative to STAR's business; (vi) certain proposals by state
legislatures and Congress to contain health care costs; (vii) potential
liability for services provided by STAR; and (viii) STAR's failure to pay cash
dividends since 1991. In addition, there are a number of risks relating to the
Merger, including those relating to: (i) no assurance that shareholders will
realize any benefits from the Merger; (ii) the existence of special interests of
certain persons in the Merger and conflicts of interest; (iii) the fact that Mr.
Sternbach will continue to have substantial influence on STAR after the Merger;
(iv) the lack of an updated fairness opinion by the financial advisor of AMSERV;
(v) the fixed nature of the Exchange Ratio; (vi) the dilutive effect of the
Merger on the voting power of the shareholders of AMSERV and STAR; (vii) the
fact that a significant portion of STAR's revenues are subject to audit and
adjustment; and (viii) the possible adverse tax effect on the AMSERV
shareholders if the Merger were not to constitute a tax-free reorganization. See
"RISK FACTORS" for a more complete discussion of the factors which should be
considered in evaluating the Merger and the securities offered hereby.
ELECTION OF AMSERV DIRECTORS
At the AMSERV Meeting, five directors are to be elected. The following
individuals, each of whom is currently a director of AMSERV, have been nominated
for election to the AMSERV Board of Directors: Eugene J. Mora, Melvin L. Katten,
Michael A. Robinton, George A. Rogers and Ben L. Spinelli. If the Merger is not
consummated, the directors elected at the AMSERV Meeting will serve until the
next Annual Meeting of Shareholders and until their respective successors have
been duly elected and qualified. If the Merger Agreement is approved and adopted
at each of the AMSERV Meeting and STAR Meeting and the Merger is consummated,
the directors elected at the AMSERV Meeting will hold office only until
consummation of the Merger and, in accordance with the terms of the Merger
Agreement, the directors of Merger Sub would then become the directors of
AMSERV. See "ELECTION OF AMSERV DIRECTORS."
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS OF AMSERV
AMSERV shareholders will further be asked to ratify the selection of Ernst &
Young LLP as AMSERV's independent auditors for the fiscal year ended June 29,
1996. See "RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS OF
AMSERV."
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<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The respective summary historical data presented in the tables below have
been derived from AMSERV's Consolidated Financial Statements and notes thereto
and STAR's Consolidated Financial Statements and the notes thereto included
elsewhere herein and should be read in conjunction therewith. See "AMSERV'S" and
"STAR'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS."
Data for AMSERV for the nine months ended March 31, 1995 and March 23, 1996
have been derived from unaudited consolidated financial statements. The
unaudited financial statements of AMSERV include all adjustments consisting of
normal accruals that AMSERV considers necessary for a fair presentation of the
financial position and results of operations for those periods. Operating
results for the nine months ended March 23, 1996 are not necessarily indicative
of the results that may be expected for the entire year ended June 29, 1996.
Data for STAR for the nine months ended February 28, 1995 and February 29,
1996 have been derived from unaudited consolidated financial statements. The
unaudited financial statements of STAR include all adjustments consisting of
normal accruals that STAR considered necessary for a fair presentation of the
financial position and results of operations for those periods. Operating
results for the nine months ended February 29, 1996 are not necessarily
indicative of the results that may be expected for the entire year ended May 31,
1996.
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<PAGE>
AMSERV SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED ------------------------
-----------------------------------------------------------
JUNE 30, MARCH 23, MARCH 31,
JUNE 24, ------------------------------------------------ ----------- -----------
1995 1994 (1) 1993 1992 1991 (2) 1996 1995
--------- --------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT RATIOS AND PER SHARE AMOUNTS)
STATEMENTS OF OPERATIONS DATA
Operating Revenue..................... $ 11,342 $ 7,526 $ 6,049 $ 5,432 $ 1,362 $ 9,118 $ 8,403
Income (Loss) from Continuing
Operations........................... 52 (63) (71) (48) (134) 342 225
Income (Loss) from Discontinued
Operations........................... -- (711) (359) 290 1,124 -- --
Gain (Loss) on Disposal of
Discontinued Operations.............. 30 (1,168) -- 1,405 -- -- 169
Cumulative Effect of Change in
Accounting Principle................. 24 -- -- -- -- -- --
Net Income (Loss)..................... $ 106 $ (1,942) $ (430) $ 1,647 $ 990 $ 342 $ 394
INCOME (LOSS) PER SHARE
Income (Loss) from Continuing
Operations........................... $ .02 $ (.02) $ (.03) $ (.01) $ (.04) $ .10 $ .07
Income (Loss) from Discontinued
Operations........................... -- (.24) (.12) .09 .35 -- --
Gain (Loss) on Disposal of
Discontinued Operations.............. .01 (.40) -- .45 -- -- .05
Cumulative Effect of Change in
Accounting Principle................. -- -- -- -- -- -- --
Net Income (Loss)..................... $ .03 $ (.66) $ (.15) $ .53 $ .31 $ .10 $ .12
Shares Used in Computing Per Share
Amounts.............................. 3,112 2,945 2,961 3,092 3,160 3,269 3,133
<CAPTION>
JUNE 24, JUNE 30, JUNE 30, JUNE 30, JUNE 30, MARCH 23, MARCH 31,
1995 1994 1993 1992 1991 1996 1995
--------- --------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working Capital....................... $ 2,466 $ 2,569 $ 3,471 $ 4,792 $ 3,095 $ 2,931 $ 2,858
Total Assets.......................... 6,684 6,558 7,427 8,858 7,508 6,833 6,561
Total Long-Term Liabilities........... 31 832 115 745 1,064 33 659
Redeemable Preferred Stock............ 683 -- -- -- -- 512 --
Shareholders' Equity.................. 4,657 4,348 6,290 6,699 5,016 5,098 4,742
Current Ratio......................... 2.9 2.9 4.4 4.4 3.2 3.5 3.5
</TABLE>
- ------------------------
(1) In June 1994, AMSERV acquired certain assets of North Central Personnel,
Inc. in a transaction accounted for as a purchase.
(2) In March 1991, AMSERV acquired certain assets of Always Care of New Jersey,
Inc. in a transaction accounted for as a purchase.
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<PAGE>
STAR SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
----------------------------------------------------------- --------------------
MAY 31, FEB. 29, FEB. 28,
----------------------------------------------------------- --------- ---------
1995 (1) 1994 (2) 1993 (3) 1992 (4) 1991 1996 1995
--------- ------------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT RATIOS AND PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA
Net revenues...................... $ 27,088 $ 22,168 $ 17,380 $ 8,678 $ 7,013 $ 26,468 $ 19,685
Income from operations............ 1,238 745 335 156 791 1,473 864
Interest (expense) income, net.... (63) (13) 43 63 (68) (203) (44)
Income from continuing
operations....................... 706 421 206 103 123 750 467
Cumulative effect of change in
accounting principle............. -- 65 (5) -- -- -- -- --
Net income........................ $ 706 $ 486 $ 206 $ 103 $ 123 $ 750 $ 467
INCOME PER SHARE
Income from continuing
operations....................... $ .28 $ .18 $ .09 $ .04 $ .10 $ .28 $ .20
Cumulative effect of change in
accounting principle............. -- .03 -- -- -- -- --
Net income........................ $ .28 $ .21 $ .09 $ .04 $ .10 $ .28 $ .20
Shares used in computing per share
amounts.......................... 2,526 2,325 2,410 2,433 1,199 2,704 2,282
<CAPTION>
MAY 31, MAY 31, MAY 31, MAY 31, FEB. 29, FEB. 28,
1995 MAY 31, 1994 1993 1992 1991 1996 1995
--------- ------------- --------- --------- ----------- --------- ---------
(IN THOUSANDS EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents......... $ 270 $ 425 $ 1,126 $ 372 $ 2,482 $ 60 $ 91
Working capital................... 4,307 2,956 3,180 3,109 3,856 6,564 3,600
Total assets...................... 10,114 7,638 6,009 6,009 4,980 12,268 8,330
Long-term obligations............. 2,125 -- -- -- -- 3,531 --
Shareholders' equity.............. 5,965 5,229 4,911 4,705 4,030 6,733 5,700
Current ratio..................... 3.1 2.2 3.9 3.4 5.1 4.3 2.4
</TABLE>
- ------------------------
(1) In May 1995, STAR acquired certain assets of Long Island Nursing Registry,
Inc. in a transaction accounted for as a purchase.
(2) In November 1993, STAR acquired certain assets of DSI Health Care Services,
Inc. in a transaction accounted for as a purchase.
(3) In August 1992, STAR acquired certain assets of Unity Care Services,
Inc.-New York Medicaid Operations in a transaction accounted for as a
purchase.
(4) In May 1992, STAR acquired certain assets of Unity Healthcare Holding
Company, Inc., Unity Care Services, Inc.-New York Operations, and Unity Home
Care of Florida, Inc. in a transaction accounted for as a purchase.
(5) Effective June 1, 1993, STAR adopted FASB Statement No. 109, "Accounting for
Income Taxes." See Note 12 of STAR's Notes to Consolidated Financial
Statements.
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<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following table presents summary unaudited pro forma selected operations
data for the years ended May 31, 1994 and 1995 and for the nine months ended
February 28, 1995 and February 29, 1996. The income statement data has been
prepared as if the Merger and the other transactions requiring pro forma
adjustments had occurred on June 1, 1993 assuming that the Merger had been
consummated and accounted for using the pooling of interests method of
accounting. The balance sheet data has been prepared assuming the Merger had
been consummated on February 29, 1996.
The following summary unaudited pro forma condensed combined financial data
are provided for comparative purposes only and should be read in conjunction
with the unaudited pro forma condensed combined financial statements and the
notes thereto and the separate audited consolidated financial statements and
related notes thereto of STAR and AMSERV. See "UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS." The following summary unaudited pro forma
condensed combined financial data does not purport to be indicative of the
results which actually would have occurred if the Merger had been consummated on
the dates indicated or which may be obtained in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MAY 31, --------------------------
-------------------- FEBRUARY 29, FEBRUARY 28,
1995 1994 1996 1995
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA:
Net revenues.................................................... $ 44,501 $ 29,694 $ 35,585 $ 28,085
Operating expenses.............................................. 42,851 29,118 33,667 26,935
Operating income................................................ 1,650 576 1,919 1,152
Interest (income) expense, net.................................. 241 (67) 83 28
Income from continuing operations before provision for income
taxes.......................................................... 1,409 643 1,836 1,124
Provision for income taxes...................................... 552 286 744 432
Income from continuing operations............................... 857 358 1,092 692
Income from continuing operations per common share.............. $ .23 $ .10 $ .27 $ .19
Weighted average shares outstanding............................. 3,798 3,529 4,041 3,563
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 29,
1996
--------------
<S> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents......................................................................... $ 2,365
Working capital................................................................................... 9,496
Total assets...................................................................................... 19,101
Long-term obligations, excluding current maturities............................................... 3,564
Redeemable preferred stock........................................................................ 512
Shareholders' equity.............................................................................. 11,831
</TABLE>
14
<PAGE>
RISK FACTORS
The following factors should be considered carefully by the shareholders of
STAR and AMSERV in evaluating the Merger and the securities offered hereby.
Certain statements in this Joint Proxy Statement/Prospectus that are not
historical facts constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results of STAR, AMSERV and the surviving entity in
the Merger to be materially different from historical results or from any
results expressed or implied by such forward-looking statements. Such risks,
uncertainties and other factors include, but are not limited to, the following
risks:
RISKS RELATING TO AN INVESTMENT IN STAR
LIQUIDITY. STAR pays its employees on a weekly basis. STAR typically does
not receive payment from hospitals, insurance companies and governmental
agencies earlier than 60 to 180 days, or longer, after rendering an invoice.
Accordingly, STAR's operating cash flow may, at times, be insufficient to meet
certain of its obligations. STAR has a revolving line of credit permitting
borrowings up to $6,000,000, which STAR borrows against from time to time to
meet its outstanding obligations. This line of credit expires on August 16, 1997
and is subject to renewal. As STAR's business expands, however, significant
additional financing is likely to be required. If STAR were unable to secure
such financing on terms deemed favorable by management, such inability would
have a material adverse effect on STAR's financial condition, including its
ability to meet certain of its obligations as they come due.
HEALTH CARE REFORM. As a result of the escalation of health care costs and
the inability of many individuals and employers to obtain affordable health
insurance, numerous proposals have been or may be introduced in the United
States Congress and state legislatures, and other proposals are being
considered, relating to health care reform. Such proposals have included, among
other things, provision of universal access to health care, reforming the
payment methodology for health care goods and services by both the public
(Medicare and Medicaid) and private sectors, and methods to control or reduce
public and private spending on health care. The ultimate timing or effect such
reforms may have on STAR cannot be predicted and no assurance can be given that
any such reforms will not have a material adverse effect on STAR's revenues
and/or earnings. Short-term cost containment initiatives may vary substantially
from long-term reforms and may have a material adverse effect on STAR.
REGULATORY ENVIRONMENT. Virtually all of STAR's revenues are attributable
to payments received from third-party payors, including the Medicare and
Medicaid programs and private insurers. There are increasing pressures from many
payor sources to control health care costs. In addition, there are increasing
pressures from public and private payors to limit increases in reimbursement
rates for medical services. The levels of revenues and profitability of STAR,
similar to other health care companies, will be subject to the effect of
possible reductions in coverage or payment rates by third-party payors. Such
changes could have a material adverse effect on the business and results of
operations of STAR. As a provider of services under the Medicare and Medicaid
programs, STAR is subject to the federal fraud and abuse and the so-called
"Stark" anti-referral laws, violations of which may result in civil and criminal
penalties and exclusion from participation in the Medicare and Medicaid
programs. In addition, several states have enacted their own statutory analogs
of the federal fraud and abuse and anti-referral laws. There can be no assurance
that administrative or judicial interpretations of existing statutes or
regulations or enactments of new laws or regulations will not have a material
adverse effect on STAR's operations or financial condition.
Health care is subject to laws and regulations of federal, state and local
governments. The failure to obtain, renew or maintain any of the required
regulatory approvals or licenses could adversely affect the business of STAR and
could prevent it from offering products or services to patients.
COMPETITION. The home health care and temporary health care personnel
placement markets are highly fragmented and significant competitors are often
localized in particular geographic markets. STAR's
15
<PAGE>
largest competitors include Kimberly Quality Care, Inc., Staff Builders, Inc.
and Hospital Staffing Services, Inc. Some of the entities with which STAR
competes have substantially greater financial and other resources than STAR.
Accordingly, STAR may be unable to successfully compete in this environment.
SHORTAGE OF QUALIFIED PERSONNEL. STAR's business is dependent in large part
upon its ability to recruit and retain qualified registered nurses and other
professional and medical support personnel to fill positions in a timely manner.
STAR faces intense competition from other companies in recruiting such qualified
health care personnel for its Home Care and temporary placement operations.
STAR's growth may depend, to a significant degree, on its ability to continue to
recruit and retain such qualified health care personnel. There can be no
assurance that such qualified health care personnel will continue to be
available to STAR in the future. If STAR were unable to attract or retain such
qualified health care personnel, such inability would have a material adverse
effect on the business of STAR.
GOVERNMENT REGULATION AND LICENSING. STAR is currently licensed to provide
home health care in the five boroughs of New York City, as well as Nassau,
Suffolk, Westchester, Oswego, Onondaga, Cayuga, Madison, Jefferson and Herkimer
Counties in New York State, and the State of Florida. In Broward and Dade
Counties in Florida, STAR's home health care license allows it to participate in
both the Medicare and Medicaid programs.
The denial or revocation of any license or permit necessary for STAR to
operate in a particular market would have a material adverse effect on STAR's
business in that market and, depending upon the market, on STAR's business in
general.
Applicable laws and regulations in all states are subject to change by state
legislatures and appropriate regulatory authorities and also may be affected by
changes in federal legislation. The imposition of more stringent regulatory
requirements could have a materially adverse impact on STAR's operations. In
addition, STAR will be required to comply with applicable laws and regulations
in any new state in which it may operate. If STAR should not be able to comply
for any reason, it would be unable to conduct business in such state.
PRICING PRESSURES. Certain proposals by state legislatures and by Congress
to contain health care costs, such as proposals for cutbacks in Medicare and
Medicaid reimbursement levels, governmentally imposed freezes of prices charged
by physicians, hospitals and other health care providers, and greater state
flexibility in the administration of Medicaid, could adversely affect STAR.
During the fiscal years ended May 31, 1993, 1994 and 1995, 68%, 58% and 56%,
respectively, of STAR's revenues were attributable to Medicare, Medicaid and
other state and federal government payments. A number of states have reduced
funding for health care services or have placed certain limits on reimbursable
expenses. There can be no assurance that additional state legislatures and
Congress will not further reduce funding or impose additional limits on
reimbursements, particularly with respect to expenses to be reimbursed through
Medicaid. Such reductions in funding and limits on reimbursement, if enacted,
could have a material adverse effect on STAR's operating results.
LIABILITY FOR SERVICES; LIABILITY INSURANCE. STAR's employees and
independent contractors routinely confront life threatening situations and also
make decisions which can have significant medical consequences to the patients
in their care. As a result, STAR is exposed to substantial liability in the
event of negligence or wrongful acts of its personnel. STAR maintains medical
professional insurance providing for coverage in a maximum amount of $1,000,000
per claim, subject to a limitation of $3,000,000 for all claims in any single
year. In addition, STAR requires that any independent contractor whom STAR
refers to institutions for employment supply a certificate of insurance
evidencing that such person maintains his or her own medical professional
liability insurance providing for coverage of no less than $1,000,000 per claim,
subject to a limitation of no more than $3,000,000 for all claims in a single
policy year. Although there are currently no material claims pending against
STAR, there can be no assurance that STAR will be able to maintain its existing
insurance at an acceptable cost or obtain additional insurance in the future as
required or that such
16
<PAGE>
level of insurance will be sufficient to cover liabilities from claims that may
be brought. A partially or completely uninsured claim, if successfully asserted
and of sufficient magnitude, could have a material adverse effect on STAR and
its financial condition.
NO CASH DIVIDENDS. Since prior to its initial public offering in May 1991,
STAR has not paid cash dividends on its Common Stock. It is the present policy
of STAR to retain earnings, if any, to finance the development and growth of its
business. Accordingly, STAR does not anticipate that cash dividends will be paid
until earnings of STAR warrant such dividends, and there can be no assurance
that STAR can achieve such earnings or any earnings.
RISKS RELATING TO THE MERGER
NO ASSURANCE THAT STAR WILL REALIZE ANTICIPATED BENEFITS FROM THE
MERGER. The Merger involves the combination of certain aspects of two companies
that have operated independently. Accordingly, there can be no assurance that
AMSERV can be successfully integrated into STAR or that STAR and its
shareholders (including persons who become shareholders as a result of the
Merger) will ultimately realize any of the anticipated benefits of the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST. In
considering the recommendation of the Board of Directors of AMSERV and the Board
of Directors of STAR with respect to the Merger Agreement and the transactions
contemplated thereby, shareholders should be aware that certain members of
AMSERV's management and AMSERV's Board have interests in the Merger that are in
addition to and may conflict with the interests of shareholders of AMSERV and
STAR generally. The Boards of Directors of AMSERV and STAR were aware of these
interests and considered them, among other factors, in approving the Merger
Agreement and the transactions contemplated thereby. See "THE MERGER --
Interests of Certain Persons in the Merger; Conflicts of Interest" and "THE
MERGER AGREEMENT -- Treatment of Stock Options."
SUBSTANTIAL INFLUENCE BY MR. STERNBACH. After completion of the Merger, Mr.
Sternbach will have voting power over approximately 28.1% of the outstanding
STAR Common Stock. While Mr. Sternbach's ownership will not allow him to
exercise control over STAR, his stock ownership as well as his position as
Chairman of the Board of Directors, President and Chief Executive Officer will
enable him to exercise significant influence on the management and operation of
the combined entity.
NO UPDATE OF THE BATCHELDER OPINION. AMSERV has received an opinion from
Batchelder, dated February 9, 1996 to the effect that, as of such date and based
upon certain matters as stated therein, the terms of the Merger are fair to the
shareholders of AMSERV from a financial point of view. AMSERV's obligation to
consummate the Merger is not conditioned upon receipt of an updated financial
opinion. AMSERV does not intend to obtain, and Batchelder is under no obligation
to provide, an update of such opinion. Accordingly, there can be no assurance
that Batchelder would render a similar opinion as of a date subsequent to
February 9, 1996. See "THE MERGER -- AMSERV's Reasons for the Merger;
Recommendation of the AMSERV Board" and "-- Financial Advisor; Fairness
Opinion."
FIXED EXCHANGE RATIO. The Exchange Ratio is fixed by the terms of the
Merger Agreement and is not subject to adjustment. Because the market prices of
STAR Common Stock and AMSERV Common Stock are subject to market fluctuation, the
market value of the shares of STAR Common Stock that the shareholders of AMSERV
will receive and the value of the AMSERV Common Stock that the shareholders of
AMSERV will exchange may change over time. See "COMPARATIVE MARKET DATA."
DILUTION OF VOTING POWER. Consummation of the Merger will result in an
approximate 57% increase in the number of shares of STAR Common Stock
outstanding. Shareholders of STAR will, therefore, experience a corresponding
dilution of their voting power. In exchange for 100% of the outstanding AMSERV
Common Stock, shareholders of AMSERV will receive approximately 36% of the
outstanding voting stock of STAR. Accordingly, they will experience a dilution
of approximately 64% of their relative voting authority after the Merger.
17
<PAGE>
THIRD PARTY PAYORS. A significant portion of STAR's revenues are generated
by third party payors. Such payments are subject to audit and adjustment,
including retroactive adjustment. During the fiscal years 1993, 1994 and 1995
such adjustments have been insignificant. In the event that future audits result
in adjustments that are not insignificant, then such adjustments could have a
material adverse effect on STAR.
FEDERAL INCOME TAXES. If the Merger were not to constitute a tax-free
reorganization under Section 368(a)(1) of the Code, each holder of AMSERV Common
Stock would recognize gain or loss equal to the difference between the fair
market value of the STAR Common Stock received and cash received in lieu of
fractional shares and such holder's basis in the shares of AMSERV Common Stock
exchanged therefor. Such gain or loss would be long-term capital gain or loss,
provided such shares had been held for more than one year. See "THE MERGER --
Certain Federal Income Tax Consequences" and "THE MERGER AGREEMENT -- Conditions
of the Merger."
18
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents historical and equivalent unaudited pro forma
per share data of AMSERV and STAR after giving effect to the Merger using the
pooling of interests method of accounting, assuming the Merger had been
effective during all periods presented. The pro forma data does not purport to
be indicative of the results of future operations or the results that would have
occurred had the Merger been consummated at the beginning of the periods
presented. The information set forth below should be read in conjunction with
the financial statements and the notes thereto of AMSERV and STAR and the
unaudited pro forma condensed combined financial statements included elsewhere
in this Joint Proxy Statement/ Prospectus.
<TABLE>
<CAPTION>
AMSERV STAR
------------------------ ------------------------
PRO FORMA EQUIVALENT EQUIVALENT
COMBINED HISTORICAL PRO FORMA HISTORICAL PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Book value per share of common stock outstanding at
February 29, 1996.................................... $ 3.23 $ 1.50 $ 3.66 $ 2.91 --
Cash Dividends Declared............................... -- -- -- -- --
Income (loss) per share from continuing operations:
Nine months ended February 29, 1996................. $ .27 $ .10 $ .26 $ .28 --
Year ended May 31, 1995............................. $ .23 $ .02 $ .04 $ .28 --
Year ended May 31, 1994............................. $ .10 $ (.02) $ (.05) $ .18 --
</TABLE>
COMPARATIVE MARKET DATA
AMSERV Common Stock and STAR Common Stock are quoted on the Nasdaq National
Market under the symbols "AMSR" and "SMCS," respectively. The table below sets
forth, for the fiscal quarters (based upon the respective fiscal years of AMSERV
and STAR) indicated, the high and low sales prices per share on the Nasdaq
National Market.
<TABLE>
<CAPTION>
AMSERV STAR
COMMON STOCK COMMON STOCK
-------------------------- --------------------------
HIGH LOW HIGH LOW
------ ------ ------------ ------
<S> <C> <C> <C> <C>
FISCAL 1995:
First Quarter.......................................... $ 13/8 $ 11/16 $ 31/16 $ 2
Second Quarter......................................... 113/16 7/8 43/8 27/8
Third Quarter.......................................... 27/8 19/16 43/8 33/4
Fourth Quarter......................................... 31/4 21/4 41/16 31/4
FISCAL 1996:
First Quarter.......................................... $ 33/8 $ 13/4 $ 43/8 $ 31/2
Second Quarter......................................... 31/4 2 73/8 43/16
Third Quarter.......................................... 27/8 21/8 81/8 51/2
Fourth Quarter......................................... 31/8 2 71/2 51/8
FISCAL 1997:
First Quarter (through July 17, 1996).................. $ 31/2 $ 211/16 $ 133/4 $ 63/8
</TABLE>
The last reported sale prices per share of AMSERV Common Stock and STAR
Common Stock on January 17, 1996, the last trading day preceding public
announcement of the Merger, were $2 1/2 and $7, respectively. On July 17, 1996
the closing sale price per share of AMSERV Common Stock was $2 7/8 and the
closing sale price per share of STAR Common Stock was $7 3/4.
As of July 17, 1996 the number of holders of record of AMSERV Common Stock
and STAR Common Stock were 461 and 68, respectively. AMSERV paid no cash
dividends during the last five years. AMSERV
19
<PAGE>
currently anticipates that it will retain all available funds for use in the
operation of its business, and the Merger Agreement prohibits the payment of any
dividends by AMSERV prior to the Effective Time. Since prior to its initial
public offering in May 1991, STAR has not paid cash dividends on the STAR Common
Stock. It is the present policy of STAR to retain earnings, if any, to finance
the development and growth of its business. Accordingly, STAR does not
anticipate that cash dividends will be paid until earnings of STAR warrant such
dividends, and there can be no assurance that STAR can achieve such earnings or
any earnings.
BECAUSE THE EXCHANGE RATIO IS FIXED AND BECAUSE THE MARKET PRICE OF STAR
COMMON STOCK IS SUBJECT TO FLUCTUATION, THE MARKET VALUE OF THE SHARES OF STAR
COMMON STOCK THAT HOLDERS OF AMSERV COMMON STOCK WILL RECEIVE IN THE MERGER MAY
INCREASE OR DECREASE PRIOR TO AND FOLLOWING THE MERGER. SHAREHOLDERS OF AMSERV
AND STAR ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR AMSERV COMMON STOCK
AND STAR COMMON STOCK.
20
<PAGE>
THE AMSERV MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished by AMSERV to the
holders of AMSERV Voting Stock in connection with the solicitation of proxies by
the Board of Directors of AMSERV for use at the Annual Meeting of Shareholders
of AMSERV (the "AMSERV Meeting") to be held at the Radisson Hotel La Jolla, 3299
Holiday Court, La Jolla, California on Friday, August 23, 1996 at 9:30 a.m.,
local time, and any adjournments or postponements thereof.
The Joint Proxy Statement/Prospectus, the attached Notice of Meeting and the
accompanying form of proxy are first being mailed to shareholders of AMSERV on
or about July 22, 1996.
MATTERS TO BE CONSIDERED AT THE AMSERV MEETING
At the AMSERV Meeting, holders of shares of AMSERV Voting Stock will
consider and vote on (i) a proposal to approve and adopt the Merger Agreement
and the transactions contemplated thereby, (ii) the election of five persons to
the AMSERV Board of Directors to serve until the earlier of (a) AMSERV's next
Annual Meeting of Shareholders and until the election and qualification of their
respective successors or (b) consummation of the Merger, (iii) a proposal to
ratify and approve the selection of Ernst & Young LLP as AMSERV's independent
public accountants for the fiscal year ended June 29, 1996 and (iv) such other
business as may properly come before the AMSERV Meeting.
The AMSERV Board of Directors has approved the Merger Agreement and the
transactions contemplated thereby. The AMSERV Board of Directors believes that
the terms of the Merger are fair to, and in the best interests of, AMSERV and
its shareholders and unanimously recommends that the holders of AMSERV Voting
Stock vote FOR approval and adoption of the Merger Agreement and the
transactions contemplated thereby. For further information, see "THE MERGER --
AMSERV's Reasons for the Merger; Recommendation of the AMSERV Board." In
addition, the AMSERV Board of Directors recommends that you vote FOR each person
nominated to the AMSERV Board of Directors and FOR the ratification and approval
of the selection of Ernst & Young LLP as AMSERV's independent auditors for the
fiscal year ended June 29, 1996. See "ELECTION OF AMSERV DIRECTORS" and
"RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS OF AMSERV."
It is currently expected that representatives of Ernst & Young LLP will be
present at the AMSERV Meeting, where they will have the opportunity to make a
statement if they so decide and will be available to respond to appropriate
questions.
AMSERV RECORD DATE
The Board of Directors of AMSERV has fixed the close of business on July 15,
1996 as the AMSERV Record Date for the determination of AMSERV shareholders
entitled to notice of, and to vote at, the AMSERV Meeting. Accordingly, only
holders of record of shares of AMSERV Voting Stock at the close of business on
the AMSERV Record Date are entitled to notice of, and to vote at, the AMSERV
Meeting. As of the AMSERV Record Date, 3,436,024 shares of AMSERV Voting Stock
were outstanding and held of record by 461 AMSERV shareholders.
PROXIES
When a proxy card is returned, properly signed and dated, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a shareholder does not attend the AMSERV Meeting and does not
return the signed proxy card, such shareholder's shares will not be voted. If a
shareholder returns a signed proxy card but does not indicate how his or her
shares are to be voted, such shares will be voted FOR approval of the Merger
Agreement and the transactions contemplated thereby, FOR the election of the
persons nominated to the AMSERV Board of Directors and FOR the ratification and
approval of the selection of Ernst & Young LLP as AMSERV's independent public
accountants. As of the date of this Joint Proxy Statement/Prospectus, the AMSERV
Board of Directors does not know of any
21
<PAGE>
other matters which are to come before the AMSERV Meeting. If any other matters
are properly presented at the AMSERV Meeting for consideration, including, among
other things, consideration of a motion to adjourn the AMSERV Meeting to another
time and/or place, the persons named in the enclosed form of proxy and acting
thereunder will have discretion to vote on such matters in accordance with their
best judgment. Such discretionary authority, however, will not allow the persons
named in the enclosed form of proxy to adjourn or postpone the AMSERV Meeting
for the purpose of soliciting additional votes.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of AMSERV, at or before the taking of the vote at the AMSERV
Meeting, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later dated proxy relating to the same shares of AMSERV
Voting Stock and delivering it to the Secretary of AMSERV before the taking of
the vote at the AMSERV Meeting or (iii) attending the AMSERV Meeting and voting
in person (although attendance at the AMSERV Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to 3252 Holiday Court,
Suite No. 204, La Jolla, California 92037, Attention: Corporate Secretary, or
hand delivered to the Secretary of AMSERV at or before the taking of the vote at
the AMSERV Meeting.
AMSERV will bear the cost of the solicitation of proxies from its
shareholders. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers, and employees of AMSERV in person or by
telephone or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for
out-of-pocket expenses incurred in connection with such solicitation.
Arrangements also will be made with custodians, nominees and fiduciaries for the
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such custodians, nominees and fiduciaries, and AMSERV will
reimburse such custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith. In addition, Georgeson & Company, Inc.
("Georgeson") will assist in the solicitation of proxies by AMSERV. Following
AMSERV's receipt from Stockbridge Investment Partners, Inc. ("Stockbridge") of
the first of seven notices of intention to act by written consent (see "THE
MERGER -- Background of the Merger"), AMSERV retained Georgeson to solicit
revocations of consent and to assist with the solicitation of proxies for
AMSERV's annual meeting. Georgeson will receive a fee totaling $50,000 plus
out-of-pocket expenses for such services.
AMSERV SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. THE PROCEDURES FOR THE EXCHANGE OF SHARES AFTER THE MERGER IS CONSUMMATED
ARE SET FORTH BELOW IN THIS JOINT PROXY STATEMENT/ PROSPECTUS.
QUORUM
The presence, either in person or by properly executed proxies, of the
holders of a majority of the outstanding shares of AMSERV Voting Stock is
necessary to constitute a quorum at the AMSERV Meeting. Both abstentions and
broker non-votes are considered present for purposes of determining a quorum but
are excluded from votes cast.
VOTE REQUIRED
AMSERV shareholders are entitled to one vote at the AMSERV Meeting for each
share of AMSERV Voting Stock held of record by them on the AMSERV Record Date.
The affirmative vote of the holders of a majority of the outstanding shares of
AMSERV Voting Stock entitled to vote thereon is required to approve and adopt
the Merger Agreement. Since approval of the Merger Agreement requires the
affirmative vote of a majority of the outstanding shares of AMSERV Voting Stock,
abstentions and broker non-votes will have the effect of votes against the
Merger Agreement. The affirmative vote of a majority of the shares of AMSERV
Voting Stock present at the AMSERV Meeting, either in person or by properly
executed proxies, and entitled to vote is required to elect members of the
AMSERV Board of Directors and to ratify the
22
<PAGE>
appointment of Ernst & Young LLP as AMSERV's independent public accountants for
the fiscal year ended June 29, 1996. Since approval of these proposals requires
the affirmative vote of a majority of the votes cast, abstentions and broker
non-votes will not affect the outcome of these proposals.
As of the AMSERV Record Date, AMSERV's directors, executive officers and
affiliates may be deemed to be beneficial owners of an aggregate of 768,395
shares of AMSERV Voting Stock (excluding 72,316 shares which may be acquired
upon exercise of options or other rights which are exercisable within 60 days of
the AMSERV Record Date), or approximately 22% of the then outstanding shares of
AMSERV Voting Stock. AMSERV has been advised that its directors and executive
officers intend to vote in favor of the approval and adoption of the Merger
Agreement, for the election of the persons nominated to the AMSERV Board of
Directors and for the ratification and approval of the selection of Ernst &
Young LLP as AMSERV's independent public accountants.
23
<PAGE>
THE STAR MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished by STAR to the
holders of STAR Common Stock in connection with the solicitation of proxies by
the Board of Directors of STAR for use at a Special Meeting of Shareholders of
STAR to be held on Friday, August 23, 1996 at the offices of Parker Chapin
Flattau & Klimpl, LLP, 1211 Avenue of the Americas (18th Floor), New York, New
York at 12:30 p.m., local time, and any adjournments or postponements thereof.
The Joint Proxy Statement/Prospectus, the attached Notice of Meeting and the
accompanying form of proxy are first being mailed to shareholders of STAR on or
about July 22, 1996.
MATTERS TO BE CONSIDERED AT THE STAR MEETING
At the STAR Meeting, holders of shares of STAR Common Stock will consider
and vote upon:
1. A proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby. In addition, approval and adoption of the
Merger Agreement will constitute approval of the assumption of the AMSERV
Stock Option Plan under which the AMSERV Options were issued; and
2. Such other business as properly may come before the STAR Meeting and
any adjournments or postponements thereof.
The STAR Board of Directors has unanimously approved the Merger Agreement
and the transactions contemplated thereby. The STAR Board of Directors believes
that the terms of the Merger are fair to, and in the best interests of, STAR and
its shareholders and unanimously recommends that the holders of STAR Common
Stock vote FOR the approval and adoption of the Merger Agreement and the
transactions contemplated thereby. For further information, see "THE MERGER --
STAR's Reasons for the Merger; Recommendation of the STAR Board."
STAR RECORD DATE
The Board of Directors of STAR has fixed the close of business on July 15,
1996 as the STAR Record Date for the determination of STAR shareholders entitled
to notice of, and to vote at, the STAR Meeting. Accordingly, only holders of
record of shares of STAR Common Stock at the close of business on the STAR
Record Date are entitled to notice of, and to vote at, the STAR Meeting. As of
the STAR Record Date, 2,463,079 shares of STAR Common Stock were outstanding and
held of record by 69 STAR shareholders.
PROXIES
When a proxy card is returned, properly signed and dated, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a shareholder does not attend the STAR Meeting and does not
return the signed proxy card, such shareholder's shares will not be voted. If a
shareholder returns a signed proxy card but does not indicate how his or her
shares are to be voted, such shares will be voted FOR approval of the Merger
Agreement and the transactions contemplated thereby. As of the date of this
Joint Proxy Statement/Prospectus, the STAR Board of Directors does not know of
any other matters which are to come before the STAR Meeting. If any other
matters are properly presented at the STAR Meeting for consideration, the
persons named in the enclosed form of proxy and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment. Such
discretionary authority, however, will not allow the persons named in the
enclosed form of proxy to adjourn or postpone the STAR Meeting for the purpose
of soliciting additional votes.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of STAR, at or before the taking of the vote at the STAR
Meeting, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later dated proxy relating to the same shares of STAR
Common Stock and delivering it to the Secretary of STAR before the taking of the
vote at the STAR Meeting or (iii) attending the STAR Meeting and voting in
person (although attendance at the STAR Meeting will not in and of itself
constitute a revocation of a
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proxy). Any written notice of revocation or subsequent proxy should be sent so
as to be delivered to STAR MULTI CARE SERVICES, INC., 99 Railroad Station Plaza,
Hicksville, New York 11801, Attention: Corporate Secretary, or hand delivered to
the Secretary of STAR at or before the taking of the vote at the STAR Meeting.
STAR will bear the cost of the solicitation of proxies from its
shareholders. In addition to solicitation by use of the mails, proxies may be
solicited by directors, officers, and employees of STAR in person or by
telephone or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for
out-of-pocket expenses incurred in connection with such solicitation.
Arrangements also will be made with custodians, nominees and fiduciaries for the
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such custodians, nominees and fiduciaries, and STAR will reimburse
such custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
QUORUM
The presence, either in person or by properly executed proxies, of the
holders of a majority of the shares of STAR Common Stock entitled to vote is
necessary to constitute a quorum at the STAR Meeting. Both abstentions and
broker non-votes are considered present for purposes of determining a quorum but
are excluded from votes cast.
VOTE REQUIRED
STAR shareholders are entitled to one vote at the STAR Meeting for each
share of STAR Common Stock held of record by them on the STAR Record Date. The
affirmative vote of the holders of a majority of the shares of STAR Common Stock
voted at the STAR Meeting, in person or by proxy, is required to approve and
adopt the Merger Agreement and the transactions contemplated thereby. Since
approval of the Merger Agreement requires a majority of the votes cast,
abstentions and broker non-votes will not affect the outcome of this proposal.
As of the STAR Record Date, STAR's directors, executive officers and
affiliates may be deemed to be beneficial owners of an aggregate of 997,632
shares of STAR Common Stock (excluding 181,986 shares which may be acquired upon
exercise of options or other rights which are exercisable within 60 days of the
STAR Record Date), or approximately 40.5% of the then outstanding shares of STAR
Common Stock. STAR has been advised that its directors and executive officers
intend to vote in favor of the approval and adoption of the Merger Agreement.
VOTING AGREEMENT
On February 9, 1996, as a condition to AMSERV's willingness to enter into
the Merger Agreement and to consummate the transactions contemplated thereby,
Stephen Sternbach, Chairman, President and Chief Executive Officer of STAR and
the direct beneficial owner of 847,155 shares (34.4%) of STAR Common Stock (the
"Sternbach Shares"), entered into an agreement (the "Voting Agreement") pursuant
to which he agreed to vote (or cause to be voted) during the term of the Voting
Agreement the Sternbach Shares in favor of the Merger, the execution and
delivery by STAR of the Merger Agreement and the approval of the terms thereof
and each of the other actions contemplated by the Merger Agreement and the
Voting Agreement. Mr. Sternbach also agreed not to enter into any agreement or
understanding with any person or entity, prior to the termination of the Voting
Agreement, to vote or give instructions after the termination of the Voting
Agreement that is inconsistent with the aforementioned agreement.
In addition, Mr. Sternbach granted to AMSERV and the Secretary and Chief
Financial Officer of AMSERV an irrevocable proxy to vote the Sternbach Shares in
the manner described above. The Voting Agreement will terminate upon the first
to occur of (i) the Effective Time and (ii) termination of the Merger Agreement
in accordance with its terms.
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THE MERGER
BACKGROUND OF THE MERGER
At a special meeting held on February 9, 1996, AMSERV's Board determined
that the Merger is fair to, and in the best interests of, the shareholders of
AMSERV, approved the Agreement and Plan of Merger among STAR, Merger Sub and
AMSERV dated as of February 9, 1996 (the "Original Merger Agreement") and the
transactions contemplated thereby, and determined to recommend to AMSERV
shareholders that they vote for approval and adoption of the Original Merger
Agreement. At a special meeting held on February 8, 1996, STAR's Board
unanimously determined that the Merger is fair to, and in the best interests of,
the shareholders of STAR, and determined to recommend to STAR's shareholders
that they vote for approval and adoption of the Original Merger Agreement. On
July 17, 1996 the Boards of AMSERV, Merger Sub and STAR resolved to amend the
Original Merger Agreement with respect to the two matters set forth below.
Accordingly, on July 18, 1996 STAR, Merger Sub and AMSERV executed a First
Amendment to Agreement and Plan of Merger (the "Amendment", and together with
the Original Merger Agreement, the "Merger Agreement"). The following discussion
sets forth certain information relating to the background of the discussions and
meetings leading up to the Merger.
On January 24, 1995, Thomas M. Clarke, President of Stockbridge Investment
Partners, Inc. ("Stockbridge"), met with Mr. Mora, Chairman, Chief Executive
Officer and President of AMSERV, and proposed that the AMSERV Board consider a
business combination in which AMSERV would merge with York Hannover
Pharmaceuticals, Inc. ("York"), a wholly-owned subsidiary of Stockbridge and the
owner (together with various affiliates) of approximately 6.0% of the
outstanding shares of AMSERV Common Stock. The terms of the proposal contained
few specifics other than a business combination analysis which used actual
historical results for AMSERV but (i) included revenues from unspecified
acquisitions for York, (ii) indicated an unspecified $15,000,000 financing
arrangement for York, and (iii) proposed that Stockbridge receive 57% of the
combined company. The AMSERV Board did not consider the proposal because
Stockbridge's lack of specificity made it impossible for the AMSERV Board to
make an informed decision regarding the proposal. On January 26, 1995, Mr.
Clarke presented a revised version of his January 24, 1995 proposal to the
AMSERV Board. The terms of Mr. Clarke's revised proposal involved possibly
structuring a two step plan. The first step would merge York with AMSERV,
providing Stockbridge with a 40% interest in AMSERV. In the second step, York
would then assign its contracts to purchase certain pharmaceutical and medical
supply businesses in Florida to AMSERV.
By letter dated January 31, 1995, Mr. Mora advised Mr. Clarke that the
AMSERV Board had reviewed the merger proposal and requested additional
information from Mr. Clarke for purposes of its evaluation of such proposal,
including, among other things, audited financial statements for York and a
profile of York's business, management, products, services and customer base. On
February 15, 1995, Stockbridge and AMSERV entered into a confidentiality
agreement with respect to information shared between the parties. On February
21, 1995, Mr. Clarke submitted to Mr. Mora certain unaudited summary financial
information regarding York, but failed to include York's audited financials or
any of the other information requested in Mr. Mora's letter dated January 31,
1995. On February 27, 1995, Mr. Mora spoke with Mr. Clarke and reiterated the
AMSERV Board's desire to review such information in order to fairly consider
Stockbridge's merger proposal.
On March 6, 1995, the AMSERV Board established a special committee (the
"Special Committee"), consisting of Messrs. Robinton, Rogers and Spinelli, to
evaluate Stockbridge's merger proposal and any third party proposals which may
be received. The Special Committee did not hold any meetings, however, as the
AMSERV Board determined, based on the activities of Stockbridge requiring the
constant attention of AMSERV directors (such as the numerous requests for record
dates and the commencement of litigation against AMSERV, as described below),
that the services of all AMSERV directors were necessary to
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properly consider Stockbridge's merger proposal and any third party proposals.
The disuse of the Special Committee was a factor considered by the AMSERV Board
in evaluating the Merger. See "THE MERGER -- AMSERV's Reasons for the Merger;
Recommendation of the AMSERV Board."
On March 8, 1995, Mr. Clarke telephoned Mr. Mora regarding the status of the
AMSERV Board's review of Stockbridge's merger proposal. Mr. Mora informed Mr.
Clarke that the AMSERV Board could not properly consider the proposal without
the additional information it had requested. Mr. Mora said that he would send
another request to Mr. Clarke for the desired information. By letter dated March
14, 1995, Mr. Mora again requested the information from Mr. Clarke. As before,
Mr. Clarke failed to respond to such request.
On April 1, 1995, following discussions with several potential financial
advisors, the AMSERV Board retained Batchelder & Partners, Inc. ("Batchelder"),
an investment banking and financial advisory firm, to assist the AMSERV Board in
evaluating Stockbridge's merger proposal.
By letter dated April 5, 1995, Mr. Mora reiterated the AMSERV Board's
request for information and invited Mr. Clarke to meet with the directors at the
AMSERV Board's April 27, 1995 meeting. Mr. Mora received no response from Mr.
Clarke regarding such invitation. By letter dated April 6, 1995, Mr. Clarke
withdrew Stockbridge's merger proposal and filed a written consent to remove
from the AMSERV Board three of the five current directors, and to replace such
directors with three persons designated by Stockbridge. On April 13, 1995, the
AMSERV Board held a special meeting pursuant to AMSERV's by-laws to establish a
record date for purposes of Stockbridge's consent solicitation. The AMSERV Board
set April 21, 1995 as such record date.
On April 27, 1995, Stockbridge commenced litigation in the Court of Chancery
of the State of Delaware in and for New Castle County (the "Delaware
Litigation") against AMSERV and its current directors, seeking an order
rescinding the transactions by which AMSERV exchanged a promissory note held by
North Central Personnel, Inc. for 426,794 shares of Class A Redeemable Preferred
Stock of AMSERV and partially financed the exercise by Mr. Mora of stock options
to acquire 177,562 shares of AMSERV Common Stock, and preliminarily and
permanently enjoining AMSERV from recognizing such stock, as well as any stock
proposed to be issued in connection with a letter of intent referred to in
AMSERV's April 13, 1995 press release, as validly issued for purposes of voting
or exercising rights to consent. See "BUSINESS OF AMSERV -- Legal Proceedings."
On May 3, 1995, Batchelder met with Mr. Clarke and Lawrence B. Cummings,
Chief Executive Officer of Stockbridge, regarding Stockbridge's merger proposal.
Mr. Clarke informed Batchelder that Stockbridge was still very interested in
pursuing a business combination involving AMSERV and York. Batchelder responded
that the AMSERV Board also desired to engage in further discussions regarding
such matter and was hopeful of receiving the additional information it had
previously requested. Mr. Clarke indicated that Stockbridge would provide all
information requested by Batchelder for purposes of conducting due diligence
with respect to Stockbridge's merger proposal.
On May 15, 1995, after determining that a proper defense against the claims
in the Delaware Litigation would be very costly and that such expense would not
be in the best interests of AMSERV's shareholders, the AMSERV Board entered into
a Standstill Agreement and a Settlement Agreement and Release with Stockbridge,
both dated as of May 12, 1995 (collectively, the "Settlement Agreements"), to
enable the parties to continue discussions and receive more detailed information
regarding a potential merger without disadvantaging either party's position.
Pursuant to the Settlement Agreements, Stockbridge agreed, among other things,
to (i) revoke the consent delivered April 7, 1995, (ii) suspend its solicitation
of consents to remove a majority of AMSERV's Board of Directors and (iii)
dismiss with prejudice the Delaware Litigation. In addition, the parties agreed
that Stockbridge could pursue a renewed consent solicitation, with a new record
date, following the expiration of the Standstill Agreement on June 11, 1995, and
that such solicitation would not last more than 30 days.
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Also on May 15, 1995, pursuant to the Settlement Agreements, Stockbridge
delivered to AMSERV a written notice indicating its intent to pursue a renewed
consent solicitation (which solicitation could not be commenced until after June
11, 1995 nor last more than 30 days, as described above). Pursuant to the
Settlement Agreements, the AMSERV Board held a special meeting and established a
record date of May 12, 1995 for purposes of such solicitation.
On June 8, 1995, at a special meeting of the AMSERV Board of Directors,
Batchelder informed the AMSERV Board that Batchelder was continuing its due
diligence review of Stockbridge and York, and in a separate part of the meeting,
Mr. Clarke and Mr. Cummings made a presentation regarding the background of
Stockbridge and its business objectives with respect to a business combination
involving York and AMSERV. The AMSERV Board again requested from Messrs. Clarke
and Cummings audited financial statements for York, a financing commitment and a
review of current long-term debt, before the AMSERV Board could evaluate the
proposed merger.
Subsequently in June 1995, the AMSERV Board entered into a Renewed
Standstill Agreement with Stockbridge, extending the standstill period until
August 10, 1995, and set at Stockbridge's request a third record date for a
consent solicitation of June 16, 1995.
On August 10, 1995, at a quarterly meeting of the AMSERV Board of Directors,
Batchelder updated the AMSERV Board by telephone that all of the requested
information from Stockbridge regarding York had still not been received.
Stockbridge provided the AMSERV Board with audited financial statements for
Stockbridge and a preliminary financing arrangement. However, Stockbridge failed
to provide the requested information regarding York, including audited financial
statements, and a firm financing commitment. Batchelder repeatedly informed Mr.
Clarke both before and after the August 10, 1995 meeting that the AMSERV Board
was still waiting for the requested information and that, without such
information, Stockbridge had not satisfied all aspects of the AMSERV Board's due
diligence review.
By letter dated September 18, 1995, Stockbridge indicated its intent to act
by written consent and requested that the AMSERV Board set a record date for
such consent.
On October 18, 1995, the AMSERV Board announced its intention to broaden its
review of potential business combinations by expanding the group of potential
merger partners and including transactions involving consideration consisting of
cash or a combination of cash and securities, and to invite Stockbridge to
participate on a fair and equal basis with other participants in such process.
Also on October 18, 1995, AMSERV entered into an agreement with Stockbridge
pursuant to which Stockbridge withdrew the written notice delivered to AMSERV on
September 18, 1995 and agreed not to commence any other consent solicitation
with respect to AMSERV or deliver any other such notice until the earlier of
January 1, 1996 or the conclusion of the process by which the AMSERV Board would
consider potential business combinations involving AMSERV.
STAR is continually exploring possible acquisitions of comparable companies
in the health care business in furtherance of its strategic objective of
acquiring companies that provide Home Care services in the geographic regions
currently serviced by STAR as well as in areas not currently serviced by STAR.
As discussed elsewhere, since 1992 STAR has expanded its home health care
business through a series of acquisitions. Such acquisitions have allowed STAR
to provide its health care services more efficiently while reducing marginal
costs. Prior to commencing discussions regarding the Merger, however, STAR was
not considering any specific acquisitions or other strategic alliances. On
October 24, 1995, Larry A. Bear of Bear & Company, a business consulting firm
that provides investment advice for STAR, independently initiated a discussion
with Mr. Mora. STAR was unaware of such discussions and such discussions were
not authorized by STAR. At that time Mr. Bear suggested to Mr. Mora that he knew
of a company that would be a good potential merger partner for AMSERV. On
October 27, 1995, Mr. Bear spoke with Stephen Sternbach, the Chairman of the
Board and President of STAR, to ascertain whether STAR would be interested in a
possible merger with AMSERV. While Mr. Sternbach was aware of AMSERV, and STAR
had received a packet of information regarding AMSERV in October 1992, prior to
Mr. Sternbach's discussion
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with Mr. Bear STAR had not otherwise considered AMSERV as a possible merger
partner. Mr. Sternbach advised Mr. Bear that STAR was always interested in a
possible acquisition, if such acquisition could be beneficial to STAR. Later
that day, after receiving an initial indication of interest from Mr. Sternbach,
Mr. Bear put Mr. Sternbach in contact with a representative of Batchelder.
On November 13, 1995, Stockbridge submitted to the AMSERV Board what it
characterized as a "pre-emptive" proposal. Such proposal consisted of a business
combination between AMSERV and York whereby Stockbridge would own 27.5% of the
combined company. The board of directors of the combined company would be
composed of five members -- two selected by Stockbridge, two incumbents, one of
which would be Mr. Mora, and one non-affiliated director to be selected by the
other four directors. Under the proposal, Mr. Clarke and Mr. Cummings would
enter into employment agreements with the combined company to be President and
Chief Executive Officer, respectively, at base salaries not to exceed $100,000
each. Mr. Cummings also would serve as Chairman of the Board. Stockbridge
believed that, as a "pre-emptive" proposal, its offer was so favorable to
AMSERV's shareholders that the AMSERV Board should terminate its review process
and no longer accept any other proposals.
On November 17, 1995 STAR and AMSERV entered into a confidentiality
agreement, pursuant to which STAR was provided with copies of AMSERV's periodic
reports as well as certain internal projections prepared by AMSERV in the
ordinary course of its business and not in contemplation of the Merger; the
materials also included historical information about AMSERV and its business
(the "Evaluation Materials").
At a special meeting held on December 1, 1995, after discussions with
Batchelder, the AMSERV Board decided that Stockbridge's proposal was not
"pre-emptive" and requested that Batchelder inform Mr. Clarke that the proposal
would be evaluated later along with other proposals that were expected to be
received in accordance with the review process previously established by the
AMSERV Board.
On December 7, 1995, Mr. Sternbach met with a representative of Batchelder
to discuss the possibility of a merger of STAR and AMSERV. Prior to such
meeting, Mr. Sternbach had been provided with the Evaluation Materials. Later
that day Mr. Sternbach met with Mr. Mora and the Batchelder representative. At
that time they discussed the respective business strategies of the companies in
an attempt to determine whether it would be in their respective best interests
to proceed with informal discussions regarding a merger. They also discussed the
respective companies' office locations, the types of Home Care services provided
by each company, the compatibility of the two companies' businesses and the
companies' sales and earnings projections for fiscal 1996. On behalf of AMSERV,
Mr. Mora expressed a preference that any combination be structured as a tax-free
stock transaction. Mr. Sternbach expressed on behalf of STAR a desire that any
transaction qualify as a pooling of interests for accounting purposes. Mr. Mora
explained to Mr. Sternbach that on October 18, 1996 the AMSERV Board had
announced its intention to broaden its review of potential business combinations
by expanding the group of potential merger partners beyond Stockbridge and its
affiliates and including transactions involving consideration consisting of cash
or a combination of cash and securities, and that AMSERV had invited Stockbridge
to participate on a fair and equal basis with other participants in such
process. Mr. Mora further explained that the AMSERV Board had announced that the
auction process would be completed by late January 1996 and emphasized to Mr.
Sternbach the importance of STAR's submitting any proposal it might make on a
timely basis. They concluded their talks by discussing the possibility of STAR
offering one share of STAR Common Stock for each 2.8 shares of AMSERV Common
Stock. No offer, however, was made at such time.
Mr. Sternbach met with William Fellerman, Chief Financial Officer of STAR on
numerous occasions during the period after Mr. Sternbach had received the
Evaluation Materials and prior to the time STAR made its first offer. Messrs.
Fellerman and Sternbach concluded that the addition of AMSERV's operations to
those of STAR would add up to $13 million in additional revenues. Of this amount
approximately 75% would be attributable to Medicaid payments which are generally
paid within 40 days of the date that such amounts are billed. Messrs. Fellerman
and Sternbach concluded that this increase in revenue would increase
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STAR's cash flows, reduce its financial leverage and improve its overall
financial position and results of operation. They also believed that they could
achieve significant cost savings by the elimination of certain operations that
would become redundant upon consummation of the Merger. Mr. Fellerman identified
approximately $1.2 million in selling, general and administrative expenses
(consisting of approximately $640,000 in back office, administrative and
executive salaries, $50,000 in rent, telephone and utilities, $130,000 in
professional fees, $60,000 in investor relations and compliance fees, $250,000
in insurance and $40,000 in other office expenses) that could be eliminated as a
result of the increased efficiencies and economies of scale that were expected
to result from the Merger. Messrs. Fellerman and Sternbach determined, based
upon their analysis of the combined entity, that they would be able to pay to
the shareholders of AMSERV between 0.4167 and 0.3333 shares of STAR Common Stock
for each share of AMSERV Common Stock without the acquisition being dilutive to
the earnings of the STAR shareholders. Accordingly, Messrs. Sternbach and
Fellerman concluded that an acquisition of AMSERV would be beneficial to STAR
and the STAR shareholders if such acquisition could be accomplished by
exchanging one share of STAR Common Stock for between 2.4 and 3 shares of AMSERV
Common Stock. Except for the analysis conducted by Messrs. Sternbach and
Fellerman, no other analysis was conducted by STAR in connection with the merger
negotiations. Mr. Sternbach decided to commence the negotiation process for
AMSERV by offering slightly less than the high end of the acceptable range.
On December 21, 1995, Mr. Sternbach commenced negotiations regarding a
proposed merger, whereby the AMSERV shareholders would receive one share of STAR
Common Stock for each 2.8 shares of AMSERV Common Stock (an exchange ratio of
0.3571 shares of STAR Common Stock per share of AMSERV Common Stock). Further
negotiations took place between Mr. Sternbach and Mr. Mora and in late December
1995 STAR offered one share of STAR Common Stock for each 2.5 shares of AMSERV
Common Stock (a 0.4000 exchange ratio). Mr. Mora expressed his belief that the
exchange ratio proposed by STAR did not adequately reflect AMSERV's earnings
contribution to the combined company. Following telephone negotiating sessions
in late December 1995 and early January 1996, STAR eventually revised its
proposal, offering one share of STAR Common Stock for each 2.445 shares of
AMSERV Common Stock (a 0.4090 exchange ratio). This amount was within the
acceptable range originally set by Messrs. Sternbach and Fellerman and was the
first offer by STAR deemed acceptable to AMSERV. Mr. Sternbach advised Mr. Mora
that such offer was contingent upon the approval of the STAR Board of Directors.
Mr. Mora also advised Mr. Sternbach that the STAR offer would be submitted to
the Board of Directors of AMSERV for consideration. As described below, the STAR
Board and the AMSERV Board ultimately considered and approved the proposed
exchange ratio, along with the other terms of the Merger Agreement, at special
meetings held on February 8 and 9, 1996, respectively.
In connection with the review process, Batchelder distributed materials
regarding AMSERV to interested parties across the country and solicited
proposals for potential business combinations. In response to such solicitation,
AMSERV received six proposals. Despite a written request, Batchelder received no
response from Stockbridge for a "best and final" proposal to include among the
group. Nonetheless, the AMSERV Board decided to consider Stockbridge's original
proposal submitted on November 13, 1995 as its "best and final" proposal,
bringing the total number of proposals under consideration to seven.
From November 1995 to January 1996, the AMSERV Board, with the assistance of
Batchelder, carefully considered each of the seven proposals (including the
possibility of a merger with STAR) in an attempt to select the best proposal. In
January 1996, the AMSERV Board selected the STAR proposal as the proposal most
favorable to AMSERV's shareholders and authorized Batchelder and AMSERV's
officers to commence negotiations with respect to the STAR proposal. It was not
until later, however, at a special meeting of the AMSERV Board held on February
9, 1996, that the STAR proposal was determined to be fair to, and in the best
interests of, the shareholders of AMSERV.
The material terms of the six proposals which the AMSERV Board rejected,
including Stockbridge's proposal but excluding the STAR proposal (Proposal #7),
and Batchelder's analysis of each proposal are set out below. With respect to
the private company proposals (I.E., Proposals #1 through #4 below), Batchelder
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analyzed each of the proposals on a relative valuation basis, which considered
the relative contribution of each company to the projected revenues, net income,
assets and net worth of each respective combined company. Batchelder also
considered private company discount factors with respect to such proposals, but
did not determine any per share valuation (as the information provided by the
relative valuation analysis described below was deemed sufficient for purposes
of evaluating the private company proposals from a financial standpoint). With
respect to the public company proposals (I.E., Proposals #5 and #6 below),
Batchelder did consider the valuation of each proposal on a per share basis,
together with the historical prices and trading volumes of each public company's
common stock.
Proposal #1 (Stockbridge's proposal): Stockbridge sought to merge York with
AMSERV in a transaction to be accounted for as a pooling of interests whereby
Stockbridge (as the sole shareholder of York) would receive 27.5% of the common
stock of the combined company which, when combined with Stockbridge's
currently-owned shares of York and AMSERV, would result in Stockbridge owning
approximately 33% of the combined company and current shareholders of AMSERV
owning the remaining 67%. The board of directors of the combined company would
be composed of five members -- two selected by Stockbridge, two incumbents, one
of which would be Mr. Mora, and one non-affiliated director to be selected by
the other four directors. Mr. Clarke and Mr. Cummings, two principals of
Stockbridge, would enter into employment agreements with the combined company to
be President and Chief Executive Officer, respectively, at base salaries not to
exceed $100,000 each. Mr. Cummings also would serve as Chairman of the Board.
The proposal required that (i) AMSERV immediately cease soliciting business
combinations as of December 4, 1995 and (ii) the outstanding preferred stock of
York be redeemed prior to the merger (which redemption would create negative
book value for York of approximately $1.7 million). The proposal was non-binding
and subject to due diligence.
In its analysis of the Stockbridge proposal, Batchelder compared the
exchange ratio proposed by Stockbridge to the exchange ratios implied by 1995
and projected 1996 net income for York and AMSERV. Batchelder's analysis based
on 1995 and projected 1996 net income for York and AMSERV resulted in implied
share ownership interests for AMSERV shareholders of 49.3% and 62.4%,
respectively, compared to the proposed exchange ratio of 72.5%. Batchelder also
analyzed certain relative contributions of York and AMSERV to the proposed
combined company. AMSERV contributed 73%, 73% and 78% of the combined company's
revenues for the years 1993, 1994 and 1995, respectively, and 22%, 22% and 46%
of the combined company's EBITDA (as defined below) for the years 1993, 1994 and
1995, respectively. AMSERV's pre-tax and net income contributions were negative
for the years 1993 and 1994. Batchelder determined that AMSERV's shareholders'
equity contributions for 1995 exceeded 100% because York's pro forma book value
was negative and that AMSERV's contributions to projected 1996 revenues and
EBITDA were 80% and 59%, respectively. Batchelder also derived implied exchange
ratios using estimated private market multiples of 4x and 5x 1995 EBITDA for
both companies, which resulted in implied share ownership interests for AMSERV
shareholders of 83% and 73%, respectively.
Proposal #2: a private company in the health care industry sought to merge
with AMSERV in a pooling of interests transaction whereby such company would own
80% of the combined company and current shareholders of AMSERV would own the
remaining 20%. The proposal contemplated a restructured management team and
board of directors and was non-binding and subject to due diligence.
In its analysis of Proposal #2, Batchelder compared the exchange ratio
proposed by the private company to the exchange ratios implied by 1995 and
projected 1996 net income for the private company and AMSERV. Batchelder's
analysis based on 1995 and projected 1996 net income for the private company and
AMSERV resulted in implied share ownership interests for AMSERV shareholders of
100% and 27.1%, respectively, compared to the proposed exchange ratio of 20%.
Batchelder also analyzed certain relative contributions of the private company
to the proposed combined company. AMSERV contributed 19%, 18% and 26% of the
combined company's revenues for the years 1993, 1994 and 1995, respectively, and
14%, 5% and 61% of the combined company's EBIDTA for the years 1993, 1994 and
1995, respectively. AMSERV's pre-tax and net income contributions were negative
for the years 1993 and 1994. Batchelder determined that
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AMSERV's contributions to projected 1996 revenues and EBITDA were both 28%.
Batchelder also derived implied exchange ratios using estimated private market
multiples of 4x and 5x 1995 EBITDA for both companies, which resulted in
negative equity values for the private company.
Proposal #3: a private company in the health care industry sought a merger
with AMSERV in a pooling of interests transaction whereby each of the private
company and AMSERV would own 50% of the combined company. The proposal assumed
that the board of directors of the combined company would consist of AMSERV's
present directors and that the two principal officers of the private company
would be issued employment agreements. The proposal was non-binding and subject
to due diligence.
In its analysis of Proposal #3, Batchelder compared the exchange ratio
proposed by the private company to the exchange ratios implied by 1995 and
projected 1996 net income for the private company and AMSERV. Batchelder's
analysis based on 1995 and projected 1996 net income for the private company and
AMSERV resulted in implied share ownership interests for AMSERV shareholders of
3.9% and 37.3%, respectively, compared to the proposed exchange ratio of 50%.
Batchelder also analyzed certain relative contributions of the private company
to the proposed combined company. AMSERV contributed 31% and 40% of the combined
company's revenues for the years 1994 and 1995, respectively, and 6% and 22% of
the combined company's EBIDTA for the years 1994 and 1995, respectively.
AMSERV's pre-tax and net income contributions were negative for 1994 and 4% in
both cases in 1995. Batchelder determined that AMSERV's equity contribution was
60% for 1995. AMSERV's contributions to projected 1996 revenues and EBITDA were
42% and 41%, respectively. Batchelder also derived implied exchange ratios using
estimated private market multiples of 4x and 5x 1995 EBITDA for both companies,
which resulted in implied share ownership interests for AMSERV shareholders of
24% in both cases.
Proposal #4: a private company in the food processing industry sought to
merge with AMSERV in a pooling of interests transaction whereby the private
company would own 82.5% of the combined company and current shareholders of
AMSERV would own the remaining 17.5%. The proposal did not specify board
composition and was non-binding and subject to due diligence.
In its analysis of Proposal #4, Batchelder compared the exchange ratio
proposed by the private company to the exchange ratios implied by 1995 and
projected 1996 net income for the private company and AMSERV. Batchelder's
analysis based on 1995 and projected 1996 net income for the private company and
AMSERV resulted in implied share ownership interests for AMSERV shareholders of
2.3% and 21.5%, respectively, compared to the proposed exchange ratio of 17.5%.
Batchelder also analyzed certain relative contributions of the private company
to the proposed combined company. AMSERV contributed 14% and 17% of the combined
company's revenues for the years 1994 and 1995, respectively, and 6% and 8% of
the combined company's EBIDTA for the years 1994 and 1995, respectively.
AMSERV's pre-tax and net income contributions were negative for 1994 and 2% in
both cases in 1995. Batchelder determined that AMSERV's equity contribution was
82% for 1995. AMSERV's contributions to projected 1996 revenues and EBITDA were
19% and 18%, respectively. Batchelder also derived implied exchange ratios using
estimated private market multiples of 4x and 5x 1995 EBITDA for both companies,
which resulted in implied share ownership interests for AMSERV shareholders of
14% and 13%, respectively.
Proposal #5: a public company in the chemical industry, with some health
care operations, sought a combination with AMSERV through either an asset
purchase or a stock purchase. The consideration would involve either the public
company's common stock, cash or a combination of common stock and cash. The
proposal was to acquire AMSERV for a valuation, adjusted for certain contingent
liabilities, including certain existing employment agreements (see "EXECUTIVE
COMPENSATION OF AMSERV -- Employment Agreements"), which ranged from $2.22 to
$3.11 per share of AMSERV Common Stock (based on the closing sale price of the
public company's common stock on January 5, 1996). The proposal did not specify
board composition and was non-binding and subject to due diligence.
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Batchelder derived estimates of the net value per share of AMSERV Common
Stock by subtracting estimated contingent liabilities associated with certain
existing employment agreements from the proposed aggregate value for AMSERV's
equity and dividing the difference by the approximately 3,373,000 outstanding
shares of AMSERV Common Stock. Batchelder then compared the estimated net value
per share range of $2.22 to $3.11 to the $2.75 market price of AMSERV Common
Stock on January 8, 1996, yielding a discount of 19% and a premium of 13%,
respectively, to such price.
Proposal #6: a public company in the health care industry sought to merge
with AMSERV in a pooling of interests transaction whereby the public company
would own approximately 83.4% of the combined company and current shareholders
of AMSERV would own the remaining 16.6%. The proposal was valued, based on the
closing sale price of the public company's common stock on January 5, 1996, at
$1.12 per share of AMSERV Common Stock. On January 17, 1996, the public company
revised its proposal, reducing the public company's ownership of the combined
company to 77%, with the current shareholders of AMSERV owning the remaining
23%. The revised proposal was valued, based on the closing sale price of the
public company's common stock on January 5, 1996, at $1.67 per share of AMSERV
Common Stock. The revised proposal assumed a new management team but did not
specify board composition. It was non-binding and subject to due diligence.
Batchelder derived an implied market value of $3.77 million for the
consideration proposed by the public company. The public company had proposed an
exchange of 1.675 million shares of its own capital stock (which traded at $2.25
on January 8, 1996) for all of the outstanding shares of AMSERV capital stock.
This implied value represented a discount of 59% to the January 8, 1996 market
capitalization of AMSERV.
The AMSERV Board adopted Batchelder's financial analysis with respect to
each of the proposals and considered other factors which it deemed appropriate,
including strategic fit with AMSERV and management's experience and reputation,
in reviewing each of the proposals. Although Batchelder provided information and
analyses relating to the proposals to the AMSERV Board, Batchelder did not
recommend any of the proposals. Based on the information provided by Batchelder
and its own evaluation of the proposals, the AMSERV Board determined that STAR's
proposal was the most favorable to AMSERV's shareholders. STAR's proposal
represented a 12% premium to the market price of AMSERV Common Stock as of
January 5, 1996, while the competing public company proposals represented a
range of (i) a 19% discount to a 13% premium to market (Proposal #5 above), and
(ii) a 39% discount to market (Proposal #6 above). In addition, STAR's proposal
was deemed the most favorable in the aggregate in terms of relative contribution
to the projected revenues, net income, assets and net worth of the combined
company, strategic fit with AMSERV and experience and reputation of management.
By letter dated January 8, 1996, Stockbridge again indicated its intent to
act by written consent and requested that the AMSERV Board set a record date for
such consent. On January 16, 1996, Stockbridge filed preliminary consent
materials with the Commission seeking to remove the five current members of the
AMSERV Board and to replace each member with a Stockbridge nominee.
On January 9, 1996, following extensive negotiations, the AMSERV Board
confirmed that the proposal from STAR was the most favorable to AMSERV's
shareholders and authorized AMSERV to negotiate and enter into a letter of
intent to merge with STAR. A formal letter of intent was executed by the parties
on January 17, 1996. Such letter of intent was subsequently superseded by the
Original Merger Agreement and then the Merger Agreement. The Merger Agreement is
described under the caption "THE MERGER AGREEMENT."
On January 19, 1996, the AMSERV Board held a special meeting pursuant to
AMSERV's by-laws to establish a record date for purposes of Stockbridge's
renewed consent solicitation. The AMSERV Board set January 29, 1996 as such
record date.
Also on January 19, 1996, the AMSERV Board, in an effort to assure that all
of AMSERV's shareholders receive fair and equal treatment in the event of any
proposed takeover of AMSERV, adopted a
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Shareholder Rights Plan. Under the Plan, the AMSERV Board declared a dividend
distribution of one Preferred Share Purchase Right on each outstanding share of
AMSERV Common Stock. Each right entitles shareholders to buy one one-hundredth
of a share of newly created Class C Junior Participating Preferred Stock of
AMSERV at an exercise price of $12.50. The rights will be exercisable if a
person or group (other than, among others, STAR) acquires 10% or more of the
AMSERV Common Stock or announces a tender offer for 10% or more of the AMSERV
Common Stock. The AMSERV Board will be entitled to redeem the rights held by all
shareholders at $.001 per right at any time before the tenth day after a person
has acquired 10% or more of the outstanding AMSERV Common Stock. If a person
acquires 10% or more of the outstanding AMSERV Common Stock, each right will
entitle its holder to purchase, at the right's then-current exercise price, a
number of shares of AMSERV Common Stock having a market value at the time of
twice the right's exercise price. Rights held by the 10% holder will become void
and will not be exercisable to purchase shares at the bargain purchase price. If
AMSERV is acquired in a merger or other business combination transaction which
has not been approved by the AMSERV Board, each right will entitle its holder to
purchase, at the right's then-current exercise price, a number of the acquiring
company's common shares having a market value at that time of twice the right's
exercise price.
During the week of January 22, 1996, representatives from STAR visited
AMSERV's corporate offices for a due diligence review. During the week of
January 29, 1996, a representative of Batchelder visited STAR's accounting
offices, and on February 2 and 5, 1996, Mr. Mora visited STAR's accounting and
corporate offices, for due diligence reviews. During these visits, the
representatives of each company reviewed the other company's operations,
personnel policies and financial results to date.
At a special meeting of the STAR Board of Directors, held on February 8,
1996, the STAR Board approved the terms of the Original Merger Agreement and
determined that the terms were fair to, and in the best interests of, the
shareholders of STAR.
At a special meeting of the AMSERV Board of Directors held on February 9,
1996, after discussions with Batchelder (which included receiving from
Batchelder an opinion relating to the fairness of the proposed merger from a
financial point of view) and AMSERV's outside legal counsel, the AMSERV Board
approved the terms of the Original Merger Agreement and determined that the
terms were fair to, and in the best interests of, the shareholders of AMSERV.
By letter dated February 21, 1996, Stockbridge reiterated its intent to act
by written consent and requested that the AMSERV Board set a new record date for
such consent. On February 29, 1996, the AMSERV Board established February 29,
1996 as such new record date.
On February 22, 1996, Stockbridge commenced litigation against AMSERV in the
United States District Court for the District of Massachusetts. In its
complaint, Stockbridge alleges that AMSERV breached the terms of the October 18,
1995 agreement between AMSERV and Stockbridge (described above) by refusing to
deal with Stockbridge's "pre-emptive" proposal in a fair and equitable manner.
The relief sought by Stockbridge includes reimbursement of Stockbridge's
expenses in the amount of $125,000, unspecified damages which Stockbridge
estimates at more than $275,000 and attorneys' fees. AMSERV denies, and intends
to vigorously defend against, Stockbridge's claims in this lawsuit. See
"BUSINESS OF AMSERV -- Legal Proceedings."
On or about March 7, 1996, Stockbridge commenced its solicitation of
consents to remove the five current members of the AMSERV Board and to replace
each member with a Stockbridge nominee. On March 13, 1996, AMSERV commenced a
solicitation of revocations of consent in opposition to the Stockbridge
solicitation.
By letter dated March 13, 1996, Stockbridge once again indicated its intent
to act by written consent and requested that the AMSERV Board set a new record
date for such consent. On March 15, 1996, the AMSERV Board established March 15,
1996 as such new record date.
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On April 9, 1996, AMSERV received notice of a lawsuit which Stockbridge
filed against AMSERV in the Court of Chancery of the State of Delaware for New
Castle County requesting that the Court enter judgment summarily ordering AMSERV
to conduct an annual meeting of shareholders for the purpose of electing
directors and conducting such other business as may properly be conducted at the
meeting. AMSERV intends to seek a dismissal of such action on the basis of its
scheduling an annual meeting of shareholders to consider and vote on the Merger,
to elect directors and to ratify the selection of Ernst & Young LLP as AMSERV's
independent public accountants. See "BUSINESS OF AMSERV -- Legal Proceedings."
On March 29, 1996, AMSERV received from Stockbridge a letter purporting to
be an offer to purchase for $3.00 per share in cash all outstanding shares of
AMSERV Common Stock. According to the letter, Stockbridge's proposal would be
structured as a merger to be voted on by AMSERV's shareholders. By letter dated
April 2, 1996, AMSERV responded to Stockbridge's proposal and stated that in
order for the AMSERV Board to properly evaluate the proposal it would need
detailed answers to various questions regarding, among other things, whether the
proposal is subject to financing and, if so, the source(s) of such financing,
and the proposed structure of the merger, including what entity would be the
survivor. By letter dated April 12, 1996 addressed to Batchelder, Stockbridge
stated that it intended to restructure its proposal in the form of a tender
offer for any and all outstanding shares of AMSERV and that Stockbridge expected
to submit evidence of irrevocable financing commitments to AMSERV on or before
April 24, 1996. AMSERV received no such evidence of irrevocable financing
commitments from Stockbridge, nor any other information regarding Stockbridge's
proposal, on April 24, 1996 or at any time before or after such date.
On April 18, 1996, AMSERV commenced litigation in the United States District
Court for the Southern District of California against Stockbridge and certain of
its affiliates for numerous violations of Sections 13(d) and 14(a) of the
Exchange Act. Among the violations listed by AMSERV are the defendants' failure
to disclose all of the members of Stockbridge's Section 13(d) "group,"
misstatements in Stockbridge's consent solicitation materials, and Stockbridge's
failure to disclose its offer to purchase for $3.00 per share any and all
outstanding shares of AMSERV Common Stock. AMSERV seeks injunctive relief
against Stockbridge's solicitation of consents, and a declaration that the
Stockbridge group has and must publicly disclose beneficial ownership of 10% or
more of the AMSERV Common Stock, thereby triggering AMSERV's Shareholder Rights
Plan. On April 19, 1996, Stockbridge filed an amended Schedule 13D which
included incomplete information regarding its $3.00 per share offer. On May 28,
1996, Stockbridge, together with certain of its affiliates, filed an answer and
counterclaim relating to the litigation filed by AMSERV in the Southern District
of California. The counterclaim names both AMSERV and Mr. Mora as
counterdefendants and is structured as a derivative claim brought on behalf of
AMSERV against Mr. Mora. The counterclaim alleges that Mr. Mora engaged in
activities in breach of his fiduciary duties and that the directors of AMSERV,
including Mr. Mora, undertook a series of actions for the purpose of
entrenchment. AMSERV and Mr. Mora deny, and intend to vigorously defend against,
the claims made by Stockbridge and its affiliates in the counterclaim. See
"BUSINESS OF AMSERV -- Legal Proceedings."
On May 14, 1996, the consent solicitation which Stockbridge commenced on
March 7, 1996 to remove the five current members of the AMSERV Board and to
replace each member with a Stockbridge nominee terminated in accordance with
Delaware law. No written consents were delivered to AMSERV in connection with
such solicitation, other than the initial consent delivered by Stockbridge with
respect to one share of AMSERV Common Stock owned by the President of
Stockbridge.
Subsequent to the termination of Stockbridge's consent solicitation on May
14, 1996, Stockbridge commenced negotiations with AMSERV in an effort to settle
the ongoing litigation between AMSERV and Stockbridge. AMSERV and Stockbridge,
with the assistance of Batchelder, have continued to discuss a possible
settlement since that time, but no definitive agreement has yet been reached.
AMSERV intends to continue to pursue a resolution of its disputes with
Stockbridge. See "BUSINESS OF AMSERV -- Legal Proceedings."
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On July 17, 1996, the Boards of Directors of STAR, AMSERV and Merger Sub
approved the Amendment, pursuant to which (i) Mr. Katten, a current director of
AMSERV, rather than Mr. Mora, would be appointed to the Board of Directors of
STAR following the Effective Time and nominated for election to the STAR Board
at each of the next two annual meetings of shareholders of STAR, and (ii) the
date on which either STAR or AMSERV may terminate the Merger Agreement if the
Merger shall not have been consummated prior thereto was extended from July 31,
1996 to September 15, 1996. The change regarding Mr. Mora stemmed from Mr.
Mora's personal desires. The extension of the termination date was prompted by
the relatively late mailing date of this Joint Proxy Statement/Prospectus, which
resulted in a later than expected date for the STAR Meeting and AMSERV Meeting
of August 23, 1996. Other than with respect to these two matters, the Amendment
ratified and confirmed the Original Merger Agreement in all respects. Both Mr.
Mora and Mr. Katten abstained from voting on the Amendment due to their
respective interests in the Merger.
STAR'S REASONS FOR THE MERGER; RECOMMENDATION OF THE STAR BOARD
The STAR Board of Directors believes that the Merger will further its
strategic objective of acquiring companies that provide Home Care services in
the geographic regions currently serviced by STAR as well as opening new areas
of expansion. Accordingly, STAR's Board of Directors has unanimously approved
the Merger Agreement and unanimously recommends that the shareholders of STAR
vote in favor of the Merger for the following reasons:
(i) that since both STAR and AMSERV are engaged in the Home Care
services business, the businesses of STAR and AMSERV are complementary.
AMSERV has five locations in New Jersey and one in Ohio, the acquisition of
which will allow STAR to expand its existing regional Home Care business, as
well as open up a new geographic area. The Board also considered the high
quality of the AMSERV personnel at the operating level and how the addition
of such personnel could positively enhance STAR's own image;
(ii) STAR's Board of Directors concurred with STAR's management's
conclusion, based upon the analysis conducted by Messrs. Steinbach and
Fellerman and described above in "Background of the Merger," that the Merger
would result in the addition of up to $13 million in additional revenues to
STAR of which approximately 75% would be attributable to Medicaid payments
which are generally paid within 40 days of the date that such amounts are
billed; this would increase STAR's cash flow, reduce its financial leverage
and improve STAR's overall financial position and results of operations;
(iii) that, since AMSERV is also engaged in the Home Care services
business, the Merger fits within STAR's strategic objective of acquiring
companies that provide Home Care services in the geographic regions
currently serviced by STAR as well as in areas not currently serviced by
STAR. The STAR Board made special note of AMSERV's operations in New Jersey
and Ohio, which it concluded could readily be integrated into STAR's
operations in New York;
(iv) that, based upon Messrs. Sternbach and Fellerman's financial
analysis of AMSERV, STAR will be able to achieve significant cost savings
and economies of scale and will be able to operate AMSERV, as part of the
combined entity, in a manner more efficient and more profitable than its
current operations since, after the Merger, many of the redundant operations
that are currently engaged in by AMSERV will be eliminated and such
functions will be carried out by STAR's existing organization; specifically,
STAR will be able to manage AMSERV's New Jersey and Ohio operations with
existing STAR personnel;
(v) STAR's Board of Directors concurred with STAR's management's
determination that approximately $1.2 million in selling, general and
administrative expense (consisting of approximately $640,000 in back office,
administrative and executive salaries, $50,000 in rent, telephone and
utilities,
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$130,000 in professional fees, $60,000 in investor relations and compliance
fees, $250,000 in insurance and $40,000 in other office expense) could be
eliminated as a result of the increased efficiencies that the STAR Board
expected would result from the Merger;
(vi) that, after reviewing the Evaluation Materials and considering the
financial analysis conducted by Messrs. Sternbach and Fellerman and
described above in "Background of the Merger," the Merger would provide
certain synergistic benefits through the consolidation of certain redundant
corporate functions in a manner consistent with STAR's strategy of providing
the highest quality of care at the lowest cost;
(vii) that the terms and conditions of the Merger Agreement, including
the Exchange Ratio, generally are fair to STAR's shareholders. The Board
concluded that, based upon the increased revenues to STAR that would result
from the Merger, the issuance of the STAR Common Stock would likely not
result in a dilution of STAR's earnings per share. The Board also considered
that the Exchange Ratio was within the range that had been established by
Messrs. Sternbach and Fellerman and described above in "Background of the
Merger";
(viii) STAR's Board of Directors believed, based upon preliminary
discussions with STAR's auditors, that the Merger would be accounted for as
a pooling of interests for accounting purposes;
(ix) STAR's Board of Directors considered the existence of the
Stockbridge consent solicitation and AMSERV's litigation with Stockbridge
which are described above in "Background of the Merger" but concluded that
such matters would not adversely impact STAR because the Merger Agreement
places restrictions on AMSERV's business pending the closing of the Merger
and requires AMSERV to pay significant fees and expenses under certain
circumstances in the event of a termination of the Merger Agreement;
(x) STAR's Board of Directors considered that the Exchange Ratio would
be fixed and that changes in the relative share value of AMSERV and STAR
Common Stock could materially affect the value of the consideration to be
paid by STAR for AMSERV but concluded that such risk was outweighed by the
possible benefits to be achieved by STAR from the Merger;
(xi) STAR's Board of Directors considered the factors described above
under the heading "RISK FACTORS" but concluded that such risks were
outweighed by the possible benefits to be achieved by STAR from the
consummation of the Merger; and
(xii) STAR's Board of Directors considered the agreement to honor certain
agreements between AMSERV and Eugene J. Mora described below in "THE MERGER
-- Interests of Certain Persons in the Merger; Conflicts of Interest," but
concluded that the costs associated with such agreements were outweighed by
the possible benefits to be achieved from the Merger.
After considering all of the foregoing reasons, STAR's Board of Directors
concluded that a combination with AMSERV, on the terms set forth in the Merger
Agreement, is in the best interests of the shareholders of STAR. The STAR Board
of Directors concluded that the favorable factors set forth in items (i) through
(viii) outweighed the negative factors set forth in items (ix) through (xii).
Due to the wide variety of factors considered in conjunction with the evaluation
of the Merger, the STAR Board of Directors did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in rendering its determination. The Board of
Directors of STAR did not conduct an independent financial analysis in arriving
at its conclusion but relied upon the analysis conducted by Messrs. Sternbach
and Fellerman and described above in "Background of the Merger." STAR's Board of
Directors did not believe that it was necessary to and did not, therefore,
commission a financial advisor opinion in connection with its deliberations
regarding the Merger. The STAR Board believed that it had adequate information
to analyze the merits of the Merger.
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THE BOARD OF DIRECTORS OF STAR UNANIMOUSLY HAS DETERMINED THAT THE MERGER IS
FAIR TO, AND IN THE BEST INTERESTS OF, SHAREHOLDERS OF STAR, HAS APPROVED THE
MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF STAR VOTE TO
APPROVE AND ADOPT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
AMSERV'S REASONS FOR THE MERGER; RECOMMENDATION OF THE AMSERV BOARD
In reaching its determination that the Merger is fair to and in the best
interests of the shareholders of AMSERV, the Board of Directors of AMSERV
consulted with AMSERV's management, financial advisor and legal counsel. Set
forth below are the material factors that the AMSERV Board considered in
reaching this determination:
(i) the AMSERV Board's review and analysis of AMSERV's business,
operations, financial conditions, earnings and prospects. Following a review
of such factors, the AMSERV Board had a better understanding of AMSERV's
value, allowing the AMSERV Board to make the determination that the
consideration to be received by AMSERV's shareholders in the Merger
reflected an appropriate valuation of AMSERV;
(ii) the current and prospective economic and competitive environment in
the health care industry. The AMSERV Board recognized a trend toward
consolidation in the health care field and took note of certain factors
responsible for the trend. The AMSERV Board noted, for example, a drive
toward greater efficiency resulting in lower cost operations and the
advantages of greater geographic diversification. The Board believed that
the Merger would result in cost savings because certain duplicative
administrative expenses would be eliminated and in greater geographic
diversity because the states in which AMSERV and STAR conducted their
businesses did not overlap. As a result, the AMSERV Board determined that
the combined company would be better equipped to compete in a rapidly
consolidating health care industry;
(iii) the possible alternatives to a sale of AMSERV, including the
prospects of continuing to operate AMSERV, the value to AMSERV's
shareholders of such alternatives and the timing and likelihood of actually
achieving additional value from these alternatives, including the
possibility that AMSERV's near-term performance might not lead to a stock
price having a higher value than the Merger Consideration. The Board
determined, based on a review of such alternatives, that none of the
alternatives appeared to offer the same prospects for success as the
proposed combination with STAR;
(iv) that the Merger was agreed to by the AMSERV Board only after
issuance by AMSERV of a press release regarding its review of strategic
alternatives, significant publicity concerning the review by AMSERV of its
strategic alternatives and the possibility of AMSERV being sold, and the
passage of a significant period of time between issuance of the press
release and approval of the Merger Agreement. The publicity surrounding
AMSERV's "auction" process assured the Board that all interested parties had
opportunities to submit bids and suggested to the Board that it was unlikely
that AMSERV would receive any proposals more favorable than STAR's proposal;
(v) that AMSERV had contact with a large number of potential bidders
over an extended period of time in a lengthy auction process, providing the
AMSERV Board with a better understanding of the value of AMSERV. The AMSERV
Board's improved understanding of the value of AMSERV helped the AMSERV
Board determine that the Merger Consideration was fair to AMSERV's
shareholders;
(vi) that the Merger Consideration represents a premium for the AMSERV
Common Stock of (A) approximately 12% over the closing price on January 5,
1996, the date used by Batchelder in connection with its financial analysis
of merger proposals involving AMSERV, (B) approximately 15% over the closing
price on January 17, 1996, the last trading day prior to the public
announcement of the execution of the letter of intent to merge between
AMSERV and STAR, and (C) approximately 15% over the closing price on
February 9, 1996, the last trading day prior to the public announcement of
the execution of the Merger Agreement;
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(vii) that, in light of the range of proposals made by third parties
during the auction process, STAR's proposal included a premium for obtaining
control of AMSERV;
(viii) the possibility that, as a result of the fixed exchange ratio,
changes in the relative share prices of AMSERV and STAR Common Stock could
materially affect, positively or negatively, the value of the Merger
Consideration to be received by AMSERV shareholders. Since February 9, 1996,
the relative share prices of AMSERV and STAR Common Stock have fluctuated in
such a way that at times the market price of one share of AMSERV Common
Stock has exceeded the market value of .4090 shares of STAR Common Stock.
The Merger Consideration represented a premium for the AMSERV Common Stock
of 10% over the closing price on July 17, 1996. The AMSERV Board intends to
continue to monitor the share prices of AMSERV and STAR Common Stock, and if
and when necessary, the AMSERV Board will determine, with the advice of
outside counsel, whether its fiduciary obligations under applicable law
require it to modify its determination that the terms of the Merger are fair
to AMSERV's shareholders. Such fiduciary obligations would require the
AMSERV Board to modify its fairness determination if circumstances
surrounding the Merger changed such that the AMSERV Board determined,
pursuant to the exercise of its good faith judgment, that the terms of the
Merger were no longer in the best interests of AMSERV's shareholders. If the
AMSERV Board determines that its fiduciary duties require a modification of
its fairness determination, STAR and AMSERV will file an amendment to this
Joint Proxy Statement/Prospectus to disclose such modification. To the
extent that a vote has been taken prior to such modification, both companies
will resolicit the votes of their respective shareholders;
(ix) the financial presentation of Batchelder, and Batchelder's opinion
as of February 9, 1996 that the terms of the Merger are fair to the
shareholders of AMSERV from a financial point of view, as discussed in "THE
MERGER -- Financial Advisor; Fairness Opinion";
(x) that Batchelder is not required to reaffirm its fairness opinion at
any time after February 9, 1996. The Board recognized that without a
bring-down of Batchelder's opinion prior to consummation of the Merger, the
AMSERV Board could not be certain whether changed circumstances between
February 9, 1996 and consummation of the Merger would have caused Batchelder
to rescind its opinion that the terms of the Merger are fair to the
shareholders of AMSERV from a financial point of view;
(xi) certain terms of the Merger Agreement, including the restrictions
on the conduct of AMSERV's business pending closing, conditions to closing
and the significant fees and expenses that would become payable in the event
of a termination of the Merger Agreement under certain circumstances (see
"THE MERGER AGREEMENT"). The AMSERV Board determined that such factors
placed added burdens on AMSERV, making it more difficult for AMSERV to
generate short-term returns for its shareholders;
(xii) that the Merger Agreement prohibits AMSERV from soliciting,
encouraging or initiating any additional proposals from third parties. Such
prohibitions placed limits on AMSERV's management's ability to continue to
seek out bidders that would make proposals to acquire or merge with AMSERV
that were potentially more favorable than the proposal made by STAR;
(xiii) that the Merger Agreement permits AMSERV to consider unsolicited
third party offers to acquire AMSERV and permits AMSERV to provide
information to and negotiate with such parties and to terminate the Merger
Agreement, subject to the payment of significant fees and expenses to STAR,
if prior to the Effective Time the AMSERV Board withdraws or modifies its
recommendation in order to permit AMSERV to execute a definitive agreement
relating to a proposal for AMSERV that the AMSERV Board determines is more
favorable to shareholders than the transactions contemplated by the Merger
Agreement. Despite the significant fees and expenses payable to STAR, the
AMSERV Board determined that the terms of the Merger Agreement relating to
consideration of unsolicited third party proposals were favorable to
AMSERV's shareholders. If AMSERV were to receive a
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proposal more favorable than STAR's, the AMSERV Board could terminate the
Merger Agreement and recommend the new proposal to AMSERV's shareholders
without the prospect of breach of contract liability to STAR;
(xiv) that the Merger Agreement permits the AMSERV Board to modify its
determination that the Merger is fair to and in the best interests of
AMSERV's shareholders to the extent required by the Board's fiduciary
obligations under applicable law. The Board determined that if circumstances
surrounding the Merger, including the relative share prices of STAR and
AMSERV, changed in a materially adverse manner, the Board would have an
opportunity to withdraw its determination that the terms of the Merger are
fair to and in the best interests of AMSERV's shareholders;
(xv) that the Merger Agreement includes as a condition precedent to
AMSERV's obligation to consummate the Merger (which condition AMSERV does
not intend to waive) that the Merger qualify as a pooling of interests for
accounting purposes. The AMSERV Board did not evaluate the significance of
pooling of interests accounting in isolation. Rather, the AMSERV Board
considered the fact that an essential term of STAR's proposal was that the
Merger qualify for pooling of interests accounting. After consultation with
AMSERV's outside auditors, the AMSERV Board believed that the Merger would
so qualify. If the Merger were not to qualify for pooling of interests
accounting and if STAR were to waive the condition that the Merger so
qualify, the AMSERV Board would then address the question of whether the
Merger was still fair to and in the best interests of AMSERV's shareholders.
If the Merger were not to qualify for pooling of interests accounting and if
both STAR and AMSERV were to waive the condition that the Merger so qualify,
STAR and AMSERV would file with the Commission and distribute to
shareholders an updated and revised Joint Proxy Statement/Prospectus
disclosing such development and updating the fairness determinations of the
STAR Board and AMSERV Board. To the extent that a vote has been taken prior
to a waiver by both companies of the pooling requirement, both companies
would resolicit the votes of their respective shareholders;
(xvi) that the Merger Agreement was approved by the unanimous vote of the
AMSERV Board (other than Mr. Mora, who did not vote on the Original Merger
Agreement or the Amendment due to the expected assumption by STAR of the
provisions set forth in Mr. Mora's employment agreements, and Mr. Katten,
who did not vote on the Amendment due to his expected position as a director
of STAR following the Merger);
(xvii) that certain members of AMSERV's management and AMSERV's Board have
certain interests in the Merger that are in addition to their interests as
shareholders of AMSERV generally. The AMSERV Board took note of Mr. Mora's
severance package, which entitles Mr. Mora to certain benefits upon
termination of his employment without cause, and the fact that the Merger
Agreement originally provided that Mr. Mora would become a director of STAR
following the Merger (although the Merger Agreement, as amended, now
provides that Mr. Katten, instead of Mr. Mora, would become a director of
STAR following the Merger). Likewise, the AMSERV Board recognized that Ms.
Hodge and Ms. Anderson have severance packages entitling them to certain
benefits upon termination of employment following a "board approved change
in control." In addition, the AMSERV Board noted the fact that all of the
members of the AMSERV Board, as well as Ms. Hodge and Ms. Anderson, had
received stock options that become exercisable upon a change in control. The
AMSERV Board also noted that STAR has agreed to insure and guaranty that all
indemnification provisions in AMSERV's Certificate of Incorporation, by-laws
and in certain agreements would not be amended, repealed or modified in any
manner and that it had agreed to maintain directors and officers insurance
policies at their existing levels. Although certain members of AMSERV's
management and AMSERV's Board, as noted above, have interests in the Merger
that are in addition to, and may conflict with, the interests of AMSERV's
shareholders, the AMSERV Board did not believe that such interests affected
its evaluation of the Merger, as such interests principally arise from
preexisting contractual obligations of AMSERV, which were expected to be
assumed in any change of control transaction. See "THE
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MERGER -- Interests of Certain Persons in the Merger; Conflicts of
Interest," "THE MERGER AGREEMENT -- Treatment of Stock Options" and
"EXECUTIVE COMPENSATION OF AMSERV -- Employment Agreements";
(xviii) that the AMSERV Board did not use a special committee to evaluate
the Merger. The use of a special committee may have offered shareholders
additional assurances that the AMSERV Board acted without regard to certain
interests AMSERV Board members have in the Merger apart from their interests
as shareholders. Nevertheless, the AMSERV Board believed that its decision
not to use a special committee did not affect its evaluation of the Merger,
because, in the AMSERV Board's opinion, the benefits associated with the
AMSERV Board's ability to utilize and rely upon the collective knowledge and
expertise of the full AMSERV Board outweighed any possible benefits from the
use of a special committee. See "THE MERGER -- Interests of Certain Persons
in the Merger; Conflicts of Interest";
(xix) that STAR is a public company with current estimated revenue for
fiscal 1996 of $35 million, that STAR has experienced substantial growth in
revenues and net income in recent years and that its management team has a
proven track record in the Home Care industry. The Board found that STAR's
potential for continued growth and proven management team increased the
likelihood that the combined company would be successful and that AMSERV's
shareholders would benefit accordingly, through their ownership of STAR
Common Stock;
(xx) the synergies and cost savings offered by the consolidation of
certain corporate functions. The AMSERV Board determined that AMSERV could
be more profitably operated following the elimination of certain redundant
operations;
(xxi) the expectation that the Merger will afford AMSERV shareholders the
opportunity to receive STAR Common Stock in a transaction that is nontaxable
for federal income tax purposes. The AMSERV Board recognized that the Merger
Consideration would be more valuable to AMSERV's shareholders if the receipt
of such consideration would not be treated as a taxable event;
(xxii) that, pursuant to the Voting Agreement, Mr. Sternbach has agreed to
vote (or cause to be voted) the 847,155 shares (34.4%) of STAR Common Stock
of which he is the direct beneficial owner in favor of the Merger. The Board
determined that the existence of the Voting Agreement increased the
likelihood that STAR's shareholders would approve the transaction; and
(xxiii) the AMSERV Board recognized that consummation of the Merger would
subject AMSERV's shareholders to certain additional risks, including,
without limitation, increased dependence on third party payors (including
the Medicare and Medicaid programs and private insurance), the concentration
of approximately 28.1% of the voting power of the combined company in the
hands of Mr. Sternbach and the possibility that the Merger would not qualify
as a tax-free reorganization. For additional risks to which AMSERV
shareholders would be subject following consummation of the Merger, see the
factors listed above under the heading "RISK FACTORS."
The foregoing discussion addresses all of the material factors considered by
the AMSERV Board in connection with its evaluation of the Merger. In view of the
wide variety of factors, the AMSERV Board did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weights to the
foregoing factors or determine that any factor was of particular importance.
Rather, the AMSERV Board viewed its position and recommendation as being based
on the totality of the information presented to and considered by it. On
balance, however, the AMSERV Board viewed the factors set forth in items (i),
(ii), (iii), (iv), (v), (vi), (vii), (ix), (xiii), (xiv), (xv), (xvi), (xix),
(xx), (xxi) and (xxii) as favorable to its decision, the factors set forth in
items (x), (xi), (xii) and (xxiii) as unfavorable to its decision and the
factors set forth in items (viii), (xvii) and (xviii) as neutral to its
decision.
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THE BOARD OF DIRECTORS OF AMSERV HAS DETERMINED THAT THE MERGER IS FAIR TO,
AND IN THE BEST INTERESTS OF, AMSERV'S SHAREHOLDERS, HAS APPROVED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT AMSERV'S SHAREHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
FINANCIAL ADVISOR; FAIRNESS OPINION
On April 1, 1995, AMSERV retained Batchelder to assist AMSERV in its
consideration and evaluation of possible transactions. Batchelder assisted
AMSERV's Board in its review of, and participated in the negotiation of, the
Merger. In January 1996, AMSERV's Board asked Batchelder to render an opinion as
to the fairness of the Merger to the holders of AMSERV Common Stock from a
financial point of view. AMSERV's Board did not place limitations on the
investigations to be made or the procedures to be followed by Batchelder in
preparing and rendering its opinion. Batchelder did not recommend the form or
amount of consideration to be paid in the Merger, which was determined through
arm's length negotiations between AMSERV and STAR.
On February 9, 1996, Batchelder delivered its written opinion that the terms
of the Merger are fair to the shareholders of AMSERV from a financial point of
view.
The full text of the written opinion of Batchelder, which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached as Appendix B hereto and is
incorporated herein by reference. Shareholders are urged to, and should, read
such opinion in its entirety and consider it carefully. The Batchelder opinion
is directed to AMSERV's Board and does not constitute a recommendation to any
individual shareholder as to how such shareholder should vote at the AMSERV
Meeting. The summary of Batchelder's opinion set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion.
Batchelder relied upon and assumed without independent verification the
accuracy and completeness of all publicly available financial information and
all financial information furnished or otherwise communicated to it by STAR and
AMSERV. Batchelder did not make any appraisal of the assets of such companies.
Batchelder does not express any opinion as to what the value of the STAR Common
Stock actually will be when issued to AMSERV shareholders pursuant to the Merger
or the price at any time at which the STAR Common Stock will trade. Batchelder's
opinion does not address the underlying business decision to enter into the
Merger.
Batchelder also assumed that (i) the Merger will be accounted for under the
pooling of interests method of accounting; (ii) the Merger will be a tax-free
reorganization; (iii) the Mora Agreements represent valid and enforceable
obligations of AMSERV and the payments to him following his anticipated
termination without cause by STAR following the consummation of the Merger will
be deductible for federal income tax purposes; and (iv) any material liabilities
(contingent or otherwise, known or unknown) of AMSERV and STAR are set forth in
the consolidated financial statements of AMSERV and STAR, respectively. For
purposes of its analysis, Batchelder considered AMSERV's obligations to the
holders of AMSERV Class B Preferred as material liabilities. The existence of
the AMSERV Class B Preferred and the fact that it would not be converted into
any other security in connection with the Merger had no special impact on
Batchelder's consideration of the Exchange Ratio or its fairness determination.
Batchelder assumes no responsibility for the legal, tax or accounting aspects of
the Merger.
In connection with its opinion, Batchelder reviewed, among other things, (i)
the Merger Agreement; (ii) the Voting Agreement; (iii) the most recently
available Annual Reports to Shareholders and Annual Reports on Forms 10-K and
10-KSB of AMSERV and STAR; (iv) certain interim reports to shareholders and
Quarterly Reports on Forms 10-Q and 10-QSB of AMSERV and STAR; (v) certain other
communications from AMSERV and STAR to their shareholders; and (vi) certain
internal financial analyses and forecasts of AMSERV and STAR prepared by their
managements. Batchelder also met with the management teams of both STAR and
AMSERV to discuss their respective businesses and business prospects. Batchelder
assumed that all financial projections provided by STAR and AMSERV were based
upon
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assumptions reflecting the best, currently available estimates and good faith
judgments of management as to the future performance of AMSERV and STAR and that
the managements of AMSERV and STAR do not have any information or beliefs that
would make the projections materially misleading. Batchelder assumed that the
operating benefits contemplated by the Merger as reflected in the financial
projections provided by AMSERV and STAR will be achieved. In addition,
Batchelder reviewed financial information for the pro forma combined company of
STAR and AMSERV, compared historical and projected financial and operating
performance of STAR and AMSERV with certain other publicly held entities in the
health care industry, and reviewed acquisitions and mergers of certain companies
in the home health industry for which sufficient data was publicly available.
Batchelder determined that the AMSERV shareholders' equity interests in the
combined company compared favorably with its contribution and comparable
acquisition transaction analyses.
Because the Merger is a merger of the equity interests of AMSERV and STAR,
Batchelder assigned the most weight to the contribution analysis and relatively
less weight to comparable public company and comparable acquisition transaction
methodologies. Batchelder, however, did not attempt to quantify the weight given
to any one factor; rather it made qualitative judgments as to the significance
and relevance of each analysis and factor. Accordingly, Batchelder believes that
its analyses must be considered as a whole and that considering any portions of
such analyses or such factors without considering all analyses and factors could
create an incomplete or misleading view of the process Batchelder undertook.
CONTRIBUTION ANALYSIS. Batchelder analyzed the contribution of each of
AMSERV and STAR to, among other things, the revenues, earnings before interest
and taxes, depreciation and amortization ("EBITDA"), operating income, net
income and book value of the pro forma combined company. This analysis showed,
among other things, that for the three fiscal years ended May 31, 1995 for STAR
and June 24, 1995 for AMSERV, STAR averaged an historical contribution to the
pro forma combined company of approximately 73% of revenues and 82% of EBITDA.
For fiscal 1995, STAR contributed approximately 70% of revenues, 79% of EBITDA,
99% of operating income, 96% of pre-tax income and 93% of net income (excluding
discontinued operations and effects of accounting changes) of the combined
company. For the two years prior to fiscal 1995, AMSERV had negative average
operating income, pre-tax income and net income before discontinued operations
of $193,000, $110,000 and $68,000, respectively. During this two-year period,
STAR had positive average operating income of approximately $540,000, pre-tax
income of $555,000 and net income before accounting changes of $313,000.
Batchelder's analysis showed that for the first half of fiscal 1996, AMSERV
contributed 34% of net income of the combined company. In addition, based upon
the internal projections prepared by AMSERV and STAR in the normal course of
operating their respective businesses and without taking into account any
operating benefits from the Merger, AMSERV would contribute 37% of the projected
fiscal 1996 net income of the combined company. Based upon the relative book
values at the end of the first quarter of fiscal 1996 for each company,
Batchelder's analysis showed AMSERV would contribute 35% of the book value of
the combined companies.
The Merger Agreement provides for a share ownership ratio pursuant to which
AMSERV shareholders will receive approximately 33.5% of the equity of the pro
forma combined company. AMSERV shareholders' equity ownership interest in the
combined company exceeded AMSERV's average relative contributions to historical
revenues, EBITDA, operating income, pre-tax income and net income of the
combined company for fiscal years 1993, 1994 and 1995. The AMSERV shareholders'
relative equity interest would be below AMSERV's relative contribution to the
book value of the combined company as of the end of the first quarter of fiscal
1996, and the AMSERV shareholders' equity interest in the combined company would
be slightly below AMSERV's relative contribution to net income for the first
half of fiscal 1996. Batchelder, however, noted that the net income contribution
of AMSERV for the first half of fiscal 1996 and projected fiscal 1996 of 34% and
37%, respectively, did not include contemplated operating benefits from the
Merger.
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COMPARABLE PUBLIC COMPANY METHODOLOGY. Batchelder compared the historical
and projected financial and operating performances of STAR and AMSERV with
certain other publicly held entities in the health care industry. Such publicly
held entities included Caretenders Healthcorp., Healthdyne, Inc., Hooper Holmes,
Inc., Hospital Staffing Services, Inc., In Home Health, Inc., Medical
Innovations, Inc., Pediatric Services of America, Inc., Staff Builders, Inc.,
The Care Group, Inc., Transworld Home Healthcare, Inc., and U.S. Homecare
Corporation. Batchelder examined certain measures of the comparable companies'
historical and projected financial performance, financial position and
historical stock price. Using this information, Batchelder compared shares of
AMSERV Common Stock to those of AMSERV's peers in the health care industry in
terms of their relation to certain per share measures and other financial
indicators. Batchelder advised the AMSERV Board that there are no companies
directly comparable to AMSERV and that its analysis had to be considered in
light of that qualification.
Five of the eleven comparable companies had publicly available estimated
earnings per share for 1995 and 1996. These companies were Healthdyne, Inc.,
Hooper Holmes, Inc., In Home Health Inc., Pediatric Services of America, Inc.
and Staff Builders, Inc. Batchelder did not rely on Healthdyne, Inc.'s estimated
earnings per share in its analysis because Healthdyne's multiple for 1995,
218.8x, fell significantly outside the range of multiples for the other four
companies. Batchelder used the four remaining companies' estimates to derive
forward price-earnings multiples for such companies. These multiples were 35.6x
for 1995 and 15.2x for 1996 for Hooper Holmes, Inc., 22.5x for 1995 and 13.2x
for 1996 for In Home Health, Inc., 19.3x for 1995 and 15.6x for 1996 for
Pediatric Services of America, Inc. and 11.4x for 1995 and 8.5x for 1996 for
Staff Builders, Inc. Batchelder noted that Hooper Holmes' 1996 earnings estimate
was 235% of its 1995 earnings estimate, and that its 1996 price-earnings
multiple was relatively more comparable to the other companies' 1996 multiples.
Therefore, Batchelder excluded from its analysis Hooper Holmes' 1995
price-earnings multiple.
Using this data, Batchelder multiplied AMSERV's and STAR's estimated 1996
net income by price-earnings multiples ranging from 8.5 to 22.5 times earnings
and derived estimated relative equity market valuations for AMSERV and STAR of
$5.066 million and $8.781 million, respectively, in the low case and $13.410
million and $23.243 million, respectively, in the high case. Both of these
relative value analyses result in an implied share ownership ratio of 37% for
AMSERV shareholders. Batchelder noted that its comparable public company
analysis did not include contemplated operating benefits from the Merger.
In applying its comparable public company methodology, Batchelder relied on
its professional judgment in reviewing and considering differences in financial
and operating characteristics of the comparable companies and other factors that
could affect the public trading value of the comparable companies and their
business segments. Batchelder noted that the methodology should have the same
result as the contribution analysis of estimated 1996 income because it is a
strictly arithmetic exercise using the same estimates of net income.
COMPARABLE ACQUISITION TRANSACTION METHODOLOGY. As a supporting analysis,
but not as a primary indication of fairness, Batchelder reviewed acquisitions
and mergers of certain companies in the home health industry for which
sufficient data upon which to base an analysis was publicly available.
Transactions reviewed included the merger of Homedco Group, Inc. with Abbey
Healthcare Group, Inc. to form Apria Healthcare; the acquisition of Adia
Services, Inc. by Adia SA; the acquisition of IntegraCare, Inc. by Integrated
Health Service; and the merger of Salick Health Care, Inc. with Zeneca Group
PLC.
Of these four transactions, only one, the acquisition of IntegraCare, Inc.,
was reasonably comparable to the Merger based upon the size of the transaction.
Based upon the financial information which was available to Batchelder with
respect to the IntegraCare, Inc. transaction, Batchelder applied the multiple of
acquisition price to EBITDA of 10.6x and the multiple of acquisition price to
net income of 17.4x in the IntegraCare transaction to AMSERV's 1995 EBITDA and
net income to derive implied values of $4.54 million and $0.90 million
respectively, for the equity of AMSERV. Batchelder derived implied share
ownership ratios of 17.23% and 3.43% by comparing the implied values for the
equity of AMSERV to the $8.83 million value of
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AMSERV implied by the Exchange Ratio of 0.4090 and the average price per share
for STAR Common Stock for the thirty days ending February 8, 1996 of $6 5/8.
This comparison indicated that the AMSERV shareholders' receipt of approximately
33.5% of the combined company's common stock was favorable to AMSERV
shareholders. Batchelder noted that multiples derived from this transaction
supported its opinion that the Merger is fair, but also said that it was
inappropriate to draw any conclusions based upon only one transaction. (A
similar analysis using the median multiples of the four transactions reviewed
resulted in implied share ownership ratios of 16.09% and 4.39%.)
Batchelder proceeded to derive implied EBIDTA and earnings multiples for
AMSERV using the $8.83 million implied value of AMSERV and AMSERV's 1995 and
estimated 1996 EBIDTA and net income. The EBITDA multiples derived from this
analysis were 20.7x and 7.9x, respectively, for 1995 and estimated 1996, and the
net income multiples were 169.8x and 14.8x, respectively, for 1995 and estimated
1996. Batchelder then compared the multiples it had derived to the same
multiples for the most recent fiscal year EBITDA and net income for the four
transactions listed above. The mean and median EBITDA multiples were 9.1x and
9.9x, respectively, and the mean and median earnings multiples were 37.1x and
22.3x, respectively. The EBITDA multiples ranged from 6.4x to 12.0x and the
earnings multiples ranged from 17.4x to 68.1x. Batchelder noted that AMSERV's
1995 multiples compared directly with the comparable transaction multiples
because both sets of multiples were derived using trailing financial data. As a
result, Batchelder placed substantially more weight on the 1995 multiples than
on AMSERV's 1996 multiples.
The summary of Batchelder's analysis set forth above does not purport to be
a complete description of the analysis performed by Batchelder. The preparation
of a fairness opinion is a complex analytic process involving various
determinations as to the most appropriate and relevant methods of financial
analyses and the application of these methods to the particular circumstances,
and therefore, such analyses are not readily susceptible to summary description.
Batchelder notes its belief that its analyses must be considered as a whole and
that selecting portions of its analyses and of the other factors considered by
it, without considering all factors and analyses, could create a misleading view
of the process underlying its opinion. In its analyses, Batchelder made certain
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of AMSERV or
STAR. Any estimates contained therein are not necessarily indicative of actual
values, which may vary significantly. Estimates of the relative financial values
of STAR and AMSERV do not purport to be appraisals or necessarily reflect the
prices of AMSERV Common Stock and STAR Common Stock upon consummation of the
Merger, which may differ from their recent trading prices. Because such matters
are inherently uncertain, none of AMSERV, STAR, Batchelder or any other person
assumes any responsibility for such matters. Batchelder's opinion and its
financial analyses were among several factors considered by the Board of
Directors of AMSERV in its evaluation of the Merger and should not be viewed as
determinative of the views of the Board of Directors or management of AMSERV
with respect to the proposed Merger.
Batchelder is an investment banking firm engaged in, among other things, the
valuation of businesses in connection with mergers and acquisitions. AMSERV's
Board selected Batchelder as its financial advisor based upon the recommendation
of AMSERV's outside legal counsel and because Batchelder is a nationally
recognized investment banking firm and the principals of Batchelder have
substantial experience in transactions similar to the Merger and are familiar
with AMSERV and its business. Batchelder had not previously rendered services or
engaged in any transaction with AMSERV or its affiliates.
Pursuant to the terms of an engagement letter dated April 1, 1995, AMSERV
agreed to pay Batchelder $200,000 for acting as financial advisor to AMSERV in
connection with the various transactions considered by AMSERV. AMSERV has also
agreed to reimburse Batchelder for its reasonable out-of-pocket expenses,
including all reasonable fees and disbursements of counsel, up to $10,000 and to
indemnify Batchelder and certain related persons against certain liabilities
relating to or arising out of its engagement, including certain liabilities
under the federal securities laws. In addition, pursuant to the terms of a
subsequent engagement letter dated September 1, 1995, AMSERV also agreed to pay
Batchelder an additional $250,000 subject to the consummation of the Merger. No
additional fees will be paid to Batchelder in connection with
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the Merger. Because the engagement letter, dated September 1, 1995, between
AMSERV and Batchelder provides for separate consideration to Batchelder for
rendering its fairness opinion and given the fact that a portion of Batchelder's
fee is contingent upon completion of the Merger, Batchelder arguably has a
conflict of interest in rendering a fairness opinion on the terms of the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
As indicated, the following sets forth Latham & Watkins' (counsel to AMSERV)
opinion as to the material federal income tax consequences of the Merger to
holders of AMSERV Common Stock who hold their shares as capital assets. The
discussion is based on the current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), applicable Treasury Regulations, judicial
authority and administrative rulings and practice. It does not address all
aspects of federal income taxation that may be relevant to particular AMSERV
shareholders in light of their personal investment circumstances, or to certain
types of shareholders subject to special treatment under the federal income tax
laws, including, without limitation, insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign persons, and
shareholders who acquired AMSERV Common Stock pursuant to the exercise of
employee stock options or otherwise as compensation. In addition, this
discussion does not address the conversion of AMSERV Options into options to
purchase shares of STAR Common Stock pursuant to the Merger. This discussion
also does not address the state, local or foreign tax consequences of the
Merger. There can be no assurance that the Internal Revenue Service will not
take a contrary view to those expressed herein. No rulings have been or will be
requested from the Internal Revenue Service with respect to the tax consequences
of the Merger. Moreover, legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the statements and
conclusions set forth herein.
HOLDERS OF SHARES OF AMSERV COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS,
AND OF ANY CHANGES IN APPLICABLE TAX LAWS.
Assuming the Merger is consummated at the Effective Time pursuant to the
terms of the Merger Agreement, Latham & Watkins is of the opinion (and, at the
Effective Time, will issue its opinion to AMSERV) that the Merger will qualify
as a tax-free reorganization under Section 368(a)(1) of the Code and that no
gain or loss will be recognized by a holder whose shares of AMSERV Common Stock
are converted into and exchanged for shares of STAR Common Stock (with the
possible exception of shares of AMSERV Common Stock acquired by a holder
pursuant to an employee stock option plan or other compensation agreement in
anticipation of the Merger and except to the extent of any cash received in lieu
of fractional shares of STAR Common Stock). In addition, Latham & Watkins is of
the opinion that as a result of the Merger: (i) each holder of AMSERV Common
Stock receiving cash in lieu of a fractional share of STAR Common Stock will be
treated for federal income tax purposes as having received such fractional share
interest and as having sold it for the cash received, and will recognize capital
gain or loss (long- or short-term depending on whether the holder's holding
period is more or less than 12 months) equal to the difference between the
amount of cash received and the portion of that holder's basis in the shares of
AMSERV Common Stock deemed exchanged for the fractional share interest; (ii) the
tax basis of the STAR Common Stock received by the holders of AMSERV Common
Stock will be equal to the basis of the AMSERV Common Stock exchanged therefor
(except for the basis attributable to any fractional share interest in STAR
Common Stock); and (iii) the holding period of the STAR Common Stock received by
the holders of AMSERV Common Stock will include the holding period of the AMSERV
Common Stock surrendered in exchange therefor.
Latham & Watkins' opinion is based on the accuracy of certain
representations that it will receive from STAR and AMSERV at the Effective Time,
including the following: (i) the Merger will be consummated in accordance with
the Merger Agreement; (ii) following the Merger, AMSERV will continue its
historic business or use a significant portion of its historic business assets
in a business; and (iii) the management of
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AMSERV knows of no plan or intention on the part of the AMSERV shareholders to
dispose of a number of shares of STAR Common Stock received in the Merger that
would reduce the AMSERV shareholders' ownership of STAR Common Stock to a number
of shares having a value, as of the date of the Merger, of less than 50% of the
value of all of the formerly outstanding stock of AMSERV as of the same date.
If the Merger were not to constitute a reorganization under Section
368(a)(1) of the Code, each holder of AMSERV Common Stock would recognize gain
or loss equal to the difference between the fair market value of the STAR Common
Stock received and cash received in lieu of fractional shares and such holder's
basis in the shares of AMSERV Common Stock exchanged therefor. Such gain or loss
would be long-term capital gain or loss, provided such shares had been held for
more than one year.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
OFFICERS AND DIRECTORS OF AMSERV. Certain members of AMSERV's management
and AMSERV's Board have certain interests in the Merger that are in addition to
and may conflict with the interests of shareholders of AMSERV generally.
AMSERV's Board was aware of and discussed these interests in connection with its
consideration and approval of the Merger Agreement. In fact, Mr. Mora abstained
from voting on the Original Merger Agreement, and later abstained from voting on
the Amendment, due to the expected assumption by STAR of the provisions set
forth in the Mora Agreements. Mr. Katten abstained from voting on the Amendment
due to his expected position as a director of STAR following the Merger. In
considering the recommendation of the Board in respect of the Merger Agreement
and the transactions contemplated thereby, AMSERV's shareholders should be aware
of these interests which may present actual or potential conflicts of interest
with respect to the Merger.
Under the Merger Agreement, STAR has agreed to honor the provisions set
forth in the Mora Agreements. Pursuant to the Mora Employment Agreement, if Mr.
Mora is terminated without cause, AMSERV is obligated to pay to Mr. Mora the
compensation he earned in the final year of his employment in each of the
immediately following five years and transfer to Mr. Mora any individual life
insurance policies owned by AMSERV. In fiscal 1995, Mr. Mora's compensation
totaled approximately $300,000. See "EXECUTIVE COMPENSATION OF AMSERV." Assuming
Mr. Mora is terminated without cause and receives compensation of $300,000 in
the final year of his employment, Mr. Mora would be entitled to receive
$1,500,000 in the aggregate over the immediately following five years under the
Mora Employment Agreement (excluding the value of any individual life insurance
policies transferred to Mr. Mora). In the event that such payments are made by
STAR pursuant to the Mora Employment Agreement, there can be no assurance that
such payments will be deductible for income tax purposes for the full amount
thereof. The Mora Employment Agreement includes covenants which restrict Mr.
Mora from certain business activities following termination of employment, for a
period of one year. The Mora Consulting Agreement provides that Mr. Mora will be
retained as a consultant to AMSERV for the two years immediately following
termination of his employment for which he will receive $129,200 per year in
compensation. In addition, pursuant to a resolution approved by the AMSERV
Board, AMSERV is obligated to continue Mr. Mora's health insurance coverage
following his retirement.
The Merger Agreement provides that the parties understand that STAR and Mr.
Mora will be discussing possible modifications or amendments to the Mora
Agreements. Such modifications or amendments may not be entered into, however,
without the mutual agreement of STAR, AMSERV and Mr. Mora and unless such
modifications or amendments would not jeopardize the ability of the parties to
treat the Merger as a tax free reorganization or to utilize pooling of interest
accounting for accounting purposes.
Leslie Hodge, Secretary and Vice President -- Administration of AMSERV, and
Lori Anderson, Treasurer and Controller of AMSERV, are parties to employment
agreements with AMSERV which contain severance provisions under which the Merger
would constitute a "board approved change in control." As a result, if within 24
months following the consummation of the Merger, Ms. Hodge is terminated without
cause or Ms. Hodge terminates her employment for good reason, the combined
company will be obligated to (i) pay to Ms. Hodge a lump sum payment equal to 12
months of the highest monthly base salary received by
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Ms. Hodge in any one of the past 60 months and (ii) continue Ms. Hodge's
benefits for a period of 12 months. Similarly, if within 24 months following the
consummation of the Merger, Ms. Anderson is terminated without cause or Ms.
Anderson terminates her employment for good reason, the combined company will be
obligated to (a) pay to Ms. Anderson a lump sum payment equal to six months of
the highest monthly base salary received by Ms. Anderson in any one of the past
60 months and (b) continue Ms. Anderson's benefits for a period of six months.
Using the highest monthly base salaries received by each of Ms. Hodge and Ms.
Anderson during the last 60 months, Ms. Hodge and Ms. Anderson would be entitled
to $69,000 and $23,568, respectively, upon termination without cause or
termination by either of them for good reason.
Pursuant to the AMSERV Stock Option Plan and under the terms of the Merger
Agreement, all outstanding AMSERV Options, whether or not vested or exercisable,
will become exercisable immediately prior to the Effective Time, will remain
outstanding and will be assumed by STAR. The AMSERV Options assumed by STAR will
allow their holders to purchase shares of STAR Common Stock pursuant to a
conversion ratio based upon the Exchange Ratio. As of July 17, 1996, options to
acquire 228,266 shares of AMSERV Common Stock were outstanding under the AMSERV
Stock Option Plan. Directors and executive officers of AMSERV held, in the
aggregate, non-qualified stock options granted pursuant to the AMSERV Stock
Option Plan to purchase 87,691 shares of AMSERV Common Stock at exercise prices
ranging from $1.00 to $3.125 per share. The AMSERV directors, including Mr.
Mora, Mr. Katten, Mr. Robinton, Mr. Rogers and Mr. Spinelli, held options to
purchase 35,000, 12,615, 12,615, 10,961, and 1,500 shares of AMSERV Common
Stock, respectively. In addition, Ms. Hodge and Ms. Anderson held options to
purchase 5,000 and 10,000 shares of AMSERV Common Stock, respectively.
Under the terms of the Merger Agreement, STAR has agreed to insure and
guaranty that any provision with respect to indemnification by AMSERV and its
subsidiaries existing in favor of any present or former director, officer,
employee or agent of AMSERV or an AMSERV subsidiary, set forth in the
Certificate of Incorporation or by-laws of AMSERV and its subsidiaries or
pursuant to any other agreements (including insurance policies), will survive
the Merger, will not be amended, repealed or modified in any manner that would
adversely affect an indemnified party, and will continue in full force and
effect for a period of at least six years from the effectiveness of the Merger.
STAR has agreed to maintain or retain the same level of insurance coverage as
currently maintained by AMSERV only (i) if it is available for an annual premium
not in excess of 125% of the last annual premium paid by AMSERV or the AMSERV
subsidiaries prior to the date of the Merger Agreement, and (ii) for six years
after the Effective Time. If such insurance were not available for 125% or less
of the amount of the last premium paid by AMSERV or its subsidiaries, STAR would
be obligated to purchase as much coverage as possible for an amount not to
exceed 125% of the last premium paid by AMSERV or its subsidiaries.
NO DISSENTERS' RIGHTS OF APPRAISAL
Under Section 262(b) of the DGCL, holders of AMSERV Common Stock are not
entitled to dissenters' rights of appraisal in connection with the Merger
because, at the AMSERV Record Date, shares of STAR Common Stock were quoted on
the Nasdaq National Market. The STAR Common Stock is currently quoted on the
Nasdaq National Market.
REGULATORY APPROVALS
STAR and AMSERV are not aware of any license or regulatory permit which is
material to the business of STAR or AMSERV and which is likely to be adversely
affected by consummation of the Merger or any approval or other action by any
state, federal or foreign government or governmental agency (other than routine
re-licensing procedures) that would be required prior to the Merger.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Consummation of the Merger is conditioned upon
STAR receiving a letter from Holtz Rubenstein & Co., LLP (STAR's auditors)
regarding its concurrence with STAR's management's conclusion as to the
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appropriateness of pooling of interests accounting for the Merger under
Accounting Principles Board Opinion No. 16 if it is consummated in accordance
with the Merger Agreement. See "THE MERGER AGREEMENT -- Conditions of the
Merger." Under the pooling of interests accounting method, (i) the recorded
historical cost basis of the assets and liabilities of both STAR and AMSERV will
be carried forward to the operations of STAR generally at their recorded amounts
and (ii) financial statements of STAR issued subsequent to the consummation of
the Merger will be restated to include the combined financial position, results
of operations and cash flows for STAR and AMSERV for all periods presented
therein. Certain events, including certain transactions with respect to STAR
Common Stock or AMSERV Common Stock by affiliates of STAR or AMSERV,
respectively, may prevent the Merger from qualifying as a pooling of interests
for accounting and financial reporting purposes. See "THE MERGER -- Resale
Restrictions."
RESALE RESTRICTIONS
All shares of STAR Common Stock received by AMSERV shareholders in the
Merger will be freely transferable, except that shares of STAR Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of STAR or AMSERV prior to the Merger may be resold by
them only in transactions permitted by the resale provisions of Rule 145
promulgated under the Securities Act (or Rule 144 in the case of such persons
who become affiliates of STAR or as otherwise permitted under the Securities
Act). Persons who may be deemed to be affiliates of STAR or AMSERV generally
include individuals or entities that control, are controlled by, or are under
common control with, such party and may include certain officers and directors
of such party as well as principal shareholders of such party. The Merger
Agreement requires AMSERV to use all reasonable efforts to cause each of its
affiliates to execute a written agreement to the effect that such person will
not offer to sell, transfer or otherwise dispose of any of his or her shares of
STAR Common Stock until such time as financial results covering at least 30 days
of combined operations of the surviving entity and STAR have been published by
STAR, either by issuance of a quarterly earnings report, an effective
registration statement filed with the Commission, a report filed with the
Commission on Form 10-K, 10-Q, or 8-K or any other public filing or announcement
which includes such information.
THE MERGER AGREEMENT
THE DETAILED TERMS AND CONDITIONS TO THE MERGER ARE CONTAINED IN THE MERGER
AGREEMENT, WHICH IS INCLUDED IN FULL AS APPENDIX A TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY
OF THE MATERIAL TERMS OF THE MERGER AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY,
AND MADE SUBJECT TO, THE MORE COMPLETE INFORMATION SET FORTH IN THE MERGER
AGREEMENT.
THE MERGER
Subject to the terms and conditions of the Merger Agreement, at the
Effective Time, Merger Sub will be merged with and into AMSERV and thereupon the
separate existence of Merger Sub will cease and AMSERV will become a
wholly-owned subsidiary of STAR. The Merger will have effects specified in the
DGCL.
EFFECTIVE TIME OF THE MERGER
Upon the satisfaction or waiver of all conditions to the Merger, and
provided that the Merger Agreement has not been terminated or abandoned, STAR
and AMSERV will cause the Certificate of Merger to be filed with the Secretary
of State of the State of Delaware. The Merger will become effective upon the
filing of the Certificate of Merger or at such later time as STAR and AMSERV
have agreed upon and designated in such filing as the Effective Time.
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CONVERSION OF SECURITIES
Pursuant to the Merger Agreement, as of the Effective Time, each issued and
outstanding share of AMSERV Common Stock, other than shares of AMSERV Common
Stock owned of record by STAR and shares of AMSERV Common Stock that are owned
by AMSERV as treasury stock, will be converted into the right to receive 0.4090
shares of STAR Common Stock. STAR Common Stock is quoted on the Nasdaq National
Market under the symbol "SMCS." All shares of AMSERV Common Stock converted in
the Merger will no longer be outstanding and will automatically be cancelled and
retired and will cease to exist, and each holder of a certificate representing
any such shares will cease to have any rights with respect thereto, except the
right to receive, without interest, shares of STAR Common Stock upon surrender
of such certificate and cash in lieu of fractional shares of STAR Common Stock.
The issued and outstanding shares of common stock of Merger Sub will be
converted into shares of AMSERV, all of which will be owned by STAR.
TREATMENT OF STOCK OPTIONS
Pursuant to the AMSERV Stock Option Plan and under the terms of the Merger
Agreement, all outstanding AMSERV Options, whether or not vested or exercisable,
will become exercisable immediately prior to the Effective Time, will remain
outstanding and will be assumed by STAR. Thereafter, the material terms and
conditions pursuant to which such options will be exercisable will be the same
as under the assumed AMSERV Option and the applicable option agreement issued
thereunder, except that (i) the number of shares of STAR Common Stock subject to
each AMSERV Option will be determined by multiplying the number of shares of
AMSERV Common Stock subject to the AMSERV Option immediately prior to the
Effective Time by the Exchange Ratio and rounding down to the next whole share
and (ii) the per share exercise price will be determined by dividing the per
share exercise price in effect immediately prior to the Effective Time under the
AMSERV Option by the Exchange Ratio. Approval of the Merger Agreement by the
shareholders of STAR will constitute shareholder approval of the assumption by
STAR of the AMSERV Stock Option Plan under which AMSERV Options were granted.
EXCHANGE OF CERTIFICATES
As of the Effective Time, STAR will deposit with Continental Stock Transfer
& Trust Company, as exchange agent for the AMSERV Common Stock (the "Exchange
Agent"), for the benefit of the holders of shares of AMSERV Common Stock, for
exchange in accordance with the Merger Agreement, certificates representing the
shares of STAR Common Stock to be issued in exchange for certificates that
represented shares of AMSERV Common Stock immediately prior to the Effective
Time.
As soon as practicable after the Effective Time, STAR will cause the
Exchange Agent to send a notice and transmittal form to each holder of record of
AMSERV Common Stock immediately prior to the Effective Time to be used by such
holders in forwarding their certificates representing such shares
("Certificates") and instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of STAR Common
Stock and cash in lieu of fractional shares.
AMSERV SHAREHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR CERTIFICATES FOR
EXCHANGE UNTIL THEY RECEIVE A NOTICE AND TRANSMITTAL FORM FROM THE EXCHANGE
AGENT.
No fractional shares of STAR Common Stock will be issued in the Merger and
any holder of shares of AMSERV Common Stock entitled under the Merger Agreement
to receive a fractional share will be entitled to receive only a cash payment in
lieu thereof, which payment will be in an amount equal to such holder's
proportionate interest in the net proceeds from the Exchange Agent's sale in the
open market of the aggregate fractional shares of STAR Common Stock issuable in
the Merger.
No dividends or other distributions declared after the Effective Time on
STAR Common Stock will be paid to the holder of any shares represented by a
Certificate until such Certificate is surrendered for exchange. Subject to the
effect of applicable laws, following surrender of any such Certificates, there
will be
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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 any cash payable in lieu of a fractional share of STAR
and the amount of dividends or other distributions with a record date after the
Effective Time therefor payable 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
surrender, and a payment date subsequent to surrender, payable with respect to
such whole shares of STAR Common Stock.
After the close of business on the day prior to the date of the Effective
Time, there will be no transfers on the transfer books of AMSERV of shares of
AMSERV Common Stock which were outstanding immediately prior to the Effective
Time.
In the event any Certificate is lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by STAR, the posting by such person of a
bond in such amount, form and with such surety as STAR may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the appropriate amount of STAR Common Stock and cash in lieu of
fractional shares (and unpaid dividends and distributions) in respect of such
Certificate.
TREATMENT OF AMSERV CLASS B PREFERRED
The Merger Agreement provides that the AMSERV Class B Preferred shall not be
converted into any other security in connection with the Merger. Pursuant to the
terms of the Class B Certificate, upon a change in control of AMSERV (such as
the Merger) any holder of AMSERV Class B Preferred then outstanding may request
that AMSERV redeem all, but not less than all, of the AMSERV Class B Preferred
at a redemption price of $2.625 per share in cash (the "Redemption Price"). The
Redemption Price with respect to the 130,071 shares of AMSERV Class B Preferred
currently outstanding totals $341,436 in the aggregate. Following consummation
of the Merger, STAR will become obligated to pay such amount in the event any
holder of AMSERV Class B Preferred exercises its redemption rights. STAR expects
that the cash and cash equivalents of AMSERV will be sufficient to meet this
obligation, when it arises.
The Class B Certificate also provides that AMSERV may at any time redeem
all, but not less than all, of the outstanding shares of AMSERV Class B
Preferred at the Redemption Price. Pursuant to the Merger Agreement, however,
AMSERV has agreed that it will not redeem, retire or purchase such shares except
as required by the Class B Certificate. It is the intention of the parties that
following the approval of the Merger by the respective shareholders of STAR and
AMSERV, but prior to the consummation of the Merger, STAR will waive this
restriction on the redemption of the AMSERV Class B Preferred and AMSERV will
redeem all outstanding shares of AMSERV Class B Preferred.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things, each of STAR's and AMSERV's: (i)
organization and similar corporate matters; (ii) authorization, execution,
delivery, performance and enforceability of the Merger Agreement; (iii) capital
structure and the ownership of their respective subsidiaries; (iv) other
material investment interests; (v) conflicts under certificates of incorporation
or by-laws or comparable organizational documents, required consents and
approvals, and breaches of material contracts; (vi) compliance with material
laws and regulations; (vii) documents filed by each of STAR and AMSERV with the
Commission and the accuracy of information contained therein; (viii) litigation;
(ix) absence of certain material changes; (x) tax matters; (xi) employee benefit
plans; (xii) labor matters; (xiii) absence of actions preventing the accounting
for the Merger as a pooling of interests; (xiv) the use of brokers in arranging
the Merger; (xv) related party transactions; and (xvi) undisclosed material
liabilities.
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COVENANTS; CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME
AMSERV has agreed (and has agreed to cause its subsidiaries), among other
things, prior to the Effective Time, unless STAR agrees in writing or as
otherwise required to consummate the transactions contemplated by the Merger
Agreement, (i) to conduct its operations only according to their ordinary
course, consistent in all material respects with past practice, and (ii) to use
all reasonable efforts, and to cause its subsidiaries to use all reasonable
efforts, to preserve substantially intact their respective business
organizations, keep available the services of their present officers, employees
and consultants and preserve their present relationships with those persons
having significant business relationships with them. In addition, AMSERV has
also agreed among other things, prior to the Effective Time, unless STAR agrees
in writing or as otherwise required to consummate the transactions contemplated
by the Merger Agreement, that AMSERV shall not: (i) amend its charter or bylaws;
(ii) 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 AMSERV except that AMSERV may issue shares of AMSERV
Common Stock upon the exercise of stock options outstanding on the date of the
Merger Agreement, (iii) other than in the ordinary course of business and
consistent with past practice, incur any material indebtedness for borrowed
money, (iv) waive, release, grant or transfer any rights of material value, (v)
merge or consolidate with any person or adopt a plan of liquidation or
dissolution, (vi) acquire, propose to acquire or enter into an agreement to
acquire any assets, stock or other interests of a third party, (vii) transfer,
lease, license, sell or dispose of a material portion of assets or any material
assets, (viii) 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), (ix) change any accounting principles or methods except
insofar as may be required by changes in generally accepted accounting
principles or (x) mortgage or pledge any of its assets or properties or subject
any of its assets or properties to any material liens, charges, encumbrances,
imperfections of title, security interests, options or rights or claims of
others with respect thereto.
AMSERV has agreed that neither it nor any 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
AMSERV or any subsidiary may increase the 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
AMSERV or any 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 AMSERV or any subsidiary.
In addition, AMSERV has agreed that neither it nor any subsidiary will: (i)
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; (ii) take any action which would interfere with the abilities of the
parties to account for the Merger as a pooling of interests; or (iii) authorize
or enter into any agreement to do any of the things described above.
NEGOTIATIONS WITH OTHERS
The Merger Agreement provides that, prior to the Effective Time, AMSERV will
not, and will cause each of its officers, directors, employees, agents, legal
and financial advisors and affiliates not to, directly or indirectly, make,
solicit, encourage, initiate or 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 AMSERV's business
and properties or a substantial amount of AMSERV's equity securities or debt
securities whether by purchase, merger, purchase of assets, tender offer,
exchange offer, business combination or otherwise (a "Third Party Transaction").
AMSERV and its subsidiaries have
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agreed that they will not and will cause their respective 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 a Third Party Transaction involving any other person unless
AMSERV shall have received an unsolicited written offer to effect a Third Party
Transaction and the Board of Directors of AMSERV determines in good faith upon
the advice of outside legal counsel 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.
Prior to the Effective Time, AMSERV 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 pursuant to the immediately preceding sentence. As soon as practicable
following the Effective Time, AMSERV will promptly request that each person who
has executed a confidentiality agreement in connection with its consideration of
a Third Party Transaction return all confidential information furnished to such
person by or on behalf of AMSERV.
MANAGEMENT AFTER THE MERGER
After the Effective Time, AMSERV will be a wholly-owned subsidiary of STAR.
AMSERV's Board of Directors will be filled by individuals designated by STAR,
and STAR's Chief Executive Officer and President will replace Eugene J. Mora as
Chief Executive Officer and President of AMSERV.
CONDITIONS OF THE MERGER
The respective obligations of STAR and AMSERV to consummate the Merger are
subject to the fulfillment of certain conditions, certain of which may be waived
by the mutual consent of AMSERV and STAR, including, without limitation, the
following: (i) the Merger Agreement and the transactions contemplated thereby
shall have been approved and adopted in the manner required by applicable law by
the holders of the issued and outstanding shares of capital stock of STAR and
AMSERV entitled to vote thereon; (ii) neither STAR nor AMSERV shall be subject
to any order or injunction of a court of competent jurisdiction which prohibits
the consummation of the transactions contemplated by the Merger Agreement; (iii)
the Registration Statement, of which this Joint Proxy Statement/Prospectus forms
a part, shall have become effective and no stop order with respect thereto shall
be in effect; (iv) all necessary approvals under state securities laws relating
to the issuance or trading of the STAR Common Stock to be issued in connection
with the Merger shall have been received; (v) STAR shall have received a letter
from Holtz Rubenstein & Co., LLP, regarding that firm's conclusion that the
Merger qualifies for pooling of interests accounting under generally accepted
accounting practices; (vi) the shares of STAR Common Stock issuable to the
holders of the AMSERV Common Stock and the AMSERV Options shall be authorized
for listing on the Nasdaq National Market; and (vii) AMSERV shall have received
the opinion of Latham & Watkins, addressed to AMSERV, that among other things
the Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and that STAR, AMSERV and
Merger Sub will each be a party to that reorganization within the meaning of
Section 368(b) of the Code. There is currently no intention on the part of
either AMSERV or STAR to waive any of the conditions set out above, including
without limitation (v) and (vii). In the event that the conditions set forth in
(v) or (vii) above were to be waived, STAR would file a post-effective amendment
to the Registration Statement and both STAR and AMSERV would resolicit their
respective shareholders regarding their approval and adoption of the Merger
Agreement.
The obligations of each of STAR and AMSERV to effect the Merger also are
subject to the fulfillment or waiver by the other party prior to the Effective
Time of certain conditions including, without limitation, the following: (i) the
other party shall have performed in all material respects its agreements
contained in the Merger Agreement required to be performed by it and the
representations and warranties of the other party contained in the Merger
Agreement shall be true and correct (other than representations made as of a
particular time); and (ii) from the date of the Merger Agreement through the
Effective Time, there will not
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have occurred any change in the financial condition, business, properties, or
results of operations or prospects of the other party that would have a material
adverse effect on such other party and its subsidiaries, taken as a whole.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, before or after approval by the shareholders of
STAR and AMSERV:
(a) by the mutual consent of STAR and AMSERV;
(b) by either AMSERV or STAR, if (i) the Merger has not been consummated
by September 15, 1996; (ii) the approval of STAR's shareholders or AMSERV's
shareholders has not been obtained at a meeting duly convened therefor or at
any adjournment thereof, or (iii) a United States federal or state court of
competent jurisdiction or United States federal or state governmental,
regulatory or administrative agency or commission has issued an order,
decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by the
Merger Agreement and such order, decree, ruling or other action has become
final and non-appealable;
(c) by AMSERV, at any time prior to the Effective Time, before or after
the adoption and approval by the shareholders of AMSERV, by action of the
AMSERV Board of Directors, if (i) a Third Party Transaction has been
proposed and the AMSERV Board determines in good faith upon the advice of
outside legal counsel that termination is required to comply with its
fiduciary duties; (ii) there has been a breach by STAR or Merger Sub of any
representation or warranty contained in the Merger Agreement which would
have a material adverse effect on AMSERV; or (iii) there has been a material
breach of any of the covenants or agreements set forth in the Merger
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
AMSERV to STAR; or
(d) by STAR at any time prior to the Effective Time, before or after the
adoption and approval by the shareholders of STAR, by action of the STAR
Board of Directors, if (i) there has been a breach by AMSERV of any
representation or warranty contained in the Merger Agreement which would
have a material adverse effect on STAR; (ii) there has been a material
breach of any of the covenants or agreements set forth in the Merger
Agreement on the part of AMSERV, 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 AMSERV; or (iii) the AMSERV Board of Directors has modified or
withdrawn its determination that the Merger is fair to and in the best
interests of AMSERV's shareholders or its approval or recommendation of the
Merger Agreement or the Merger in any event due to the existence of a Third
Party Transaction.
EFFECT OF TERMINATION AND ABANDONMENT
If (i) AMSERV terminates the Merger Agreement in favor of a Third Party
Transaction or (ii) STAR terminates the Merger Agreement pursuant to the events
discussed in clause (iii) of paragraph (d) above, then, within ten days
following such termination, AMSERV will pay STAR a fee of $250,000, plus
reasonable out-of-pocket fees and expenses up to $200,000, which amount shall be
payable by wire transfer of same day funds.
AMENDMENT AND WAIVER
Subject to applicable law, (a) the Merger Agreement may be amended at any
time by action taken by the respective Boards of Directors of the parties, and
(b) the parties, by action taken by their respective Boards of Directors, may,
at any time prior to the Effective Time, extend the time for performance of any
obligation or action required of the other party under the Merger Agreement, may
waive inaccuracies in representations and warranties made in the Merger
Agreement and any document delivered pursuant thereto and may waive compliance
with any agreements or conditions for their respective benefit contained in the
Merger Agreement. Any such amendment or waiver will only be valid if set forth
in a written instrument signed on behalf of each of the parties to the Merger
Agreement. See "THE MERGER AGREEMENT -- Conditions of the Merger."
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COMPARISON OF RIGHTS OF HOLDERS OF
AMSERV COMMON STOCK AND STAR COMMON STOCK
GENERAL
As a result of the Merger, holders of AMSERV Common Stock will become
shareholders of STAR, and the rights of such former AMSERV shareholders will
thereafter be governed by the STAR Certificate of Incorporation (the "STAR
Charter") and the STAR by-laws (the "STAR By-laws") and the laws of New York.
The rights of the holders of AMSERV Common Stock are presently governed by the
AMSERV Certificate of Incorporation (the "AMSERV Charter") and the AMSERV
by-laws (the "AMSERV By-laws") and the laws of Delaware. The following summary,
which does not purport to be a complete statement of the differences between the
rights of the shareholders of STAR and the shareholders of AMSERV, is an
explanation of the material differences between the AMSERV Common Stock and STAR
Common Stock resulting from the differences between the STAR Charter and the
AMSERV Charter, the STAR By-laws and the AMSERV By-laws and New York and
Delaware law. This summary is qualified in its entirety by reference to the full
text of each of such documents and the applicable state statutes.
VOTING RIGHTS
GENERALLY
Each holder of AMSERV Common Stock is entitled to one vote for each share
held by such holder on all matters upon which holders of AMSERV Common Stock are
entitled or afforded the opportunity to vote. Except where the DGCL prescribes a
higher vote, to be effective, corporate action taken by vote of shareholders of
a Delaware corporation must be authorized by the vote of the holders of a
majority of the outstanding shares of all classes of stock entitled to vote
thereon present in person or by proxy at the meeting.
Each shareholder of record of STAR Common Stock is entitled to one vote for
every share of such stock, subject only to the voting rights granted to the
holders of STAR Cumulative Preferred Stock upon default in dividends thereon.
Except as otherwise provided by law, whenever any corporate action other than
the election of directors is to be taken by vote of the shareholders of STAR, it
must be authorized by a majority of the votes cast at a meeting of shareholders
by the holders of shares entitled to vote thereon.
ELECTION OF DIRECTORS
The AMSERV Charter provides that the number of directors shall be fixed in
the AMSERV By-laws, which provides that the number cannot be less than four nor
more than nine. The number of directors of AMSERV is currently fixed at five.
Directors are elected at a meeting of shareholders by the vote of the holders of
a majority of the outstanding shares of all classes of stock entitled to vote
thereon present in person or by proxy at the meeting.
The STAR Charter mandates that STAR have not less than three directors.
APPROVAL OF CERTAIN TRANSACTIONS
The DGCL generally requires the affirmative vote of a majority of the
outstanding stock entitled to vote thereon for the approval of any merger or
consolidation. Unless required by the certificate of incorporation, no
shareholder approval is required for certain mergers in which (i) there is no
amendment to the certificate of incorporation of a corporation, (ii) each share
of stock of such corporation is to be an identical outstanding or treasury share
of the surviving corporation after the effective date of the merger and (iii)
either no shares of common stock of the surviving corporation and no shares,
securities or obligations convertible into such stock will be issued or
delivered in connection with the merger or the unissued shares or treasury
shares of stock of the surviving corporation to be issued or delivered in
connection with the merger plus those initially issuable upon conversion of any
other shares, securities or obligations to be issued or delivered in connection
with the merger do not exceed 20% of the shares of common stock of such
corporation outstanding immediately prior to the effective date of the merger.
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The New York Business Corporation Law (the "NYBCL") requires the affirmative
vote of two-thirds of all outstanding shares entitled to vote thereon to effect
a merger, a consolidation, a share exchange or the sale, lease or disposition of
all or substantially all of a corporation's assets. Notwithstanding any
provision in the certificate of incorporation, the holders of shares of a class
or series are entitled to vote as a class if the proposed transaction contains
any provision which, if contained in an amendment to the certificate of
incorporation, would entitle the holder of shares of such class or series to
vote as a class thereon; in such a case, in addition to the required two-thirds
vote of all outstanding shares, the merger must be authorized by a vote of the
holders of a majority of all outstanding shares of each such class or series.
The NYBCL does not contain a provision for mergers (other than those between a
corporation and its 90% or more owned subsidiary) without the approval of
shareholders similar to that in the DGCL.
Because the Merger is structured as a merger of two Delaware corporations,
the two-thirds affirmative vote requirement and the other procedures under New
York law described in the preceding paragraph do not apply to STAR in connection
with the Merger.
Accordingly, as opposed to the DGCL, the NYBCL would make approval of a
merger, a consolidation, a share exchange or the sale, lease or disposition of
all or substantially all of a corporation's assets more difficult to obtain.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under both Delaware and New York law, amendments to a certificate of
incorporation may be authorized by the vote of the holders of a majority of all
outstanding shares entitled to vote thereon. Both states also provide for
approval by vote of the holders of a majority of outstanding shares of a
particular class of stock in certain circumstances.
SPECIAL MEETINGS
Under both Delaware and New York law, special meetings of shareholders may
be called by the board of directors and by such other person or persons
authorized to do so by the corporation's certificate of incorporation or
by-laws. In addition, Delaware law provides that, if an annual meeting is not
held within 30 days of the date designated for such a meeting, or is not held
for a period of 13 months after the last annual meeting, the Delaware Court of
Chancery may summarily order a meeting to be held upon the application of any
shareholder or director. Under New York law, if there is a failure to elect a
sufficient number of directors to conduct the business of the corporation for a
period of one month after the date fixed by or under the by-laws for the annual
meeting of shareholders or for a period of 13 months after the last annual
meeting, the board of directors will call a special meeting for the election of
directors. If the board fails to do so within 14 days of the expiration of such
period or if it is so called but such directors are not elected within two
months, holders of 10% of the shares entitled to vote in an election of
directors may demand the call of a special meeting for an election of directors.
Therefore, in comparison to Delaware law, New York law will make calling a
special meeting a more difficult process for shareholders because of the 10% of
shareholders requirement and other procedures under New York law described
above.
SHAREHOLDERS' ACTION WITHOUT A MEETING
The DGCL provides that shareholders may take any action without a meeting by
written consent signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted, unless otherwise provided in the certificate of incorporation. The
AMSERV Charter contains no provision limiting the right to act by written
consent. Prompt notice of the taking of any action by less than unanimous
consent must be given to shareholders who did not consent to such action. The
NYBCL, however, provides that shareholders may take any action without a meeting
by written consent only if such
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consent is signed by the holders of all outstanding shares entitled to vote
thereon, unless otherwise provided in the certificate of incorporation. The STAR
Charter contains no provision altering the provisions of the statute.
Therefore, shareholders will find it more difficult to take any action
without a meeting under the more restrictive NYBCL requirement that a written
consent be signed by the holders of all of the shares entitled to vote.
PREEMPTIVE RIGHTS
The DGCL allows for, but does not require, the grant of preemptive rights in
a company's certificate of incorporation. Neither the AMSERV Charter nor the
AMSERV By-laws provide preemptive rights to the holders of capital stock. The
NYBCL provides, subject to certain exceptions, preemptive rights to shareholders
upon an issuance of securities which would adversely affect certain specified
interests of such shareholders, provided that the certificate of incorporation
may provide otherwise. The STAR Charter states that no holders of shares of STAR
of any class or series, now or hereafter authorized, shall have any preemptive
rights.
Therefore, shareholders are not entitled to receive preemptive rights under
either Delaware or New York law.
DIVIDENDS
Subject to any restrictions in a corporation's certificate of incorporation
(which the AMSERV Charter does not include), the DGCL generally provides that
the directors of a corporation may declare and pay dividends out of surplus
(defined as the excess, if any, of the net assets over capital (defined as the
aggregate par value of the outstanding stock, if par value stock, plus or minus
any amount added or subtracted by resolution of the board, but in no event less
than the aggregate par value)) or, when no surplus exists, out of net profits
for the fiscal year in which the dividend is declared and/or the preceding
fiscal year. Dividends may not be paid out of net profits if the capital of the
corporation is less than the aggregate amount of capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets.
Under the NYBCL, a corporation may declare and pay dividends on its
outstanding shares except when the corporation is insolvent or would thereby be
made insolvent, or when the declaration, payment or distribution would be
contrary to any restrictions contained in the certificate of incorporation. In
general, dividends may be declared or paid out of surplus only. When any
dividend is paid or any other distribution is made, in whole or in part, from
sources other than earned surplus, it must be accompanied by a written notice
disclosing the amounts by which such dividend or distribution affects stated
capital, capital surplus and earned surplus, or, if such amounts are not yet
determinable, disclosing the approximate effect of such dividend on stated
capital, capital surplus and earned surplus and stating that such amounts are
not yet determinable.
Accordingly, although both Delaware and New York law will allow for a
dividend to be declared, the NYBCL has heightened disclosure requirements with
regards to a dividend paid out from sources other than surplus.
STOCK REPURCHASES
The DGCL permits a corporation to repurchase or redeem its shares, except
that a corporation may not do so when the capital of the corporation is impaired
or when such purchase or redemption would cause any impairment of the capital of
the corporation. A purchase or redemption out of capital of shares which are
entitled upon any distribution of the corporation's assets, whether by dividend
or liquidation, to a preference over another class or series of its stock, is
permitted if such shares will be retired upon their acquisition and the capital
of the corporation reduced in accordance with Delaware law.
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Under the NYBCL, a corporation may, subject to restriction imposed by law or
its certificate of incorporation, repurchase or redeem its shares out of surplus
except when the corporation is insolvent or would thereby be made insolvent. A
corporation may repurchase its shares out of stated capital (with the foregoing
exception) if the purchase is made for the purpose of (i) eliminating fractions
of shares, (ii) collecting or compromising indebtedness to the corporation or
(iii) paying shareholders the fair value of their shares in connection with the
exercise of statutory appraisal rights.
Accordingly, although both the DGCL and the NYBCL will allow a corporation
to repurchase or redeem its shares from surplus, New York law is more
restrictive regarding the use of stated capital for such purchases or
redemptions in that the corporation must comply with the above stated purposes.
ISSUANCE OF RIGHTS OR OPTIONS TO PURCHASE SHARES TO DIRECTORS, OFFICERS AND
EMPLOYEES
The DGCL permits any corporation, either in its certificate of incorporation
or by resolution of the board of directors, to create rights or options
entitling the holders thereof to purchase from the corporation any shares of its
capital stock of any class or classes. In the absence of actual fraud in the
transaction, the judgment of the directors as to the consideration for the
issuance of such rights or options and the sufficiency thereof shall be
conclusive. The NYBCL requires that the issuance to officers, directors or
employees of rights or options to purchase shares be authorized by a majority of
all outstanding shares entitled to vote thereon, or authorized by and consistent
with a plan adopted by such vote of shareholders. In the absence of preemptive
rights, such authorization is not required in New York for the issuance of
rights or options in substitution for or upon the assumption of rights or
options of a corporation with which the issuing corporation is merging or
consolidating.
Accordingly, under the NYBCL it is more difficult to issue to officers,
directors or employees rights or options to purchase shares than it would
otherwise be under the DGCL.
LOANS TO DIRECTORS
The DGCL permits any corporation to lend money to, or guarantee an
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. Under New York law, any loan made by the corporation to
any director must be authorized by a vote of the shareholders. For purposes of
this authorization, the shares held by the director who would be the borrower
are not entitled to vote.
Therefore, under New York law, loans to directors will be more difficult to
obtain than under Delaware law because New York requires a shareholder vote
whereas Delaware relies solely on the directors' judgment.
CLASSIFICATION OF THE BOARD OF DIRECTORS
Both the DGCL and the NYBCL provide that a corporation's board of directors
may be divided into classes with staggered terms of offices. Neither the AMSERV
Charter or the AMSERV By-laws nor the STAR Charter or the STAR By-laws provide
for a classified board.
DUTIES OF DIRECTORS
The NYBCL specifically permits a board of directors to consider
constituencies other than the holders of a corporation's capital stock and to
consider both the long-term and short-term interests of the corporation and such
constituencies when taking any action, including action taken in connection with
a change or potential change in the control of the corporation. The NYBCL
permits directors to consider the effect that a corporation's action may have in
the short-term and the long-term upon (i) potential growth, development,
productivity and profitability of the corporation; (ii) current employees; (iii)
retired employees and other beneficiaries receiving or entitled to receive
retirement, welfare or similar benefits from the corporation; (iv) the
corporation's customers and creditors; and (v) the ability of the corporation to
provide continuously goods, services, employment opportunities and employment
benefits and otherwise to contribute to the communities in which it does
business. The DGCL contains no similar provision; however, Delaware case
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law has established that, in circumstances involving a potential change of
control, directors may consider, among various other proper factors, the impact
of both the bid and the potential acquisition on constituencies other than
shareholders.
Accordingly, although only the NYBCL allows a board of directors to consider
constituencies other than the holders of a corporation's capital stock when
taking any action, both Delaware and New York law allow such considerations when
the action involves a potential change of control of the corporation.
INTERESTED DIRECTOR TRANSACTIONS
Under the DGCL, no contract or transaction between a corporation and one or
more of its directors or officers, or between a corporation and any other
corporation, partnership, association or other organization in which one or more
of its directors or officers are directors or officers, or have a financial
interest, is void or voidable solely for that reason or solely because the
director or officer is present at or participates in the meeting of the board or
committee which authorized the contract or transaction, or solely because his or
their votes are counted for such purpose, provided that (i) the material facts
concerning the individual's interest and the transaction are disclosed and the
transaction is approved by a majority of the disinterested directors of the
board or a committee of the board, or (ii) the material facts concerning the
individual's interest and the transaction are disclosed and the transaction is
approved in good faith by vote of the shareholders or (iii) the contract or
transaction is fair to the corporation as of the time it is authorized, approved
or ratified by the board of directors, a committee thereof or the shareholders.
The NYBCL provides that no transaction between a corporation and one or more
of its directors or an entity in which one or more of its directors are
directors or officers or have a substantial financial interest shall be void or
voidable solely for that reason. In addition, no such transaction shall be void
or voidable solely because the director is present at or votes at the meeting of
the board of directors or committee which authorized the transaction. In order
to avoid such a transaction being void or voidable, it must, after disclosure of
material facts (unless such facts were known), (i) be approved by the
disinterested directors or a committee of disinterested directors by a vote
sufficient for such purpose without counting the vote of any interested director
(or, if the vote of disinterested directors is insufficient to constitute an act
of the board under New York law, by the unanimous vote of the disinterested
directors) or (ii) be approved by a vote of the shareholders. Alternatively, the
transaction will not be void or voidable if it is shown to have been fair to the
corporation at the time it was approved by the board of directors, a committee
thereof or the shareholders.
Accordingly, although the DGCL may differ slightly from the NYBCL, Delaware
and New York law contain substantially similar treatments of interested director
transactions.
LIMITATIONS ON DIRECTORS' LIABILITY
The DGCL permits a corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director to
the corporation or its shareholders for damages for breach of the director's
fiduciary duty, subject to certain limitations. The AMSERV Charter includes such
a provision limiting the liability of directors, as set forth below, subject to
limitations substantially identical to those contained in the DGCL.
The AMSERV Charter provides that a director will not be personally liable to
the corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, which concerns unlawful
payments of dividends, stock purchases or redemption or (iv) for any transaction
from which the director derived an improper personal benefit.
While these provisions provide directors with protection from liability for
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on directors'
breach
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of the duty of care. The provisions described above apply to an officer of the
corporation only if he or she is a director of the corporation and is acting in
his or her capacity as director, and do not apply to officers of the corporation
who are not directors.
The NYBCL permits a corporation to limit or eliminate a director's personal
liability to the corporation or the holders of its capital stock for breach of
duty. This limitation is generally unavailable for acts or omissions by a
director which were (i) in bad faith, (ii) involved intentional misconduct or a
knowing violation of law or (iii) involved a financial profit or other advantage
to which such director was not legally entitled. The NYBCL also prohibits
limitations on director liability for acts or omissions which resulted in a
violation of a statute prohibiting certain dividend declarations, certain
payments to shareholders after dissolution and particular types of loans.
The STAR Charter provides for limitations on directors' liability as
permitted by New York law.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The DGCL permits a corporation to indemnify officers, directors, employees
and agents for actions taken in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation, and
with respect to any criminal action, which they had no reasonable cause to
believe was unlawful. The DGCL also provides that a corporation may advance
expenses of defense (upon receipt of a written undertaking to reimburse the
corporation if it is ultimately determined that such individual is not entitled
to indemnification) and must reimburse a successful defendant for expenses,
including attorneys' fees, actually and reasonably incurred, and permit a
corporation to purchase and maintain liability insurance for its directors and
officers. The DGCL further provides that indemnification may not be made for any
claim, issue or matter as to which a person has been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be liable
to the corporation, except only to the extent a court determines that the person
is entitled to indemnity for such expenses that such court deems proper.
In the absence of a specific provision in the AMSERV Charter to this effect,
the DGCL provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he or she is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe that his
or her conduct was unlawful, except that no indemnification shall be made with
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper. Any indemnification as explained above shall be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he or she has met the proper standard of
conduct as set forth above. Such determination shall be made (i) by a majority
vote of the directors who are not parties to such action, suit or proceeding,
even though less than a quorum, (ii) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (iii)
by the shareholders. The indemnification and advancement of expenses provided
by, or granted pursuant to, the DGCL are not exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any by-law, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity
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while holding such office. A corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another entity.
Under the NYBCL, indemnification of directors and officers may be provided
to whatever extent shall be authorized by a corporation's certificate of
incorporation or a by-law or vote adopted by the shareholders. However, the
NYBCL does not permit indemnification with respect to any matter as to which the
director or officer has been adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest of the corporation.
The NYBCL provides that no indemnification of directors in shareholder
derivative suits may be made in respect of (i) a threatened action, or a pending
action which is settled or otherwise disposed of, or (ii) any claim, issue or
matter as to which the director or officer has been adjudged to be liable to the
corporation, unless and only to the extent that the court in which the action
was brought or, if no action is brought, any court of competent jurisdiction,
determines upon application that, in view of the circumstances of the case, the
director or officer is fairly and reasonably entitled to indemnity for such
portion of the settlement amount and expenses as the court deems proper. The
statutory provisions for indemnification and advancement of expenses are not
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled independently of the applicable
statutory provision.
The STAR By-laws currently provide for indemnification of directors and
officers and advancement of indemnified expenses to the full extent now or
hereafter permitted by the NYBCL.
Accordingly, although the DGCL may differ slightly from the NYBCL, Delaware
and New York law contain substantially similar limitations on directors'
liability.
REMOVAL OF DIRECTORS
As permitted under the DGCL, directors of AMSERV may be removed, with or
without cause, by the vote of the holders of a majority of the outstanding
shares of all classes of stock entitled to vote present at a meeting of
shareholders. The DGCL imposes additional restrictions on the removal of
directors for corporations with a classified board, cumulative voting or
directors elected by the holders of a specific class or series of shares.
The NYBCL provides that any or all of the directors of a corporation may be
removed for cause by a vote of the shareholders and that the certificate of
incorporation or by-laws may provide for removal without cause by vote of the
shareholders. STAR's By-laws provide that any director may be removed, with or
without cause, at any time by the shareholders. The NYBCL also imposes
additional restrictions on the removal of directors of corporations with
cumulative voting or directors elected by the holders of a specific class or
series of shares.
Accordingly, the removal of STAR directors would be treated in a
substantially similar manner under Delaware and New York law.
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DESCRIPTION OF STAR CAPITAL STOCK
STAR COMMON STOCK
STAR has one authorized class of capital stock, the STAR Common Stock, of
which STAR is authorized to issue 10,000,000 shares.
The holders of STAR Common Stock are entitled to one vote for each share of
record held by them on all matters to be voted on by shareholders. There is no
right to cumulative voting; thus, the holders of 50% or more of the shares
outstanding can, if they choose to do so, elect all of the directors of STAR.
The holders of STAR Common Stock are entitled to receive dividends when, as and
if declared by the Board of Directors out of funds legally available therefor.
In the event of liquidation, dissolution or winding up of the affairs of STAR,
the holders of STAR Common Stock are entitled to share ratably in all assets
remaining available for distribution to them after payment of liabilities.
Holders of shares of STAR Common Stock have no preemptive or other subscription
rights.
As of July 17, 1996, there were 2,463,079 shares of STAR Common Stock issued
and outstanding which were held of record by 68 persons.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
(a) Section 722 of the NYBCL permits, in general, a New York corporation to
indemnify any person made, or threatened to be made, a party to an action or
proceeding by reason of the fact that he or she was a director or officer of the
corporation, or served another entity in any capacity at the request of the
corporation, against any judgment, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees actually and necessarily incurred
as a result of such action or proceeding, or any appeal therein, if such person
acted in good faith, for a purpose he or she reasonably believed to be in, or,
in the case of service for another entity, not opposed to, the best interests of
the corporation and, in criminal actions or proceedings, in addition had no
reasonable cause to believe that his or her conduct was unlawful. Section 723 of
the NYBCL permits the corporation to pay in advance of a final disposition of
such action or proceeding the expenses incurred in defending such action or
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount as, and to the extent, required by statute. Section
721 of the NYBCL provides that indemnification and advancement of expense
provisions contained in the NYBCL shall not be deemed exclusive of any rights to
which a director or officer seeking indemnification or advancement of expenses
may be entitled, whether contained in the certificate of incorporation or the
by-laws of the corporation or, when authorized by such certificate of
incorporation or by-laws, (i) a resolution of shareholders, (ii) a resolution of
directors or (iii) an agreement, provided no indemnification may be made on
behalf of any director or officer if a judgment or other final adjudication
adverse to the director or officer establishes that his or her acts were
committed in bad faith or were the result of active or deliberate dishonesty and
were material to the cause of action so adjudicated, or that he or she
personally gained in fact a financial profit or other advantage to which he or
she was not legally entitled.
(b) STAR's Charter contains no provision regarding indemnification of
officers or directors.
(c) Article X of STAR's By-Laws provides, in general, that STAR shall
indemnify any officer or director (including officers and directors serving
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise in any capacity at STAR's request) made, or threatened to be
made, a party to an action or proceeding (whether civil, criminal,
administrative or investigative) by reason of the fact that he or she was
serving in any of those capacities against judgments, fines, amounts paid in
settlement and reasonable expenses (including attorneys' fees) actually and
necessarily incurred in connection with the defense of or as a result of such
action or proceeding or in connection with any appeal thereof. Indemnification
is not available under Article X if a judgment or other final adjudication
adverse to such director or officer establishes that (i) his or her acts were
committed in bad faith or were the result of active
and deliberate dishonesty and, in either case, were material to the cause of
action so adjudicated, or (ii) he or she personally gained in fact a financial
profit or other advantage to which he or she was not legally entitled.
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(d) Pursuant to By-law Article X, STAR has entered into indemnification
agreements with certain of its directors and officers providing for the
indemnification of such directors and officers in derivative actions, as well as
with respect to third party actions. The NYBCL mandates indemnification in
derivative actions if the officer or director has been successful, on the merits
or otherwise, in the defense of the action. The indemnification agreements, as
well as Section 722 of the NYBCL, do not permit indemnification in derivative
actions for (i) proceedings which are settled or otherwise disposed of or (ii)
claims to which a person has been adjudged to be liable, unless court approved.
However, in reliance on Section 721 of the NYBCL, which provides that the
statutory indemnification provisions are not exclusive of other rights which may
be provided to an officer or director seeking indemnification, By-law Article X
also extends the right of indemnification to settlements and unsuccessful
defenses of derivative actions without the necessity of a court determination
provided the person seeking indemnification meets the standard described in the
preceding paragraph. STAR is not aware of any judicial determination as to
whether indemnification provisions such as those related to derivative actions
in By-Law Article X (which, by their terms, exceed the scope of NYBCL Section
722 but where the standard of conduct set forth in NYBCL Section 721 has been
met) are enforceable pursuant to such nonexclusivity provision.
(e) By-law Article X, like the indemnification agreements, provides that the
expenses incurred in defending any action to which a director or officer may be
entitled to indemnification shall be advanced by STAR prior to the final
disposition of the action as long as the indemnitee undertakes to repay such
advances if required by law. STAR has been advised that the NYBCL currently
requires that an officer or director undertake to repay such advances to the
extent they exceed the amount to which the officer or director ultimately is
entitled. The period of time within which STAR is to advance expenses is fifteen
days after request; the time period within which STAR is to provide
indemnification after request is thirty days.
(f) By-law Article X, which by its terms is not the exclusive basis for
granting rights to indemnification or advancement of expenses, establishes
procedures for processing indemnification requests, confirms the authority of
STAR to maintain indemnification insurance and prohibits the repeal of By-law
Article X retroactively. By-law Article X also provides that it applies, to the
fullest extent permitted by law, to acts or omissions occurring prior to its
adoption. By-law Article X further stipulates that the rights granted therein
are contractual in nature, which is meant to prevent any retroactive denial or
reduction of indemnification if By-law Article X is later amended.
(g) Under By-law Article X, the Board of Directors is permitted, to the
fullest extent permitted by law, to establish an appropriate scope of and
procedure for the indemnification of, and advancement of expenses to, employees
and other persons to whom STAR is permitted to provide indemnification or
advancement of expenses.
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BUSINESS OF STAR
GENERAL
STAR is in the business of providing placement services of registered and
licensed nurses and home health aides to patients for care at home ("Home Care")
and, to a lesser extent, temporary health care personnel recruiting to hospitals
and nursing homes ("Hospital Staffing"). In addition, STAR maintains registries
of registered nurses, licensed practical nurses, nurses' aides, certified home
health aides and certified personal care workers from which personnel are
recruited on a per diem basis to meet the requirements of STAR's clients.
Prior to its acquisition by present management in 1987, STAR's business
related primarily to providing private duty nurses to patients in hospitals and
staffing to hospitals. Under its current management, STAR expanded its Hospital
Staffing arrangements to nursing homes and additional hospitals to provide
licensed nurses on a per diem basis for general staff. In 1988, STAR further
extended its Hospital Staffing business to include providing licensed practical
nurses and nurses' aides. In 1989, STAR began providing Home Care services in
New York City pursuant to a license from the New York State Health Department.
In 1990, STAR expanded its Home Care services to include transportation of
patients from hospital to home in ambulettes, arrangements to purchase and
supply equipment and pharmaceuticals as prescribed by the patient's physicians,
and home infusion care. In 1991, STAR was licensed by the New York State
Department of Health to operate an office in Nassau County, New York.
In 1992, STAR expanded its existing Home Care business through the
acquisition of certain assets from Unity Healthcare Holding Company, Inc. and
its subsidiaries ("Unity"), including contract rights to provide Home Care
services through various hospitals, community agencies and other institutional
health care providers. These contract rights complemented the existing home
health care businesses of STAR in areas such as New Jersey and New York where
STAR already operated. In addition, in these locations, STAR obtained from Unity
client referral lists to further expand existing operations.
In addition to expanding STAR's existing regional business, the Unity
acquisition added new operations to STAR in new locations. STAR acquired Unity's
Florida operations, which included certification to receive reimbursement from
Medicare and Medicaid in Broward and Dade Counties. Most of such Medicare and
Medicaid reimbursed operations are located in Dade County. STAR also acquired
the assets representing Unity's operations in Florida that do not have Medicare
and Medicaid certification, but which operate under state license.
In 1993, STAR further expanded its existing Home Care business through the
acquisition of certain assets of DSI Health Care Services, Inc. ("DSI")
including contract rights to provide Home Care services through various
hospitals, community agencies and other institutional health care providers.
These contract rights complimented STAR's existing Home Care business in the
Long Island, New York area.
In May 1995, STAR acquired certain assets of Long Island Nursing Registry,
Inc. ("LINR") thereby further expanding its Home Care business. LINR provided
nursing and other skilled health care services with both Medicaid and
non-Medicaid reimbursement eligibility compatible with the business of STAR.
LINR maintains offices and does business under the STAR name in the Long Island
area and as Comprehensive Care America in the Syracuse area. The acquired assets
included all of the fixed assets, certain of the contract and intellectual
property rights and all of the records, lists, files and books (including
certain customer and personnel lists) with respect to or in connection with the
health care business conducted by LINR. The acquisition expanded STAR's market
area into Suffolk County, augmented its presence in Nassau County and gave it
significant market share in central New York.
During the fiscal years ended May 31, 1993, 1994 and 1995, 68%, 58% and 56%,
respectively, of STAR's revenues were attributable to Medicare, Medicaid and
other state and federal government payments. Historically, a greater portion of
STAR's revenues have been derived from Home Care services and a lesser portion
of such revenues have been derived from Hospital Staffing. STAR believes that
this is a result of
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changing social and economic attitudes toward the de-institutionalization of
patients as well as STAR's changing customer base. This trend is demonstrated by
the following table, which sets forth certain information with respect to the
Home Care and Hospital Staffing lines of business during each of STAR's three
most recent fiscal years.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MAY 31,
-------------------------------------------------
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Net Revenue
Home Care.............................. $ 25,403,215 $ 19,295,762 $ 14,242,663
Hospital Staffing...................... 1,685,211 2,872,594 3,136,986
Percentage of Net Revenues
Home Care.............................. 94% 87% 82%
Hospital Staffing...................... 6% 13% 18%
</TABLE>
HOME CARE SERVICES
A substantial portion of the revenues from STAR's Home Care business relates
to services provided to patients referred to STAR by physicians, county medical
services, community organizations, hospital social service workers, nurses,
insurance companies and HMOs. Other patients are referred through such sources
as the patient's family. The remaining revenues attributable to STAR's Home Care
business are received as a result of subcontracting arrangements with certified
home health agencies ("primary contractors") that are authorized to receive
reimbursement from Medicare and Medicaid in the States of New York and Florida.
STAR provides Home Care nurses and paraprofessionals, including registered
nurses, licensed practical nurses, certified home health aides, certified
personal care workers and companions. These individuals are temporary employees
of STAR who work for STAR as needed. STAR's roster of Home Care personnel
includes approximately 1,700 nurses and health care paraprofessionals.
It is STAR's policy that all of its Home Care nurses and paraprofessionals
meet certain licensing, certification, and other requirements. Upon registering
with STAR for temporary employment, STAR's Home Care nurses and
paraprofessionals are required to attend inservice classes given by STAR. STAR
conducts ongoing inservices for its nurses and paraprofessionals both to meet
New York State Department of Health and New York State Licensing Board
continuing education requirements and to fulfill STAR's own additional quality
assurance goals. STAR is implementing similar requirements in Florida. These
classes and inservices, each of which typically lasts three hours, are offered
bi-weekly. They are taught by health care professionals selected by STAR for
their expertise in their fields, including nurses, physical therapists, social
workers and occasionally physicians.
When STAR admits a new patient for service, STAR's Director of Nursing
confers with the patient's physician and other medical and health care
professionals (collectively, the patient's "health care team") to (1) obtain
physician's orders; (2) acquire a detailed description of the patient's medical
problem; (3) determine the patient's specific Home Care requirements (the
"protocol"), including the plan of treatment and pharmaceutical services,
products and equipment which will be needed; and (4) determine the type of
personnel, the number of hours and shifts required. The Director of Nursing
and/or a nursing supervisor first visits the patient to conduct a personal
examination and assessment in order both to verify all information received from
the referral source and to select the appropriate Home Care personnel to care
for the patient.
In a typical Home Care case, STAR's nurse or paraprofessional assigned to
the case visits the patient on a prescribed schedule to administer the protocol
and to provide other general care to the patient. Often the nurse or
paraprofessional spends the entire day with the patient. All of the Home Care
cases are supervised by a nursing supervisor to ascertain whether any problems
have arisen in connection with the services. Home Care services provided on a
subcontracting basis for a primary contractor are supervised only by the primary
contractor. STAR's personnel are instructed to remain in continuous contact with
the patient's health care team.
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STAR has contracted with the Departments of Social Services in Nassau,
Suffolk, and Onondaga Counties in New York to provide and be reimbursed for
custodial services under Medicaid. STAR is a direct provider for skilled nursing
services through Medicaid in New York State.
Approximately 15% of STAR's revenues from Home Care services are paid by
insurance carriers. Payments for STAR's Home Care services typically are made
(1) by assignment of insurance benefits from the patient, (2) by the primary
contracting organization or (3) by the patient. Once a claim is submitted to an
insurer, the insurer generally is required to act upon that claim within 60
days. STAR typically receives payments from 60 to 180 days after its services
are rendered, although such time period is sometimes greater. Accordingly, STAR
is often required to carry accounts receivable over substantial periods of time
and to utilize a line of credit to meet its ongoing expenses. Medicaid claims
are billed weekly and are usually paid in 60 to 90 days.
STAR was surveyed by the Joint Commission on Accreditation of Healthcare
Organizations ("JCAHO") and, in February 1996, was found to meet the
requirements for accreditation. JCAHO, which is the accrediting body for
hospitals, is associated with the provision of quality services and its
accreditation is vital to STAR's contractual business. STAR's accreditation
expires in February 1999, at which time STAR must be resurveyed for the
following three-year term.
HOSPITAL STAFFING
STAR provides temporary (or "per diem") nursing placement services to
hospitals, nursing homes, clinics and other health-related institutions that
make use of supplemental staffing for emergencies, vacations and peak periods.
These personnel are supervised directly by the institutions, with STAR acting
solely as an employment agency matching the requirements of the institutions
with the names and skills of persons listed in its registries.
The personnel placed by STAR with hospitals and other health and medical
institutions include registered nurses, licensed practical nurses, nurses' aides
and other health care paraprofessionals. STAR's nurses and nurses' aides placed
in hospitals must meet the competency requirements determined by STAR and by the
facility. Temporary health care personnel are recruited in the local market in
which STAR offers its temporary personnel services.
Some of the hospitals in New York City that have utilized STAR's Hospital
Staffing services include Methodist Hospital, Maimonides Medical Center and the
Hospital for Joint Diseases Orthopaedic Institute in New York.
COMPETITION
The temporary health care personnel market is highly fragmented and
significant competitors are often localized in particular geographic markets.
STAR's largest competitors include the Olsten Company and Staff Builders.
Management of STAR believes that, given the high current level of demand for the
types of services provided by STAR, significant additional competition can be
expected to develop in the future. Some of the companies with which STAR
presently competes have substantially greater financial and other resources than
STAR. STAR also competes with many other smaller temporary medical staffing
agencies. STAR expects that it will compete with other temporary health care
services providers in the future if and when they enter STAR's existing
geographic markets, as well as in any new geographic market STAR may enter.
STAR's success to date has depended, to a significant degree, on its ability
to recruit qualified professionals. These persons may be registered with, and
may accept placements from or through, competitors of STAR. STAR periodically
experiences intense competition from other companies in recruiting qualified
health care personnel for its temporary health care operations because the
United States health care industry, at times, faces shortages of qualified
personnel. STAR believes it is able to compete successfully for
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personnel by aggressive recruitment through newspaper advertisements, flexible
work schedules and competitive compensation arrangements. There can be no
assurance, however, that STAR will be able to continue to attract and retain
qualified personnel. The inability to either attract or retain such qualified
personnel would have a material adverse effect on STAR's business.
MARKETING
STAR currently markets its temporary health care services in the New York
metropolitan area, the central New York area and in Broward and Dade County,
Florida. STAR's services are marketed by a team of personnel headed by the Chief
Operating Officer of STAR. STAR promotes its services through print advertising,
direct mail efforts focused on health care institutions and field sales calls.
STAR makes periodic mailings to approximately 50 hospitals and 75 nursing homes
in the New York City metropolitan area. In addition, in the New York
metropolitan area and in Florida, representatives of STAR periodically visit or
telephone medical facilities to establish or maintain relationships with
individuals in those institutions who are responsible for staffing, discharge of
patients and personnel recruitment. STAR's representatives also attend health
care functions and trade shows to further enhance STAR's marketing efforts. STAR
intends to continue these marketing programs and to increase its marketing staff
in the future as its business so requires.
STAR has recently acquired the necessary expertise, through its acquisition
of LINR, to provide Shared Aide Services ("Shared Aide"). Shared Aide, which is
a task-oriented, patient-specific care plan designed to condense the amount of
hours caregivers must devote to patients, has recently been adopted as a cost
cutting mechanism by New York State. The New York State Department of Social
Services, in consultation with the New York State Department of Health, has
developed agency specific cost saving targets for each certified home health
agency. A portion of the cost savings are to be achieved through development and
implementation of Shared Aide.
STAR believes it is one of the few providers in New York State with the
expertise and experience required to offer Shared Aide. To date, Shared Aide has
not constituted a material portion of STAR's business. However, STAR intends to
market this service in an effort to generate increased revenues from this
developing area of home health care.
CUSTOMERS
STAR does not depend upon any single customer and does not believe that the
loss of any one or more of its customers would have a material adverse effect on
STAR. STAR continues to submit proposals to potential contractors to provide
Home Care services while maintaining and expanding its present contract base.
GOVERNMENT REGULATIONS AND LICENSING
STAR's business is subject to substantial and frequently changing regulation
by Federal, state and local authorities which imposes a significant compliance
burden on STAR. STAR, among other things, must comply with state licensing and
certificate of need requirements as well as Federal and state eligibility
standards for certification as a Medicare and Medicaid provider. The imposition
of more stringent regulatory requirements or the denial or revocation of any
license or permit necessary for STAR to operate in a particular market could
have a material adverse effect on STAR's operations. In addition, STAR will be
required to comply to the extent applicable, with the licensing and/or
Certificate of Need ("CON") requirements and other regulations in any
jurisdiction in which it may plan to provide services.
Home health agency certification is required by the Health Care Financing
Administration ("HCFA") to receive reimbursement for services from Medicare. In
order to participate as a home health agency in the Medicare program, HCFA
requires, among other things, the preparation of annual budgets and capital
expenditure plans. The health regulatory agencies of the states in which STAR
operates require satisfaction
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of certain standards with respect to personnel, services and supervision and the
establishment of a professional advisory group that includes at least one
physician, one registered nurse and other representatives from related
disciplines or consumer groups.
New York State requires the approval by the Public Health Council of the New
York State Department of Health ("NYPHC") of any change in the "controlling
person" of an operator of a licensed health care services agency (an "LHCSA").
Control of an entity is presumed to exist if any person owns, controls or holds
the power to vote 10% or more of the voting securities of such entity. To the
extent STAR may seek to acquire control of an LHCSA, STAR would have to be
granted the approval of the NYPHC prior to exercising control over such LHCSA.
Applicable state "anti-kickback" regulations, in general, provide that STAR
may not make certain payments in order to receive referrals of patients. In
addition, Federal "anti-kickback" regulations provide similar restrictions for
health care providers to the extent they are certified to participate in the
Medicare and Medicaid programs. STAR does not believe that compliance with
applicable state and Federal "anti-kickback" regulations has a material impact
on STAR's business and operations.
STAR is currently licensed to provide nursing care and durable medical
equipment in the five boroughs of New York City, Nassau, Suffolk, Westchester,
Oswego, Onondaga, Cayuga, Madison, Jefferson and Herkimer Counties in New York
State and the State of Florida. It is also licensed as a temporary help services
firm to provide personnel on a per diem basis for hospital staffing.
In Broward and Dade Counties in Florida, STAR's home health care license
allows STAR to participate in both the Medicare and Medicaid programs.
STAR believes that it has all licenses necessary for STAR to operate its
business as currently conducted in New York and Florida. The denial or
revocation of any license or permit necessary for STAR to operate in a
particular market would have a material adverse effect on STAR's business in
that market and, depending upon the market, on STAR's business in general.
LIABILITY INSURANCE
STAR's employees and independent contractors routinely make decisions which
can have significant medical consequences to the patients in their care. As a
result, STAR is exposed to substantial liability in the event of negligence or
wrongful acts of its personnel. STAR maintains medical professional liability
insurance providing for coverage in a maximum amount of $1,000,000 per claim,
subject to a limitation of $3,000,000 for all claims in any single year. In
addition, STAR requires that each independent contractor it refers to
institutions for employment supply a certificate of insurance evidencing that
such person maintains medical professional liability insurance providing for
coverage of no less than $1,000,000 per claim. There can be no assurance,
however, that STAR will be able to maintain its existing insurance at an
acceptable cost or obtain additional insurance in the future as required.
Although, to date, no claim has been asserted against STAR, there can be no
assurance that STAR's insurance will be sufficient to cover liabilities
resulting from claims that may be brought in the future. A partially or
completely uninsured claim, if successfully asserted and of significant
magnitude, could have a material adverse effect on STAR and its financial
condition.
EMPLOYEES
STAR currently has 186 permanent employees. STAR also has a roster of
temporary professional and paraprofessional employees (including registered
nurses, licensed practical nurses, certified home health aides, certified
personal care workers and nurse's aides). In the past, certain of STAR's
registered nurses were compensated on an independent contractor basis. However,
STAR currently treats such persons as employees. STAR has no union contracts
with any of its employees and believes that its relationship with its employees
and independent contractors is good. STAR pays its temporary employees at rates
that it believes are competitive.
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DESCRIPTION OF PROPERTIES
STAR's executive offices consist of approximately 1,500 square feet of
office space located in Hicksville, New York. The lease, from an unaffiliated
landlord, expires on December 31, 1998 and provides for a base rent of $2,894
per month. STAR believes that its executive office space is sufficient for its
present and reasonably foreseeable future needs.
STAR leases office space in Brooklyn, New York, Huntington, New York, Coram,
New York, Riverhead, New York, Long Beach, New York, Rome, New York, Oswego, New
York, Syracuse, New York, Miami, Florida, Hollywood, Florida and Lake Worth,
Florida, from landlords unaffiliated with STAR or any of its executive officers
or directors. The Brooklyn lease, which expires February 14, 2002, consists of
3,700 square feet and provides for a base rent of $7,655 per month. The
Huntington lease, which expires May 31, 2001, consists of 2,000 square feet and
provides for a base rent of $3,194 per month. The Coram lease, which expires
July 1, 1999, consists of 1,200 square feet and provides for a base rent of
$1,352 per month. The Riverhead lease, which expires January 31, 1997, consists
of 1,000 square feet and provides for a base rent of $1,087 per month. The Long
Beach lease, which expires June 30, 2001, consists of 1,000 square feet and
provides for a base rent of $1,183 per month, with annual increases of 2.5%. The
Rome lease, which expires September 30, 1997, consists of 500 square feet and
provides for a base rent of $400 per month. The Oswego lease, which expires
September 1, 1997, consists of 500 square feet and provides a base rent of $395
per month. The Syracuse lease, which expires July 1, 2000, consists of 1,000
square feet and provides for a base rent of $1,292 per month. The Miami lease,
which expires August 31, 1999, consists of 14,110 square feet and provides for a
base rent plus tax of $19,489 per month. The Hollywood lease, which expires
November 30, 1999, consists of 2,000 square feet and provides for a base rent
plus tax of $3,195 per month. The Lake Worth lease, which expires February 15,
2000, consists of 1,200 square feet and provides for a base rent of $1,272 per
month.
LEGAL PROCEEDINGS
In each of January and November 1993, a different subsidiary of STAR was
selected for an employment tax audit by The New York State Department of Labor
("DOL"). In May 1993, one of STAR's subsidiaries received from the DOL a formal
report proposing an adjustment in the amount of $73,000. In January 1994, the
other of STAR's subsidiaries received from the DOL a formal report proposing an
adjustment in the amount of $33,000.
STAR prevailed before the hearing examiner in the latter of these cases,
which decision is presently being appealed by the DOL, and STAR is vigorously
defending its position. STAR did not prevail in the former case and is currently
appealing that decision. Both of these appeals are pending before the New York
State Unemployment Appeal Board. Management believes that an unfavorable outcome
in either or both of these appeals would not materially affect the financial
position of STAR.
Except as otherwise provided, there are no legal proceedings to which STAR
is currently a party or to which any of its property is subject, and STAR knows
of no legal proceeding pending or threatened against either STAR or any director
or officer of STAR in his or her capacity as such.
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STAR'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which STAR's
management believes is relevant to an assessment and understanding of STAR's
results of operations and financial condition. This discussion should be read in
conjunction with the consolidated financial statements and notes thereto
appearing elsewhere herein.
RESULTS OF OPERATIONS
YEAR ENDED MAY 31, 1995 COMPARED TO YEAR ENDED MAY 31, 1994
Net revenues increased $4,920,070 or 22% to $27,088,426 for the fiscal year
ended May 31, 1995 over net revenues of $22,168,356 for the fiscal year ended
May 31, 1994. Approximately 3% of the increase was due to the acquisition of
certain assets of Long Island Nursing Registry ("LINR") and approximately 35% of
the increase was due to the acquisition of certain assets of DSI Health Care
Services ("DSI") (see Note 7 to the Consolidated Financial Statements included
elsewhere in this report). Both LINR and DSI were involved exclusively in the
Home Care business. The remainder of the increase was due to a general upward
trend in the Home Care business. Net revenues from Home Care increased by
$6,107,423 or 32% while net revenues from Hospital Staffing decreased by
$1,187,383 or 41%.
STAR's decreased revenues from Hospital Staffing resulted from a general
decline in demand for those services.
STAR's decided shift towards Home Care mirrors a changing social and
economic attitude toward the de-institutionalization of patients. Due to the
long hospital stays of some terminally ill patients and the greater costs
associated with institutional treatment plans, STAR believes that the industry
(i.e. hospital, insurance companies and home care agencies) trend is to find
ways to care for patients in the home. STAR continues to devote its resources
toward the growth in Home Care and believes this upward trend will continue in
the future. Home Care revenues represented approximately 94% of 1995 net
revenues and Hospital Staffing represented approximately 6% of 1995 net
revenues.
Gross profit margin percentages for the fiscal years ended May 31, 1995 and
1994 were 35%.
Selling, General and Administrative expenses ("SG&A") as a percentage of net
revenues were 31% in 1995 as compared with 32% in 1994. Such decrease is
principally attributable to the increase in revenues from Home Care, being
absorbed by existing back-office overhead.
Net income increased by $219,808 or 45% to $705,688 for the fiscal year
ended May 31, 1995 over net income of $485,880 for the fiscal year ended May 31,
1994. The increase occurred primarily because of the increased revenues from
Home Care, lower SG&A expenses as a percentage of revenues and lower tax rates.
STAR's effective tax rate for 1995 was 40% as compared to 42% in 1994. The
decrease in effective tax rate is due to the growth in STAR's business in
Florida which has a lower rate than New York and the use of certain federal tax
credits.
In October 1994, a subsidiary of STAR received from the Internal Revenue
Service ("IRS") a formal report proposing an adjustment in taxes of $1,222,220
for the years 1989 through and including 1993. On October 12, 1995, that
subsidiary signed a closing agreement with the IRS providing for zero tax
liability. The subsidiary agreed to treat all skilled nurses providing Hospital
Staffing services as employees for federal employment tax purposes commencing
January 1, 1996. As skilled Hospital Staffing services currently represent only
2% of revenues, this change is not expected to have a significant impact on
earnings.
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NINE MONTHS ENDED FEBRUARY 29, 1996 COMPARED TO NINE MONTHS ENDED FEBRUARY 28,
1995
For the nine months ended February 29, 1996, net revenues increased
$6,783,268 or 34% to $26,468,086 over net revenues of $19,684,818 for the nine
months ended February 28, 1995. For the nine months ended February 29, 1996, net
revenues from Home Care increased by $7,200,059 or 39% while net revenues from
Hospital Staffing decreased by $416,791, or 29%.
STAR's decreased revenues from Hospital Staffing resulted from a general
decline in demand for those services.
STAR's decided shift towards Home Care mirrors a changing social and
economic attitude toward the de-institutionalization of patients. Due to the
long hospital stays of some terminally ill patients and the greater costs
associated with institutional treatment plans, STAR believes that the industry
(i.e. hospital, insurance companies and home care agencies) trend is to find
ways to care for patients in the home. STAR continues to devote its resources
toward the growth in Home Care and believes this upward trend will continue in
the future. Home Care revenues represented approximately 97% and Hospital
Staffing represented approximately 3% of net revenues for the nine months ended
February 29, 1996.
STAR's SG&A expenses as a percentage of sales for the nine months ended
February 29, 1996 were 29% as compared to 31% for the nine months ended February
28, 1995. Such decrease is primarily attributable to the increase in monies from
Home Care being absorbed by existing back-office overhead.
STAR's effective tax rate was 41% for the nine months ended February 29,
1996, as compared to 43% for the nine months ended February 28, 1995. The
decrease in effective tax rate is primarily due to the growth in STAR's business
in Florida which has a lower rate than New York.
For the nine months ended February 29, 1996 net income increased by $282,944
to $750,026 over net income of $467,082 for the nine months ended February 28,
1995. This increase occurred primarily because of increased revenues from Home
Care and lower SG&A expenses as a percentage of revenues.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of February 29, 1996, cash and cash equivalents were $59,696 as compared
with $270,344 at May 31, 1995.
The nature of STAR's business requires weekly payments to its personnel at
the time they render services, while it receives payment for services rendered
over an extended period of time (60 to 180 days or longer), particularly when
the payor is an insurance company, medical institution or governmental unit.
Accounts receivable represent a substantial portion of current and total assets
at February 29, 1996 and May 31, 1995. During the nine months ended February 29,
1996 accounts receivable turnover was approximately 75 days while for the year
ended May 31, 1995 turnover was 74 days.
Borrowings under STAR's revolving line of credit increased approximately
$800,000 during the year ended May 31, 1995 and further increased by $1,500,000
during the period ended February 29, 1996. The increase in borrowings during the
year ended May 31, 1995 were used to partially fund the initial acquisition of
assets from LINR in May 1995. The increase in borrowings during the period ended
February 29, 1996 were used to help fund the increase in accounts receivable
resulting primarily from STAR's acquisition of LINR. STAR currently has
available a revolving credit line with a bank which allows for maximum
borrowings of $6,000,000. This revolving credit line expires on October 31, 1997
and is subject to renewal. However, as STAR's business expands, additional
financing may be required. Outstanding borrowings under the revolving credit
line at February 29, 1996 were $3,250,000 as compared to $1,750,000 at May 31,
1995.
As a result, STAR feels that its current financial condition is sufficient
in order to permit STAR to meet its financial requirements for at least the
ensuing twelve months.
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STAR intends to meet its long-term liquidity needs through available cash,
cash flow and, if necessary, STAR's bank line of credit. To the extent that such
sources are inadequate, STAR will be required to seek additional financing. In
such event, there can be no assurance that additional financing will be
available to STAR on satisfactory terms.
STAR is continually exploring possible acquisitions of compatible companies
in the health care business. If any such acquisition were to be made with
available cash, STAR's long-term liquidity would depend to a greater extent on
cash flow and the line of credit.
In May 1993, one of STAR's subsidiaries received from the DOL a formal
report proposing an adjustment in the amount of $73,000 as a result of an
employment tax audit. In January 1994, another of STAR's subsidiaries received
from the DOL a formal report proposing an adjustment in the amount of $33,000.
STAR prevailed before the hearing examiner in the latter of these cases,
which decision is presently being appealed by the DOL, and STAR is vigorously
defending its position. STAR did not prevail in the former case and is currently
appealing that decision. Management believes that an unfavorable outcome in
either or both of these appeals would not materially affect the financial
position of STAR.
Other than the matters described above, STAR does not anticipate any
extraordinary material commitments for capital expenditures for STAR's current
fiscal year. STAR believes that cash generated from operations, together with
borrowings available under its existing line of credit, will be sufficient to
meet its short- and long-term liquidity needs.
INFLATION AND SEASONALITY
The rate of inflation was insignificant during the year ended May 31, 1995.
In the past, the effects of inflation on personnel costs have been offset by
STAR's ability to increase its charges for services rendered. STAR anticipates
that it will be able to continue to do so in the near future. STAR continually
reviews its costs in relation to the pricing of its services.
STAR's business is not seasonal.
72
<PAGE>
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF STAR
Set forth below is the ownership of the STAR Common Stock at July 17, 1996
by (i) the only persons or groups who were owners of record or were known by
STAR to beneficially own more than 5% of the outstanding shares of STAR Common
Stock; (ii) each director of STAR; (iii) each executive officer named in the
Summary Compensation Table under the caption "EXECUTIVE COMPENSATION OF STAR"
below; and (iv) all directors and executive officers of STAR as a group. STAR
understands that, except as noted below, each beneficial owner has sole voting
and investment power with respect to all shares attributable to such owner.
<TABLE>
<CAPTION>
NUMBER OF
NAME AND ADDRESS BENEFICIALLY PERCENT
OF BENEFICIAL OWNER OWNED SHARES* OF CLASS (1)
- ------------------------------------------------------------------------ -------------- -------------
<S> <C> <C>
Stephen Sternbach ...................................................... 1,115,897(2) 42.63%
c/o STAR Multi Care Services, Inc.
99 Railroad Station Plaza
Hicksville, NY 11801
Charles Berdan ......................................................... 970 **
281 Potomac Drive
Basking Ridge, NJ 07920
William Fellerman ...................................................... 58,320(3) 2.34%
c/o STAR Multi Care Services, Inc.
99 Railroad Station Plaza
Hicksville, NY 11801
John P. Innes II ....................................................... 1,060 **
8 Breckenridge Lane
Savannah, GA 31411
Matthew Solof .......................................................... 3,371 **
33 Fairbanks Boulevard
Woodbury, NY 11797
Heartland Advisors, Inc. ............................................... 213,802(4) 8.68%
790 North Milwaukee Street
Milwaukee, WI 53202
All directors and executive officers of STAR as
a group (5 persons).................................................... 1,179,618 44.60%
</TABLE>
- ------------------------
* All shares have been adjusted to take into account two stock dividends,
effectuated on May 30, 1995 and January 12, 1996.
** Indicates less than 1% of the outstanding shares of STAR Common Stock.
(1) Shares subject to options are considered outstanding only for the purpose of
computing the percentage of outstanding STAR Common Stock which would be
owned by the optionee if the options were so exercised, but (except for the
calculation of beneficial ownership by all executive officers and directors
as a group) are not considered outstanding for the purpose of computing the
percentage of outstanding Common Stock owned by any other person.
(2) Includes 113,910 shares of STAR Common Stock owned by the Stephen Sternbach
Family Trust; Mr. Sternbach disclaims beneficial ownership with respect to
these shares. Also includes 154,832 shares of STAR Common Stock which Mr.
Sternbach has currently exercisable options to purchase pursuant to STAR's
1992 Stock Option Plan.
(3) Includes 22,922 shares of STAR Common Stock owned by Mr. Fellerman's wife;
Mr. Fellerman disclaims beneficial ownership with respect to these shares of
STAR Common Stock. Also includes 3,244 shares owned by the William Fellerman
CPA PC Pension Trust Fund. Also includes 27,154 shares of STAR Common Stock
which Mr. Fellerman has currently exercisable options to purchase pursuant
to STAR's 1992 Stock Option Plan.
(4) Based upon a copy of a Schedule 13G received by STAR.
73
<PAGE>
MANAGEMENT OF STAR
The directors and executive officers of STAR, their ages and present
positions with STAR are as follows:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION HELD WITH STAR SINCE
- --------------------- --- ---------------------------------------------------- -------------
<S> <C> <C> <C>
Stephen Sternbach 41 Chairman of the Board of Directors, President and 1987
Chief Executive Officer
William Fellerman 51 Chief Financial Officer, Secretary, Treasurer, 1990
Director
Charles Berdan+*x 47 Director 1994
John P. Innes II+*x 62 Director 1991
Matthew Solof+*x 43 Director 1992
</TABLE>
- ------------------------
+ Member of Compensation Committee
* Member of Stock Option Committee
x Member of Audit Committee
Stephen Sternbach has been the Chairman of the Board of Directors, President
and Chief Executive Officer of STAR since 1987.
William Fellerman has been the Chief Financial Officer, Secretary and
Treasurer of STAR since November 1992 and a director of STAR since 1990. Mr.
Fellerman is a certified public accountant and was, until June 15, 1994, a
partner in the accounting firm of Fellerman, Cohen and Tempesta and had been for
more than the five years prior thereto.
Charles Berdan became a director of STAR in April 1994 and served as a
Branch Manager of STAR from September 1993 to March 1994. Since April 1994, Mr.
Berdan has served as a Sales Executive for Automatic Data Processing, Inc.
("ADP"), a provider of information services. From January 1993 to September
1993, Mr. Berdan was a Vice President of the Senior Bulletin, a newspaper, which
STAR purchased in September 1993. He also served from July 1990 through July
1992 as a Division Vice President of Managistics, Inc., a payroll services
company. For at least the two years prior to July 1990, Mr. Berdan was a Vice
President of ADP.
John P. Innes II has been a director of STAR since 1991. Since May of 1996
he has been Special Counsel to ValuJet Airlines. He has acted as a private
investor and consultant since July of 1994. He also serves as a director of the
following non-public companies: Commonwealth Associates Management Company,
Inc., Commonwealth Associates Growth Fund, Inc. and American Body Armor and
Equipment, Inc. Previously, he was the Chairman of Commonwealth Associates, an
investment bank, from January 1992 to June 1994. Mr. Innes also has served as
Managing Director of Sabre Insurance Company, a casualty insurance company
(1986-1991), President of Boxhall Group, Inc., a holding company for Sabre
Insurance Company (1986-1991), Vice Chairman of the Board of Directors of
Wheeling-Pittsburgh Steel Corporation, an integrated steel manufacturing company
(1987-1990) and a private investor and consultant (1990-1992).
Matthew Solof has been a director of STAR since November 1992. Since 1991,
he has been the President and Chief Executive Officer of AMI Group, a real
estate development and acquisition company, and President and Chief Executive
Officer of Mercantile Mortgage Association, a mortgage lending company. From
1983 to 1992, Mr. Solof was a trader at IRV Companies, a firm which specializes
in oil trading, and from 1981 to 1991 he was President and Chief Executive
Officer of Matthew Solof Trading Company, a firm which also specializes in oil
trading.
74
<PAGE>
EXECUTIVE COMPENSATION OF STAR
The following table summarizes the compensation paid or accrued by STAR
during the three fiscal years ended May 31, 1995, to STAR's Chief Executive
Officer, the only executive officer of STAR whose salary and bonus for fiscal
1995 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------
AWARDS
ANNUAL COMPENSATION --------------------------------
------------------------------------------------------------ SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL RESTRICTED STOCK UNDERLYING
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARD(S)($) OPTIONS(#)
- -------------------------- --------- ----------- ------------- --------------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen Sternbach ........ 1995 $ 250,000 -- -- -- --
Chief Executive Officer, 1994 $ 225,000 -- -- -- 55,650
President and Chairman 1993 $ 225,000 -- -- -- 71,550
of the Board
<CAPTION>
PAYOUTS
--------------------------------------
NAME AND PRINCIPAL ALL OTHER
POSITION LTIP PAYOUTS($) COMPENSATION($)
- -------------------------- --------------- ---------------------
<S> <C> <C>
Stephen Sternbach ........ -- --
Chief Executive Officer, -- --
President and Chairman -- --
of the Board
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted to Stephen Sternbach, the only executive officer
named in the Summary Compensation Table, during the fiscal year ended May 31,
1995.
OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END VALUES
No options were exercised by Mr. Sternbach during the fiscal year ended May
31, 1995. The following table contains information concerning the number and
value, at May 31, 1995, of unexercised options held by Mr. Sternbach (after
giving effect to two stock dividends effected on May 30, 1995 and January 12,
1996, respectively):
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS HELD AT OPTIONS HELD AT
FISCAL YEAR-END FISCAL YEAR-END
(EXERCISABLE/ (EXERCISABLE/
NAME UNEXERCISABLE) UNEXERCISABLE) (1)
- ------------------------------------------------------- --------------- ----------------
<S> <C> <C>
Stephen Sternbach...................................... 134,832/0 $207,113/0
</TABLE>
- ------------------------
(1) Fair market value of underlying securities (the closing price of STAR's
Common Stock on the Nasdaq National Market) at fiscal year end (May 31,
1995), minus the exercise price.
STANDARD REMUNERATION OF DIRECTORS
STAR's non-employee directors are paid a fee of $750 for each Board of
Directors meeting which they attend. They are not paid any additional fee for
serving on any committees of the Board of Directors.
EMPLOYMENT AND MANAGEMENT AGREEMENTS
STAR has an employment agreement with Stephen Sternbach dated as of December
3, 1995 (the "Sternbach Employment Agreement"). The Sternbach Employment
Agreement has a term of five years and provides for an annual salary of $250,000
plus a bonus of 6% of STAR's net profit before taxes in excess of $1,200,000,
not to exceed an aggregate annual bonus of $150,000. The Sternbach Employment
Agreement provides that after a Change in Control (as defined in the Sternbach
Employment Agreement) of STAR has occurred, if either Mr. Sternbach terminates
his employment within six months after he has obtained actual knowledge of the
Change in Control or STAR (or any successor thereto) terminates his employment
with STAR within one year after the Change in Control, Mr. Sternbach will be
entitled to receive (i) his salary, bonuses, awards, perquisites and benefits
including, without limitation, benefits and awards under STAR's stock option
plans and pension and retirement plans and programs, accrued through the date
Mr. Sternbach's employment with STAR is terminated and (ii) a lump-sum payment
in cash equal to 2.99 times Mr. Sternbach's base amount.
75
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF STAR
Stephen Sternbach has outstanding loans in the principal amount of $102,490
from STAR and a subsidiary of STAR. The loan from the subsidiary has been
assigned to STAR. These loans bear interest at 6% per annum and each have a
scheduled maturity date of August 1, 1996.
In connection with services provided to STAR during the fiscal years ended
May 31, 1994 and 1995, STAR paid William Fellerman, CPA, P.C. approximately
$100,000 each year. Mr. Fellerman, a director and Chief Financial Officer,
Treasurer and Secretary of STAR, is the sole shareholder of that corporation.
BUSINESS OF AMSERV
GENERAL
AMSERV was originally incorporated under the name of Phone-A-Gram System,
Inc. in the State of California on July 7, 1966, and was subsequently
reincorporated under the laws of the State of Delaware on September 29, 1983. On
October 24, 1987, AMSERV's name was changed to AMSERV, INC., and on August 24,
1992, its name was again changed to AMSERV HEALTHCARE INC.
AMSERV operates in a one-industry segment as a health care services company.
AMSERV provides Home Care services to individuals from its six branch offices in
New Jersey and Ohio. Home Care services provided by AMSERV include personal
care, such as assistance with the activities of daily living (E.G., eating,
walking and grooming), and skilled nursing services, such as wound care, and
assistance with medications, injections and patient education. Fiscal 1995 was
the first full year of operations for AMSERV's Ohio office, which was acquired
on June 10, 1994, by the purchase of substantially all of the assets and
property of North Central Personnel, Inc. ("NCP"). On November 9, 1994, AMSERV
sold substantially all of the fixed and intangible assets of its eight branch
offices that provided primarily temporary nursing services.
AMSERV receives payment for its Home Care services from several sources.
Revenues from Medicaid and other local government programs represented
approximately 75% of net sales from continuing operations in the fiscal year
ended June 24, 1995. The balance is paid to AMSERV from insurance companies,
private payors and others.
Home Care services are marketed through referrals from public agencies,
hospitals, nursing homes and insurance companies. Both non-licensed and licensed
personnel provide services to individuals in their homes. Home Care personnel
are recruited by AMSERV through newspaper advertisements and personal referrals.
The health care industry is highly competitive. AMSERV competes with many
other companies which offer the same or similar services as those provided by
AMSERV. However, no one or two companies dominate the business. Although some of
AMSERV's competitors have greater capital resources than AMSERV, AMSERV believes
it can compete because of its responsiveness to the needs of both clients and
health care personnel through its emphasis on service.
At June 24, 1995, AMSERV and its subsidiaries employed approximately 48
full-time and 875 part-time persons for its continuing operations. AMSERV
strives to maintain good relations with its employees, considering them to be a
key to AMSERV's success. No employees are covered by a collective bargaining
agreement.
DESCRIPTION OF PROPERTIES
AMSERV leases seven office facilities, which are located in Edison,
Elizabeth, Fairlawn, South Orange and Union City, New Jersey; Mansfield, Ohio;
and La Jolla, California, for the continuing operations of AMSERV. These leases
expire at various dates through October 1999. AMSERV believes that these
facilities are adequate for its operations.
76
<PAGE>
In connection with the sale of assets of AMSERV MEDICAL PRODUCTS, INC.,
AMSERV has guaranteed that certain lease payments will be made by the
purchasers. These payments are payable through September 1998.
LEGAL PROCEEDINGS
On April 27, 1995, Stockbridge Investment Partners, Inc. ("Stockbridge")
commenced litigation in the Court of Chancery of the State of Delaware in and
for New Castle County (the "Delaware Litigation") against AMSERV and its current
directors, Melvin L. Katten, Eugene J. Mora, Michael A. Robinton, George A.
Rogers and Ben L. Spinelli, seeking an order rescinding the transactions by
which AMSERV exchanged a promissory note held by NCP for 426,794 shares of Class
A Redeemable Preferred Stock of AMSERV (the "Class A Preferred") and partially
financed the exercise by Mr. Mora of stock options to acquire 177,562 shares of
AMSERV Common Stock, and preliminarily and permanently enjoining AMSERV from
recognizing such stock, as well as any stock proposed to be issued in connection
with a letter of intent referred to in AMSERV's April 13, 1995 press release, as
validly issued for purposes of voting or exercising rights to consent.
Following settlement discussions between Stockbridge and AMSERV, the parties
entered into a Standstill Agreement and a Settlement Agreement and Release, both
dated as of May 12, 1995 (collectively, the "Settlement Agreements"), pursuant
to which Stockbridge agreed, among other things, to (i) revoke the consent
delivered April 7, 1995, (ii) suspend its solicitation of consents to remove a
majority of AMSERV's Board of Directors and (iii) dismiss with prejudice the
Delaware Litigation. Under the Standstill Agreement, which expired on June 11,
1995, Stockbridge and AMSERV agreed to continue good faith discussions and
receive more detailed information regarding a potential business combination
involving AMSERV and York. In addition, the parties further agreed that solely
for purposes of Stockbridge's renewed consent solicitation, the shares of Class
A Preferred would have no voting rights and would not be deemed as outstanding
voting securities. In addition, a voting agreement between AMSERV and NCP with
respect to the shares of Class A Preferred and a related irrevocable proxy were
rescinded.
On August 23, 1995, the Delaware Court of Chancery ordered AMSERV to
reimburse Stockbridge for legal fees in the amount of $50,000 incurred in
connection with the Delaware Litigation, which AMSERV paid on September 1, 1995.
On February 22, 1996, Stockbridge commenced litigation against AMSERV in the
United States District Court for the District of Massachusetts. In its
complaint, Stockbridge alleges that AMSERV breached the terms of the October 18,
1995 agreement between AMSERV and Stockbridge by refusing to deal with
Stockbridge's "pre-emptive" proposal in a fair and equitable manner. The relief
sought by Stockbridge includes reimbursement of Stockbridge's expenses in the
amount of $125,000, unspecified damages which Stockbridge estimates at more than
$275,000 and attorneys' fees. On March 14, 1996, AMSERV filed a motion to
dismiss Stockbridge's complaint for lack of personal jurisdiction. AMSERV
denies, and intends to vigorously defend against, Stockbridge's claims in this
lawsuit.
On April 9, 1996, Stockbridge commenced litigation against AMSERV in the
Court of Chancery of the State of Delaware for New Castle County. In its
complaint, Stockbridge requests that the Court enter judgment summarily ordering
AMSERV to conduct an annual meeting of shareholders for the purpose of electing
directors and conducting such other business as may properly be conducted at the
meeting. AMSERV intends to seek a dismissal of such action on the basis of its
scheduling an annual meeting of shareholders to consider and vote on the Merger,
to elect directors and to ratify the selection of Ernst & Young LLP as AMSERV's
independent public accountants.
On April 18, 1996, AMSERV commenced litigation in the United States District
Court for the Southern District of California against Stockbridge and certain of
its affiliates for numerous violations of Sections 13(d) and 14(a) of the
Exchange Act. Among the violations listed by AMSERV are the defendants' failure
to disclose all of the members of Stockbridge's Section 13(d) "group,"
misstatements in Stockbridge's consent
77
<PAGE>
solicitation materials, and Stockbridge's failure to disclose its offer to
purchase for $3.00 per share any and all outstanding shares of AMSERV Common
Stock. AMSERV seeks injunctive relief against Stockbridge's solicitation of
consents, and a declaration that the Stockbridge group has and must publicly
disclose beneficial ownership of 10% or more of the AMSERV Common Stock, thereby
triggering AMSERV's Shareholder Rights Plan. On May 28, 1996, Stockbridge,
together with certain of its affiliates, filed an answer and counterclaim
relating to the litigation filed by AMSERV in the Southern District of
California. The counterclaim names both AMSERV and Mr. Mora as counterdefendants
and is structured as a derivative claim brought on behalf of AMSERV against Mr.
Mora. The counterclaim alleges that Mr. Mora engaged in
activities in breach of his fiduciary duties and that the directors of AMSERV,
including Mr. Mora, undertook a series of actions for the purpose of
entrenchment. AMSERV and Mr. Mora deny, and intend to vigorously defend against,
the claims made by Stockbridge and its affiliates in the counterclaim.
Subsequent to the termination of Stockbridge's consent solicitation on May
14, 1996, Stockbridge commenced negotiations with AMSERV in an effort to settle
the ongoing litigation between AMSERV and Stockbridge. AMSERV and Stockbridge,
with the assistance of Batchelder, have continued to discuss a possible
settlement since that time, but no definitive agreement has yet been reached.
AMSERV intends to continue to pursue a resolution of its disputes with
Stockbridge.
78
<PAGE>
AMSERV'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments in total decreased
$210,000, from $2,619,000 to $2,409,000, during the first nine months of fiscal
1996. This decrease is the result of cash flows from operations of $258,000,
offset primarily by payment of certain liabilities associated with AMSERV's
discontinued operations of $276,000 which were sold in fiscal 1995, and the
redemption of AMSERV Class B Preferred of $171,000. The decrease in cash flows
from operations from the nine months ended March 31, 1995 to the nine months
ended March 23, 1996 was primarily due to increases in accounts receivable. Cash
and cash equivalents only increased $1,079,000 during the nine months ended
March 23, 1996, due primarily to the sale of short-term investments and their
conversion to cash. AMSERV's balance sheet maintained a current ratio of 3.5 to
1 at March 23, 1996. Working capital requirements consist primarily of the
financing of accounts receivable and payments due for the redemption of
preferred stock. AMSERV believes that with its strong working capital condition,
it is well positioned to meet its anticipated cash requirements for operations.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEAR 1995 TO 1994
Operating revenues from continuing operations increased $3,816,000, or 51%,
from $7,526,000 in fiscal 1994 to $11,342,000 in fiscal 1995. This increase
included $1,230,000 from locations in operation for all of fiscal 1994 and 1995
which represented an overall increase in the demand for Home Care services. The
remaining increase of $2,586,000 consisted of $257,000 from the expansion of
operations to Union City, New Jersey, which began operations in October 1994;
and $2,329,000 for a full year of operations associated with AMSERV's North
Central division, which was acquired in June 1994.
SG&A expenses increased $3,593,000, or 48%, in fiscal 1995 compared to
fiscal 1994. Direct variable costs increased $1,352,000 due to the increase in
operating revenues for the year. The remaining increase consisted of $1,754,000
related to operations for a full year of AMSERV's North Central division and
$487,000 of costs incurred in connection with a shareholder consent
solicitation. The individual components of operating expenses remained
consistent between periods as they relate to total operating expenses. The lower
percentage increase in SG&A expenses, 48% compared to 51%, resulted primarily
from cost control efforts and a streamlining of corporate personnel after the
sale of AMSERV's discontinued operations.
Depreciation and amortization increased $42,000, or 11%, from $373,000 in
fiscal 1994 to $415,000 in fiscal 1995 due primarily to the depreciation of
equipment, furniture, fixtures and amortization of intangible assets acquired in
the acquisition of the assets of NCP.
In 1995, interest income increased $5,000, or 6% over fiscal 1994 as a
result of an increase in cash, cash equivalents and short-term investments
offset by the effects of lower interest rates on invested funds.
Interest expense increased from $8,000 in fiscal 1994 to $52,000 in fiscal
1995 due to interest incurred on the promissory note issued in connection with
the acquisition of the assets of NCP.
The effective income tax rate on income from continuing operations in fiscal
1995 was 4% compared to 28% for fiscal 1994. The 1994 benefit was primarily the
result of the tax benefit from measuring cumulative temporary differences in
connection with the disposal of the temporary nursing services business which
reversed in fiscal 1995.
During fiscal 1994, AMSERV discontinued operation of its temporary nursing
services business and recorded a loss from discontinued operations of $711,000
and an after-tax loss on the anticipated disposal of discontinued operations of
$1,168,000. During fiscal 1995, the temporary nursing services business was sold
79
<PAGE>
and after recognizing the 1994 writedown, an after-tax gain of $30,302 was
recognized. The 1995 gain resulted from the difference between the actual and
estimated loss on the disposal. See Note 4 of the Notes to Consolidated
Financial Statements for additional details.
In fiscal 1995, AMSERV adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The cumulative effect of the change in accounting principle
resulted in an after-tax adjustment to earnings for unrealized losses of
$24,000.
COMPARISON OF 1994 TO 1993
Operating revenues from continuing operations increased from $6,049,000 in
fiscal 1993 to $7,526,000 in fiscal 1994, an increase of 24%. This increase
resulted from increases in the demand for Home Care services at all of AMSERV's
locations. Fiscal 1994 also includes $174,000 in operating revenues for the
month of June 1994, resulting from the acquisition of the assets of NCP in June
1994.
SG&A expenses increased $1,414,000, or 24% in fiscal 1994 compared to fiscal
1993. The increase is primarily associated with the increase in direct variable
costs due to the increase in operating revenue for the year. The individual
components of operating expenses remained consistent between periods as they
relate to total operating expenses.
In 1994, depreciation and amortization increased $14,000 or 4% over fiscal
1993 due to the depreciation of equipment, furniture and fixtures and the
amortization of intangible assets acquired in the acquisition of the assets of
NCP.
Interest income decreased to $89,000 in fiscal 1994 from $111,000 in fiscal
1993 as a direct result of lower interest rates on funds invested in various
money market funds, and an overall decrease in the cash balance.
In fiscal 1993, the remaining long-term debt in connection with the
acquisition of the New Jersey Home Care services subsidiary was retired and this
reduction contributed to the decrease in interest expense of $16,000 during
fiscal 1994.
The effective income tax rate on the loss from continuing operations for
fiscal 1994 was 28% compared to 45% for fiscal 1993. The 1994 benefit in excess
of the statutory rate is primarily the result of the tax benefit from measuring
cumulative temporary differences that will continue to reverse in future years.
The operating losses from AMSERV's temporary nursing services business
prompted the decision to dispose of this segment of the business. Net losses
from discontinued operations totaled $711,000 in fiscal 1994 and $359,000 in
fiscal 1993. The after-tax loss on the anticipated disposal of the discontinued
operations for fiscal 1994 of $1,168,000 consists of assets associated with the
temporary nursing services business and transition expenses during the phase out
period in fiscal 1995. See Note 4 of the Notes to Consolidated Financial
Statements for additional details.
COMPARISON OF NINE-MONTH PERIOD ENDED MARCH 23, 1996 TO NINE-MONTH PERIOD ENDED
MARCH 31, 1995
Operating revenues for the nine-month period ended March 23, 1996 increased
$715,000 or 8%, over the same period of a year ago. Higher operating revenues
are the result of an overall increase in the demand for Home Care services. The
increase in revenue resulting from increased demand at locations operating
during all of fiscal 1995 and 1996 was $154,000 for the nine-month period ended
March 23, 1996, compared to the same nine-month period of fiscal 1995. The
increase resulting from the Union City, New Jersey location, which was in
operation for only a partial period during fiscal 1995, was $561,000 for the
nine-month period ended March 23, 1996.
SG&A expenses for the nine months ended March 23, 1996 increased $612,000 or
8%, compared to the same period of the prior fiscal year. This increase was
primarily the result of the direct variable costs associated with the increase
in operating revenues; the fixed costs incurred regarding the start-up office in
Union City, New Jersey, which began operations in October 1994; and additional
expenses incurred in
80
<PAGE>
connection with the JCAHO accreditation program initiated throughout the offices
in New Jersey and Ohio and the implementation of new pediatric and marketing
programs in New Jersey. The individual components of SG&A expenses remained
constant as they relate to total operating expenses.
Depreciation and amortization decreased $55,000 or 17% during the nine-month
period ended March 23, 1996 over the same period of fiscal 1995. This overall
decrease was the result of a reduction of amortization expense in connection
with the intangible assets acquired in the purchase of the New Jersey
subsidiary, part of which became fully amortized, offset by an increase in
depreciation expense due to the purchase of equipment, furniture and fixtures.
Interest income totalled $120,000 during the nine-month period ended March
23, 1996 compared to $67,000 during the same period of a year ago. The overall
increase of $53,000 during the nine-month period ended March 23, 1996 is due to
interest and dividends received during the period related to various short-term
investments and interest earned during fiscal 1996 on promissory notes
receivable from an officer of AMSERV related to the exercise of employee stock
options.
For the nine months ended March 23, 1996, net income from continuing
operations increased 52% to $342,000, compared to $225,000 for the same
nine-month period of fiscal 1995. Net income for the nine-month period of fiscal
1995 included an after-tax gain of $169,000 as a result of the sale of AMSERV's
temporary nursing services business.
Provision for income taxes increased from $79,000 to $224,000 for the
nine-month period ended March 23, 1996 compared to the same period of fiscal
1995, which is an overall increase of 53% in AMSERV's effective tax rate. In
addition, the average shares outstanding used in computing per share amounts
increased 4% for the nine-month period of fiscal 1996 compared to fiscal 1995.
81
<PAGE>
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF AMSERV
The following table sets forth, as of July 17, 1996, certain information
with respect to the beneficial ownership of the AMSERV Voting Stock by (i) each
person known by AMSERV to own beneficially more than five percent of any class
of the AMSERV Voting Stock, (ii) each director of AMSERV, (iii) each executive
officer of AMSERV named in the Summary Compensation Table under the caption
"EXECUTIVE COMPENSATION OF AMSERV" below, and (iv) all directors and executive
officers of AMSERV as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP (1)(2) PERCENT OF CLASS
- ---------------------------------------- --------------- ------------------------------
<S> <C> <C>
Eugene J. Mora 544,527 16.3% of Common Stock
3252 Holiday Court, Suite 204 15.7% of Voting Stock
La Jolla, California 92037
John Parker 235,000 7.0% of Common Stock
P.O. Box 9582 6.8% of Voting Stock
San Diego, California 92169
The Stockbridge Group 202,845(3) 6.1% of Common Stock
2 South Street, Suite 360 5.9% of Voting Stock
Pittsfield, Massachusetts 01201
Melvin L. Katten 142,397 4.3% of Common Stock
525 West Monroe Street, Suite 1600 4.1% of Voting Stock
Chicago, Illinois 60661
Michael A. Robinton 125,548 3.8% of Common Stock
969 Commercial Street 3.6% of Voting Stock
Palo Alto, California 94303
George A. Rogers 10,364 0.3% of Common Stock
6780 N. West Avenue, Suite 103 0.3% of Voting Stock
Fresno, California 93711
Ben L. Spinelli 375 --
2-E Buckingham Road
West Orange, New Jersey 07052
North Central Personnel, Inc. 130,071(4) 100% of Class B Preferred
713 South Main Street 3.8% of Voting Stock
Mansfield, Ohio 44907
All Directors and Executive Officers as
a Group (7 persons) 840,711 24.9% of Common Stock
24.0% of Voting Stock
</TABLE>
- ------------------------
(1) Unless otherwise indicated below, the persons in the above table have sole
voting and investment control with respect to all shares shown as
beneficially owned by them, and all shares listed are AMSERV Common Stock.
(2) Includes the following shares of AMSERV Common Stock which may be acquired
within 60 days of July 17, 1996 through the exercise of nonqualified stock
options ("Option Shares"): Eugene J. Mora -- 35,000 Option Shares; John
Parker -- 30,000 Option Shares; Melvin L. Katten -- 10,365 Option Shares;
Michael A. Robinton -- 10,365 Option Shares; George A. Rogers -- 8,711
Option Shares; Ben L. Spinelli -- 375 Option Shares; and all directors and
executive officers as a group -- 72,316 Option Shares.
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<PAGE>
(3) Includes 400 shares of AMSERV Common Stock held by Lenox Healthcare, Inc.,
17,201 shares (including the 400 Lenox shares) of AMSERV Common Stock held
individually by Thomas M. Clarke, and 10,000 shares of AMSERV Common Stock
held individually by Lawrence B. Cummings, which were reported on Amendment
No. 10 to a joint Schedule 13D dated April 18, 1996. According to the
Schedule 13D, York Hannover Pharmaceuticals, Inc. has shared voting and
dispositive power over 175,644 shares, Lenox Healthcare Inc. has shared
voting and dispositive power over 400 shares, Mr. Clarke has sole voting and
dispositive power over 17,201 shares and shared voting and dispositive power
over 175,644 shares, and Mr. Cummings has sole voting and dispositive power
over 10,000 shares and shared voting and dispositive power over 175,644
shares.
(4) Shares of AMSERV's Class B Preferred. L. Diane Gurik, the founder of NCP,
may be deemed to have beneficial ownership of the shares held by NCP.
ELECTION OF AMSERV DIRECTORS
At the AMSERV Meeting, five directors are to be elected. If the Merger is
not consummated, these directors will serve until the next Annual Meeting of
Shareholders and until their respective successors have been duly elected and
qualified. If the Merger Agreement is approved and adopted at each of the AMSERV
Meeting and STAR Meeting and the Merger is consummated, the directors elected at
the AMSERV Meeting will hold office only until consummation of the Merger and,
in accordance with the terms of the Merger Agreement, the directors of Merger
Sub would then become the directors of AMSERV. Each nominee has indicated a
willingness to serve as a director of AMSERV.
All proxies received by management will be voted as directed on proxy cards.
In the absence of contrary instruction, shares represented by such proxies will
be voted for the election of the nominees named below as directors of AMSERV.
If prior to the AMSERV Meeting any of the nominees should become unable or
decline to serve, the persons named in the proxy will vote for such substitute
nominee or nominees as the Board of Directors of AMSERV recommends, or vote to
allow the vacancy created thereby to remain open until filled by the Board of
AMSERV, as the Board of AMSERV recommends. The Board of Directors of AMSERV has
no reason to believe that any nominee will be unable or will decline to serve as
a director if elected.
Biographical information follows for each nominee to the AMSERV Board.
Directors' ages are as of July 17, 1996.
NOMINEES FOR ELECTION
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH AMSERV SINCE
- ------------------------ --- --------------------------------------------- ---------
<S> <C> <C> <C>
Eugene J. Mora 61 Chairman of the Board, Chief Executive 1986
Officer, President and Director
Melvin L. Katten 59 Director 1985
Michael A. Robinton 52 Director 1981
George A. Rogers 49 Director 1987
Ben L. Spinelli 62 Director 1995
</TABLE>
EUGENE J. MORA. Mr. Mora has been Chairman of the Board, Chief Executive
Officer and President of AMSERV since joining AMSERV on March 2, 1987. He is
also Chief Executive Officer of AMSERV's subsidiaries. Mr. Mora serves as a
director of Washington Scientific Industries, Inc., a publicly-held company.
From July 1974 through February 1987, he was President of Kidde Business
Services, Inc., a temporary
83
<PAGE>
and health care services company. Mr. Mora has been a director of AMSERV since
October 1986. Mr. Mora's employment contract with AMSERV provides that,
throughout the term of his employment, AMSERV will nominate him as a director
and that it will use its best efforts to have him elected as a director.
MELVIN L. KATTEN. Mr. Katten, an attorney, has been a Senior Partner in the
Chicago law firm of Katten Muchin & Zavis since 1974. He has been a director of
AMSERV since 1985 and is a member of the Audit and Compensation Committees of
the Board. Mr. Katten also serves as a director of Washington Scientific
Industries, Inc., a publicly-held company.
MICHAEL A. ROBINTON. Mr. Robinton has been President of Petals, Inc. of
Palo Alto, California, a closely-held manufacturing company specializing in
children's apparel, since 1990. From 1979 to 1989, he was Vice President,
Engineering, and a director of Robinton Products, Inc., a closely-held
electronics company located in Sunnyvale, California. He has been a director of
AMSERV since 1981 and is a member of the Audit, Compensation and Stock Option
Committees.
GEORGE A. ROGERS. Mr. Rogers has been President and Chief Executive Officer
of PrideStaff, Inc. (formerly known as American Temporary Services, Inc.), of
Fresno, California, a provider of temporary personnel services, since 1978. He
has been a director of AMSERV since 1987 and is a member of the Audit,
Compensation and Stock Option Committees.
BEN L. SPINELLI. Mr. Spinelli has been President of BLS Consulting in West
Orange, New Jersey, which provides marketing and business services, since 1991.
From 1975 to 1991, he was employed by First Fidelity Bank of Newark, New Jersey,
where he served as Executive Vice President prior to retirement. Mr. Spinelli
has been a director of AMSERV since January 1995 and is a member of the Audit,
Compensation and Stock Option Committees.
CERTAIN COMMITTEES OF THE BOARD
AMSERV has an Audit Committee, a Compensation Committee and a Stock Option
Committee. The Audit Committee, currently comprised of Messrs. Katten, Robinton,
Rogers and Spinelli, held one meeting during the fiscal year ended June 24,
1995. The Audit Committee reviews, in consultation with the independent
auditors, the audit results and the auditors' opinion letter or proposed report
of audit and related management letter, if any; reviews the independence of the
independent auditors and, in this connection, reviews the engagement of the
independent auditors for services of a non-audit nature; consults with the
independent auditors and management (together or separately) on the adequacy of
internal accounting controls and reviews the results thereof; supervises
investigations into matters within the scope of the Committee's duties; and
performs such other functions as may be necessary in the efficient discharge of
its duties.
The Compensation Committee, currently comprised of Messrs. Katten, Robinton,
Rogers and Spinelli, held two meetings during the fiscal year ended June 24,
1995. The Compensation Committee reviews and makes recommendations to the Board
with respect to the compensation of AMSERV's executive officers.
The Stock Option Committee, currently comprised of Messrs. Robinton, Rogers
and Spinelli, held six meetings during the fiscal year ended June 24, 1995. The
Stock Option Committee determines all matters related to the granting of stock
options pursuant to the AMSERV Stock Option Plan.
AMSERV does not have a Nominating Committee.
ATTENDANCE AT MEETINGS
The AMSERV Board held twelve meetings during the fiscal year ended June 24,
1995. Each director except Mr. Spinelli (who became a director on January 26,
1995) attended at least 75% of the aggregate of the number of Board meetings
held and the number of meetings of committees on which he served that were held
during the fiscal year ended June 24, 1995.
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<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires AMSERV's officers and directors,
and persons who own more than ten percent of a registered class of AMSERV's
equity securities, to file reports of ownership and changes of ownership with
the Commission and each exchange on which AMSERV's securities are registered.
Officers, directors and greater than ten percent shareholders are required by
Commission regulations to furnish AMSERV with copies of all ownership forms they
file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain persons that no such forms were required
for those persons, AMSERV believes that, during the fiscal year ended June 24,
1995, its officers, directors and greater than ten percent shareholders complied
with all applicable Section 16 filing requirements.
COMPENSATION OF DIRECTORS
Directors who are not employees of AMSERV receive $400 for each meeting of
the AMSERV Board which they attend. In addition, each director who is not an
employee of AMSERV is paid an annual retainer of $700 and receives an annual
grant of options to purchase 1,500 shares of AMSERV Common Stock.
THE AMSERV BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RE-
ELECTION OF THE DIRECTORS.
EXECUTIVE OFFICERS OF AMSERV
Set forth below is a table identifying executive officers of AMSERV who are
not identified in the Nominees for Election table under the caption "ELECTION OF
AMSERV DIRECTORS."
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------- --- ----------------------------------------------------
<S> <C> <C>
Leslie Hodge 43 Secretary and Vice President -- Administration
Lori Anderson 35 Treasurer and Controller
</TABLE>
LESLIE HODGE. Ms. Hodge joined AMSERV in September 1990 as Director of
Human Resources for the AMSERV NURSES, INC. subsidiary and was promoted to Vice
President of Human Resources in July 1991. In June 1992, she was named Vice
President -- Administration and Secretary of AMSERV. From 1981 through 1990, she
was employed by PS Trading, Inc., a sister subsidiary of Pacific Southwest
Airlines, as Vice President of Administration.
LORI ANDERSON. Ms. Anderson joined AMSERV in November 1993 as Director of
Financial Planning and in December 1994 was promoted to Treasurer and
Controller. From 1991 through 1993, she was employed by TheraTx, Incorporated, a
provider of rehabilitation therapy services, as Accounting Manager and
Controller. Ms. Anderson received her CPA Certificate in 1985 while working for
Vekich, Arkema & Co., Chartered, an independent accounting and management
advisory firm, where she worked as an auditor and accounting supervisor from
1984 through 1990.
The AMSERV Board of Directors elects officers annually and such officers
serve at the discretion of the Board. There are no family relationships among
any of the directors or executive officers of AMSERV.
SIGNIFICANT EMPLOYEES OF AMSERV
Set forth below is a table of significant employees of AMSERV.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------- --- --------------------------------------------------------
<S> <C> <C>
Kenneth Freeman 60 Regional Manager of AMSERV HEALTHCARE OF NEW JERSEY,
INC.
L. Diane Gurik 47 President, North Central Personnel Division of AMSERV
HEALTHCARE OF OHIO INC.
</TABLE>
85
<PAGE>
KENNETH FREEMAN. Mr. Freeman joined AMSERV in March 1991 when AMSERV
HEALTHCARE OF NEW JERSEY, INC. acquired the assets of Always Care of New Jersey,
Inc. ("Always Care"), a Home Care company. Mr. Freeman founded Always Care in
1976. He continues as Regional Manager of the subsidiary supervising five Home
Care offices in New Jersey.
L. DIANE GURIK. Ms. Gurik joined AMSERV in June 1994 in conjunction with
the acquisition of the assets of North Central Personnel, Inc. ("NCP") by AMSERV
HEALTHCARE OF OHIO INC. ("AHO"), a wholly-owned subsidiary of AMSERV. Ms. Gurik
founded NCP, a Home Care company, in 1983. She continues as the President of the
North Central division of AHO.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF AMSERV
Melvin L. Katten, a director of AMSERV, is a partner in the Chicago law firm
of Katten Muchin & Zavis to which AMSERV incurred fees of $114,208 for certain
legal services during the fiscal year ended June 24, 1995.
On July 21, 1992, AMSERV acquired the assets of MED-PRO, Inc. Pursuant to
the terms of the acquisition, an interest-bearing loan of $100,000 was made to
the seller, John Parker, the owner of 7.0% of the outstanding shares of AMSERV
Common Stock. Mr. Parker entered into a two-year Consulting Agreement with
AMSERV as of June 1, 1994 which provided that the balance on such loan
($100,000) would be canceled immediately in exchange for consulting services
over the succeeding two-year period.
On June 10, 1994, AMSERV, through its wholly-owned subsidiary AHO, acquired
substantially all of the assets and property of NCP for an initial purchase
price of $1,553,835. AMSERV paid $553,835 of the purchase price in cash, and the
balance of $1,000,000 was financed by a promissory note payable to NCP.
Following such acquisition, L. Diane Gurik, the founder of NCP, retained her
position with NCP and in addition became the President of the North Central
division of AHO. Pursuant to a stock purchase agreement between AMSERV and NCP
dated as of April 7, 1995 (the "Stock Purchase Agreement"), the remaining
balance on the promissory note ($833,334) and related accrued interest were
exchanged for 426,794 shares of Class A Preferred. See "BUSINESS OF AMSERV --
Legal Proceedings" for a discussion of modifications to the voting rights of the
Class A Preferred pursuant to the Settlement Agreements. Subsequently, 85,359
shares were redeemed in accordance with the terms of the Class A Preferred, and
the remaining 341,435 shares were exchanged for 260,141 shares of AMSERV Class B
Preferred. Pursuant to the terms of the AMSERV Class B Preferred, 65,035 shares
were redeemed on each of February 1, 1996 and May 29, 1996, making NCP the owner
of 130,071 shares of the AMSERV Class B Preferred (representing 100% of AMSERV's
outstanding preferred stock and approximately 3.8% of AMSERV's outstanding
Voting Stock). Under the Stock Purchase Agreement, the final purchase price for
the assets of NCP (which is contingent on an earnout and will be equal to the
operating income of North Central for the three-year period ending June 9, 1997)
may not be less than $2,153,835 nor more than $2,553,835.
On April 20, 1995, AMSERV accepted a promissory note from Eugene J. Mora,
Chairman, Chief Executive Officer and President of AMSERV, in the amount of
$198,440 in partial payment for 177,562 shares of AMSERV Common Stock acquired
upon the exercise of stock options held by Mr. Mora. The non-recourse promissory
note, which matures in April 2000, was secured by 177,562 shares of AMSERV
Common Stock owned by Mr. Mora and bore interest at the rate of 10% per annum.
On January 16, 1996, the promissory note was amended to become a recourse note
secured by 110,000 shares of AMSERV Common Stock owned by Mr. Mora, which will
bear interest at the rate of 5.73% per annum.
Also on January 16, 1996, AMSERV accepted a recourse promissory note from
Mr. Mora in the amount of $199,342 in partial payment for 110,500 shares of
AMSERV Common Stock acquired upon the exercise of stock options held by Mr.
Mora. The promissory note is secured by the 110,500 shares of AMSERV Common
Stock owned by Mr. Mora, bears interest at the rate of 5.73% per annum and
matures in January 2001.
86
<PAGE>
EXECUTIVE COMPENSATION OF AMSERV
The following table provides information with respect to all compensation
paid by AMSERV during the fiscal years ended June 24, 1995, June 30, 1994 and
June 30, 1993, to AMSERV's Chief Executive Officer, who is the only executive
officer who had compensation (combined salary and bonus) in excess of $100,000
(the "Named Officer").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
--------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- --------------------------------------- --------- --------- ------------- ------------------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Eugene J. Mora ........................ 1995 298,000 -- -- -- 1,710(1)
Chairman, President and Chief 1994 298,000 -- -- -- 2,325
Executive Officer 1993 298,000 -- -- 12,500 3,342
</TABLE>
- ------------------------
(1) AMSERV's contributions to 401(k) Plan.
The following table provides information regarding the Named Officer's
unexercised options at June 24, 1995. No stock options or stock appreciation
rights were granted to the Named Officer during fiscal 1995.
AGGREGATED AMSERV OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR-END AT FISCAL YEAR-END
ACQUIRED ON -------------------------------- --------------------------------
NAME EXERCISE VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- ---------- ----------- ------------------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Eugene J. Mora................. 177,562 $ 139,063 175,500 0 $ 158,728 $ 0
</TABLE>
EMPLOYMENT AGREEMENTS
Pursuant to the Mora Employment Agreement, which continues until terminated
upon 30 days written notice, if Mr. Mora is terminated without cause, AMSERV
shall pay to Mr. Mora the compensation he earned in the final year of his
employment in each of the immediately following five years and shall transfer to
Mr. Mora any individual life insurance policies owned by AMSERV. The Mora
Employment Agreement includes covenants which restrict Mr. Mora from certain
business activities following termination of employment, for a period of one
year.
Pursuant to the Mora Consulting Agreement, Mr. Mora will be retained as a
consultant to AMSERV for the two years immediately following termination of his
employment for which he will receive $129,200 per year in compensation. Pursuant
to a resolution approved by the Board of Directors of AMSERV, Mr. Mora's health
insurance coverage will be maintained by AMSERV following his retirement.
Pursuant to an employment agreement dated March 21, 1995 between Leslie
Hodge and AMSERV (the "Hodge Employment Agreement"), which has a term of four
years from the date of the agreement, if within 36 months following a "change in
control" of AMSERV, Ms. Hodge is terminated without cause or Ms. Hodge
terminates her employment for good reason, AMSERV shall (i) pay to Ms. Hodge a
lump sum cash payment equal to three times the average annual compensation that
was includible in Ms. Hodge's gross income during each of the past five years
and (ii) continue Ms. Hodge's benefits for a period of 36 months. The Hodge
Employment Agreement defines "change in control" to mean (a) any individual,
entity or group acquires beneficial ownership of greater than 50% of the then
outstanding shares of AMSERV Common
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<PAGE>
Stock or (b) AMSERV's shareholders approve a reorganization, merger,
consolidation or similar transaction, unless such acquisition (as described in
clause (a) above) or such transaction (as described in clause (b) above) is
approved by AMSERV's Board of Directors. The Hodge Employment Agreement includes
covenants which restrict Ms. Hodge from certain business activities following
termination of employment (unless such termination is following a change in
control and is by AMSERV without cause or by Ms. Hodge for good reason), for a
period of one year.
The Hodge Employment Agreement was subsequently amended to provide that if
within 24 months following a "board approved change in control," Ms. Hodge is
terminated without cause or Ms. Hodge terminates her employment for good reason,
AMSERV shall (i) pay to Ms. Hodge a lump sum payment equal to 12 months of the
highest monthly base salary received by Ms. Hodge in any one of the past 60
months and (ii) continue Ms. Hodge's benefits for a period of 12 months. The
Hodge Employment Agreement, as amended, defines "board approved change in
control" to mean (a) any individual, entity or group acquires beneficial
ownership of greater than 50% of the then outstanding shares of AMSERV Common
Stock or (b) AMSERV's shareholders approve a reorganization, merger,
consolidation or similar transaction, and such acquisition (as described in
clause (a) above) or such transaction (as described in clause (b) above) is
approved by AMSERV's Board of Directors.
AMSERV is also a party to an employment agreement with Lori Anderson which
contains identical terms to those set forth in the Hodge Employment Agreement,
except that if within 24 months following a "board approved change in control,"
Ms. Anderson is terminated without cause or Ms. Anderson terminates her
employment for good reason, AMSERV shall (i) pay to Ms. Anderson a lump sum
payment equal to six months of the highest monthly base salary received by Ms.
Anderson in any one of the past 60 months and (ii) continue Ms. Anderson's
benefits for a period of six months.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS OF AMSERV
AMSERV proposes to engage Ernst & Young LLP to serve as independent public
accounts for its 1996 fiscal year. Ernst & Young LLP audited AMSERV's books and
records for the fiscal year ended June 24, 1995.
On March 21, 1995, Deloitte & Touche LLP was dismissed as AMSERV's
independent auditors and on March 21, 1995, AMSERV retained Ernst & Young LLP as
independent auditors for AMSERV for its fiscal year ended June 24, 1995.
For AMSERV's fiscal years ended June 30, 1994 and 1993, the accountants'
reports on AMSERV's financial statements did not contain an adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles.
AMSERV's decision to change its independent auditors was approved by its
Board of Directors at a meeting held March 21, 1995. In connection with the
audits of AMSERV's financial statements for each of the two fiscal years ended
June 30, 1994 and 1993, and any subsequent interim period preceding such
dismissal, there were no disagreements with Deloitte & Touche LLP on any matters
of accounting principles or practices, financial statement disclosure, or
auditing scope and procedures which, if not resolved to the satisfaction of
Deloitte & Touche LLP, would have caused Deloitte & Touche LLP to make reference
to the matter in their report.
Deloitte & Touche LLP furnished a letter dated April 25, 1995 to the
Commission stating that it agreed with the above statements.
A resolution will be presented at the AMSERV Meeting to ratify the selection
of Ernst & Young LLP by the Board of Directors of AMSERV as independent public
accountants to audit the accounts and records of AMSERV for the fiscal year
ended June 29, 1996, and to perform other appropriate services. In the event a
88
<PAGE>
majority of the votes cast at the AMSERV Meeting are not voted in favor of
ratification, the adverse vote will be considered as a direction to the Board of
AMSERV to select other independent public accountants for the 1996 fiscal year.
It is anticipated that Ernst & Young LLP will have a representative at the
AMSERV Meeting, that the representative will have the opportunity to make a
statement and that anyone wishing to do so may question him.
THE AMSERV BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
RATIFICATION OF ERNST & YOUNG LLP AS AMSERV'S INDEPENDENT PUBLIC ACCOUNTANTS.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for STAR
by Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New York,
New York 10036. The federal income tax consequences in connection with the
Merger will be passed upon for AMSERV by Latham & Watkins, 701 "B" Street, Suite
2100, San Diego, California 92101-8197.
EXPERTS
The consolidated financial statements of STAR MULTI CARE SERVICES, INC. and
subsidiaries as of May 31, 1994 and 1995 and for each of the years in the
two-year period ended May 31, 1995 included in this Joint Proxy
Statement/Prospectus have been audited by Holtz Rubenstein & Co., LLP,
independent certified public accountants, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of AMSERV HEALTHCARE INC. and
subsidiaries as of June 30, 1994 and for each of the two years in the period
ended June 30, 1994 included in this Joint Proxy Statement/Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as set forth in their
report appearing elsewhere herein, and are included in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of AMSERV HEALTHCARE INC. at June 24,
1995 and for the year then ended included in this Joint Proxy
Statement/Prospectus have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The financial statements of Long Island Registry, Inc. as of December 31,
1994 and for the year then ended included in this Joint Proxy
Statement/Prospectus have been audited by Paul Josephson C.P.A., P.C.,
independent auditor, as set forth in his report appearing elsewhere herein and
are included in reliance upon his report given upon his authority as an expert
in auditing and accounting.
PROPOSALS BY AMSERV SHAREHOLDERS
AMSERV shareholder proposals intended to be presented at the next Annual
Meeting of Shareholders of AMSERV (which will be held only if the Merger is not
consummated) must be received by AMSERV a reasonable time before AMSERV's
solicitation is made for such meeting.
OTHER BUSINESS
The Board of Directors of AMSERV is not aware of any other matter which may
be presented for action at the AMSERV Meeting. Should any other matter requiring
a vote of the shareholders arise, the enclosed proxy card gives authority to the
persons listed on the card to vote at their discretion in the best interest of
AMSERV.
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<PAGE>
STAR MULTI CARE SERVICES, INC.
AND
AMSERV HEALTHCARE INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
give effect to the Merger of Star Multi Care Services, Inc. ("STAR") and AMSERV
HEALTHCARE INC. ("AMSERV") under the pooling of interests method of accounting.
These pro forma financial statements are presented for illustrative purposes
only, and therefore are not necessarily indicative of the operating results and
financial position that might have been achieved had the Merger occurred as of
an earlier date, nor are they necessarily indicative of operating results and
financial position which may occur in the future.
A pro forma condensed combined balance sheet is provided as of February 29,
1996, giving effect to the Merger as though it had been consummated on that
date. The pro forma condensed combined balance sheet combines the consolidated
balance sheet of STAR as of February 29, 1996 with that of AMSERV as of March
23, 1996. Pro forma condensed combined statements of income are provided
combining STAR for the nine month periods ended February 29, 1996 and February
28, 1995, and the years ended May 31, 1995 and 1994, with AMSERV for the nine
month periods ended March 23, 1996 and March 31, 1995, and for the years ended
June 24, 1995 and June 30, 1994, giving effect to the Merger as though it had
occurred at the beginning of the earliest period presented.
The historical condensed statements of income for annual periods presented
are derived from the separate historical consolidated financial statements of
STAR and AMSERV, and should be read in conjunction with the companies' separate
financial statements included elsewhere herein. The historical financial
statements as of or for the nine months ended February 29, 1996 and February 28,
1995 are derived from the historical interim consolidated financial statements
of STAR and AMSERV, included elsewhere herein, and have been prepared in
accordance with generally accepted accounting principles applicable to interim
financial information and, in the opinion of STAR's and AMSERV's respective
managements, include all adjustments necessary for a fair presentation of
financial information for such interim periods.
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<PAGE>
STAR MULTI CARE SERVICES, INC.
AND
AMSERV HEALTHCARE INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
FEBRUARY 29, 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
STAR AMSERV PRO FORMA
MULTI CARE HEALTHCARE -------------------------------
SERVICES, INC. INC. ADJUSTMENTS COMBINED
---------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 59,696 $ 2,305,423 $ -- $ 2,365,119
Short-term investments, net........................ -- 103,500 -- 103,500
Accounts receivable, net........................... 8,034,772 1,320,969 -- 9,355,741
Prepaid expenses and other current assets.......... 313,490 390,827 -- 704,317
Deferred income taxes.............................. 160,000 -- -- 160,000
---------------- -------------- ---------------- -------------
Total current assets............................. 8,567,958 4,120,719 -- 12,688,677
PROPERTY AND EQUIPMENT, net.......................... 298,024 429,597 -- 727,621
NOTES RECEIVABLE FROM OFFICER........................ 102,490 -- -- 102,490
INTANGIBLE ASSETS, net............................... 3,141,614 2,004,881 -- 5,146,495
OTHER ASSETS......................................... 157,823 277,863 -- 435,686
---------------- -------------- ---------------- -------------
Total assets..................................... $ 12,267,909 $ 6,833,060 $ -- $ 19,100,969
---------------- -------------- ---------------- -------------
---------------- -------------- ---------------- -------------
LIABILITIES, REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued payroll and related expenses............... $ 1,000,461 $ 780,407 $ -- $ 1,780,868
Accounts payable and other accrued expenses........ 678,890 35,139 -- 714,029
Net liability of discontinued operations........... -- 115,422 -- 115,422
Income taxes payable............................... 199,198 -- -- 199,198
Current maturities of long-term debt............... 125,000 -- -- 125,000
Other current liabilities.......................... -- 258,296 -- 258,296
---------------- -------------- ---------------- -------------
Total current liabilities........................ 2,003,549 1,189,264 -- 3,192,813
---------------- -------------- ---------------- -------------
LONG-TERM LIABILITIES:
Revolving credit line.............................. 3,250,000 -- -- 3,250,000
Long-term debt..................................... 281,250 -- -- 281,250
Other long-term liabilities........................ -- 33,406 -- 33,406
---------------- -------------- ---------------- -------------
Total long-term liabilities...................... 3,531,250 33,406 -- 3,564,656
---------------- -------------- ---------------- -------------
REDEEMABLE PREFERRED STOCK:
Class A Redeemable Preferred Stock................. -- -- -- --
Class B Redeemable Preferred Stock................. -- 1,951 -- 1,951
Additional paid-in capital......................... -- 510,202 -- 510,202
---------------- -------------- ---------------- -------------
Total redeemable preferred stock................. -- 512,153 -- 512,153
---------------- -------------- ---------------- -------------
SHAREHOLDERS' EQUITY:
Preferred Stock, $1.00 par value................... -- -- -- --
Common Stock, $.001 par value...................... 2,454 34,482 (33,130)2(i) 3,806
Additional paid-in capital......................... 6,406,345 7,064,031 (262,923)2(ii) 13,207,453
Note receivable from officer....................... -- (397,782) -- (397,782)
Unrealized gain on short-term investments.......... -- 5,838 -- 5,838
Retained earnings.................................. 603,233 (1,312,279) -- (709,046)
Treasury stock at cost............................. (278,922) (296,053) 296,053 2(ii) (278,922)
---------------- -------------- ---------------- -------------
Total shareholders' equity....................... 6,733,110 5,098,237 -- 11,831,347
---------------- -------------- ---------------- -------------
$ 12,267,909 $ 6,833,060 -- $ 19,100,969
---------------- -------------- ---------------- -------------
---------------- -------------- ---------------- -------------
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
91
<PAGE>
STAR MULTI CARE SERVICES, INC.
AND
AMSERV HEALTHCARE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
STAR AMSERV PRO FORMA
MULTI CARE HEALTHCARE --------------------------
SERVICES, INC. INC. ADJUSTMENTS COMBINED
---------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
REVENUES, net...................................... $ 26,468,086 $ 9,117,616 $ -- $ 35,585,702
OPERATING EXPENSES................................. 24,995,000 8,671,560 -- 33,666,560
---------------- -------------- ----------- -------------
INCOME FROM OPERATIONS............................. 1,473,086 446,056 -- 1,919,142
OTHER INCOME (EXPENSE):
Interest expense, net............................ (203,060) 120,122 -- (82,938)
---------------- -------------- ----------- -------------
INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION
FOR INCOME TAXES.................................. 1,270,026 566,178 -- 1,836,204
PROVISION FOR INCOME TAXES......................... 520,000 224,000 -- 744,000
---------------- -------------- ----------- -------------
INCOME FROM CONTINUING OPERATIONS.................. $ 750,026 $ 342,178 $ -- $ 1,092,204
---------------- -------------- ----------- -------------
---------------- -------------- ----------- -------------
EARNINGS PER COMMON SHARE, primary:
Income from continuing operations................ $ .28 $ .10 $ -- $ .27
---------------- -------------- ----------- -------------
---------------- -------------- ----------- -------------
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING....................................... 2,704,187 3,269,084 -- 4,041,242
---------------- -------------- ----------- -------------
---------------- -------------- ----------- -------------
EARNINGS PER COMMON SHARE, full dilution:
Income from continuing operations................ $ .28 $ .10 $ -- $ .27
---------------- -------------- ----------- -------------
---------------- -------------- ----------- -------------
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING....................................... 2,704,187 3,269,084 -- 4,041,242
---------------- -------------- ----------- -------------
---------------- -------------- ----------- -------------
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
92
<PAGE>
STAR MULTI CARE SERVICES, INC.
AND
AMSERV HEALTHCARE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED FEBRUARY 28, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
STAR AMSERV PRO FORMA
MULTI CARE HEALTHCARE ---------------------------
SERVICES, INC. INC. ADJUSTMENTS COMBINED
---------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES, net..................................... $ 19,684,818 $ 8,402,485 $ -- $ 28,087,303
OPERATING EXPENSES................................ 18,820,910 8,114,603 -- 26,935,513
---------------- -------------- ------------ -------------
INCOME FROM OPERATIONS............................ 863,908 287,882 -- 1,151,790
OTHER INCOME (EXPENSE):
Interest expense, net........................... (43,826) 15,873 -- (27,953)
---------------- -------------- ------------ -------------
INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION
FOR INCOME TAXES................................. 820,082 303,755 -- 1,123,837
PROVISION FOR INCOME TAXES........................ 353,000 79,000 -- 432,000
---------------- -------------- ------------ -------------
INCOME FROM CONTINUING OPERATIONS................. $ 467,082 $ 224,755 $ -- $ 691,837
---------------- -------------- ------------ -------------
---------------- -------------- ------------ -------------
EARNINGS PER COMMON SHARE,
primary:
Income from continuing operations............. $ .20 $ .07 -- $ .19
---------------- -------------- ------------ -------------
---------------- -------------- ------------ -------------
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING...................................... 2,282,032 3,132,660 -- 3,563,290
---------------- -------------- ------------ -------------
---------------- -------------- ------------ -------------
EARNINGS PER COMMON SHARE,
full dilution:
Income from continuing operations............. $ .20 $ .07 $ -- $ .19
---------------- -------------- ------------ -------------
---------------- -------------- ------------ -------------
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING...................................... 2,282,032 3,132,660 -- 3,363,290
---------------- -------------- ------------ -------------
---------------- -------------- ------------ -------------
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
93
<PAGE>
STAR MULTI CARE SERVICES, INC.
AND
AMSERV HEALTHCARE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED MAY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
---------------------------------- --------------
STAR LONG ISLAND PRO FORMA AMSERV PRO FORMA
MULTI CARE NURSING ----------------------- HEALTHCARE -----------------------
SERVICES, INC. REGISTRY, INC. ADJUSTMENTS COMBINED INC. ADJUSTMENTS COMBINED
---------------- ---------------- ----------- ---------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES, net......... $ 27,088,426 $6,070,639 $ -- $33,159,065 $ 11,341,609 $ -- $44,500,674
OPERATING EXPENSES.... 25,849,956 5,903,739 (232,500) 31,521,195 11,329,422 -- 42,850,617
---------------- ---------------- ----------- ---------- -------------- ----------- ----------
INCOME FROM
OPERATIONS........... 1,238,470 166,900 232,500 1,637,870 12,187 -- 1,650,057
OTHER INCOME
(EXPENSE):
Interest expense,
net................ (62,782) (100,218) (120,000) (283,000) 42,199 -- (240,801)
---------------- ---------------- ----------- ---------- -------------- ----------- ----------
INCOME FROM CONTINUING
OPERATIONS BEFORE
PROVISION FOR INCOME
TAXES................ 1,175,688 66,682 112,500 1,354,870 54,386 -- 1,409,256
PROVISION FOR INCOME
TAXES................ 470,000 -- 80,000 550,000 2,038 -- 552,038
---------------- ---------------- ----------- ---------- -------------- ----------- ----------
INCOME FROM CONTINUING
OPERATIONS........... $ 705,688 $ 66,682 $ 32,500 $ 804,870 $ 52,348 $ -- $ 857,218
---------------- ---------------- ----------- ---------- -------------- ----------- ----------
EARNINGS PER COMMON
SHARE,
primary:
Income from
continuing
operations....... $ .28 $ -- $ -- $ .32 $ .02 $ -- $ .23
---------------- ---------------- ----------- ---------- -------------- ----------- ----------
WEIGHTED AVERAGE
NUMBER OF SHARES OF
COMMON STOCK
OUTSTANDING.......... 2,500,311 -- -- 2,500,311 3,111,527 -- 3,772,925
---------------- ---------------- ----------- ---------- -------------- ----------- ----------
EARNINGS PER COMMON
SHARE,
full dilution:
Income from
continuing
operations....... $ .28 $ -- $ -- $ .32 $ .02 $ -- $ .23
---------------- ---------------- ----------- ---------- -------------- ----------- ----------
WEIGHTED AVERAGE
NUMBER OF SHARES OF
COMMON STOCK
OUTSTANDING.......... 2,525,966 -- -- 2,525,966 3,111,527 -- 3,798,580
---------------- ---------------- ----------- ---------- -------------- ----------- ----------
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
94
<PAGE>
STAR MULTI CARE SERVICES, INC.
AND
AMSERV HEALTHCARE INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
YEAR ENDED MAY 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
STAR AMSERV PRO FORMA
MULTI CARE HEALTHCARE ---------------------------
SERVICES, INC. INC. ADJUSTMENTS COMBINED
---------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES, net..................................... $ 22,168,356 $ 7,525,822 $ -- $ 29,694,178
OPERATING EXPENSES................................ 21,423,429 7,694,611 -- 29,118,040
---------------- -------------- ------------ -------------
INCOME (LOSS) FROM OPERATIONS..................... 744,927 (168,789) -- 576,138
OTHER INCOME (EXPENSE):
Interest expense, net........................... (13,047) 80,287 -- 67,240
---------------- -------------- ------------ -------------
INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION
FOR INCOME TAXES................................. 731,880 (88,502) -- 643,378
PROVISION (BENEFIT) FOR INCOME TAXES.............. 311,000 (25,168) -- 285,832
---------------- -------------- ------------ -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS.......... $ 420,880 $ (63,334) $ -- $ 357,546
---------------- -------------- ------------ -------------
EARNINGS (LOSS) PER COMMON SHARE, primary:
Income (loss) from continuing operations........ $ .18 $ (.02) $ -- $ .10
---------------- -------------- ------------ -------------
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING...................................... 2,325,065 2,944,526 -- 3,529,376
---------------- -------------- ------------ -------------
EARNINGS (LOSS) PER COMMON SHARE, full dilution:
Income (loss) from continuing operations........ $ .18 $ (.02) $ -- $ .10
---------------- -------------- ------------ -------------
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING...................................... 2,325,065 2,944,526 -- 3,563,290
---------------- -------------- ------------ -------------
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
95
<PAGE>
STAR MULTI CARE SERVICES, INC.
AND
AMSERV HEALTHCARE INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The unaudited pro forma condensed combined financial statements are
presented for illustrative purposes only, giving effect to the Merger of STAR
MULTI CARE SERVICES, INC. ("STAR") and AMSERV HEALTHCARE INC. ("AMSERV") as
accounted for by the pooling of interests method. The 1995 acquisition of Long
Island Nursing Registry, Inc. ("LINR") was recorded using purchase accounting,
and accordingly, STAR's operations for the year ended May 31, 1995 reflect only
the operations of LINR from the acquisition date (May 19, 1995) to year end.
Accordingly, LINR's operations from June 1, 1994 through the date of acquisition
have been added in the accompanying unaudited pro forma condensed combined
statement of operations for the year ended 1995. In accordance with Commission
reporting rules, the pro forma combined statements of income, and the historical
statements from which they are derived, present only income from continuing
operations and, therefore, do not include discontinued operations, extraordinary
items, and the cumulative effects of accounting changes.
Because the transaction has not been completed and transition plans are
currently being developed, transaction costs of the Merger and nonrecurring
costs and expenses expected to be incurred in connection with the integration of
the companies' business and operations can only be estimated at this time. The
pro forma condensed combined statements of income exclude transaction costs and
expenses of the Merger, currently estimated to be $2,700,000, consisting of
Eugene J. Mora's termination payment ($1,700,000); attorney and accounting fees
($440,000); other professional fees ($325,000); and other expenses ($235,000).
Transaction costs will be charged to combined operations in the fiscal quarter
in which the transaction is completed.
2. PRO FORMA ADJUSTMENTS:
SHAREHOLDERS' EQUITY
Shareholders' equity as of February 29, 1996 has been adjusted to reflect
the following:
(i) Common Stock, $.001 par value, has been adjusted to reflect the
assumed issuance of approximately 1,352,000 shares of STAR Common Stock,
$.001 par value, in exchange for 3,305,000 shares of AMSERV Common Stock
issued and outstanding as of February 29, 1996, utilizing the exchange rate
of .4090 shares of STAR for each share of AMSERV. The number of shares of
STAR Common Stock to be issued at consummation of the Merger will be based
upon the actual number of shares of AMSERV Common Stock outstanding at that
time.
(ii) Additional paid-in capital and treasury stock of AMSERV is adjusted
for the effect of the aforementioned issuance of approximately 1,352,000
shares of STAR Common Stock having a par value of $.001 per share in
exchange for AMSERV Common Stock.
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
a. EARNINGS PER COMMON SHARE
Pro forma weighted average number of common shares outstanding for the nine
month periods ended February 29, 1996 and February 28, 1995 and for the years
ended May 31, 1995 and 1994 are based upon STAR's and AMSERV's combined
historical weighted average shares, after adjustment of AMSERV's historical
number of shares by the Exchange Ratio and excluding any AMSERV shares held in
treasury.
96
<PAGE>
STAR MULTI CARE SERVICES, INC.
AND
AMSERV HEALTHCARE INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. PRO FORMA ADJUSTMENTS: (CONTINUED)
b. ACQUISITION OF LONG ISLAND NURSING REGISTRY, INC.
The following adjustments have been made to the 1995 combined statement of
income to give pro forma effect to the acquisition of Long Island Nursing
Registry, Inc.
- To record amortization cost in excess of LINR's net assets acquired
($100,000)
- To eliminate the portion of general and administrative expenses which
exceeds STAR's estimate of recurring general and administrative expenses
of the post acquisition company ($332,500)
- To record interest expense on funds borrowed to purchase LINR's net assets
($120,000)
- To recognize the income tax effect of pro forma adjustments related to the
acquisition of LINR ($80,000)
97
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
STAR's Independent Auditors' Report................................................................ F-2
STAR's Consolidated Balance Sheets as of May 31, 1995, 1994, and February 29, 1996 (unaudited)..... F-3
STAR's Consolidated Statements of Income for the years ended May 31, 1995 and 1994, and for the
nine months ended February 29, 1996 and February 28, 1995 (unaudited)............................. F-4
STAR's Consolidated Statements of Shareholders' Equity for the years ended May 31, 1995 and 1994,
and for the nine months ended February 29, 1996 (unaudited)....................................... F-5
STAR's Consolidated Statements of Cash Flows for the years ended May 31, 1995 and 1994, and the
nine months ended February 29, 1996 and February 28, 1995 (unaudited)............................. F-6
STAR's Notes to Consolidated Financial Statements.................................................. F-7 - F-15
AMSERV's Independent Auditors' Report.............................................................. F-16
AMSERV's Independent Auditors' Report.............................................................. F-17
AMSERV's Consolidated Balance Sheets as of June 24, 1995 and June 30, 1994......................... F-18
AMSERV's Consolidated Statements of Operations for years ended June 24, 1995 and June 30, 1994 and
1993.............................................................................................. F-19
AMSERV's Consolidated Statements of Shareholders' Equity for the years ended June 24, 1995 and June
30, 1994 and 1993................................................................................. F-20
AMSERV's Consolidated Statements of Cash Flows for the years ended June 24, 1995 and June 30, 1994
and 1993.......................................................................................... F-21
AMSERV's Notes to Consolidated Financial Statements................................................ F-22 - F-29
AMSERV's Condensed Consolidated Balance Sheet as of March 23, 1996 -- unaudited.................... F-30
AMSERV's Condensed Consolidated Statements of Operations for the nine months ended March 23, 1996
and March 31, 1995 -- unaudited................................................................... F-31
AMSERV's Condensed Consolidated Statement of Cash Flows for the nine months ended March 23, 1996
and March 31, 1995 -- unaudited................................................................... F-32
AMSERV's Notes to Unaudited Condensed Consolidated Financial Statements............................ F-33 - F-34
LINR's Independent Auditors' Report................................................................ F-35
LINR's Balance Sheet as of December 31, 1994....................................................... F-36
LINR's Statement of Income and Accumulated Deficit for the year ended December 31, 1994............ F-37
LINR's Statement of Cash Flows for the year ended December 31, 1994................................ F-38
LINR's Notes to Financial Statements............................................................... F-39 - F-40
LINR's Independent Auditors' Report on Supplemental Information.................................... F-41
LINR's Schedule of Operating Expenses for the year ended December 31, 1994......................... F-42
LINR's Balance Sheet as of February 28, 1995 (unaudited)........................................... F-43
LINR's Statement of Income and Accumulated Deficit for the nine months ended February 28, 1995
(unaudited)....................................................................................... F-44
LINR's Statement of Cash Flows for the nine months ended February 28, 1995 (unaudited)............. F-45
LINR's Notes to Financial Statements............................................................... F-46 - 47
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Star Multi Care Services, Inc.
We have audited the accompanying consolidated balance sheets of Star Multi
Care Services, Inc. as of May 31, 1995 and 1994 and the related consolidated
statements of income, shareholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Star Multi Care Services, Inc. at May 31, 1995 and 1994, and the consolidated
results of its operations and cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/ HOLTZ RUBENSTEIN & CO., LLP
Holtz Rubenstein & Co., LLP
July 19, 1995 (except for Note 4, as to
which the date is August 16, 1995)
Melville, New York
F-2
<PAGE>
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS (NOTE 4)
<TABLE>
<CAPTION>
MAY 31,
--------------------------- FEBRUARY 29,
1995 1994 1996
------------- ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
Current assets:
Cash and cash equivalents............................................... $ 270,344 $ 425,015 $ 59,696
Accounts receivable, less allowance for doubtful accounts of $390,000,
$363,000 and $450,000 at May 31, 1995 and 1994 and February 29, 1996,
respectively (Note 8).................................................. 5,742,176 4,589,439 8,034,772
Prepaid expenses and other.............................................. 159,166 208,923 313,490
Deferred income taxes (Note 12)......................................... 160,000 142,000 160,000
------------- ------------ -------------
Total current assets.................................................. 6,331,686 5,365,377 8,567,958
Property and equipment, net of accumulated depreciation and amortization
of $323,827, $213,640 and $384,214 at May 31, 1995 and 1994 and February
29, 1996, respectively................................................... 260,333 191,914 298,024
Notes receivable from officer (Note 2).................................... 109,717 125,223 102,490
Intangible assets, net of accumulated amortization (Notes 3 and 7)........ 3,345,650 1,910,885 3,141,614
Deposits.................................................................. 66,345 44,682 157,823
------------- ------------ -------------
$ 10,113,731 $ 7,638,081 $ 12,267,909
------------- ------------ -------------
------------- ------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit line (Note 4).......................................... $ -- $ 950,000 $ --
Accrued payroll and related expenses.................................... 893,589 634,426 1,000,461
Accounts payable and other accrued expenses............................. 705,196 629,527 678,890
Income taxes payable (Note 12).......................................... 300,440 195,537 199,198
Current maturities of long-term debt (Note 5)........................... 125,000 -- 125,000
------------- ------------ -------------
Total current liabilities............................................. 2,024,225 2,409,490 2,003,549
------------- ------------ -------------
Revolving Credit Line (Note 4)............................................ 1,750,000 -- 3,250,000
------------- ------------ -------------
Long-Term Debt (Note 5)................................................... 375,000 -- 281,250
------------- ------------ -------------
Commitments and Contingencies (Notes 9 and 11)
Shareholders' equity (Notes 6, 9, and 10):
Preferred stock, $1.00 par value per share, 5,000,000 shares authorized
in 1994................................................................ -- -- --
Common stock, $.001 par value per share, 10,000,000 shares authorized;
2,314,847, 2,167,500 and 2,453,775 shares issued, respectively......... 2,315 2,168 2,454
Additional paid-in capital.............................................. 5,359,108 4,841,790 6,406,345
Retained earnings....................................................... 882,005 657,618 603,233
------------- ------------ -------------
6,243,428 5,501,576 7,012,032
Less treasury stock -- 137,500, 135,000 and 137,500 common shares,
respectively............................................................. 278,922 272,985 278,922
------------- ------------ -------------
Total shareholders' equity............................................ 5,964,506 5,228,591 6,733,110
------------- ------------ -------------
$ 10,113,731 $ 7,638,081 $ 12,267,909
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED
MAY 31, NINE MONTHS ENDED
---------------------------- ----------------------------
1995 1994 FEBRUARY 29, FEBRUARY 28,
------------- ------------- 1996 1995
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue (Note 8)...................................... $ 27,088,426 $ 22,168,356 $ 26,468,086 $ 19,684,818
------------- ------------- ------------- -------------
Operating costs and expenses (Notes 2 and 11):
Costs of revenue........................................ 17,582,371 14,351,131 17,253,507 12,807,183
Selling, general and administrative (Note 2)............ 8,267,585 7,072,298 7,741,493 6,013,727
------------- ------------- ------------- -------------
25,849,956 21,423,429 24,995,000 18,820,910
------------- ------------- ------------- -------------
Income from operations.................................... 1,238,470 744,927 1,473,086 863,908
Interest income........................................... 33,907 24,412 13,608 24,660
Interest expense.......................................... (96,689) (37,459) (216,668) (68,486)
------------- ------------- ------------- -------------
Income before provision for income taxes and cumulative
effect of change in accounting method.................... 1,175,688 731,880 1,270,026 820,082
------------- ------------- ------------- -------------
Provision for income taxes (Note 12)...................... 470,000 311,000 520,000 353,000
------------- ------------- ------------- -------------
Income before cumulative effect of change in accounting
method................................................... 705,688 420,880 750,026 467,082
Cumulative effect of change in accounting method (Note
12)...................................................... -- 65,000 -- --
------------- ------------- ------------- -------------
Net income................................................ $ 705,688 $ 485,880 $ 750,026 $ 467,082
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income per common share:
Primary:
Income before cumulative effect of accounting
change............................................... $ .28 $ .18 $ .28 $ .20
Cumulative effect of accounting change.................... -- .03 -- --
------------- ------------- ------------- -------------
Net income................................................ $ .28 $ .21 $ .28 $ .20
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Assuming full dilution:
Income before cumulative effect of accounting change.... $ .28 $ .18 $ .28 $ .20
Cumulative effect of accounting change.................... -- .03 -- --
------------- ------------- ------------- -------------
Net income................................................ $ .28 $ .21 $ .28 $ .20
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of shares outstanding:
Primary................................................. 2,500,311 2,325,065 2,704,187 2,282,032
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Assuming full dilution.................................. 2,525,966 2,325,065 2,704,187 2,282,032
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
TWO YEARS ENDED MAY 31, 1995
AND NINE MONTHS ENDED FEBRUARY 29, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN TREASURY RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL STOCK EARNINGS EQUITY
---------- --------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 1, 1993...................... 1,445,000 $ 1,445 $ 4,842,513 $ (105,000) $ 171,738 $ 4,910,696
Purchase of 90,000 shares of treasury
stock..................................... -- -- -- (167,985) -- (167,985)
Three-for-two stock split.................. 722,500 723 (723) -- -- --
Net income................................. -- -- -- -- 485,880 485,880
---------- --------- ------------ ----------- ------------- -------------
Balance, May 31, 1994...................... 2,167,500 2,168 4,841,790 (272,985) 657,618 5,228,591
Purchase of 2,500 shares of treasury
stock..................................... -- -- -- (5,937) -- (5,937)
Exercise of stock options.................. 19,000 19 36,145 -- -- 36,164
6% stock dividend.......................... 128,347 128 481,173 -- (481,301) --
Net income................................. -- -- -- -- 705,688 705,688
---------- --------- ------------ ----------- ------------- -------------
Balance, May 31, 1995...................... 2,314,847 2,315 5,359,108 (278,922) 882,005 5,964,506
6% stock dividend.......................... 130,641 131 1,028,667 -- (1,028,798) --
Exercise of stock options.................. 8,287 8 18,570 -- -- 18,578
Net income................................. -- -- -- -- 750,026 750,026
---------- --------- ------------ ----------- ------------- -------------
Balance, February 29, 1996 (unaudited)..... 2,453,775 $ 2,454 $ 6,406,345 $ (278,922) $ 603,233 $ 6,733,110
---------- --------- ------------ ----------- ------------- -------------
---------- --------- ------------ ----------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
MAY 31, NINE MONTHS ENDED
---------------------------- ----------------------------
1995 1994 FEBRUARY 29, FEBRUARY 28,
------------- ------------- 1996 1995
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flow from operating activities
Net income................................................ $ 705,688 $ 485,880 $ 750,026 $ 467,082
------------- ------------- ------------- -------------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Provision for doubtful accounts....................... 330,732 255,446 255,000 220,000
Depreciation and amortization of property and
equipment............................................ 69,472 84,890 63,118 54,022
Amortization of intangible assets..................... 270,834 268,767 266,296 203,386
Loss on disposal of equipment........................... 14,606 -- -- --
Deferred income taxes................................... (18,000) (76,000) -- --
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable................................... (1,483,469) (1,846,351) (2,547,596) (1,170,130)
Prepaid expenses and other current assets............. 49,757 (121,721) (154,324) (84,862)
Deposits.............................................. (21,663) 17,625 (91,478) (9,051)
Increase (decrease) in liabilities:
Accrued payroll and related expenses.................. 259,163 187,281 106,872 19,620
Accounts payable and other accrued expenses........... 75,669 33,257 (26,306) (106,852)
Income taxes payable.................................. 104,903 140,653 (101,242) 52,411
------------- ------------- ------------- -------------
Total Adjustments................................... (347,996) (1,056,152) (2,229,660) (821,456)
Net cash provided by (used in) operating
activities......................................... 357,692 (570,272) (1,479,634) (354,374)
------------- ------------- ------------- -------------
Cash flow from investing activities:
Business acquisitions..................................... (1,215,770) (791,004) -- --
Purchase of property and equipment........................ (127,497) (126,580) (100,809) (62,174)
Purchase of intangibles................................... (14,829) -- (62,260) (29,098)
Repayment of advance to officer........................... 15,506 4,777 7,227 9,985
Note receivable........................................... -- -- -- (158,302)
------------- ------------- ------------- -------------
Net cash used in investing activities............... (1,342,590) (912,807) (155,842) (239,589)
------------- ------------- ------------- -------------
Cash flow from financing activities:
Purchase of treasury stock................................ (5,937) (167,985) -- (6,138)
Net proceeds from revolving credit line................... 800,000 950,000 1,500,000 250,000
Payment of long-term debt................................. -- -- (93,750) --
Proceeds from issuance of common stock.................... 36,164 -- 18,578 16,249
------------- ------------- ------------- -------------
Net cash provided by financing activities........... 830,227 782,015 1,424,828 260,111
------------- ------------- ------------- -------------
Net decrease in cash and cash equivalents................... (154,671) (701,064) (210,648) (333,852)
Cash and cash equivalents at beginning of year.............. 425,015 1,126,079 270,344 425,015
------------- ------------- ------------- -------------
Cash and cash equivalents at end of year.................... $ 270,344 $ 425,015 $ 59,696 $ 91,163
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Supplemental disclosures:
Income taxes paid......................................... $ 381,000 $ 213,000 $ 519,000 $ 298,552
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Interest paid............................................. $ 86,000 $ 38,000 $ 204,000 $ 68,486
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
STAR MULTI CARE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED MAY 31, 1995 AND NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995 IS UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company is principally engaged in providing temporary health care
personnel, including registered nurses, licensed practical nurses, nurses aides
and respiratory therapists to hospitals, nursing homes, extended care facilities
and in-home patients in Florida and the New York City metropolitan area.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Star Multi
Care Services, Inc. and its subsidiaries (the "Company"), all of which are
wholly-owned. All significant intercompany transactions and accounts have been
eliminated.
REVENUE RECOGNITION AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Net revenue is recorded at the estimated net realizable amount from
patients, third-party payors and others for services rendered. A significant
portion of the Company's revenue is received from third-party payors (i.e.
Medicare) and is subject to audit and adjustment by those payors. Retroactive
adjustments are accrued on an estimated basis in the period the related services
are rendered and adjusted in future periods as final settlements are determined.
A provision for doubtful accounts is made for revenue estimated to be
uncollectible and is adjusted periodically based upon management's evaluation of
current industry conditions, historical collection experience and other relevant
factors which, in the opinion of management, deserve recognition in estimating
the allowance for doubtful accounts.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. The carrying amount of assets
and related accumulated depreciation and amortization are removed from the
accounts when such assets are disposed of, and the resulting gain or loss is
included in operations. Depreciation is computed by the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are
amortized over the shorter of the remaining life of the lease or the life of the
improvement.
CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid financial instruments with a maturity of three
months or less when purchased to be cash equivalents.
INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Temporary differences and carryforwards
giving rise to deferred taxes primarily relate to the allowance for doubtful
accounts, depreciation and subsidiary net operating loss carryforwards.
NET INCOME PER SHARE
Net income per share has been computed by dividing net income by the
weighted average number of common stock and common stock equivalents outstanding
during each period. Common stock equivalents represent the dilutive effect of
the assumed exercise of certain outstanding stock options and warrants.
F-7
<PAGE>
STAR MULTI CARE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TWO YEARS ENDED MAY 31, 1995 AND NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995 IS UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL STATEMENTS
The unaudited financial statements as of February 29, 1996 and for the nine
months ended February 29, 1996 and February 28, 1995 reflect all adjustments
(consisting only of normal recurring accruals) which are, in the opinion of
management, necessary for a fair statement of the results for the period. The
results of operations are not necessarily indicative of the results expected for
the fiscal year.
NOTE 2 -- RELATED PARTY TRANSACTIONS
Notes receivable from officer represents amounts loaned by the Company and
or subsidiaries of the Company to the Company's President. These notes bear
interest at 6% and mature August 1, 1996. All interest has been paid through May
31, 1995.
A director provides accounting services to the Company for which he was
compensated approximately $100,000 in each of the years 1995 and 1994, and
approximately $75,000 in each of the nine-month periods ended February 29, 1996
and February 28, 1995.
NOTE 3 -- INTANGIBLE ASSETS
Intangible assets consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 29,
MAY 31, 1996
AMORTIZATION -------------------------- ------------
PERIOD 1995 1994
------------ ------------ ------------ (UNAUDITED)
<S> <C> <C> <C> <C>
Covenants not-to-compete....................... 2 - 8 $ 600,000 $ 450,000 $ 575,000
Customer contracts............................. 11 - 15 2,225,000 1,069,000 2,225,000
Nurses lists................................... 9 - 15 703,000 453,000 703,000
Goodwill....................................... 8 - 15 646,000 611,000 556,000
Other.......................................... 2 - 10 210,000 96,000 352,000
------------ ------------ ------------
4,384,000 2,679,000 4,411,000
Less accumulated amortization.................. 1,038,000 768,000 1,269,000
------------ ------------ ------------
$ 3,346,000 $ 1,911,000 $ 3,142,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Net intangible assets increased approximately $1,705,000 and $791,000 for
the fiscal years ended 1995 and 1994, respectively, primarily as a result of the
business acquisitions described in Note 7. Intangible assets are being amortized
principally using the straight-line method over a period of years ranging from
2-15 years.
NOTE 4 -- REVOLVING CREDIT LINE
The Company has a $3.5 million line of credit with a bank which bears
interest at 1/2% above the bank's prime lending rate (9% at May 31, 1995) and
expires on October 4, 1995. The facility is renewable at the sole discretion of
the bank (see subsequent refinancing below). All loans under the line of credit
are collateralized by all assets of the Company. The Company can borrow against
the line to the extent of 80% of eligible accounts receivable (90 days and
under, net of cross-aged receivables). At May 31, 1995 the Company had
$1,750,000 available under the line of credit.
On August 16, 1995 the Company and a bank committed to a new credit facility
and terminated the other facility mentioned above. The new facility is a $6
million revolving line of credit which bears interest at
F-8
<PAGE>
STAR MULTI CARE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TWO YEARS ENDED MAY 31, 1995 AND NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995 IS UNAUDITED)
NOTE 4 -- REVOLVING CREDIT LINE (CONTINUED)
1/4% above the bank's prime lending rate and matures on August 16, 1997, at
which time it may be converted into a three-year term loan which will bear
interest at 1/2% above the bank's prime lending rate. The line will be
collateralized by all assets of the Company. The Company can borrow against the
line to the extent of 80% of eligible accounts receivable (120 days and under,
net of contractual allowances).
In accordance with FASB Statement No. 6, "Classification of short-term
obligations expected to be refinanced", the total amount outstanding at May 31,
1995 of $1,750,000 has been classified as non-current.
NOTE 5 -- LONG-TERM DEBT
Long-term debt consists of a note payable in monthly installments of $10,417
through May 1999. Interest is payable monthly at 8.5%. The note was issued in
connection with the acquisition discussed in Note 7.
Long-term debt matures as follows:
<TABLE>
<CAPTION>
YEARS ENDING
MAY 31,
-------------
<S> <C>
1996........................................................ $ 125,000
1997........................................................ 125,000
1998........................................................ 125,000
1999........................................................ 125,000
----------
$ 500,000
----------
----------
</TABLE>
NOTE 6 -- SHAREHOLDERS' EQUITY
WARRANTS
Pursuant to the Company's initial public offering in May 1991, the Company
issued to the underwriter warrants to purchase 112,922 shares of the Company's
common stock. The warrants, which contain certain anti-dilution provisions,
expire in May 1996 and have an exercise price of $4.98 per share.
PREFERRED STOCK
On November 23, 1993, shareholders voted to amend the Company's Certificate
of Incorporation to create five million shares of preferred stock, $1.00 par
value, which the Board of Directors has authority to issue from time to time in
series. The Board of Directors also has the authority to fix, before the
issuance of each series, the number of shares in each series and the
designation, preferences, rights and limitations of each series. To date, no
shares of preferred stock have been issued.
STOCK DIVIDEND
On April 12, 1994, the Company's Board of Directors approved a three-for-two
stock split of the Company's common stock in the form of a 50% stock dividend
for shareholders of record as of April 29, 1994. A total of 722,500 shares of
common stock were issued in connection with the split. Common stock and
additional paid-in capital have been adjusted for the par value of the
additional shares issued. All share amounts and per share amounts have been
restated to retroactively reflect the stock split.
F-9
<PAGE>
STAR MULTI CARE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TWO YEARS ENDED MAY 31, 1995 AND NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995 IS UNAUDITED)
NOTE 6 -- SHAREHOLDERS' EQUITY (CONTINUED)
On April 24, 1995, the Company's Board of Directors approved a 6% stock
dividend payable on May 30, 1995 for shareholders of record as of May 15, 1995.
A total of 128,347 shares of common stock were issued in connection with the
dividend. Common stock has been adjusted for the par value of the shares issued.
Additional paid-in capital and retained earnings have been adjusted for the
difference between the fair market value and the par value of the shares.
On December 5, 1995 the Company's Board of Directors approved a 6% stock
dividend payable on January 12, 1996 for shareholders of record as of December
22, 1995. A total of 130,641 shares of common stock were issued in connection
with the dividend. Common stock has been adjusted for the par value of the
shares issued. Additional paid in capital and retained earnings have been
adjusted for the difference between the fair market value and the par value of
the shares.
All references in the accompanying financial statements to the number of
common shares and per share amounts for all periods presented have been restated
to reflect the stock dividends.
NOTE 7 -- ACQUISITIONS
In May 1995, the Company acquired certain assets of Long Island Nursing
Registry, Inc. ("LINR") for approximately $1,716,000, including acquisitions
costs of approximately $100,000. The assets purchased consisted of customer and
patient lists of $1,156,000, nurses lists of $250,000, covenant not-to-compete
of $150,000, furniture and office equipment of $25,000 and goodwill of $35,000.
In November 1993, the Company acquired certain assets of DSI Health Care
Services, Inc. for approximately $725,000, including acquisition costs of
$175,000. The assets purchased consisted of customer and patient lists of
$400,000, nurses lists of $120,000, furniture and office equipment of $30,000
and goodwill of $175,000.
The above acquisitions have been accounted for utilizing purchase accounting
principles. Accordingly, the results of operations have been included in the
accompanying consolidated financial statements since the date of acquisition.
The following unaudited pro forma results of operations for the years ended
May 31, 1995 and May 31, 1994 assume the above acquisitions occurred as of the
beginning of the period after giving effect to certain adjustments, including
amortization of goodwill and related income tax effects. The pro forma results
have been prepared for comparative purposes only and do not purport to indicate
the results of operations which would actually have occurred had the combination
been in effect on the date indicated or which may occur in the future.
<TABLE>
<CAPTION>
1995 1994
UNAUDITED UNAUDITED
------------- -------------
<S> <C> <C>
Net revenues................................................ $ 33,159,000 $ 28,363,000
Net income.................................................. $ 805,000 $ 575,000
Net income per common share................................. $ .32 $ .28
</TABLE>
NOTE 8 -- CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments which potentially expose the Company to concentrations
of credit risk consist principally of trade accounts receivable and temporary
cash investments.
F-10
<PAGE>
STAR MULTI CARE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TWO YEARS ENDED MAY 31, 1995 AND NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995 IS UNAUDITED)
NOTE 8 -- CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS (CONTINUED)
The Company provides temporary health care personnel to hospitals, nursing
homes, extended care facilities and in-home patients in Florida, New Jersey and
the New York City metropolitan area. At May 31, 1995, approximately 13% of
accounts receivable was due from Medicaid and approximately 11% of accounts
receivable was due from Medicare. Credit losses relating to customers
historically have not been significant and within management's expectations.
The Company places its temporary cash investments with high credit quality
financial institutions.
NOTE 9 -- CONTINGENCIES
The Company in the past treated certain of its nurses and certain others as
independent contractors. The Internal Revenue Service ("IRS") and the New York
State Department of Labor ("DOL") have, in certain cases, determined that per
diem health care workers were employees, and not independent contractors, of the
firm placing them. Two of the Company's subsidiaries have been selected for an
employment tax audit by DOL and another of the Company's subsidiaries has been
selected for an employment tax audit by the IRS.
In October 1994, the subsidiary subjected to the IRS audit received from the
IRS a formal report proposing an adjustment in taxes of $1,222,220 for years
1989-1993. On October 12, 1995, that subsidiary signed a closing agreement with
the IRS providing for zero tax liability for years 1989-1995. The subsidiary has
agreed to treat all skilled nurses providing hospital staffing services as
employees for federal employment tax purposes commencing January 1, 1996. As
skilled hospital staffing services currently represents only 2% of revenues this
change is not expected to have a significant impact on earnings.
In May 1993, one of the Company's subsidiaries received from the DOL a
formal report proposing an adjustment in the amount of $73,000. In January 1994,
the other of the Company's subsidiaries received from the DOL a formal report
proposing an adjustment in the amount of $33,000. The Company prevailed before
the hearing examiner in the latter of these cases, which decision is presently
being appealed by the DOL, and the Company is vigorously defending its position.
The Company did not prevail in the former case and is currently appealing that
decision. Management believes that the possibility of an unfavorable outcome
which would materially affect the financial position and results of operations
of the Company is remote.
NOTE 10 -- STOCK OPTION PLANS
The Company has two stock option plans as adopted and as adjusted for stock
dividends. Participants may be granted incentive stock options to purchase an
aggregate of 48,000 and 738,000 shares of common stock, respectively. Such
options become exercisable at various intervals over a period of up to three
years from the date of grant. The options expire between November 1997 and May
2005.
The incentive stock options may be granted to employees and consultants of
the Company at a price not less than the fair market value on the date of grant.
All such options are authorized and approved by the Board of Directors, based on
recommendations of the Compensation Committee.
F-11
<PAGE>
STAR MULTI CARE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TWO YEARS ENDED MAY 31, 1995 AND NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995 IS UNAUDITED)
NOTE 10 -- STOCK OPTION PLANS (CONTINUED)
Information as to options granted as of May 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1994 1995
------------------------- -------------------------
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding June 1............................... 332,142 $1.44 - $4.41 533,969 $1.44 - $4.41
Granted........................................ 231,743 $1.92 - $2.69 27,454 $3.45 - $3.59
Cancelled or expired........................... (29,916) $1.44 - $4.41 -- --
Exercised...................................... -- -- (20,140) $1.58 - $2.08
--------- ---------
Outstanding May 31............................... 533,969 $1.44 - $4.41 541,283 $1.44 - $4.41
--------- ---------
--------- ---------
Exercisable...................................... 375,108 513,991
--------- ---------
--------- ---------
</TABLE>
Subsequent to May 31, 1995 the Company granted an additional 34,677 options
at prices ranging from $3.51 to $6.60. In addition, 13,152 options were
cancelled or expired and 8,287 options were exercised.
Shares reserved for future issuance at May 31, 1995 are comprised of the
following:
<TABLE>
<S> <C>
Shares issuable upon exercise of stock options under the plans............. 786,000
Shares issuable upon exercise of stock warrants by underwriter............. 113,000
---------
Total Shares reserved for future issuance at May 31, 1995.................. 899,000
---------
---------
</TABLE>
In November 1995, the Company adopted an Employee Stock Purchase Plan
whereby certain employees can purchase shares of common stock at the lesser of
85% of the fair market value of the stock at the beginning or end of year. The
Company has reserved 318,000 shares of common stock for future requirements
under the plan.
NOTE 11 -- COMMITMENTS
EMPLOYMENT AGREEMENT
The Company has an employment agreement as amended, with an officer which
expires in December 1995. The aggregate commitment for future salary, excluding
bonuses, under the agreement is $146,000. The agreement also provides for
certain bonuses based upon annual pretax income. The Company has an employment
agreement with a former LINR shareholder which expires May 1997. The aggregate
commitment for future salary under the agreement is $200,000. The aggregate
minimum commitment for future salaries under both agreements is $246,000 and
$100,000 in the years ending May 31, 1996 and 1997, respectively. In December
1995, the agreement with the officer was extended to June 1996 with
substantially the same terms.
LEASES
The Company conducts its operations from leased office space in New York and
Florida. These leases (classified as operating leases) expire at various dates
through 2002. Management expects that in the normal course of business these
leases will be renewed or replaced by other leases.
F-12
<PAGE>
STAR MULTI CARE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TWO YEARS ENDED MAY 31, 1995 AND NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995 IS UNAUDITED)
NOTE 11 -- COMMITMENTS (CONTINUED)
In July 1994 the Company entered into a sublease agreement for certain
office space which expires in 2002.
As of May 31, 1995, future net minimum rental payments (net of sublease
income) under operating leases having initial or remaining noncancellable terms
in excess of one year are as follows:
<TABLE>
<S> <C>
1996.......................................... $ 432,000
1997.......................................... 416,000
1998.......................................... 407,000
1999.......................................... 371,000
2000.......................................... 162,000
Thereafter.................................... 153,000
---------
$1,941,000
---------
---------
</TABLE>
Rental expenses for operating leases for fiscal years ended 1995 and 1994
were approximately $332,000 and $329,000, respectively.
NOTE 12 -- INCOME TAXES
The Company and its subsidiaries file consolidated federal income tax
returns. Effective June 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes," which requires a liability approach to financial
accounting and reporting for income taxes. The effect of adopting FASB Statement
No. 109 on net income for the year ended May 31, 1994 was an increase of
$76,000, which includes an increase in net income of $65,000 for the cumulative
effect on years prior to June 1, 1993. As permitted under the standard, the
financial statements for the prior year have not been restated.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31, NINE MONTHS ENDED
---------------------- --------------------------
1995 1994 FEBRUARY 29, FEBRUARY 28,
---------- ---------- 1996 1995
------------ ------------
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C>
Current:
Federal........................................... $ 368,000 $ 241,000 $ 432,000 $ 279,000
State and local................................... 120,000 81,000 88,000 74,000
---------- ---------- ------------ ------------
488,000 322,000 520,000 353,000
---------- ---------- ------------ ------------
Deferred:
Federal........................................... (14,000) (8,000) -- --
State............................................. (4,000) (3,000) -- --
---------- ---------- ------------ ------------
(18,000) (11,000) -- --
---------- ---------- ------------ ------------
$ 470,000 $ 311,000 $ 520,000 $ 353,000
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
</TABLE>
F-13
<PAGE>
STAR MULTI CARE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TWO YEARS ENDED MAY 31, 1995 AND NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995 IS UNAUDITED)
NOTE 12 -- INCOME TAXES (CONTINUED)
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
----------------------
1995 1994
---------- ---------- FEBRUARY 29,
1996
------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts................................. $ 160,000 $ 149,000 $ 164,000
Other........................................................... 16,000 14,000 16,000
---------- ---------- ------------
176,000 163,000 180,000
Deferred tax liability -- Depreciation............................ (16,000) (21,000) (20,000)
---------- ---------- ------------
Net deferred tax asset............................................ $ 160,000 $ 142,000 $ 160,000
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
A reconciliation between the actual income tax expense and income taxes
computed by applying the statutory federal income tax rate to income before
taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Computed income tax expense at 34%........................................... $ 400,000 $ 249,000
Increase (decrease) in taxes resulting from:
Nondeductible expenses..................................................... 13,000 32,000
State and local taxes, net................................................. 114,000 53,000
Other, net................................................................. (57,000) (23,000)
---------- ----------
$ 470,000 $ 311,000
---------- ----------
---------- ----------
</TABLE>
Paragon, a company acquired by the Company in July 1991, has preacquisition
net operating loss carryforwards of approximately $140,000 which expire from
2001 through 2006. Utilization of these net operating loss carryforwards is
subject to substantial limitations including separate company and annual
limitations resulting from the change in control of Paragon.
NOTE 13 -- RETIREMENT PLANS
The Company adopted a 401(k) savings plan in January 1995 covering all
eligible employees. Employees may defer up to 15% of their compensation. The
agency will match 10% of employees' contributions up to 8%. A contribution of
approximately $11,000 was made during the nine month period ended February 29,
1996.
A subsidiary of the Company has a deferred fringe benefits welfare
compensation plan covering its employees. Contributions to the plan are
discretionary. Contributions to the plan are based on employee compensation.
Employees are fully vested at the end of three years. Contributions to the plan
for the years ended May 31, 1995 and 1994 and for the nine months ended February
29, 1996 and February 28, 1995 approximated $264,000, $222,000, $150,000 and
$150,000, respectively.
F-14
<PAGE>
STAR MULTI CARE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TWO YEARS ENDED MAY 31, 1995 AND NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED FEBRUARY 29, 1996
AND FEBRUARY 28, 1995 IS UNAUDITED)
NOTE 14 -- SUPPLEMENTARY INFORMATION -- STATEMENT OF CASH FLOWS
NON-CASH TRANSACTIONS
During the year the Company issued a note payable of $500,000 to finance a
portion of the acquisitions mentioned in Note 7.
During the year the Company issued a 6% stock dividend which amounted to
$481,301.
During the nine months ended February 29, 1996 the Company issued a 6% stock
dividend which amounted to $1,028,798.
F-15
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
AMSERV HEALTHCARE INC.
We have audited the accompanying consolidated balance sheet of AMSERV
HEALTHCARE INC. as of June 24, 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year then ended. Our
audit also included the financial statement schedule as of June 24, 1995 listed
in the index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AMSERV
HEALTHCARE INC. at June 24, 1995, and the consolidated results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 115
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES in fiscal 1995.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
San Diego, California
August 11, 1995
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AMSERV HEALTHCARE INC.:
We have audited the accompanying consolidated balance sheet of AMSERV
HEALTHCARE INC. and subsidiaries (the "Company") as of June 30, 1994, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the two years in the period ended June 30, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of June 30,
1994, and the results of their operations and their cash flows for each of the
two years in the period ended June 30, 1994 in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
October 7, 1994
F-17
<PAGE>
AMSERV HEALTHCARE INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 24, JUNE 30,
1995 1994
------------- -------------
<S> <C> <C>
Current Assets
Cash and cash equivalents (Note 1)............................................. $ 1,226,448 $ 643,987
Short-term investments, net (Notes 1 and 2).................................... 1,392,021 676,615
Accounts receivable, net of allowance for doubtful accounts of $103,264 in 1995
and $237,687 in 1994.......................................................... 973,731 1,964,903
Federal income taxes refundable................................................ -- 326,628
Other current assets........................................................... 187,463 335,389
------------- -------------
Total current assets......................................................... 3,779,663 3,947,522
Equipment, Furniture and Fixtures net of accumulated depreciation of $196,069 in
1995 and $135,906 in 1994....................................................... 387,821 252,234
Intangible Assets, net (Note 3).................................................. 2,203,113 2,047,540
Other Assets..................................................................... 313,888 311,090
------------- -------------
$ 6,684,485 $ 6,558,386
------------- -------------
------------- -------------
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable............................................................... $ 105,663 $ 70,735
Accrued payroll and related taxes.............................................. 561,143 580,035
Net liabilities of discontinued operations (Note 4)............................ 391,770 116,718
Other current liabilities...................................................... 254,778 277,928
Current maturities of long-term debt (Notes 5 and 6)........................... -- 333,334
------------- -------------
Total current liabilities.................................................... 1,313,354 1,378,750
------------- -------------
Long-Term Liabilities
Long-term debt net of current maturities (Notes 5 and 6)....................... -- 666,666
Other long-term liabilities.................................................... 30,859 165,000
------------- -------------
Total long-term liabilities.................................................. 30,859 831,666
------------- -------------
Redeemable Preferred Stock
Preferred stock, $.01 par value; authorized 3,000,000 shares; Class A
Redeemable issued and outstanding 341,435 shares in 1995 and none in 1994
(Note 7)...................................................................... 3,414 --
Additional paid-in capital (Note 7)............................................ 679,456 --
------------- -------------
Total redeemable preferred stock............................................. 682,870 --
Commitments and Contingencies (Notes 6, 10 and 11)
Common Shareholders' Equity
Common stock, $.01 par value; authorized 15,000,000 shares; 3,295,356 shares
outstanding in 1995 and 3,087,794 shares outstanding in 1994 (Note 8)......... 32,953 30,877
Treasury stock, at cost, 143,268 shares (Note 8)............................... (296,053) (296,053)
Additional paid-in capital..................................................... 6,787,963 6,373,936
Note receivable from officer (Note 12)......................................... (198,440) --
Unrealized loss on short-term investments (Note 2)............................. (14,564) --
Retained earnings (deficit).................................................... (1,654,457) (1,760,790)
------------- -------------
Total common shareholders' equity............................................ 4,657,402 4,347,970
------------- -------------
$ 6,684,485 $ 6,558,386
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
AMSERV HEALTHCARE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
YEAR ENDED ---------------------------
JUNE 24, 1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
Operating Revenues.................................................... $ 11,341,609 $ 7,525,822 $ 6,048,748
------------- ------------- ------------
Operating Expenses
Selling, general and administrative................................. 10,914,279 7,321,290 5,907,124
Depreciation and amortization (Note 1).............................. 415,143 373,321 358,979
------------- ------------- ------------
Total operating expenses.......................................... 11,329,422 7,694,611 6,266,103
------------- ------------- ------------
Operating Income (Loss)............................................... 12,187 (168,789) (217,355)
Interest Expense...................................................... (51,543) (8,254) (24,471)
Interest Income....................................................... 93,742 88,541 111,227
------------- ------------- ------------
Income (Loss) From Continuing Operations Before Provision for Income
Taxes................................................................ 54,386 (88,502) (130,599)
Income Tax Provision (Benefit) (Note 9)............................... 2,038 (25,168) (59,207)
------------- ------------- ------------
Income (Loss) From Continuing Operations.............................. 52,348 (63,334) (71,392)
Discontinued Operations (Note 4)
Income (loss) from discounted operations, net of income taxes of
($282,401) in 1994 and ($297,793) in 1993.......................... -- (710,636) (359,076)
Gain (loss) on disposal of discontinued operations, net of income
taxes of $168,211 in 1995 and ($77,110) in 1994...................... 30,302 (1,167,949) --
Cumulative Effect to July 1, 1994 of change in Accounting Principle,
net of income taxes of $12,752....................................... 23,683 -- --
------------- ------------- ------------
Net Income (Loss)..................................................... $ 106,333 $ (1,941,919) $ (430,468)
------------- ------------- ------------
------------- ------------- ------------
Income (Loss) Per Common Share (Note 1)
Income (loss) from continuing operations............................ $ .02 $ (.02) $ (.03)
Loss from discontinued operations................................... -- (.24) (.12)
Gain (loss) on disposal of discontinued operations.................. .01 (.40) --
Cumulative Effect of change in accounting principle................. -- -- --
Net income (loss)................................................... $ .03 $ (.66) $ (.15)
------------- ------------- ------------
Shares Used in Computing Per Share Amounts............................ 3,111,527 2,944,526 2,960,647
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
AMSERV HEALTHCARE INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED JUNE 24, 1995, JUNE 30, 1994 AND 1993
-----------------------------------------------------------------------------------------------
NOTE UNREALIZED
COMMON STOCK TREASURY STOCK ADDITIONAL RECEIVABLE (LOSS) RETAINED
---------------------- -------------------- PAID-IN FROM ON EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL OFFICER INVESTMENTS (DEFICIT)
--------- ----------- --------- --------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1992........ 2,917,794 $ 29,177 27,800 $ (62,800) $6,120,636 $ -- $ -- $ 611,597
Shares issued in acquisition of
MED-PRO (Note 6).............. 170,000 1,700 -- -- 253,300 -- -- --
Treasury stock acquired (Note
8)............................ -- -- 115,468 (233,253) -- -- -- --
Net loss....................... -- -- -- -- -- -- -- (430,468)
--------- ----------- --------- --------- ----------- ----------- ----------- ----------
Balances at June 30, 1993........ 3,087,794 30,877 143,268 (296,053) 6,373,936 -- -- 181,129
Net loss....................... -- -- -- -- -- -- -- (1,941,919)
--------- ----------- --------- --------- ----------- ----------- ----------- ----------
Balances at June 30, 1994........ 3,087,794 30,877 143,268 (296,053) 6,373,936 -- -- (1,760,790)
Stock Options exercised
including income tax benefit
(Note 12)..................... 207,562 2,076 -- -- 414,027 (198,440) -- --
Cumulative effect of change in
accounting principle (Note
2)............................ -- -- -- -- -- -- (23,683) --
Change in unrealized loss on
short-term investments........ -- -- -- -- -- -- 9,119 --
Net income..................... -- -- -- -- -- -- -- 106,333
--------- ----------- --------- --------- ----------- ----------- ----------- ----------
Balances at June 24, 1995........ 3,295,356 $ 32,953 143,268 $(296,053) $6,787,963 $(198,440) $ (14,564) $(1,654,457)
--------- ----------- --------- --------- ----------- ----------- ----------- ----------
--------- ----------- --------- --------- ----------- ----------- ----------- ----------
<CAPTION>
TOTAL
----------
<S> <C>
Balances at June 30, 1992........ $6,698,610
Shares issued in acquisition of
MED-PRO (Note 6).............. 255,000
Treasury stock acquired (Note
8)............................ (233,253)
Net loss....................... (430,468)
----------
Balances at June 30, 1993........ 6,289,889
Net loss....................... (1,941,919)
----------
Balances at June 30, 1994........ 4,347,970
Stock Options exercised
including income tax benefit
(Note 12)..................... 217,663
Cumulative effect of change in
accounting principle (Note
2)............................ (23,683)
Change in unrealized loss on
short-term investments........ 9,119
Net income..................... 106,333
----------
Balances at June 24, 1995........ $4,657,402
----------
----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
AMSERV HEALTHCARE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
YEAR ENDED ----------------------
JUNE 24, 1995 1994 1993
------------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)....................................................... $ 106,333 $(1,941,919) $ (430,468)
Noncash items included in net income (loss):
Deferred income taxes................................................. 5,235 -- --
Cumulative effect of change in accounting principles.................. (23,683) -- --
(Gain) loss on disposal of discontinued operations.................... (30,302) 1,167,949 --
Depreciation and amortization......................................... 415,143 548,749 579,342
Provision for doubtful accounts....................................... (134,423) -- 140,000
Write-off of intangibles.............................................. -- 137,616 --
Gain on stock acquired in legal settlement............................ -- -- (52,500)
Loss on disposal of equipment, furniture and fixtures................. 32,680 45,078 15,575
Changes in assets and liabilities:
Accounts receivable................................................... 1,125,595 99,776 202,763
Income taxes.......................................................... 326,628 200,998 (133,221)
Other assets.......................................................... 94,717 (30,360) (135,451)
Accounts payable...................................................... 34,928 23,094 (9,591)
Loss contracts and unfavorable leases................................. -- (44,000) (206,000)
Other liabilities..................................................... (87,816) (106,876) (230,953)
------------- ---------- ----------
Net cash provided by (used in) operating activities....................... 1,865,035 100,105 (260,504)
INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations........................... 813,941 -- --
Payment of costs related to discontinued operations..................... (508,587) -- (361,979)
Proceeds from sale of short-term investments............................ 880,000 268,750 2,503,309
Purchase of short-term investments...................................... (1,586,285) (497,125) (2,064,191)
Purchase of equipment, furniture and fixtures........................... (270,835) (25,965) (77,504)
Payments for acquisitions............................................... -- (678,835) (871,897)
Cash received on notes receivable....................................... 50,411 191,504 185,496
Issuance of note receivable............................................. -- -- (100,000)
Payment of earnout advance.............................................. (500,000) -- --
Proceeds from sale of equipment, furniture and fixtures................. 31,851 4,034 --
------------- ---------- ----------
Net cash used in investing activities..................................... (1,089,504) (737,637) (786,766)
FINANCING ACTIVITIES:
Repayment of long-term debt............................................. (166,666) -- (666,666)
Purchase of treasury stock.............................................. -- -- (180,753)
Issuance of note payable................................................ -- 130,587 --
Repayment on note payable............................................... (73,349) (57,238) --
Redemption of Class A preferred shares.................................. (170,718) -- --
Exercise of employee stock options...................................... 217,663 --
------------- ---------- ----------
Net cash provided by (used in) financing activities....................... (193,070) 73,349 (847,419)
------------- ---------- ----------
Net increase (decrease) in cash and cash equivalents...................... 582,461 (564,183) (1,894,689)
Cash and cash equivalents at beginning of year............................ 643,987 1,208,170 3,102,859
------------- ---------- ----------
Cash and cash equivalents at end of year.................................. $ 1,226,448 $ 643,987 $1,208,170
------------- ---------- ----------
------------- ---------- ----------
NONCASH FINANCING AND INVESTING ACTIVITIES:
Transfer from accounts receivable to notes receivable................... -- 80,307 --
Issuance of common stock in the acquisition of MED-PRO.................. -- -- 255,000
Issuance of Class A redeemable preferred stock in exchange for note
payable and related accrued interest................................... 853,588 -- --
Income tax paid......................................................... 145,784 5,294 28,347
Issuance of common stock upon exercise of options in exchange for note
receivable............................................................. 198,440 -- --
Interest paid........................................................... 31,289 2,421 42,804
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
AMSERV HEALTHCARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of AMSERV
HEALTHCARE INC. and its wholly-owned subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated. Certain
prior years' amounts have been reclassified to conform with current year
presentation.
FISCAL YEAR
During fiscal 1995 the Company commenced utilizing a 52/53-week fiscal year
ending on the last Saturday in June. Monthly periods are accounted for in a
four-week, four-week, five-week sequence, with each quarter consisting of 13
weeks. All references to years relate to fiscal years rather than calendar
years.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, cash equivalents
represent surplus cash invested in highly liquid investments on a short-term
basis, with maturities of three months or less at date of purchase, until such
cash is required for the continuing operations of the Company. At June 24, 1995,
a substantial portion of the Company's cash is deposited in two banks and one
brokerage company. The Company monitors the financial status of the banks and
the brokerage company and does not believe the deposits are subject to a
significant degree of risk.
ACCOUNTING FOR INVESTMENTS IN DEBT AND EQUITY SECURITIES
In July 1994, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". The Company's management has classified its investment
securities as available-for-sale and has recorded unrealized holding gains and
losses as a separate component of shareholders' equity. The cumulative effect of
the change in accounting principle resulted in an after-tax increase to income
for unrealized losses of $23,683 at July 1, 1994 (Note 2).
EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures are stated at cost. Additions and major
improvements are capitalized. Depreciation is computed using the straight-line
method over the estimated useful lives of the various classes of assets which
range from three to seven years.
INTANGIBLE ASSETS
The Company evaluates the carrying value of its intangible assets
periodically in order to determine if any indications of impairment are evident.
If indications of impairment are noted, the ability of the Company to recover
the identified intangible's carrying value on a non-discounted cash flow basis
is reviewed and changes in the amortization period or carrying value are made if
necessary.
Excess of cost over acquired net assets is amortized on a straight-line
basis over periods ranging from 35 to 37 years. Other intangible assets are
stated at acquisition cost and are being amortized on a straight-line basis over
their estimated useful lives of five years.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
Operating revenue is reported at net realizable amounts from third-party
payors and individual patients for services rendered in the period in which the
services are provided. The Company receives payment for services rendered to
patients from state government sponsored programs, private third-party insurance
and individual patients. Amounts due from private third-party insurance and
individual patients are subject to differing economic conditions, and do not
represent any concentrated credit risk to the Company. Management believes that
reserves are adequate to cover any anticipated losses.
F-22
<PAGE>
AMSERV HEALTHCARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The adoption of
SFAS 109 changed the Company's method of accounting for income taxes to an asset
and liability approach. Prior to July 1993, the Company accounted for income
taxes under SFAS No. 96.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common and
common equivalent shares outstanding. Certain stock options and warrants are not
included in the computation of earnings per share because their effect would be
antidilutive. Earnings per share assuming full dilution are the same as primary
earnings per share.
NOTE 2. SHORT-TERM INVESTMENTS
Short-term investments are recorded at estimated fair market value at June
24, 1995 and June 30, 1994, and consist primarily of tax exempt bonds and money
market non-government securities with maturities of more than three months, and
common and preferred stock. In July 1994, the Company classified all of its
investments as available-for-sale securities according to Statement of Financial
Accounting Standards No. 115. The following table summarizes available-for-sale
securities at June 24, 1995:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
---------------------------------------
GROSS ESTIMATED
UNREALIZED FAIR
COST LOSSES VALUE
------------ ----------- ------------
<S> <C> <C> <C>
Money Market/Non-Govt Securities................................ $ 453,903 $ 2,494 $ 451,409
Tax Exempt Government Bonds..................................... 605,020 158 604,862
Common Stock.................................................... 110,000 23,000 87,000
Preferred Stock................................................. 250,000 1,250 248,750
------------ ----------- ------------
Total....................................................... $ 1,418,923 $ 26,902 $ 1,392,021
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
As a result of the adoption of SFAS No. 115, the Company records net
unrealized holding gains and losses, net of income tax effects, as a separate
component of shareholders' equity. Previously, unrealized losses had been
charged to operations. The cumulative effect of this change in accounting
principle resulted in an after-tax adjustment to earnings of $23,683 at July 1,
1994.
The gross realized gains and losses on sales of available-for-sale
securities were $4,538 and $2,125 respectively, in fiscal 1995. The gross
realized loss on sales of available-for-sale securities was $11,250 in fiscal
1994.
F-23
<PAGE>
AMSERV HEALTHCARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SHORT-TERM INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of short-term investments at
June 24, 1995, by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because issuers of the securities may have
the right to prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
FAIR
COST VALUE
------------ ------------
<S> <C> <C>
Due in one year or less.................................................. $ 603,958 $ 601,410
Due after one year through three years................................... -- --
Due after three years.................................................... 454,965 454,861
Equity Securities........................................................ 360,000 335,750
------------ ------------
Total................................................................ $ 1,418,923 $ 1,392,021
------------ ------------
------------ ------------
</TABLE>
NOTE 3. INTANGIBLE ASSETS
Intangible assets acquired in acquisitions (Note 6) consist of the
following:
<TABLE>
<CAPTION>
JUNE 24, JUNE 30,
1995 1994
------------ ------------
<S> <C> <C>
Excess of cost over acquired net assets.................................. $ 2,088,063 $ 1,588,063
Assembled workforce...................................................... 497,154 497,154
Accreditation and training programs...................................... 502,846 502,846
Covenant not to compete.................................................. 525,000 525,000
------------ ------------
3,613,063 3,113,063
Less: Accumulated amortization........................................... 1,409,950 1,065,523
------------ ------------
$ 2,203,113 $ 2,047,540
------------ ------------
------------ ------------
</TABLE>
NOTE 4. DISCONTINUED OPERATIONS
On September 20, 1994, the Company signed a Letter of Intent to sell its
temporary nursing services business. As a result, the Company recorded a fiscal
1994 fourth quarter charge of $1,167,949 (after income tax benefit of $77,110)
to provide for a loss on the disposal of these discontinued operations and their
after-tax estimated operating losses of $149,627 until the estimated date of
disposal. On November 9, 1994, the Company completed this transaction, and sold
substantially all of the fixed and intangible assets of its temporary nursing
services business for $814,000 in cash. The related net liabilities for this
discontinued operation are included in the balance sheet under the caption "Net
liabilities of discontinued operations". The balance remaining unpaid at June
24, 1995, relates to various state and local tax and payroll liabilities that
have not been finalized and a remaining severance obligation. The consolidated
statements of operations for fiscal 1995, 1994 and 1993, exclude sales and
expenses for its temporary nursing services business
F-24
<PAGE>
AMSERV HEALTHCARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. DISCONTINUED OPERATIONS (CONTINUED)
from captions applicable to continuing operations. Revenues from the
discontinued operation during fiscal 1995 were $3,988,696. Operating results of
the discontinued operation for fiscal years 1994 and 1993 are summarized below:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
----------------------------
1994 1993
------------- -------------
<S> <C> <C>
Net Sales................................................... $ 12,022,618 $ 12,799,605
Loss Before Income Taxes.................................... (993,037) (656,869)
Income Tax Benefit.......................................... (282,401) (297,793)
Loss from Discontinued Operations........................... (710,636) (359,076)
</TABLE>
NOTE 5. LONG-TERM DEBT
Long-term debt at June 30, 1994, consists of a $1,000,000 unsecured note
payable (less current maturities of $333,334) issued in the acquisition of the
assets of North Central Personnel, Inc. (Note 6). In April 1995, the Company
exchanged this note for redeemable preferred stock (Note 7).
NOTE 6. ACQUISITIONS
On June 10, 1994, the Company, through its wholly-owned subsidiary AMSERV
HEALTHCARE OF OHIO INC., acquired substantially all the assets and property of
North Central Personnel, Inc. ("NCP"). The acquisition, which was accounted for
as a purchase, had an initial purchase price of $1,553,835. The Company paid
$553,835 of the purchase price with cash, and the balance of $1,000,000 was
financed by a promissory note payable to the seller (Note 5). The final purchase
price is contingent on an earnout and will be equal to the operating income of
the North Central division for the three year period ending June 9, 1997, of
which $500,000 was advanced on April 6, 1995. The remaining earnout will not
exceed $500,000. The excess of the purchase price over the valuation of tangible
assets was assigned to goodwill ($1,047,000) and a non-competition agreement
($25,000). The earnout advance and all future earnout payments will be accounted
for as additional purchase price of NCP.
The consolidated statement of operations for fiscal 1994 included the
operating results of North Central from May 29, 1994. The following unaudited
pro forma results of continuing operations have been prepared assuming the
acquisition had occurred July 1, 1993. This pro forma information is for
comparative purposes only and does not purport to be indicative of results that
would have occurred if the acquisition had been made at the beginning of fiscal
year 1994, and is not intended to be a projection of results which may occur in
the future.
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1994
------------
<S> <C>
Net Sales....................................................................... $ 9,639,076
Income from Continuing Operations............................................... $ 146,651
Income from Continuing Operations Per Common Share.............................. $ .05
</TABLE>
In July 1992, the Company acquired substantially all of the operating assets
and property of MED-PRO, Inc. ("MED-PRO"), a leading provider of supplemental
staffing to healthcare facilities with offices in Phoenix, San Diego and San
Francisco. The acquisition was accounted for as a purchase and, accordingly, the
results of operations of the acquired business were included in the Company's
fiscal 1993 operating
F-25
<PAGE>
AMSERV HEALTHCARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. ACQUISITIONS (CONTINUED)
results from July 21, 1992. The purchase price consisted of cash of $872,000 and
170,000 restricted shares of AMSERV HEALTHCARE common stock. The operations of
MED-PRO were sold with the sale of the Company's temporary nursing services
business in November 1994 (Note 4).
NOTE 7. REDEEMABLE PREFERRED STOCK
In April 1995, the Company issued 426,794 shares of its voting Class A
Redeemable Preferred Stock, which had a redemption value of $2.00 per share, in
exchange for the Company's promissory note payable to North Central (Note 6) and
related accrued interest which totalled $853,588 on the date of the exchange.
The preferred shares pay no dividends and may be redeemed at the option of the
holder, in specified installments for cash. On May 29, 1995, 85,359 shares were
redeemed for $170,718. Subsequently, on July 6, 1995, the remaining 341,435
Class A Redeemable Preferred Shares were exchanged for 260,141 Class B
Redeemable Preferred Shares, with a redemption price of $2.625 per share. In
addition, the Company may redeem the Class B shares in their entirety at its
discretion. These remaining 260,141 shares with an aggregate redemption value of
$682,870 at June 24, 1995, may be redeemed in installments of approximately
65,000 shares on November 29, 1995, May 29, 1996, November 29, 1996, and May 29,
1997. All outstanding Class B shares become redeemable in the event of default
or change of control. Holders of all classes of Redeemable Preferred Stock have
the same voting rights as common stock.
Following is a summary of the aggregate redemption amounts of the Class B
shares:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING AMOUNT
- -------------------------------------------------------------- ----------
<S> <C>
1996.......................................................... $ 341,434
1997.......................................................... $ 341,436
</TABLE>
NOTE 8. COMMON STOCK
TREASURY STOCK
In March 1992, the Board of Directors authorized the Company to repurchase
up to ten percent of its common stock. During fiscal 1992, the Company purchased
27,800 shares at an average price of $2.26 per share. In fiscal 1993, 85,468
shares were purchased at an average price of $2.11 per share and 30,000 shares
with a value of $52,500 were acquired in a legal settlement. The Board voted to
discontinue the stock repurchase program in January 1993.
1991 STOCK OPTION PLAN
In November 1991, the shareholders of the Company approved the "1991 Stock
Option Plan" (the "Plan"), which replaced the 1982 Incentive Stock Option Plan
and the 1987 Non-Qualified Stock Option plan. The purpose of the Plan is to
promote the overall financial objectives of the Company and its shareholders by
motivating those persons selected to participate in the Plan to achieve
long-term growth in shareholder equity in the Company and by retaining the
association of those individuals who are instrumental in achieving this growth.
Options granted under the Plan may be either Incentive Stock Options or Non-
Qualified Stock Options. The price per share is determined by the Stock Option
Committee of the Board of Directors at the time of the grant. All options
granted under the Plan to date by the Company have been granted at the market
price of the stock on the grant date and therefore no compensation was
recognized. The options are exercisable for a period of ten years from the date
of grant, subject to earlier termination as set forth in the Plan. Options are
exercisable according to vesting schedules as determined by the Stock Option
Committee. As of June 24, 1995, there were 1,201,677 shares of common stock
reserved for options.
F-26
<PAGE>
AMSERV HEALTHCARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. COMMON STOCK (CONTINUED)
Following is a summary of option activity for fiscal years 1995, 1994 and
1993:
<TABLE>
<CAPTION>
OPTIONS OPTIONS AVAILABLE
EXERCISABLE GRANTED FOR GRANT
----------- ---------- ----------
<S> <C> <C> <C>
Outstanding, June 30, 1992
($1.81 to $6.38 per share)........................................ 501,993 596,922 812,317
Granted.......................................................... -- 135,800 (135,800)
Became exercisable............................................... 53,169 -- --
Canceled or expired.............................................. (51,789) (84,229) 84,229
----------- ---------- ----------
Outstanding, June 30, 1993
($1.44 to $6.38 per share)........................................ 503,373 648,493 760,746
Granted.......................................................... -- 54,800 (54,800)
Became exercisable............................................... 43,812 -- --
Canceled or expired.............................................. (7,250) (39,700) 39,700
----------- ---------- ----------
Outstanding, June 30, 1994
($1.00 to $6.38 per share)........................................ 539,935 663,593 745,646
Granted.......................................................... -- 15,200 (15,200)
Became exercisable............................................... 52,763 -- --
Options exercised................................................ (207,562) (207,562) --
Canceled or expired.............................................. (73,374) (112,750) 112,750
----------- ---------- ----------
Outstanding, June 24, 1995
($1.00 to $6.38 per share)........................................ 311,762 358,481 843,196
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
NOTE 9. INCOME TAXES
Effective July 1, 1993, the Company adopted SFAS 109 on a prospective basis.
The impact of adopting SFAS 109 was not material to the consolidated financial
statements.
Components of the provision (benefit) for income taxes from continuing
operations are as follows:
<TABLE>
<CAPTION>
JUNE 24, JUNE 30, JUNE 30,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal........................................................... $ (53,219) $ (25,168) $ (59,207)
State............................................................. 50,022 -- --
---------- ---------- ----------
(3,197) (25,168) (59,207)
Deferred:
Federal........................................................... 5,235 -- --
State............................................................. -- -- --
---------- ---------- ----------
5,235 -- --
---------- ---------- ----------
Total Provision................................................. $ 2,038 $ (25,168) $ (59,207)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-27
<PAGE>
AMSERV HEALTHCARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
JUNE 24, JUNE 30,
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Reserve for discontinued operations........................................ $ 157,249 $ 278,490
Bad debt reserve........................................................... 41,448 95,403
Accrued expenses........................................................... 102,190 176,983
Securities valuation....................................................... 8,976 16,260
Tax credits................................................................ 92,696 92,696
Net operating loss carryforward............................................ 9,060 13,288
State taxes................................................................ 1,088 1,088
---------- ----------
Total deferred tax assets................................................ 412,707 674,208
---------- ----------
Deferred tax liabilities:
Depreciation and amortization.............................................. (38,069) (146,555)
Prepaid expenses........................................................... (38,874) (98,643)
---------- ----------
Total deferred tax liabilities........................................... (76,943) (245,198)
---------- ----------
Valuation allowance.......................................................... (335,764) (346,665)
---------- ----------
Net deferred tax asset....................................................... $ -- $ 82,345
---------- ----------
---------- ----------
</TABLE>
The net deferred tax assets and liabilities at June 30, 1994, are reflected
in part in the "Net liabilities of discontinued operations" on the balance sheet
at June 30, 1994. In 1995, the valuation allowance was adjusted to fully reserve
for the net deferred tax assets as realization is not assured.
The Company has a California net operating loss carryforward of
approximately $135,000 which will begin to expire in 1997. In addition, the
Company has investment tax credits of $48,401 which will begin expiring in 1999.
The Company also has $44,295 of alternative minimum tax credits which may be
carried forward indefinitely. No benefit for the credit carryforwards has been
recognized in the financial statements.
A reconciliation between the amount computed by multiplying income from
continuing operations by the statutory federal rate and the amount of reported
income taxes is as follows:
<TABLE>
<CAPTION>
JUNE 24, 1995 JUNE 30, 1994 JUNE 30, 1993
--------------------- --------------------- ---------------------
AMOUNT % AMOUNT % AMOUNT %
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Taxes based on statutory rate of 35%........ $ 19,035 35.0 $ (30,975) 35.0 $ (44,403) 34.0
State taxes, net of federal benefit......... 33,015 60.7 -- -- -- --
Surtax benefit.............................. (10,877) (20.0) 885 (1.0) -- --
Items without tax benefit................... 38,552 70.9 -- -- -- --
Valuation allowance......................... (77,687) (142.8) 4,922 (5.5) (14,804) 11.3
---------- --------- ---------- --- ---------- ---
Tax Provision........................... $ 2,038 3.8 $ (25,168) 28.5 $ (59,207) 45.3
---------- --------- ---------- --- ---------- ---
---------- --------- ---------- --- ---------- ---
</TABLE>
NOTE 10. LEASE COMMITMENTS
The Company leases seven office facilities for its continuing operations
under operating leases which expire on various dates through October 1999. The
leases generally provide that the Company pay the taxes,
F-28
<PAGE>
AMSERV HEALTHCARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. LEASE COMMITMENTS (CONTINUED)
insurance, and maintenance expenses related to the leased property and include
early termination clauses which allow cancellation with penalties. The following
is a schedule by fiscal year of future minimum rental payments for these leases
as of June 24, 1995:
<TABLE>
<S> <C>
1996.............................................. $ 202,068
1997.............................................. 169,479
1998.............................................. 125,344
1999.............................................. 97,365
2000.............................................. 6,872
---------
$ 601,128
---------
---------
</TABLE>
Rental expense for continuing operations for fiscal 1995, 1994 and 1993
under all operating leases amounted to $187,106, $141,037 and $132,657,
respectively.
NOTE 11. CONTINGENCY
In connection with the sale of AMSERV MEDICAL PRODUCTS in 1992, the Company
has guaranteed certain lease payments will be made by the purchasers. The amount
of future lease payments guaranteed by the Company totalled $405,093 at June 24,
1995 and are payable through September 1998.
NOTE 12. NOTE RECEIVABLE FROM OFFICER
On April 20, 1995, the Company accepted a non-recourse promissory note from
the Company's Chief Executive Officer, Eugene J. Mora, in the original principal
amount of $198,440, bearing interest at a rate of 10% per annum and maturing in
April 2000, and $1,100 in cash for the exercise of options for 110,000 shares of
the Company's common stock. The promissory note is secured by 177,562 shares of
the Company's common stock owned by Mr. Mora.
NOTE 13. RELATED PARTY TRANSACTIONS
A director of the Company, Melvin L. Katten, is a partner in a law firm
which provided certain legal services to the Company. The Company incurred legal
fees with such firm of $114,208, $39,272 and $20,996 for fiscal years 1995, 1994
and 1993, respectively.
NOTE 14. FOURTH QUARTER ADJUSTMENT
The fiscal 1995 results of operations include an adjustment in the fourth
quarter totalling approximately $138,000 that resulted from an increase in the
income tax provision related to the Company's previously reported discontinued
operation which should have been recorded in the second quarter of fiscal 1995.
F-29
<PAGE>
PART I -- FINANCIAL INFORMATION
AMSERV HEALTHCARE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 24,
1995
MARCH 23, -------------
1996
-------------
(UNAUDITED)
<S> <C> <C>
Current Assets
Cash and cash equivalents...................................................... $ 2,305,423 $ 1,226,448
Short-term investments, net.................................................... 103,500 1,392,021
Accounts receivable, net of allowance for doubtful accounts of $87,811 and
$103,264, respectively........................................................ 1,320,969 973,731
Other current assets........................................................... 390,827 187,463
------------- -------------
Total current assets......................................................... 4,120,719 3,779,663
Equipment, furniture and fixtures net of accumulated depreciation of $273,369 and
$196,069, respectively.......................................................... 429,597 387,821
Intangible assets, net........................................................... 2,004,881 2,203,113
Other assets..................................................................... 227,863 313,888
------------- -------------
$ 6,833,060 $ 6,684,485
------------- -------------
------------- -------------
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable............................................................... $ 35,139 $ 105,663
Accrued payroll and related taxes.............................................. 780,407 561,143
Net liabilities of discontinued operations (Note 4)............................ 115,422 391,770
Other current liabilities...................................................... 258,296 254,778
------------- -------------
Total current liabilities.................................................... 1,189,264 1,313,354
------------- -------------
Long-Term Liabilities
Other long-term liabilities.................................................... 33,406 30,859
------------- -------------
Total long-term liabilities.................................................. 33,406 30,859
------------- -------------
Redeemable Preferred Stock
Redeemable preferred stock, $.01 par value; authorized 3,000,000 shares:
Class A; issued and outstanding 341,435 shares (Note 5)...................... -- 3,414
Class B; issued and outstanding 195,106 shares (Note 5)...................... 1,951 --
Additional paid-in capital (Note 5)............................................ 510,202 679,456
------------- -------------
Total redeemable preferred stock............................................. 512,153 682,870
Common Shareholders' Equity
Common stock, $.01 par value; authorized 15,000,000 shares; 3,448,221 shares
and 3,295,356 shares outstanding, respectively................................ 34,482 32,953
Treasury stock, at cost, 143,268 shares........................................ (296,053) (296,053)
Additional paid-in capital..................................................... 7,064,031 6,787,963
Notes receivable from officer.................................................. (397,782) (198,440)
Unrealized gain (loss) on short-term investments............................... 5,838 (14,564)
Accumulated deficit............................................................ (1,312,279) (1,654,457)
------------- -------------
Total common shareholders' equity............................................ 5,098,237 4,657,402
------------- -------------
$ 6,833,060 $ 6,684,485
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-30
<PAGE>
AMSERV HEALTHCARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
MARCH 23, MARCH 31,
1996 1995
------------ ------------
<S> <C> <C>
Operating Revenues................................................................. $ 9,117,616 $ 8,402,485
------------ ------------
Operating Expenses
Selling, general and administrative.............................................. 8,396,028 7,783,797
Depreciation and amortization.................................................... 275,532 330,806
------------ ------------
Total Operating Expenses....................................................... 8,671,560 8,114,603
------------ ------------
Operating Income from Continuing Operations........................................ 446,056 287,882
Interest Expense................................................................... -- (50,726)
Interest Income.................................................................... 120,122 66,599
------------ ------------
Income from Continuing Operations Before Provision for Income Taxes................ 566,178 303,755
Income Tax Provision............................................................... 224,000 79,000
------------ ------------
Net Income from Continuing Operations.............................................. 342,178 224,755
Gain on Disposal of Discontinued Operations (less applicable income tax provision
of $29,777)....................................................................... -- 168,736
------------ ------------
Net Income......................................................................... $ 342,178 $ 393,491
------------ ------------
------------ ------------
Net Income Per Common Share:
Income from Continuing Operations................................................ $ 0.10 $ 0.07
Gain on Disposal of Discontinued Operations...................................... -- 0.05
------------ ------------
Net Income......................................................................... $ 0.10 $ 0.12
------------ ------------
------------ ------------
Shares Used in Computing Per Share Amounts......................................... 3,269,084 3,132,660
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-31
<PAGE>
AMSERV HEALTHCARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
MARCH 23, MARCH 31,
1996 1995
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income....................................................................... $ 342,178 $ 393,491
Noncash items included in net income:
Depreciation and amortization.................................................. 275,532 330,806
Loss on disposal of equipment, furniture and fixtures.......................... -- 32,680
Changes in assets and liabilities:
Accounts receivable............................................................ (347,238) 822,107
Income taxes................................................................... 151,443 105,942
Other assets................................................................... (167,339) 143,174
Accounts payable............................................................... (70,524) (54,927)
Other liabilities.............................................................. 73,886 (126,039)
------------- -------------
Net cash provided by operating activities........................................ 257,938 1,647,234
INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations.................................. -- 813,941
Payment of costs related to discontinued operations............................ (276,348) (560,502)
Proceeds from sale of short-term investments................................... 2,310,486 405,000
Purchase of short-term investments............................................. (1,001,563) (1,572,829)
Proceeds from sale of equipment, furniture and fixtures........................ -- 31,851
Purchase of equipment, furniture and fixtures.................................. (119,076) (256,028)
Cash received on notes receivable.............................................. -- 50,411
------------- -------------
Net cash provided by (used in) investing activities.............................. 913,499 (1,088,156)
FINANCING ACTIVITIES:
Repayment on note payable...................................................... -- (240,016)
Redemption of Class B preferred shares......................................... (170,717) --
Exercise of employee stock options............................................. 78,255 --
------------- -------------
Net cash used in financing activities............................................ (92,462) (240,016)
------------- -------------
Net increase in cash and cash equivalents........................................ 1,078,975 319,062
Cash and cash equivalents at beginning of year................................... 1,226,448 643,987
------------- -------------
Cash and cash equivalents at end of period....................................... $ 2,305,423 $ 963,049
------------- -------------
------------- -------------
NONCASH FINANCING AND INVESTING ACTIVITIES:
Income tax paid.................................................................. 189,715 145,884
Interest paid.................................................................... -- 37,115
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-32
<PAGE>
AMSERV HEALTHCARE INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ADJUSTMENTS
In the opinion of management of the Company, the accompanying unaudited
condensed consolidated financial statements reflect all adjustments necessary
(which are of a normal recurring nature) to present fairly the Company's
financial position as of March 23, 1996, and the results of operations and cash
flows for the nine-month periods ended March 23, 1996 and March 31, 1995.
Information included in the condensed consolidated balance sheet as of June 24,
1995 has been derived from the Company's Form 10-K for the year ended June 24,
1995 ("1995 Form 10-K"). The unaudited condensed consolidated financial
statements contained herein should be read in conjunction with the consolidated
financial statements and notes contained in the Company's 1995 Form 10-K.
2. FISCAL YEAR
During fiscal 1995 the Company commenced utilizing a 52/53-week fiscal year
ending on the last Saturday in June. Monthly periods are accounted for in a
four-week, four-week, five-week sequence, with each quarter consisting of 13
weeks. All references to years relate to fiscal years rather than calendar
years.
3. EARNINGS PER SHARE
Earnings per share for the three and nine month periods ended March 23, 1996
and March 31, 1995 are based on the weighted average number of common and common
stock equivalent shares outstanding. Certain stock options were not included in
the computation of earnings per share because their effect would be
antidilutive. Earnings per share assuming full dilution are the same as primary
earnings per share.
4. DISCONTINUED OPERATIONS
On November 9, 1994, the Company sold substantially all of the fixed and
intangible assets of its temporary nursing services business for $814,000 in
cash. The related net liabilities for this discontinued operation are included
in the balance sheet under the caption "Net liabilities of discontinued
operations". The balance remaining unpaid at March 23, 1996, relates to various
state and local tax and payroll liabilities that have not been resolved.
5. REDEEMABLE PREFERRED STOCK
On April 7, 1995, the Company issued 426,794 shares of its voting Class A
Redeemable Preferred Stock, which had a redemption value of $2.00 per share, in
exchange for the Company's promissory note payable to North Central Personnel,
Inc. and related accrued interest which totalled $853,588 on the date of the
exchange. The preferred shares pay no dividends and may be redeemed at the
option of the holder, in specified installments for cash. On May 29, 1995,
85,359 shares were redeemed for $170,718. Subsequently, on July 6, 1995, the
remaining 341,435 Class A Redeemable Preferred Shares were exchanged for 260,141
Class B Redeemable Preferred Shares, with a redemption price of $2.625 per share
and an aggregate redemption value of $682,870. In addition, the Company may
redeem the Class B shares in their entirety at its discretion. During the
current fiscal year, 65,035 shares have been redeemed for $170,717. As of March
23, 1996, the remaining 195,106 shares, with an aggregate redemption value of
$512,153 may be redeemed in installments of approximately 65,000 shares on or
after May 29, 1996, November 29, 1996 and May 29, 1997, at the option of the
holder. All outstanding Class B shares become redeemable in the event of
default. Holders of all classes of voting Redeemable Preferred Stock have the
same voting rights as Common Stock.
6. SUBSEQUENT EVENTS
MERGER AGREEMENT
On February 9, 1996, AMSERV's Board of Directors approved and the Company
executed an Agreement and Plan of Merger with Star Multi Care Services, Inc.
(NASDAQ:SMCS) ("Star") in a stock
F-33
<PAGE>
AMSERV HEALTHCARE INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SUBSEQUENT EVENTS (CONTINUED)
transaction intended to qualify as a tax free reorganization and to be accounted
for as a pooling of interests. The merger is subject to the approval of the
shareholders of both companies, certain state and regulatory approvals, and
other customary conditions. The merger is expected to be completed during the
summer of 1996.
CONSENT SOLICITATION
By letters dated January 8, February 21, and March 13, 1996, York Hannover
Pharmaceuticals, Inc., a wholly-owned subsidiary of Stockbridge Investment
Partners, Inc. ("Stockbridge") and member of the Stockbridge Group, indicated
its intent to act by written consent and requested the Board set record dates.
January 29, February 29, and March 15, 1996, were established by the Board as
the respective record dates.
On or about March 7, 1996, Stockbridge commenced its solicitation of
consents to remove the five current members of the Board of Directors and
replace each member with a Stockbridge nominee. On March 13, 1996, AMSERV
commenced a solicitation of revocations of consent in opposition to the
Stockbridge solicitation.
CASH TENDER OFFER
On March 29, 1996, AMSERV received from Stockbridge a letter purporting to
be an offer to purchase for $3.00 per share in cash all outstanding shares of
AMSERV Common Stock. According to the letter, Stockbridge's proposal would be
structured as a merger to be voted on by AMSERV's shareholders. By letter dated
April 2, 1996, AMSERV responded to Stockbridge's proposal and stated that in
order for the Board of Directors to properly evaluate the proposal it would need
detailed answers to various questions regarding, among other things, whether the
proposal is subject to financing and, if so, the source(s) of such financing,
and the proposed structure of the merger, including what entity would be the
survivor. By letter dated April 12, 1996 addressed to Batchelder & Partners,
Inc., the Company's financial advisor, Stockbridge stated that it intended to
restructure its proposal in the form of a tender offer for any and all
outstanding shares of the Company and that Stockbridge expected to submit
evidence of irrevocable financing commitments to the Company on or before April
24, 1996. As of May 3, 1996, no such information was received.
F-34
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Directors
Long Island Nursing Registry, Inc.
(An S Corporation)
I have audited the accompanying balance sheet of Long Island Nursing
Registry, Inc. (an S Corporation) as of December 31, 1994 and the related
statements of income and accumulated deficit and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Long Island Nursing Registry,
Inc. as of December 31, 1994, and the result of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ PAUL JOSEPHSON C.P.A., P.C.
Paul Josephson C.P.A., P.C.
Melville, New York
June 5, 1995
F-35
<PAGE>
LONG ISLAND NURSING REGISTRY, INC.
(AN S CORPORATION)
BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash.......................................................................... $ 100
Accounts receivable (net of allowance for doubtful accounts of $14,000)....... 1,235,515
Prepaid expenses.............................................................. 32,089
---------
Total current assets........................................................ 1,267,704
---------
PROPERTY AND EQUIPMENT (note 1)
Office equipment and furniture................................................ 264,888
Less: Accumulated depreciation................................................ 237,875
---------
27,013
---------
OTHER ASSETS
Security deposits............................................................. 36,950
Cash surrender value of officer's life insurance (net of loans of $156,247)... 16,892
Intangible assets (net of accumulated amortization of $9,000 in 1994) (note
3)........................................................................... 81,000
---------
134,842
---------
$1,429,559
---------
---------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Note payable -- bank (note 2)................................................. $ 256,000
Notes payable -- other (note 3)............................................... 47,534
Accounts payable and accrued expenses......................................... 416,550
Payroll taxes payable (note 1)................................................ 667,898
Income taxes payable (note 6)................................................. 260,325
Loans payable, stockholders/officers (note 7)................................. 165,095
---------
Total current liabilities................................................... 1,813,202
---------
STOCKHOLDERS' EQUITY
Common stock, no par value, authorized, issued and outstanding: 200 shares.... 20,000
Accumulated deficit........................................................... (403,643)
---------
(383,643)
---------
$1,429,559
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-36
<PAGE>
LONG ISLAND NURSING REGISTRY, INC.
(AN S CORPORATION)
STATEMENT OF INCOME AND ACCUMULATED DEFICIT
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Health care service income (note 5)............................................. $6,393,666
Direct wages and related costs.................................................. 4,597,399
---------
Gross profit.................................................................. 1,796,267
Operating expenses.............................................................. 1,693,795
---------
Income before income taxes...................................................... 102,472
Income taxes (notes 1 and 6).................................................... 325
---------
NET INCOME.................................................................... 102,147
Accumulated deficit at beginning of year........................................ (505,790)
---------
Accumulated deficit at end of year.............................................. $(403,643)
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-37
<PAGE>
LONG ISLAND NURSING REGISTRY, INC.
(AN S CORPORATION)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Cash flows from operating activities
Net income..................................................................... $ 102,147
---------
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization................................................ 23,409
Changes in assets and liabilities
Decrease in accounts receivable............................................ 88,734
(Decrease) in accounts payable and accrued expenses........................ (165,691)
(Decrease) payroll taxes payable........................................... (6,562)
Increase in income taxes payable........................................... 325
---------
Total adjustments........................................................ (59,785)
---------
Net cash provided by operating activities................................ 42,362
---------
Cash flows from investing activities
Purchase of property and equipment............................................. (8,396)
Purchase of intangible asset................................................... (42,466)
Repayments of loans to stockholders/officers................................... 25,000
---------
Net cash (used by) investing activities.................................. (25,862)
---------
Cash flows from financing activities
Loans from stockholders/officers............................................... 170,000
Repayment of bank note payable................................................. (186,500)
---------
Net cash (used by) financing activities.................................. (16,500)
---------
Net decrease in cash............................................................. 0
Cash at beginning of year........................................................ 100
---------
Cash at end of year.............................................................. $ 100
---------
---------
Supplemental disclosures of cash flow information:
Interest paid.................................................................. $ 100,217
---------
---------
Income taxes paid.............................................................. $ 325
---------
---------
</TABLE>
The Company incurred business acquisition costs of $90,000 during 1994 of
which $47,534 was financed through the seller.
The accompanying notes are an integral part of the financial statements.
F-38
<PAGE>
LONG ISLAND NURSING REGISTRY, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company provides the services of nurses' aides primarily to Medicaid
patients in New York State's Suffolk and Nassau counties.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using
accelerated methods over the estimated useful lives of the assets.
INCOME TAXES
The Company has elected to be taxed as an S corporation for Federal and New
York State tax purposes, whereby the income of the Company is taxed directly to
its stockholders.
2. NOTE PAYABLE -- BANK
The Company's borrowings, under a short-term bank line of credit, are
collateralized by all the assets of the Company and guaranteed by the
stockholders.
The Company entered into a restructuring agreement in May 1994, wherein it
paid $212,500 principal in order to restructure its borrowings. The remaining
balance has been converted into a five (5) year term loan, which is payable in
monthly installments of $3,833 commencing in July 1994 to maturity in June 1999,
plus interest at seven percent (7%) per annum. The loan agreement restricts the
Company as to additional borrowings, commitments, capital expenditures, dividend
payments and requires that the Company maintain certain financial balances and
ratios.
The Company is currently in violation of various covenants, and accordingly,
the entire loan has been classified as a current liability in the 1994 financial
statements.
3. INTANGIBLE ASSETS
The Company purchased the assets of a home health care company on July 4,
1994. The purchase price of $90,000 was allocated one hundred percent (100%) to
intangible assets, which includes restrictive covenants, goodwill and customer
lists. The purchase price is being amortized over sixty (60) months and was
payable $30,000 down and the balance over twelve (12) months.
4. COMMITMENTS
The Company's leases for office premises, which expire at varying dates to
June 1999, provide for minimum annual rentals plus escalations for increases in
real estate taxes and parking area costs. The Company subleases one (1) office,
expiring in January 1996. The sub-tenant pays rent directly to the landlord.
F-39
<PAGE>
LONG ISLAND NURSING REGISTRY, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
4. COMMITMENTS (CONTINUED)
Future minimum annual rentals are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- ------------------------------------------------------------------------
<S> <C>
1995.................................................................... $ 250,136
1996.................................................................... 95,507
1997.................................................................... 36,472
1998.................................................................... 36,597
Thereafter.............................................................. 13,123
----------
531,835
Less: Rent income from sub-tenant....................................... 220,533
----------
$ 211,302
----------
----------
</TABLE>
Rent expense for 1994 was $156,137.
5. MAJOR CUSTOMER
Income from services to Medicaid recipients was approximately sixty percent
(60%) of total revenues for the year ended December 31, 1994.
6. INCOME TAXES
As of April 1, 1991, the Company has built-in gain, as defined in the
Internal Revenue Service Code, that may result in a tax of approximately
$260,000 at the corporate level. The tax is based on the lesser of the built-in
gain or the cash basis taxable income reported annually on the Company's tax
return. The liability for built-in gains tax terminates on March 31, 2001.
Management believes that based on current circumstances, the built-in gains tax
may become payable. Therefore, the liability has been reflected in the 1993 and
subsequent financial statements.
7. LOAN PAYABLE, STOCKHOLDER/OFFICERS
In 1994, the Company borrowed $165,095 from a stockholder. The loan is
subordinated to the bank indebtedness. The loan bears interest at the rate of
twelve percent (12%) per annum. As of December 31, 1994, the loan did not have
maturity date.
8. DEPRECIATION EXPENSE
Total depreciation expense for the year ended December 31, 1994 was $14,409.
9. INTEREST EXPENSE
Total interest expense for the year ended December 31, 1994 was $100,218.
10. SUBSEQUENT EVENT
During 1995 the Company sold substantially all of its assets, with the
exception of accounts receivable. The Company is currently collecting
receivables and paying off debts. Prior to and at closing, all funds relative to
the sale of assets were used to pay the bank obligations and delinquent payroll
taxes.
F-40
<PAGE>
INDEPENDENT AUDITORS' REPORT ON
SUPPLEMENTAL INFORMATION
Board of Directors and Stockholders
Long Island Nursing Registry, Inc.
(An S Corporation)
My audit for the year ended December 31, 1994 was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
supplemental information in the following section is presented for the purpose
of additional analysis and is not a required part of the basic financial
statements. Such information has not been subjected to the auditing procedures
applied in the audits of the basic financial statements, and accordingly we
express no opinion on it.
/s/ PAUL JOSEPHSON C.P.A., P.C.
Paul Josephson C.P.A., P.C.
Melville, New York
June 5, 1995
F-41
<PAGE>
LONG ISLAND NURSING REGISTRY, INC.
(AN S CORPORATION)
SCHEDULE OF OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Officers' salaries.............................................................. $ 9,255
Office salaries................................................................. 859,933
Allocated fringe costs.......................................................... 117,304
Automobile expenses............................................................. 445
Bank charges.................................................................... 5,674
Depreciation and amortization................................................... 23,409
Dues and subscriptions.......................................................... 7,130
Equipment rentals............................................................... 5,443
Health facility assessment...................................................... 8,281
Insurance....................................................................... 10,122
Interest........................................................................ 100,218
Office expenses................................................................. 35,337
Officer's life insurance........................................................ 2,620
Penalties....................................................................... 149,665
Professional fees............................................................... 87,138
Recruiting...................................................................... 16,157
Rent............................................................................ 156,137
Repairs......................................................................... 1,286
Seminars and conferences........................................................ 5,491
Sundry.......................................................................... 29,426
Telephone....................................................................... 39,749
Travel and entertainment........................................................ 18,770
Utilities....................................................................... 4,805
---------
$1,693,795
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-42
<PAGE>
LONG ISLAND NURSING REGISTRY, INC.
BALANCE SHEET
FEBRUARY 28, 1995
UNAUDITED
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 100
Accounts receivable, less allowance for doubtful accounts..................... 1,506,945
Prepaid expenses and other current assets..................................... 16,892
---------
Total current assets........................................................ 1,523,937
Property and equipment, net of accumulated depreciation and amortization (note
1)............................................................................. 25,000
Intangible assets, net of accumulated amortization (note 3)..................... 79,000
Deposits........................................................................ 36,950
---------
$1,664,887
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings (note 2)................................................ $ 303,534
Note payable (note 10)........................................................ 158,302
Accrued payroll and related expenses.......................................... 715,819
Accounts payable and other accrued expenses................................... 425,455
Income taxes payable (note 6)................................................. 260,325
Loans payable stockholders/officers (note 7).................................. 165,095
---------
Total current liabilities................................................... 2,028,530
---------
COMMITMENTS AND CONTINGENCIES
Shareholders' equity:
Common stock, no par value, authorized, issued and outstanding: 200 shares.... 20,000
Accumulated deficit........................................................... (383,643)
---------
(363,643)
---------
$1,664,887
---------
---------
</TABLE>
See accompanying notes.
F-43
<PAGE>
LONG ISLAND NURSING REGISTRY, INC.
STATEMENT OF INCOME AND ACCUMULATED DEFICIT
NINE MONTHS ENDED FEBRUARY 28, 1995
(UNAUDITED)
<TABLE>
<S> <C>
Net revenues.................................................................... $4,750,639
---------
Operating costs and expenses:
Costs of revenue.............................................................. 3,372,953
Selling, general and administrative........................................... 1,195,189
---------
4,568,142
---------
Income from operations.......................................................... 182,497
Interest expense, net........................................................... (75,164)
---------
Net income...................................................................... 107,333
Accumulated deficit at beginning of period...................................... (490,976)
---------
Accumulated deficit at end of period............................................ $(383,643)
---------
---------
</TABLE>
See accompanying notes.
F-44
<PAGE>
LONG ISLAND NURSING REGISTRY, INC.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED FEBRUARY 28, 1995
(UNAUDITED)
<TABLE>
<S> <C>
Cash flow from operating activities:
Net income..................................................................... $ 107,333
---------
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization................................................ 22,217
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable...................................................... (348,458)
Prepaid expenses and other current assets................................ (995)
Deposits................................................................. (4,363)
Increase (decrease) in liabilities:
Accrued payroll and related expenses..................................... 87,170
Accounts payable and other accrued expenses.............................. 23,043
---------
Total adjustments...................................................... (221,386)
---------
Net cash used in operating activities.................................. (114,053)
---------
Cash flows from investing activities:
Purchase of property and equipment............................................. (4,959)
Purchase of intangible asset................................................... (42,466)
---------
Net cash used in investing activities.................................. (47,425)
---------
Cash flows from financing activities:
Proceeds from note payable..................................................... 158,302
---------
Net cash provided by financing activities.............................. 158,302
---------
Net decrease in cash and cash equivalents........................................ (3,176)
Cash and cash equivalents at beginning of period................................. 3,276
---------
Cash and cash equivalents at end of period....................................... $ 100
---------
---------
Supplemental disclosures:
Income taxes paid.............................................................. $ 325
---------
---------
Interest paid.................................................................. $ 69,287
---------
---------
</TABLE>
The company incurred business acquisition costs of $90,000 during the period
of which $47,534 was financed through the seller.
See accompanying notes.
F-45
<PAGE>
LONG ISLAND NURSING REGISTRY, INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company provides the services of nurses' aides primarily to Medicaid
patients in New York State's Suffolk and Nassau Counties.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using
accelerated methods over the estimated useful lives of the assets.
INCOME TAXES
The Company has elected to be taxed as an S corporation for Federal and New
York State tax purposes, whereby the income of the Company is taxed directly to
its shareholders.
2. NOTE PAYABLE -- BANK
The Company's borrowings, under a short-term bank line of credit, are
collateralized by all the assets of the Company and guaranteed by the
stockholders.
The Company enter into a restructuring agreement in May 1994, where in they
paid $212,500 principal in order to restructure their borrowings. The remaining
balance has been converted into a five (5) year term loan, which is payable in
monthly installment of $3,833 commencing in July 1994 to maturity in June 1999,
plus interest at seven percent (7%) per annum. The loan agreement restricts the
Company as to additional borrowings, commitments, capital expenditures, dividend
payments and requires that the Company maintain certain financial balances and
ratios.
The Company is currently in violation of various covenants, and accordingly,
the entire loan has been classified as a current liability in the 1994 financial
statements.
3. INTANGIBLE ASSETS
The Company purchased the assets of a home health care company on July 4,
1994. The purchase price of $90,000 was allocated one hundred percent (100%) to
intangible assets, which includes restrictive covenants, goodwill and customer
lists. The purchase price is being amortized over sixty (60) months and was
payable $30,000 down and the balance over twelve (12) months.
4. COMMITMENTS
The Company's leases for office premises, which expire at various dates to
June 1999, provide for minimum annual rentals plus escalation for increases in
real estate taxes and parking area costs. The Company subleases one (1) office,
expiring in January 1996. The sub-tenant pays rent directly to the landlord.
F-46
<PAGE>
LONG ISLAND NURSING REGISTRY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1995
(UNAUDITED)
4. COMMITMENTS (CONTINUED)
Future minimum annual rentals are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1995.............................................................. $ 250,136
1996.............................................................. 95,507
1997.............................................................. 36,472
1998.............................................................. 36,597
Thereafter........................................................ 13,123
---------
531,835
Less: Rent income from sub-tenant................................. 220,533
---------
$ 221,302
---------
---------
</TABLE>
Rent expense for the nine months ended February 28, 1995 approximated
$188,000.
5. MAJOR CUSTOMER
Income from services to Medicaid recipients was approximately sixty percent
(60%) of total revenues for the nine months ended February 28, 1995.
6. INCOME TAXES
As of April 1, 1991, the Company has a built-in gain, as defined in the
Internal Revenue Service Code, that may result in a tax of approximately
$260,000 at the corporate level. The tax is based on the lesser of the built-in
gain or the cash basis taxable income reported annually on the Company's tax
return. The liability for built-in gains tax terminates on March 31, 2001.
Management believes that based on current circumstances, the built-in gains tax
may become payable. Therefore, the liability has been reflected in the 1993 and
subsequent financial statements.
7. LOAN PAYABLE, STOCKHOLDERS/OFFICERS
In 1994, the Company borrowed $165,095 from a stockholder. The loan is
subordinated to the bank indebtedness. The loan bears interest at the rate of
twelve (12%) per annum. As of February 28, 1995, the loan did not have a
maturity date.
8. DEPRECIATION EXPENSE
Total depreciation expense for the nine months ended February 28, 1995 was
approximately $11,000.
9. INTEREST EXPENSE
Total interest expense for the nine months ended February 28, 1995 was
approximately $76,000.
SUBSEQUENT EVENT
During 1995 the Company sold substantially all of its assets, with the
exception of accounts receivable. The Company is currently collecting
receivables and paying off debts. Prior to and at closing, all funds relative to
the sale of assets were used to pay the bank obligations and delinquent payroll
taxes. The acquiring Company advanced $158,302 to the Company to satisfy certain
payroll tax liabilities.
F-47
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
STAR MULTI CARE SERVICES, INC.
AHI ACQUISITION CORP.
AND
AMSERV HEALTHCARE INC.
DATED AS OF FEBRUARY 9, 1996
AS AMENDED ON JULY 18, 1996
<PAGE>
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
FIRST AMENDMENT (the "First Amendment") to Agreement and Plan of Merger (the
"Original Agreement") dated as of February 9, 1996 among STAR MULTI CARE
SERVICES, INC., a New York corporation ("Star"), AHI ACQUISITION CORP., a
Delaware corporation and a wholly-owned subsidiary of Star ("Merger Sub"), and
AMSERV HEALTHCARE INC., a Delaware corporation ("Amserv").
WHEREAS, each of Star, Merger Sub and Amserv has entered into the Original
Agreement and now desires to make certain changes to said Original Agreement;
WHEREAS, the Boards of Directors of Star, Merger Sub and Amserv have
approved the changes to the Original Agreement set forth in this First
Amendment.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants, agreements and conditions herein, the parties hereby agree as
follows:
1. Section 5.17 is hereby deleted in its entirety and replaced by the
following:
"5.17 Directors of Star. Star agrees that promptly after the Effective
Time, Star shall take such reasonable action as may be necessary to cause
Melvin L. Katten 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 for service on such Board until the next such annual meeting following
such two annual meetings."
2. Section 7.2(a) is hereby deleted in its entirety and replaced by the
following:
"(a) The Merger shall not have been consummated by September 15, 1996,
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;"
3. Except as expressly amended by this First Amendment, the Original
Agreement and all of its terms, covenants, conditions and provisions are hereby
ratified and confirmed in all respects and shall continue in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be signed by their respective officers, thereunto duly authorized, as of the
18th day of July, 1996.
<TABLE>
<S> <C>
AMSERV HEALTHCARE INC. STAR MULTI CARE SERVICES, INC.
By: /s/ EUGENE J. MORA By: /s/ STEPHEN STERNBACH
- ------------------------------------------- -------------------------------------------
Eugene J. Mora Stephen Sternbach
Chairman and Chief Executive Officer Chairman and Chief Executive Officer
AHI ACQUISITION CORP.
By: /s/ STEPHEN STERNBACH
-------------------------------------------
Stephen Sternbach
Chairman and Chief Executive Officer
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
AMONG
STAR MULTI CARE SERVICES, INC.
AHI ACQUISITION CORP.
AND
AMSERV HEALTHCARE INC.
DATED AS OF FEBRUARY 9, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
ARTICLE I THE MERGER................................................................................ A-1
A-1
1.1 The Merger.....................................................................
A-1
1.2 Closing........................................................................
A-1
1.3 Effective Time.................................................................
A-1
1.4 Effect of Merger...............................................................
A-2
1.5 Certificate of Incorporation and Bylaws........................................
A-2
1.6 Directors and Officers.........................................................
A-2
1.7 Tax Consequences...............................................................
A-2
1.8 Pooling of Interests...........................................................
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES........................................ A-2
A-2
2.1 Share Consideration; Conversion or Cancellation of Shares in the Merger........
A-3
2.2 Payment for Shares in the Merger...............................................
A-4
2.3 Exchange Agent.................................................................
A-4
2.4 Fractional Shares..............................................................
A-5
2.5 Transfer of Shares After the Effective Time....................................
A-5
2.6 Further Assurances.............................................................
ARTICLE III REPRESENTATIONS AND WARRANTIES OF STAR AND MERGER SUB.....................................
A-5
3.1 Corporate Organization.........................................................
A-6
3.2 Capital Stock..................................................................
A-6
3.3 Options or Other Rights........................................................
A-6
3.4 Authority Relative to this Agreement...........................................
A-6
3.5 Star Common Stock..............................................................
A-6
3.6 No Violation...................................................................
A-7
3.7 Compliance with Laws...........................................................
A-7
3.8 Financial Statements and Reports...............................................
A-8
3.9 Absence of Certain Changes or Events...........................................
A-8
3.10 Litigation.....................................................................
A-8
3.11 Insurance......................................................................
A-8
3.12 Medicare/Medicaid Participation; Accreditation.................................
A-9
3.13 Questionable Payments..........................................................
A-9
3.14 Pooling of Interests...........................................................
A-9
3.15 Personnel Status...............................................................
A-9
3.16 Representations Complete.......................................................
A-9
3.17 Brokers........................................................................
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF AMSERV.................................................. A-9
A-9
4.1 Corporate Organization.........................................................
A-10
4.2 Capital Stock..................................................................
A-10
4.3 Options or Other Rights........................................................
A-10
4.4 Authority Relative to Agreement................................................
A-10
4.5 No Violation...................................................................
A-11
4.6 Compliance with Laws...........................................................
A-11
4.7 Litigation.....................................................................
A-11
4.8 Financial Statements and Reports...............................................
A-12
4.9 Absence of Certain Changes or Events...........................................
A-12
4.10 Employee Benefit Plans and Employment Matters..................................
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
A-13
4.11 Labor Matters..................................................................
<S> <C> <C> <C>
A-13
4.12 Insurance......................................................................
A-14
4.13 Environmental Matters..........................................................
A-14
4.14 Tax Matters....................................................................
A-14
4.15 Intellectual Property..........................................................
A-15
4.16 Related Party Transactions.....................................................
A-15
4.17 No Undisclosed Material Liabilities............................................
A-15
4.18 No Default.....................................................................
A-15
4.19 Title to Properties; Encumbrances..............................................
A-16
4.20 Contracts......................................................................
A-17
4.21 Medicare/Medicaid Participation; Accreditation.................................
A-17
4.22 Rate Tables and Reimbursement..................................................
A-17
4.23 Relationships..................................................................
A-17
4.24 Employees......................................................................
A-17
4.25 Questionable Payments..........................................................
A-17
4.26 Pooling of Interests...........................................................
A-17
4.27 Representations Complete.......................................................
A-18
4.28 Brokers........................................................................
ARTICLE V COVENANTS AND AGREEMENTS.................................................................. A-18
A-18
5.1 Joint Proxy Statement/Prospectus; Registration Statement; Stockholders'
Meeting.......................................................................
A-19
5.2 Conduct of the Business of Amserv Prior to the Effective Time..................
A-20
5.3 Access to Properties and Records...............................................
A-20
5.4 No Solicitation, Etc...........................................................
A-21
5.5 Employee Benefit Plans.........................................................
A-21
5.6 Treatment of Options...........................................................
A-22
5.7 Existing Agreements............................................................
A-22
5.8 Confidentiality................................................................
A-23
5.9 Reasonable Best Efforts........................................................
A-23
5.10 Certification of Stockholder Vote..............................................
A-23
5.11 Mora Agreements................................................................
A-23
5.12 Affiliate Letters..............................................................
A-24
5.13 Listing Application............................................................
A-24
5.14 Supplemental Disclosure Schedules..............................................
A-24
5.15 No Action......................................................................
A-24
5.16 Conduct of Business of Merger Sub..............................................
A-24
5.17 Directors of Star..............................................................
A-24
5.18 Notification of Certain Matters; Delivery of Financial Information.............
A-25
5.19 Class B Preferred Shares.......................................................
A-25
5.20 Changes in Capital Stock.......................................................
A-25
5.21 Pooling; Tax-free Nature.......................................................
ARTICLE VI CONDITIONS PRECEDENT...................................................................... A-25
A-25
6.1 Conditions to Each Party's Obligation to Effect the Merger.....................
A-25
6.2 Conditions to the obligation of Amserv to Effect the Merger....................
A-26
6.3 Conditions to the obligations of Star and Merger Sub to Effect the Merger......
ARTICLE VII TERMINATION............................................................................... A-27
A-27
7.1 Termination by Mutual Consent..................................................
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
A-28
7.2 Termination by Either Star or Amserv...........................................
<S> <C> <C> <C>
A-28
7.3 Termination by Amserv..........................................................
A-29
7.4 Termination by Star............................................................
A-29
7.5 Effect of Termination and Abandonment..........................................
ARTICLE VIII MISCELLANEOUS............................................................................. A-29
A-29
8.1 Amendment......................................................................
A-29
8.2 Waiver.........................................................................
A-29
8.3 Survival.......................................................................
A-30
8.4 Expenses and Fees..............................................................
A-30
8.5 Notices........................................................................
A-30
8.6 Headings.......................................................................
A-30
8.7 Publicity......................................................................
A-31
8.8 Entire Agreement...............................................................
A-31
8.9 Assignment.....................................................................
A-31
8.10 Counterparts...................................................................
A-31
8.11 Invalidity; Severability.......................................................
A-31
8.12 Governing Law..................................................................
EXHIBITS
Exhibit A Form of Affiliate Letters
Exhibit B Opinion of Parker Chapin Flattau & Klimpl, LLP
Exhibit C Opinion of Latham & Watkins
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of February 9, 1996
among STAR MULTI CARE SERVICES, INC., a New York corporation ("Star"), AHI
ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of Star
("Merger Sub"), and AMSERV HEALTHCARE INC., a Delaware corporation ("Amserv").
WHEREAS, the Boards of Directors of Star, Merger Sub and Amserv deem
advisable and in the best interests of their respective stockholders the merger
of Merger Sub with and into Amserv (the "Merger") upon the terms and conditions
set forth herein and in accordance with the General Corporation Law of the State
of Delaware (the "DGCL") (Amserv, 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 Amserv have
approved the Merger pursuant to this Agreement, upon the terms and subject to
the conditions set forth herein;
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");
WHEREAS, in order to induce Amserv to enter into this Agreement, Stephen
Sternbach, a stockholder of Star, has agreed to execute a voting agreement
simultaneously with the execution of this Agreement and, pursuant thereto, to
grant a proxy to vote in favor of the Merger;
WHEREAS, it is intended that the Merger shall be recorded for accounting
purposes as a pooling of interests.
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 DGCL, at the Effective Time (as defined in Section 1.3),
Merger Sub shall be merged with and into Amserv and thereupon the separate
existence of Merger Sub shall cease, and Amserv, as the Surviving Corporation,
shall continue to exist under and be governed by the DGCL.
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 Parker
Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New York, New York
10036 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 terminated as provided in Article VII, the parties
hereto shall cause a Certificate of Merger meeting the requirements of Section
251 of the DGCL 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
Delaware in accordance with the DGCL 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 DGCL, the
separate existence of Merger Sub will cease and the Surviving Corporation shall
succeed, without other transfer, to all the rights and property of Merger Sub
and shall be subject to all the debts and liabilities of Merger Sub in the same
manner as if the Surviving Corporation had itself incurred them.
A-1
<PAGE>
1.5 CERTIFICATE OF INCORPORATION AND BYLAWS. At the Effective Time, the
Certificate of Incorporation of Amserv shall be the Certificate of Incorporation
of the Surviving Corporation and the Bylaws of Amserv as in effect on the date
hereof shall be the Bylaws of the Surviving 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 Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code
and that this Agreement shall constitute a "plan of reorganization" for the
purposes of Section 368 of the Code. The parties shall treat the transactions
contemplated hereby consistently with such intention.
1.8 POOLING OF INTERESTS. It is the intention of the parties hereto that
the Merger will be treated for financial reporting purposes as a pooling of
interests. 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:
(a) Each issued and outstanding share of the common stock, $.01 par value
(including the rights attached thereto to purchase Class C Preferred Shares (as
hereinafter defined)), of Amserv (the "Amserv Common Stock"), other than (i)
shares of Amserv Common Stock owned of record by Star, or a wholly owned
Subsidiary (as hereinafter defined) of Star, and (ii) shares of Amserv Common
Stock that are owned by Amserv as treasury stock (the "Treasury Shares"), shall
be automatically converted into the right to receive .4090 shares (the "Exchange
Ratio") of the common stock, $.001 par value, of Star (the "Star Common Stock").
If prior to the Effective Time, Star or Amserv should split or combine its
Common Stock, or pay a stock dividend or other stock distribution in its Common
Stock, or otherwise change its Common Stock into any other securities, or make
any other dividend or distribution on its Common Stock, then the Exchange Ratio
will be appropriately adjusted to reflect such split, combination, dividend or
other distribution or change. The Exchange Ratio shall, in each case, be rounded
to the nearest ten-thousandth of a share.
(b) All of the shares of the Amserv Common Stock to be converted into Star
Common Stock pursuant to Section 2.1(a) (the "Amserv Shares") shall cease to be
outstanding, shall be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall thereafter cease to
have any rights with respect to such shares, except the right to receive for
each of the shares, upon the surrender of such certificate in accordance with
Section 2.2(b), the number of shares of Star Common Stock specified in Section
2.01(a) above (the "Share Consideration") and cash in lieu of fractional Star
Common Stock as contemplated by Section 2.4. The Class B Preferred Shares (as
hereinafter defined) shall not be automatically converted into any other
security in connection with the Merger.
(c) The issued and outstanding shares of the common stock, $1.00 par value,
of Merger Sub (the "Merger Sub Common Stock") shall be converted into one
hundred (100) shares of fully paid and nonassessable shares of common stock,
$.01 par value, of the Surviving Corporation ("Surviving Corporation Common
Stock").
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(d) All shares of Amserv Common Stock which are owned of record by Star or
any wholly owned Subsidiary of Star and all of the Treasury Shares shall be
canceled and retired and cease to exist, without any conversion thereof or
payment with respect thereto.
(e) Each outstanding option to purchase Amserv Common Stock (each an,
"Amserv Stock Option") shall be assumed by Star as provided in Section 5.6.
As used in this Agreement, the term "Subsidiary" shall mean any corporation
of which at least a majority of the securities having by their terms ordinary
voting power to elect a majority of the Board of Directors 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; provided,
however, that as used in Sections 3.1, 3.3, 3.6, 3.7, 3.9-3.13, 4.1, 4.5-4.14,
4.16-4.26, 5.2(c)-(f) and 5.15 of this Agreement, the term "Subsidiary" shall
also include any unincorporated organization, including partnerships and joint
ventures, of which such party or any other Subsidiary of such party is a general
partner (excluding partnerships of which the general partnership interests held
by such party, or any Subsidiary of such party, do not constitute a majority of
the voting interests in such partnership) or at least a majority of the voting
interests in such organization are directly or indirectly owned or controlled by
such party or by any one or more of its Subsidiaries, or such party and one or
more of its Subsidiaries (such unincorporated organizations being collectively
referred to herein as the "Joint Ventures");
2.2 PAYMENT FOR SHARES IN THE MERGER.
(a) At the Effective Time, Star shall make available to an exchange agent
selected by Star and reasonably acceptable to Amserv (the "Exchange Agent"), for
the benefit of those persons who immediately prior to the Effective Time were
the holders of Amserv Shares, a sufficient number of certificates representing
shares of Star Common Stock required to effect the delivery of the aggregate
Share Consideration required to be issued pursuant to Section 2.1 (the
certificates representing Star Common Stock comprising such aggregate Share
Consideration being hereinafter referred to as the "Exchange Fund"). The
Exchange Agent shall, pursuant to irrevocable instructions, deliver the shares
of Star Common Stock contemplated to be issued pursuant to Section 2.1 and
effect the sales provided for in Section 2.4 out of the Exchange Fund. The
Exchange Fund shall not be used for any other purpose.
(b) As soon as practicable after the Effective Time, the Exchange Agent
shall send a notice and transmittal form to each holder of record of the Amserv
Shares immediately prior to the Effective Time advising such holder of the
effectiveness of the Merger and the procedure for surrendering to the Exchange
Agent (who may appoint forwarding agents with the approval of Star) the
certificate or certificates to be exchanged pursuant to the Merger (the
"Certificates"). Upon the surrender for exchange of certificates, together with
such letter of transmittal duly completed and properly executed in accordance
with instructions thereto and such other documents as may be required pursuant
to such instructions, the holder shall be paid promptly, without interest
thereon and subject to any required withholding of taxes, the Share
Consideration to which such holder is entitled hereunder, and such Certificates
shall forthwith be canceled. Until so surrendered and exchanged, the
Certificates shall represent solely the right to receive the Share Consideration
pursuant to Section 2.1 and cash in lieu of fractional shares as contemplated by
Section 2.4, subject to any required withholding of taxes. If any payment for
the Amserv Shares is to be made to a person other than the person in whose name
the Certificates for such shares surrendered are registered, it shall be a
condition of the exchange that the person requesting such exchange shall pay to
the Exchange Agent any transfer or other taxes required by reason of the
delivery of such payment to a person other than the registered owner of the
Certificates surrendered or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. To the extent permitted
by law, former stockholders of record of Amserv shall be entitled to vote, after
the Effective Time, at any meeting of Star stockholders, the number of whole
shares of Star Common Stock into which their respective Amserv Shares are
converted, regardless of whether such holders have exchanged their Certificates
in accordance with this Section 2.2.
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(c) No dividends or other distributions with respect to Star Common Stock
with a record date after the Effective Time shall be paid to the holders of any
unsurrendered Certificates with respect to the shares of Star Common Stock
represented thereby and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 2.4 until the surrender of such
Certificates in accordance with this Section 2.2. Subject to the effect of
applicable laws, following surrender of any such Certificates, 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 any cash payable in lieu of a fractional share of Star
Common Stock to which such holder is entitled pursuant to Section 2.4 and 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 payment date subsequent to such surrender payable with
respect to such whole shares of Star Common Stock.
(d) In the event any Certificates shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by Star, the
posting by such person of a bond in such amount, form and with such surety as
Star may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed Certificate the number of shares of the Star Common
Stock and cash in lieu of fractional shares deliverable (and unpaid dividends
and distributions) in respect thereof pursuant to this Agreement.
(e) Star, as the sole stockholder of Merger Sub, shall, upon surrender to
the Surviving Corporation of Certificates representing the Merger Sub Common
Stock, receive a Certificate representing the number of shares of the Surviving
Corporation Common Stock into which such Merger Sub Common Stock shall have been
converted pursuant to Section 2.1.
(f) Certificates surrendered for exchange by any person constituting a Rule
145 Affiliate of Amserv (as defined in Section 5.12) shall not be exchanged for
Certificates representing Star Common Stock until Star has received a written
agreement from such person as provided in Section 5.12.
2.3 EXCHANGE AGENT. Subject to the agreement of the Exchange Agent, among
other things, (i) the Exchange Agent shall maintain the Exchange Fund as a
separate fund to be held for the benefit of the holders of the Amserv Shares,
which shall be promptly applied by the Exchange Agent to making the payments
provided for in Section 2.2, (ii) any portion of the Exchange Fund that has not
been paid to holders of the Amserv Shares pursuant to Section 2.2 prior to that
date which is six months from the Effective Time shall be paid to Star, and any
holders of Amserv Shares who shall not have theretofore complied with Section
2.2 shall thereafter look only to Star for payment of the number of shares of
Star Common Stock to which they are entitled under this Agreement, (iii) the
Exchange Fund shall not be used for any purpose that is not provided for herein;
and (iv) all expenses of the Exchange Agent shall be paid directly by Star.
Promptly following the date which is six months from the Effective Time, the
Exchange Agent shall return to Star all cash, securities and any other
instruments in its possession relating to the transactions described in this
Agreement, and the Exchange Agent's duties shall terminate. Thereafter, each
holder of Certificates formerly representing Amserv Shares may surrender such
Certificates to Star and (subject to applicable abandoned property, escheat and
similar laws) receive in exchange therefor the Share Consideration and cash in
lieu of fractional shares payable with respect thereto pursuant to Sections 2.1
and 2.4 hereof, without interest, but shall have no greater rights against Star
than may be accorded to general creditors of Star under the DGCL. 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.
2.4 FRACTIONAL SHARES. No fractional shares of Star Common Stock shall be
issued in the Merger. In lieu of any such fractional securities, each holder of
Amserv Shares who would otherwise have been entitled to a fractional share of
Star Common Stock upon surrender of Certificates for exchange pursuant to this
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Article II will be paid an amount in cash (without interest) equal to such
holder's proportionate interest in the net proceeds from the sale or sales in
the open market by the Exchange Agent, on behalf of all such holders, of the
aggregate fractional shares of the Star Common Stock issued pursuant to this
Article II. As soon as practicable following the Effective Time, the Exchange
Agent shall determine the excess of (i) the number of full shares of the Star
Common Stock delivered to the Exchange Agent by Star over (ii) the aggregate
number of full shares of the Star Common Stock to be distributed to holders of
Amserv Shares (such excess being herein called the "Excess Shares"), and the
Exchange Agent, as agent for the former holders of Amserv Shares, shall sell the
Excess Shares at the prevailing prices on the Nasdaq National Market. The sale
of the Excess Shares by the Exchange Agent shall be executed on the Nasdaq
National Market through one or more member firms of the Nasdaq National Market
and shall be executed in round lots to the extent practicable. Star shall pay
all commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent, incurred in
connection with such sale of Excess Shares. Until the net proceeds of such sale
have been distributed to the former stockholders of Amserv, the Exchange Agent
will hold such proceeds in trust for such former stockholders (the "Fractional
Securities Fund"). As soon as practicable after the determination of the amount
of cash to be paid to former stockholders of Amserv in lieu of any fractional
interests, the Exchange Agent shall make available in accordance with this
Agreement such amounts to such former stockholders.
2.5 TRANSFER OF SHARES AFTER THE EFFECTIVE TIME. No transfers of Amserv
Shares shall be made on the stock transfer books of Amserv after the close of
business on the day prior to the date of the Effective Time.
2.6 FURTHER ASSURANCES. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any further deeds,
assignments or assurances in law or any other acts are necessary, desirable or
proper (i) to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, the title to any property or right of Amserv or Merger Sub acquired
or to be acquired by reason of, or as a result of, the Merger, or (ii) otherwise
to carry out the purposes of this Agreement, Amserv and Merger Sub agree that
the Surviving Corporation and its proper officers and directors shall and will
execute and deliver all such deeds, assignments and assurances in law and do all
acts necessary, desirable or proper to vest, perfect or confirm title to such
property or right in the Surviving Corporation and otherwise to carry out the
purposes of this Agreement, and that the proper officers and directors of Amserv
and Merger Sub and the proper officers and directors of the Surviving
Corporation are fully authorized in the name of Amserv and Merger Sub or
otherwise to take any and all such action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF STAR AND MERGER SUB
Star and Merger Sub, jointly and severally, represent and warrant to Amserv
as follows:
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.
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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 February 1, 1996, 2,309,675 shares of Star Common Stock and no shares of
Preferred Stock were issued and outstanding, (ii) options to acquire 570,462
shares of Star Common Stock were outstanding under all stock option plans of
Star, (iii) 1,099,603 shares were reserved for issuance pursuant to all employee
benefit plans of Star and (iv) warrants (the "Star Warrants") to purchase
112,922 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, $1.00 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. 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 hereto,
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 AGREEMENT. Each of Star and Merger Sub has
full corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated on its part hereby. The execution and
delivery of this Agreement by each of Star and Merger Sub and the consummation
of the transactions contemplated on its part hereby have been duly authorized by
their respective Board of Directors, and, other than the approval of Star's
stockholders as provided in Section 5.1 hereof, no other corporate proceedings
on the part of Star or Merger Sub are necessary to the consummation of the
transactions contemplated on its part hereby. This Agreement has been duly
executed and delivered by each of Star and Merger Sub, and constitutes a legal,
valid and binding obligation of each of Star and Merger Sub, 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.
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 by each of Star and Merger Sub and the consummation by each of them of
the transactions contemplated hereby 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 bound, (ii) 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 Hart-Scott-Rodino 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 DGCL, 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 Council required pursuant to Section 3611-a of the New York State Public
Health Law and the rules and regulations thereunder 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
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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 COMPLIANCE WITH LAWS.
(a) Star and each Star Subsidiary hold all material licenses, permits and
other authorizations necessary to conduct its business (collectively, "Star
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 Star 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 Star
Permits and other authorizations or to so comply would not be material to the
financial condition, results of operations, business or properties of Star and
the Star Subsidiaries taken as a whole. The Star Permits are in full force and
effect.
(b) All health care personnel employed by Star or any Star 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 Star and the Star Subsidiaries
taken as a whole.
(c) No action or proceeding is pending or, to Star's knowledge, threatened
that may result in the suspension, revocation or termination of any Star Permit,
the issuance of any cease-and-desist order, or the imposition of any
administrative or judicial sanction, and neither Star nor any Star Subsidiary
has received any notice from any governmental authority in respect of the
suspension, revocation or termination of any Star 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 Star and the Star Subsidiaries
taken as a whole.
(d) Neither Star nor any Star 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 Star's financial statements.
3.8 FINANCIAL STATEMENTS AND REPORTS. Star has made available to Amserv
true and complete copies of (i) its Annual Report on Form 10-K as filed with the
Securities and Exchange Commission (the "Commission"), for the year ended May
31, 1995 (the "Star Form 10-KSB"), (ii) all registration statements filed by
Star and declared effective under the Securities Act since January 1, 1993, and
(c) all other reports, statements and registration statements (including Current
Reports on Form 8-K) filed by it with the Commission since January 1, 1993. 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
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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 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.
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since May 31, 1995 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 an Star Subsidiary of the indebtedness of any
person or entity.
3.10 LITIGATION. Except as may be disclosed in the Star SEC Filings made
as of the date hereof, there are no suits, arbitrations, mediations, actions,
proceedings, unfair labor practice complaints or grievances pending or, to
Star's knowledge, threatened against Star or any Star 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 Star.
Neither Star nor any Star Subsidiary nor any property 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 Star.
3.11 INSURANCE. Star and the Star Subsidiaries maintain insurance against
such risks and in such amounts as Star reasonably believes are necessary to
conduct its business. Star and the Star 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 Star. Neither Star nor
any Star Subsidiary has received any notice of cancellation or termination in
respect of any of its insurance policies.
3.12 MEDICARE/MEDICAID PARTICIPATION; ACCREDITATION. All services provided
by Star and the Star Subsidiaries which are reimbursable by Medicaid or Medicare
are certified for full participation in such
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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 Star
nor any Star 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).
3.13 QUESTIONABLE PAYMENTS. Neither Star, any Star Subsidiary nor any of
its former subsidiaries, nor, to the knowledge of Star, any director, officer,
Affiliate or employee of Star or any of its former subsidiaries: (i) has used
any corporate funds of Star, any Star Subsidiary or any of Star'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 Star, any Star 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.
3.14 POOLING OF INTERESTS. To the best of its knowledge, none of Star, any
of the Star Subsidiaries or any of their respective directors, officers or
stockholders has taken any action which would interfere with the parties'
ability to account for the Merger as a pooling of interests.
3.15 PERSONNEL STATUS. The audit referred to in the Star Form 10-KSB by
the Internal Revenue Service (the "IRS") of a subsidiary of Star has been
completed and fully resolved between the IRS and Star without any payment
required on the part of Star. Although the audit referred to in the Star Form
10-KSB by the New York State Department of Labor (the "DOL") of two subsidiaries
of Star has not been fully resolved between the DOL and Star, Star believes that
such audit will not have a Material Adverse Effect on Star.
3.16 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.
3.17 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, except Bear & Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AMSERV
Amserv represents and warrants to Star and Merger Sub as follows:
4.1 CORPORATE ORGANIZATION. Each of Amserv and its Subsidiaries (the
"Amserv 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 Amserv and the Amserv Subsidiaries taken as a whole (a "Material
Adverse Effect on Amserv"). The Amserv disclosure schedule delivered by Amserv
herewith (the "Amserv Disclosure Schedule") contains a complete and accurate
list of all of the Amserv Subsidiaries. Neither Amserv nor any Amserv Subsidiary
is in violation of any provision of its charter or Bylaws which could have a
Material Adverse Effect on Amserv.
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4.2 CAPITAL STOCK. As of the date hereof, the authorized capital stock of
Amserv consists in its entirety of (i) 15,000,000 shares of common stock, $.01
par value, and (ii) 3,000,000 shares of Preferred Stock, $.01 par value (the
"Amserv Preferred Stock"). As of February 1, 1996, 3,304,953 shares of Amserv
Common Stock were issued and outstanding, (ii) 195,106 shares of Class B
Redeemable Preferred Stock (the "Class B Preferred Shares") were issued and
outstanding and were the only shares of Amserv Preferred Stock issued and
outstanding, (iii) options to acquire 232,366 shares of Amserv Common Stock were
outstanding under the Amserv Option Plans (as hereinafter defined), (iv)
1,177,027 shares of Amserv Common Stock were reserved for issuance under all of
the Amserv Option Plans and (v) 150,000 shares of Class C Junior Participating
Preferred Stock (the "Class C Preferred Shares") were reserved for issuance
under the Rights Agreement between Amserv and First Interstate Bank of
California, dated as of January 24, 1996. All of the outstanding shares of
capital stock of each of the Amserv Subsidiaries are owned beneficially and of
record by Amserv or an Amserv Subsidiary free and clear 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 Amserv and each of the Amserv Subsidiaries have been validly issued and
are fully paid and nonassessable.
4.3 OPTIONS OR OTHER RIGHTS. Except as disclosed in Section 4.3 of the
Amserv Disclosure Schedule or in Section 4.2 hereto, 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 Amserv or any Amserv Subsidiary any of the outstanding, authorized but
unissued, unauthorized or treasury shares of the common stock or any other
security of Amserv or any Amserv 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 Amserv Disclosure Schedule, no options or rights
to acquire equity securities granted by Amserv 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 AGREEMENT. Amserv has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated on its part hereby. The execution and delivery of this
Agreement by Amserv and the consummation of the transactions contemplated on its
part hereby have been duly authorized by its Board of Directors, and, other than
the approval of Amserv's stockholders as provided in Section 5.1 hereof, no
other corporate proceedings on the part of Amserv are necessary to authorize the
execution and delivery of this Agreement by Amserv or the consummation of the
transactions contemplated on its part hereby. This Agreement has been duly
executed and delivered by Amserv, and constitutes legal, valid and binding
obligations of Amserv, enforceable against Amserv 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.
4.5 NO VIOLATION. Except as disclosed in Section 4.5 of the Amserv
Disclosure Schedule, the execution, delivery and performance of this Agreement
by Amserv and the consummation by it of the transactions contemplated hereby
will not (i) violate or conflict with any provision of any law applicable to
Amserv or any Amserv Subsidiary or by which any of its property or assets are
bound, (ii) require the consent, waiver, approval, license or authorization of
or any filing by Amserv or any Amserv Subsidiary with any public authority
(other than as described in clause (ii) of the first sentence of Section 3.6)
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 Amserv
or any Amserv Subsidiary pursuant to or under any provision of any charter or
bylaw, indenture, mortgage, lien, lease, license, agreement, contract,
instrument, order, judgment, ordinance, Amserv Permit (as defined below), law,
regulation or decree to which Amserv or Amserv Subsidiary is subject or by which
Amserv or any Amserv Subsidiary or any of their property or assets are bound,
except where the failure to
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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 Amserv or on Amserv's ability to consummate the
transactions contemplated hereby.
4.6 COMPLIANCE WITH LAWS.
(a) Amserv and each Amserv Subsidiary hold all licenses, permits and other
authorizations necessary to conduct its business (collectively, "Amserv
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 Amserv 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
Amserv and the Amserv Subsidiaries taken as a whole. The Amserv Permits are in
full force and effect.
(b) All health care personnel employed by Amserv or any Amserv 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 Amserv and the Amserv
Subsidiaries taken as a whole.
(c) No action or proceeding is pending or, to Amserv's knowledge, threatened
that may result in suspension, revocation or termination of any Amserv Permit,
the issuance of any cease-and-desist order, or the imposition of any
administrative or judicial sanction, and neither Amserv nor any Amserv
Subsidiary has received any notice from any governmental authority in respect of
the suspension, revocation or termination of any Amserv 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 Amserv and the Amserv
Subsidiaries taken as a whole.
(d) Neither Amserv nor any Amserv 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 Amserv's financial
statements.
4.7 LITIGATION. Except as set forth in Section 4.7 of the Amserv
Disclosure Schedule or in the Amserv 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
Amserv's knowledge, threatened against Amserv or any Amserv 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
Amserv. Neither Amserv nor any Amserv Subsidiary nor any property 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
Amserv.
4.8 FINANCIAL STATEMENTS AND REPORTS. Amserv has made available to Star
true and complete copies of (i) its Annual Report on Form 10-K for the year
ended June 24, 1995 (the "Amserv 10-K"), as filed with the Commission, (ii) its
proxy statement relating to its most recent annual meeting of its stockholders,
(iii) all registration statements filed by Amserv and declared effective under
the Securities Act since January 1, 1993 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, 1993. 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 "Amserv SEC Filings." As of the respective times such
documents were filed or, as
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applicable, became effective, the Amserv 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 Amserv
included in the Amserv 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 Amserv and the Amserv
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 June 24,
1995, there has been no change in accounting principles applicable to, or
methods of accounting utilized by, Amserv. The books and records of Amserv and
the Amserv 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 Amserv and the
Amserv Subsidiaries set forth in the financial statements of Amserv included in
the Amserv SEC Filings. Amserv is not aware of any pending or contemplated
legislation or changes in rules, regulations or administrative orders which, if
enacted or implemented, would, individually or in the aggregate, have a Material
Adverse Effect on Amserv.
4.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 24, 1995, except as
expressly disclosed in the Amserv SEC Filings made through the date hereof, the
business of Amserv and of each of the Amserv 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 Amserv and the Amserv
Subsidiaries, taken as a whole; (ii) any indebtedness incurred by Amserv or any
Amserv Subsidiary for money borrowed; (iii) any material transaction or
commitment, except in the ordinary course of business or as contemplated by this
Agreement or as set forth in Section 4.9 of the Amserv Disclosure Schedule or in
the Amserv SEC Filings, entered into by Amserv or any of the Amserv
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 Amserv; (v) except as set forth in Section 4.9 of the Amserv
Disclosure Schedule, any declaration, setting aside or payment of any dividend
(whether in cash, securities or property) with respect to the Amserv 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 Amserv or any Amserv 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 set forth on the
Amserv Disclosure Schedule); (viii) any material revaluation by Amserv or any
Amserv 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 Amserv 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 Amserv or any
Amserv Subsidiary or the subjection of any of the assets or properties of Amserv
or any Amserv 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 Amserv or a Amserv
Subsidiary of the indebtedness of any person or entity.
4.10 EMPLOYEE BENEFIT PLANS AND EMPLOYMENT MATTERS.
(a) Section 4.10 of the Amserv Disclosure Schedule lists all employee
benefit plans, collective bargaining agreements, labor contracts, and employment
agreements not otherwise disclosed in the Amserv SEC Filings, which provide for
the annual payment of more than $25,000 in which Amserv participates, or by
which it is bound, including, without limitation, (i) any profit sharing,
deferred compensation, bonus, stock
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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. Amserv is in compliance
in all material respects with their 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. Amserv 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 Amserv,
threatened legal action, proceeding or investigation against or involving any
Amserv employee benefit plan which could result in a material amount of
liability to such employee benefit plan or to Amserv.
(b) Amserv 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 Amserv under
Title IV of ERISA.
(c) Amserv 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 Amserv
to any material amount of liability with respect to any such plan.
(d) All group health plans of Amserv 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 Amserv 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 Amserv.
(g) The Amserv Disclosure Schedule sets forth the name of each director,
officer or employee of Amserv 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) Amserv has made available to Star true and correct copies of all plan
documents and employment agreements referred to on the Amserv 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 "Amserv" shall be
deemed to include a reference to any entity that is aggregated with Amserv under
the provisions of Section 414 of the Code, to the extent that those aggregation
rules apply.
4.11 LABOR MATTERS. Neither Amserv nor any Amserv Subsidiary is a party to
any collective bargaining agreement with respect to any of their employees. None
of the employees of Amserv or any Amserv Subsidiary is represented by any labor
union. To the knowledge of Amserv, there is no activity involving any employees
of Amserv or the Amserv Subsidiaries seeking to certify a collective bargaining
unit or engaging in any other organizational activity.
4.12 INSURANCE. Amserv and the Amserv Subsidiaries maintain insurance
against such risks and in such amounts as Amserv reasonably believes are
necessary to conduct its business. Amserv and the Amserv Subsidiaries are not in
default with respect to any provisions or requirements of any such policy nor
have any
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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 Amserv. Neither Amserv
nor any Amserv Subsidiary has received any notice of cancellation or termination
in respect of any of its insurance policies.
4.13 ENVIRONMENTAL MATTERS. Amserv and the Amserv 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
Amserv. Neither Amserv nor any Amserv 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 Amserv, threatened, in any case, which would lead to a Material
Adverse Effect on Amserv.
4.14 TAX MATTERS. Amserv and each Amserv Subsidiary has paid in full when
due, or, to the extent not yet due, made adequate provision on its September 23,
1995 balance sheet (as contained in Amserv's Quarterly Report on Form 10-QSB for
the quarter ended on such date as filed by Amserv with the Commission (the
"September 23, 1995 Balance Sheet")) for all federal, state, local, foreign or
other governmental income, franchise, payroll, F.I.C.A., unemployment,
withholding, real property, personal property, sales, payroll, disability and
all other taxes imposed on Amserv or any Amserv Subsidiary or with respect to
any of their respective businesses, income or properties, or otherwise payable
by them, including interest and penalties, if any, in respect thereof
(collectively, "Amserv Taxes"). Amserv Taxes paid and/or incurred after
September 23, 1995 include only Amserv Taxes incurred in the ordinary course of
business determined in the same manner as with respect to the taxable period
ending on such date (and agrees not to make, revoke or amend any election
relating to Amserv Taxes without the consent of Star) and Amserv has properly
paid or accrued for all such Taxes for such periods. Amserv and each of the
Amserv Subsidiaries have timely filed all income tax, excise tax, sales tax, use
tax, gross receipts tax, franchise tax, employment and payroll related tax,
property tax, and all other tax returns which Amserv and/or such Amserv
Subsidiary (as the case may be) are required to file ("Amserv Tax Returns"), and
have paid or provided for all the amounts shown to be due thereon. All Amserv
Tax Returns are true, correct and complete. Neither Amserv nor any Amserv
Subsidiary (i) has filed or entered into, or is otherwise bound by, any
election, consent or extension agreement that extends any applicable statute of
limitations with respect to taxable periods of Amserv or any Amserv Subsidiary,
(ii) is a party to any contractual obligation requiring the indemnification or
reimbursement of any person with respect to the payment of any taxes other than
among Amserv and the Amserv Subsidiaries, (iii) has elected to be treated as a
consenting corporation under Section 341(f) of the Code, or (iv) has received
any claim by an authority in a jurisdiction where neither Amserv nor any Amserv
Subsidiary files Amserv Tax Returns that they are or may be subject to Amserv
Taxes by that jurisdiction, except for any such claims as would not be material
to the financial condition, results of operations, business or properties of
Amserv and the Amserv Subsidiaries taken as a whole. Except as set forth in
Section 4.14 of the Amserv Disclosure Schedule, no action or proceeding is
pending or, to Amserv's knowledge, threatened by any governmental authority for
any audit, examination, deficiency, assessment or collection from Amserv or any
Amserv Subsidiary of any Amserv Taxes, and no unresolved claim for any
deficiency, assessment or collection of any Amserv Taxes has been asserted
against Amserv or any Amserv Subsidiary. All resolved assessments of Amserv
Taxes have been paid or are reflected on the September 23, 1995 Balance Sheet.
4.15 INTELLECTUAL PROPERTY. Amserv and the Amserv Subsidiaries own,
possess or have the right to use all franchises, patents, trademarks, service
marks, tradenames, licenses and authorizations (collectively, "Amserv
Intellectual Property Rights") which are necessary to the conduct of their
respective businesses. To the knowledge of Amserv, neither Amserv nor any Amserv
Subsidiary is infringing or otherwise violating the intellectual property rights
of any person which infringement or violation would subject Amserv or any Amserv
Subsidiary to liabilities which, individual or in the aggregate, would have a
Material Adverse Effect
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on Amserv or which would prevent Amserv or any Amserv Subsidiary from conducting
their respective businesses substantially in the manner in which they are now
being conducted. No claim has been made or, to Amserv's knowledge, threatened
against Amserv or any Amserv Subsidiary alleging any such violation.
4.16 RELATED PARTY TRANSACTIONS. Except as disclosed in Section 4.16 of
the Amserv Disclosure Schedule or in the Amserv SEC Filings, there have been no
material transactions between Amserv or any Amserv Subsidiary on the one hand,
and any (i) officer or director of Amserv or any Amserv Subsidiary, (ii) record
or beneficial owner of five percent or more of the voting securities of Amserv
or (iii) affiliate (as such term is defined in Regulation 12b-2 promulgated
under the Exchange Act) of any such officer, director or beneficial owner, on
the other hand, other than payment of compensation for services rendered to
Amserv or the Amserv Subsidiaries by any officer or director of Amserv or Amserv
Subsidiaries. Amserv has a perfected first priority lien on (A) 110,000 shares
of Amserv Common Stock pursuant to the terms of the promissory note and the
stock pledge agreement, each dated April 20, 1995 and amended as of January 16,
1996 between Eugene J. Mora and Amserv, and (B) 110,500 shares of Amserv Common
Stock pursuant to the promissory note and the stock pledge agreement, each dated
January 16, 1996 between Mr. Mora and Amserv.
4.17 NO UNDISCLOSED MATERIAL LIABILITIES. Except as disclosed in the
Amserv SEC Filings, neither Amserv nor any of the Amserv 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 Amserv other than liabilities
under or contemplated by this Agreement.
4.18 NO DEFAULT. Neither Amserv nor any of the Amserv 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 By-Laws, (ii) any note, bond, mortgage,
indenture, license, agreement, contract, lease, commitment or other obligation
to which Amserv or any of the Amserv 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 Amserv or any of
the Amserv Subsidiaries, except in the case of clauses (ii) and (iii) above for
defaults or violations which would not have a Material Adverse Effect on Amserv.
4.19 TITLE TO PROPERTIES; ENCUMBRANCES.
(a) Amserv and the Amserv Subsidiaries have good and marketable title to all
of the Assets (as hereinafter defined) reflected as owned by Amserv on the
September 23, 1995 Balance Sheet and all Assets thereafter acquired by it
(except for Assets disposed of by it in the ordinary course of business). 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 Amserv nor any
Amserv 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 Amserv 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 Amserv 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 Amserv Disclosure Schedule is a true
and correct list of leases, conditional sales, licenses or similar arrangements
to which Amserv or any Amserv Subsidiary is a party or to which Amserv or any
Amserv Subsidiary or any Asset is subject. Amserv 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 Amserv 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 Amserv nor any Amserv
Subsidiary is in default under one or more of such arrangements, except to the
extent such defaults would not have a
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Material Adverse Effect on Amserv and has not received any written notice
alleging any default, set-off, or claim of default. To the knowledge of Amserv,
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.
(c) As used herein, the term "Assets" means all of the tangible and
intangible assets of Amserv and the Amserv 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.
4.20 CONTRACTS. Section 4.20 of the Amserv 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
Amserv or any Amserv 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 Amserv or any
Amserv Subsidiary to indemnify or act for, or guarantee the obligation of,
any other person or entity;
(e) each agreement restricting Amserv or any Amserv 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 Amserv or any
Amserv Subsidiary;
(g) each agreement under which Amserv or any Amserv 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 mark, copyright, patent, process, operational manual, technique and
similar property; and
(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).
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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. Amserv is not in
material default under any Contract and no default or right of set-off has been
asserted, either by or against Amserv under any Contract. To the knowledge of
Amserv, the parties to the Contracts, other than Amserv, 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. All amounts payable by Amserv under the Contracts are on a current
basis. Except as set forth in Section 4.20(m) of the Amserv Disclosure Schedule,
no Contract is terminable nor requires a payment in the event of the Merger or a
change in control of Amserv.
4.21 MEDICARE/MEDICAID PARTICIPATION; ACCREDITATION. All services provided
by Amserv and the Amserv 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 Amserv nor any Amserv 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. Amserv has provided to Star rate
tables that set forth a complete and correct list of the rates charged by Amserv
and the Amserv Subsidiaries to their various customers. Neither Amserv nor any
Amserv Subsidiary is required to pay any Medicare or Medicaid refunds, and
neither Amserv nor any Amserv Subsidiary has paid any Medicare or Medicaid
refunds since January 1, 1993.
4.23 RELATIONSHIPS. Except as disclosed in the Amserv SEC Filings, no
controlling shareholder, partner or affiliate of Amserv 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 to the
operation or business of, or which may be binding upon, Amserv, any Amserv
Subsidiary or their Assets.
4.24 EMPLOYEES. Section 4.24 of the Amserv 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 Amserv and each Amserv Subsidiary.
4.25 QUESTIONABLE PAYMENTS. Neither Amserv, any Amserv Subsidiary nor any
of its former subsidiaries, nor, to the knowledge of Amserv, any director,
officer, Affiliate or employee of Amserv or any of its former subsidiaries: (i)
has used any corporate funds of Amserv, any Amserv Subsidiary or any of Amserv'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 Amserv, any Amserv 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 POOLING OF INTERESTS. To the best of its knowledge, none of Amserv,
any of the Amserv Subsidiaries or any of their respective directors, officers or
stockholders has taken any action which would interfere with the parties'
ability to account for the Merger as a pooling of interests.
4.27 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by Amserv herein or in any Schedule hereto, including the Amserv Disclosure
Schedule, or certificate furnished by Amserv pursuant to this Agreement, or the
Amserv SEC Filings, when all such documents are read together in their
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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.
4.28 BROKERS. Neither Amserv nor any Amserv 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, except that Amserv has
retained Batchelder & Partners, Inc. ("Batchelder") as its financial advisor for
the transactions contemplated hereby.
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 JOINT PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT; STOCKHOLDERS'
MEETING.
(a) Star and Amserv agree that this Agreement shall be submitted to their
respective stockholders for approval at a meeting (the "Meeting") duly called
and held pursuant to applicable state law. As soon as practicable after the date
of this Agreement, each of Amserv and Star shall take all action, to the extent
necessary in accordance with applicable law and their respective Certificates of
Incorporation and Bylaws, to convene each Meeting 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, Amserv 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 proxy materials relating to each Meeting 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 Amserv Shares,
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 Amserv
Shares (the "Blue Sky Filings"). Amserv, Merger Sub and Star will 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, Amserv and
Star shall mail the proxy statement to their respective stockholders. Such joint
proxy statement at the time it initially is mailed to the stockholders of Amserv
and the stockholders of Star and all duly filed amendments or revisions made
thereto, if any, similarly mailed are hereinafter referred to as the "Proxy
Statement." Notice of the Amserv Meeting shall be mailed to the stockholders of
Amserv and notice of the Star Meeting shall be mailed to the stockholders of
Star along with the Proxy Statement.
(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 stockholders of Amserv and the stockholders of Star and at
the time of the 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 Stockholders of
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Amserv and Star, 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) Amserv hereby represents that its Board of Directors has (i) determined
that the merger is fair to and in the best interests of Amserv's stockholders,
(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
stockholders of Amserv; provided, however, that such determination, approval or
recommendation may be amended, modified or withdrawn to the extent required by
the fiduciary obligations of Amserv's Board of Directors under applicable law,
as advised by outside counsel. 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 stockholders, (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 stockholders of Star.
(e) Amserv shall use all reasonable efforts to cause to be delivered to Star
a letter of Ernst & Young LLP, Amserv'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 Amserv (i) a letter of Holtz Rubinstein & 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
Amserv, of the kind contemplated by the AICPA Statement, in form and substance
reasonably satisfactory to Amserv and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement and (ii) the
letter referred to in Section 6.1(f) on the Effective Time.
5.2 CONDUCT OF THE BUSINESS OF AMSERV PRIOR TO THE EFFECTIVE TIME. Prior
to the Effective Time, except as otherwise consented to or approved in writing
by Star, or required to consummate the transactions contemplated by, this
Agreement:
(a) Amserv and the Amserv 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 Amserv nor any Amserv Subsidiary shall (i) amend its charter
or Bylaws, (ii) declare, set aside or pay any dividend or other distribution
or payment in cash, securities or property in respect of shares of the
Amserv Common Stock, (iii) except for redemptions of the Class B Preferred
Shares required pursuant to and in accordance with the express provisions of
the Certificate of Designations, Preferences and Rights relating thereto, as
amended to the date hereof (the "Certificate of Designations"), 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 Amserv nor any Amserv 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 Amserv or such Amserv Subsidiary
except that Amserv may
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issue shares of Amserv 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 Amserv nor any Amserv 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 Amserv or any Amserv Subsidiary may increase the 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 Amserv or any Amserv 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 Amserv or any Amserv
Subsidiary;
(e) Neither Amserv nor any Amserv 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 Amserv nor any Amserv Subsidiary shall take any action which
would interfere with the abilities of the parties hereto to account for the
Merger as a pooling of interests; and
(g) Neither Amserv nor any Amserv Subsidiary shall authorize or enter
into any agreement to do any of the things described in clauses (a) through
(f) of this Section 5.2.
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, Amserv 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 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
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Amserv's business and properties or a substantial amount of Amserv'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, Amserv 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
Amserv shall have received an unsolicited written offer to effect a Third Party
Transaction and the Board of Directors of Amserv determines in good faith upon
the advice of outside legal counsel 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. Amserv
represents that it is not currently involved in any negotiations with any person
other than Star with respect to any Third Party Transaction and that it has been
in full compliance with the "no-shop" provisions of the Letter of Intent (as
hereinafter defined).
(c) Prior to the Effective Time, Amserv 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 pursuant to clause (b) of this Section 5.4. As soon as practicable
following the Effective Time, Amserv shall promptly request each person who has
executed a confidentiality agreement in connection with its consideration of a
Third Party Transaction to return all confidential information that has been
furnished to such person by or on behalf of Amserv.
5.5 EMPLOYEE BENEFIT PLANS. Except as otherwise provided in this
Agreement, the Amserv employee benefit plans listed on the Amserv Disclosure
Schedule which are in effect at the date of this Agreement shall remain in
effect immediately following the Effective Time. Star and Amserv shall cooperate
in coordinating their respective benefit plans, and any Amserv 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 Amserv under one or more employee
benefits plans of Star or any Star Subsidiary.
5.6 TREATMENT OF OPTIONS.
(a) Each Amserv Stock Option issued pursuant to Amserv's stock option plans
(collectively, the "Amserv Option Plans") set forth in the Amserv Disclosure
Schedule, whether or not vested or exercisable, shall be assumed by Star and
shall constitute an option to acquire, on substantially the same terms and
conditions as were applicable under such assumed Amserv Stock Option (provided
that the options described in clause (iii) of the second sentence of Section 4.2
hereof shall be exercisable in full commencing on the day immediately preceding
the Closing Date), a number of shares of Star Common Stock equal to the product
of the Exchange Ratio and the number of shares of Amserv Common Stock subject to
such Amserv Stock Option, at a price per share equal to the aggregate exercise
price for the shares of Amserv Common Stock subject to such Amserv Stock Option
divided by the number of full shares of Star Common Stock deemed to be
purchasable pursuant to such Amserv Stock option; provided, however, that (i)
subject to the provisions of clause (ii) below, the shares of Star Common Stock
that may be purchased upon exercise of such Amserv Stock Option shall not
include any fractional shares and, upon the last such exercise of such Amserv
Stock Option, a cash payment shall be made for any fractional shares based upon
the per share average of the highest and lowest sale price of the Star Common
Stock as reported on the Nasdaq National Market on the date of such exercise,
and (ii) in the case of any Amserv Stock Option to which Section 421 of the Code
applies by reason of its qualification under Section 422 or Section 423 of the
Code ("Qualified Stock Options"), the option price, the number of shares
purchasable pursuant to such Amserv Stock Option and the terms and conditions of
exercise of such Amserv Stock Option shall be determined in order to comply with
Section 424 of the Code. As soon as practicable after the Effective Time, Star
shall deliver to
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holders of Amserv Stock Options appropriate option agreements representing the
right to acquire shares of Star Common Stock on substantially the same terms and
conditions as contained in the outstanding Amserv Stock Options (subject to any
adjustments required by the preceding sentence), upon surrender of the
outstanding Amserv Stock Options, which terms and conditions shall include
provision for the right of "cashless exercise", which right shall be made
available to each of the holders of Amserv Stock Options on the date hereof to
the extent legally permissible under Star's existing stock option plans. Star
shall comply with the terms of the Amserv Option Plans as they apply to the
Amserv Stock Options assumed as set forth above.
(b) Star shall take all corporate action necessary to reserve for issuance a
sufficient number of shares of Star Common Stock for delivery upon exercise of
the Amserv Stock Options assumed in accordance with this Section 5.6. Star shall
use its best efforts to file a registration statement on Form S-8 (or any
successor form) or another appropriate form, effective within sixty days
following the Effective Time with respect to shares of Star Common Stock subject
to such Amserv Stock Options and shall use all reasonable efforts to maintain
the effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such Amserv Stock Options remain outstanding. With respect to
those individuals who subsequent to the Merger will be subject to the reporting
requirements under Section 16(a) of the Exchange Act, Star shall administer the
Amserv Option Plans assumed pursuant to this Section 5.6 in a manner that
complies with rule 16b-3 promulgated under the Exchange Act to the extent the
applicable Amserv Option Plan complied with such rule prior to the Merger.
5.7 EXISTING AGREEMENTS. Star and the Surviving Corporation shall insure
and guaranty that the provisions with respect to indemnification by Amserv and
the Amserv Subsidiaries now existing in favor of any present or former director,
officer, employee or agent (and their respective heirs and assigns) of Amserv or
any Amserv 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 Amserv or the Amserv 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 Amserv or the Amserv Subsidiaries prior to the date of the Agreement),
and (ii) for six years after the Effective Time. This Section 5.7 shall survive
the closing of any of the transactions contemplated hereby, is intended to
benefit the officers and employees of Amserv and of the Amserv Subsidiaries at
the Effective Time and each of the Indemnified Parties (each of which shall be
entitled to enforce this Section 5.7 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.
5.8 CONFIDENTIALITY. The existing confidentiality agreement (the
"Confidentiality Agreement") between Amserv and Star, and the Letter of Intent
dated January 17, 1996 (the "Letter of Intent") between Amserv and Star are each
hereby affirmed by Star and Amserv 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, each of the Confidentiality Agreement and the Letter of Intent 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 or the Letter of Intent inconsistent with the terms of this Agreement,
the terms of this Agreement shall control. Each of Star and Amserv agrees that
it will not, and will cause its Respective Representatives 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. 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
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to by the other party; provided, however, that neither Star nor Amserv 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. In addition, Amserv
(subject to mutually agreeable indemnification of Star) shall be permitted to
disclose such information regarding the transactions contemplated hereby as
shall be required in connection with Amserv's consent solicitation to
stockholders in response to the notice of intention to act by written consent
received by Amserv from York Hannover Pharmaceuticals, Inc. on January 9, 1996;
provided that the form and content of each such disclosure shall be subject to
all of the provisions of this Section 5.8 and the prior written approval of
Star. Upon any termination of this Agreement, each of Star and Amserv 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.
5.9 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 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 regulator authorities of the United States
and the several states in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and (B)
timely making all such filings and timely seeking all such Third Party Consents;
and (iii) use all reasonable 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. 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 (i) take any action for the purpose of
delaying, impairing or impeding the receipt of any Third Party Consent, or the
making of any required filing or registration or the mailing of the Proxy
Statement or (ii) take any action that could reasonably have the effect of
preventing Star from accounting for the Merger as a pooling of interests. Amserv
shall use its best efforts to obtain the opinion referred to in Section 6.1(g).
5.10 CERTIFICATION OF STOCKHOLDER VOTE. At or prior to the closing of the
transactions contemplated by this Agreement, Amserv and Star shall deliver to
each other a certificate of their respective Secretary setting forth the number
of shares of Amserv 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 Amserv Common Stock or Star Common Stock voted against
adoption of this Agreement and consummation of the Merger.
5.11 MORA AGREEMENTS. Star hereby agrees to honor the severance provisions
of that certain employment agreement dated February 27, 1987, as amended August
8, 1989, and that certain consulting agreement dated August 23, 1990, as amended
August 4, 1992, both between Amserv and Eugene J. Mora (collectively, the "Mora
Agreements"). The parties hereto understand that Star and Mr. Mora will be
discussing possible modifications or amendments to the Mora Agreements; provided
that no such modifications or amendments will be entered into without the mutual
agreement of Star, Amserv and Mr. Mora; and provided further that no such
modifications or amendments will be entered into which would jeopardize the
ability of the parties hereto to treat the Merger as a tax free reorganization
or to utilize "pooling of interest" accounting for accounting purposes.
5.12 AFFILIATE LETTERS. At least 30 days prior to the Closing Date, Amserv
shall each deliver to Star a list of names and addresses of those persons who
were, in the reasonable judgment of Amserv at the record
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date for its stockholders' meeting to approve the Merger, "affiliates" (each
such person a "Rule 145 Affiliate") of Amserv within the meaning of Rule 145 of
the rules and regulations promulgated under the Securities Act. Amserv shall
provide to Star such information and documents as Star may reasonably request
for purposes of reviewing such list. Amserv 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.
5.13 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.
5.14 SUPPLEMENTAL DISCLOSURE SCHEDULES. Each of Star and Amserv 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
Amserv 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.
5.15 NO ACTION. 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.
5.16 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.
5.17 DIRECTORS OF STAR. Star agrees that promptly after the Effective
Time, Star shall take such reasonable action as may be necessary to cause Eugene
J. Mora 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 for service on
such Board until the next such annual meeting following such two annual
meetings.
5.18 NOTIFICATION OF CERTAIN MATTERS; DELIVERY OF FINANCIAL INFORMATION.
(a) Star and Merger Sub agree that they shall give prompt notice to Amserv,
and Amserv 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 Amserv, 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 Amserv shall furnish the other with all financial,
operating and other information and data as Star or Amserv, 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
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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.
5.19 CLASS B PREFERRED SHARES. Amserv agrees that it timely shall make all
redemptions of the Class B Preferred Shares required pursuant to and in
accordance with the express provisions of the Certificate of Designations.
5.20 CHANGES IN CAPITAL STOCK. Prior to the Effective Time, Star shall not
(i) disclose, set aside or pay any dividend or other distribution or payment in
cash, securities or property in respect of shares of Star Common Stock (except
such dividends or other distributions or payments as were declared prior to
January 1, 1996), (ii) make any direct or indirect redemption, retirement,
purchase or other acquisition of any of its capital stock, (iii) split, combine
or reclassify its outstanding shares of capital stock, or (iv) other than in
connection with a business combination, the acquisition or disposition of assets
or a similar transaction, grant options to purchase an aggregate number of
shares of Star Common Stock in excess of the number of such shares as currently
are authorized by the shareholders of Star to be issued pursuant to stock
options; provided, however, that, prior to the Effective Time, no such options
shall be granted to any current officers of Star.
5.21 POOLING; TAX-FREE NATURE. None of Star, Merger Sub and Amserv, nor
any of their respective Subsidiaries or other affiliates shall (i) take any
action, or fail to take any action, that would jeopardize the treatment of the
Merger as a "pooling of interests" for accounting purposes or (ii) take, or fail
to take, any action that would jeopardize qualification of the Merger as a
reorganization described in Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
For purposes of ensuring that the Merger will be treated as a tax-free
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal
Revenue Code, each of Star and Merger Sub on the one hand and Amserv on the
other agrees to deliver to Latham & Watkins, counsel to Amserv, 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(g).
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 Share
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 Amserv Common Stock entitled to vote thereon
at the Amserv Meeting and (ii) the holders of the outstanding shares of 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
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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.
(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 Amserv's stockholders
and option holders in the Merger or thereafter shall have been authorized
for listing on the Nasdaq National Market, upon official notice of issuance.
(f) Star shall have received from Holtz Rubinstein & Co., LLP a letter
to the effect that the Merger qualifies for "pooling of interests" treatment
for financial reporting purposes and that such treatment is in accordance
with generally accepted accounting practices.
(g) Amserv shall have received the opinion, addressed to them, of Latham
& Watkins, counsel to Amserv, dated as of the Effective Time, substantially
to the effect that (i) the Merger will constitute a reorganization for
United States Federal income tax purposes within the meaning of Section
368(a) of the Code, (ii) Star, Merger Sub and Amserv each will be a party to
the reorganization within the meaning of Section 368(b) of the Code, (iii)
no gain or loss will be recognized by Star, Merger Sub or Amserv pursuant to
the Merger, and (iv) no gain or loss will be recognized by stockholders of
Amserv to the extent that their shares of capital stock of Amserv are
converted into and exchanged solely for Star Common Stock (except to the
extent that cash is received in lieu of a fractional share interest and
except with respect to the conversion and exchange of any shares of the
capital stock of Amserv that were acquired by the holder thereof pursuant to
any employee stock option, employee stock purchase plan or otherwise as
compensation). In rendering such opinion, Latham & Watkins may require and
rely upon representations contained in the certificates of officers of Star,
Merger Sub and Amserv referred to in Section 5.21.
6.2 CONDITIONS TO THE OBLIGATION OF AMSERV TO EFFECT THE MERGER. The
obligation of Amserv to effect the Merger shall be subject to the fulfillment or
waiver by Amserv 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.
(b) All representations or warranties of Star and Merger Sub in this
Agreement which are qualified with respect to a Material Adverse Effect on
Star or materiality shall be true and correct, and all such representations
or warranties that are not so qualified shall be true and correct in all
material respects, in each case as if such representation or warranty was
made as of the Effective Time, except to the extent that any such
representation or warranty is made as of a specified date, in which case
such representation or warranty shall have been true and correct as of such
specified date and, with respect to Section 3.3, to the extent it is
permitted to change by the provisions of this Agreement.
(c) From the date hereof through the Effective Time, there shall have
been no material adverse change in the financial condition, results of
operations, properties, business or prospects of Star and the Star
Subsidiaries taken as a whole.
(d) 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), (b) and (c) of this Section 6.2.
(e) Amserv shall have received from Parker Chapin Flattau & Klimpl, LLP,
counsel to Star, opinion or opinions dated as of the Effective Time covering
the matters set forth in Exhibit B hereto.
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(f) Latham & Watkins, counsel to Amserv, shall have received the letter
from Star and Merger Sub referred to in Section 5.21.
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) Amserv shall have performed in all material respects each of its
obligations under this Agreement required to be performed by it on or prior
to the Effective Time pursuant to the terms hereof.
(b) All representations or warranties of Amserv in this Agreement which
are qualified with respect to a Material Adverse Effect or materiality shall
be true and correct, and all such representations or warranties that are not
so qualified shall be true and correct in all material respects, in each
case as if such representation or warranty were made as of the Effective
Time except to the extent that any such representation or warranty is made
as of a specified date, in which case such representation or warranty shall
have been true and correct as of such specified date and with respect to
Section 4.3, to the extent permitted to change by the provisions of this
Agreement.
(c) 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 would
become applicable to Amserv or the Amserv Subsidiaries or Star or the Star
Subsidiaries and which would have a Material Adverse Effect on Amserv or a
Material Adverse Effect on Star.
(d) Amserv shall have obtained all Third Party Consents (applicable to
Amserv or any Amserv Subsidiary) contemplated by subsection (ii) of Section
5.9, except for such Third Party Consents which, if not obtained, would not,
individually or in aggregate, have a Material Adverse Effect on Amserv.
(e) From the date hereof through the Effective Time, there shall have
been no material adverse change in the financial condition, results of
operations, properties, business or prospects of Amserv and the Amserv
Subsidiaries taken as a whole.
(f) Amserv 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 (e) to this Section 6.3.
(g) Star shall have received from Latham & Watkins, counsel to Amserv,
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
Amserv from the members of Amserv's board of directors, which resignations
shall be effective as of the Effective Time.
(i) Each of Star and Amserv shall have received the Affiliate Letters
from each of the Rule 145 Affiliates, as provided in Section 5.12.
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 stockholders of Amserv or Star, by
the mutual consent of Star and Amserv.
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7.2 TERMINATION BY EITHER STAR OR AMSERV. This Agreement may be terminated
and the Merger may be abandoned by action of the Board of Directors of either
Star or Amserv if:
(a) The Merger shall not have been consummated by July 31, 1996, 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; provided,
however, that in the event that the approval referred to in clause (ii)(C)
of the first sentence of Section 3.6 has not been obtained by such date,
then such date shall be extended to November 30, 1996; provided further,
that (i) upon such extension and the delivery of a certificate by the
President or Vice President and Chief Financial Officer of each of Star and
Merger Sub to the effect that from the date hereof through July 31, 1996
there shall have been no material adverse change in the financial condition,
results of operations, properties, business or prospects of Star and the
Star Subsidiaries taken as a whole (which certificates shall be deemed
representations of Star and Merger Sub for purposes of this Agreement), then
the conditions set forth in Section 6.2(c) shall not be conditions to the
obligations of Amserv to effect the Merger, and (ii) upon such extension and
delivery of a certificate by the President or Vice President and Chief
Financial Officer of Amserv to the effect that from the date hereof through
July 31, 1996 there shall have been no material adverse change in the
financial condition, results of operations, properties, business or
prospects of Amserv and the Amserv Subsidiaries taken as a whole (which
certificate shall be deemed representations of Amserv for purposes of this
Agreement), then the conditions set forth in Section 6.3(e) shall not be
conditions to the obligations of Star to effect the Merger;
(b) The approval of the stockholders of each of Amserv and Star required
by Section 6.1(b) shall not have been obtained at a meeting duly convened
therefore or at any adjournment 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 December
31, 1996 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 120 days, to permit the parties to have such injunction
vacated or order reversed.
7.3 TERMINATION BY AMSERV. 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 stockholders of Amserv referred to in Section
6.1(b), by action of the Board of Directors of Amserv, if:
(a) The Board of Directors of Amserv determines in good faith with the
advice of outside legal counsel that, in the exercise of the fiduciary
obligations of the Board of Directors under applicable law, such termination
is required by reason of a Third Party Transaction;
(b) There has been a breach by Star or Merger Sub of any representation
or warranty contained in this Agreement the effect of which is a Star
Material Adverse Effect; or
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(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 Amserv to Star.
7.4 TERMINATION BY STAR. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, by action of the Board
of Directors of Star, if:
(a) The Board of Directors of Amserv shall have withdrawn or modified
its determination that the Merger is fair to and in the best interests of
Amserv's stockholders or its approval or recommendation of this Agreement or
the Merger, in any event due to the existence of a Third Party Transaction,
or shall have recommended a Third Party Transaction to Amserv stockholders;
(b) There has been a breach by Amserv of any representation or warranty
contained in this Agreement the effect of which is an Amserv Material
Adverse Effect; 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 Amserv,
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 Amserv.
7.5 EFFECT OF TERMINATION AND ABANDONMENT.
(a) In the event that this Agreement is terminated by Amserv pursuant to
Section 7.3(a) or by Star pursuant to Section 7.4(a), then Amserv shall
promptly, but in no event later than ten days after the date of such request,
pay Star a fee of $250,000 plus reasonable out-of-pocket fees and expenses up to
$200,000, which amount shall be payable by wire transfer of same day funds.
Amserv acknowledges that the agreements contained in this Section 7.5(a) are an
integral 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 7, 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, nothing herein shall prejudice
the ability of the non-breaching party 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.
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
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or the earlier date of termination of this Agreement pursuant to Section 7, as
the case may be, except that the agreements set forth in Article I, Article II
and in Sections 5.4, 5.7, 5.8, 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 Amserv.
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 delivered personally or sent by registered or certified mail
(postage prepaid, return receipt requested) or by telecopier to the parties at
the of following addresses:
<TABLE>
<S> <C>
If to Merger Sub or Star Multi Care Services, Inc.
Star: 99 Railroad Station Plaza
Hicksville, New York 11801
Attention: Chief Executive Officer
Telecopier: (718) 802-1525
With copies to: Parker Chapin Flattau & Klimpl,
LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: James Alterbaum, Esq.
Telecopier: (212) 704-6288
If to Amserv: Amserv Healthcare, Inc.
3252 Holiday Court #264
La Jolla, California 92037
Attention: Chief Executive Officer
Telecopier: (619) 597-1002
with copies to: Latham & Watkins
701 "B" Street
Suite 2100
San Diego, California 92101
Attention: Scott N. Wolfe, Esq.
Telecopier: (619) 696-7419
</TABLE>
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.
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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 Delaware, without reference to the
conflict of law principles thereof.
IN WITNESS WHEREOF, Star, Merger Sub and Amserv have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
<TABLE>
<S> <C>
AMSERV HEALTHCARE INC. STAR MULTI CARE SERVICES, INC.
By: /s/ EUGENE J. MORA By: /s/ STEPHEN STERNBACH
Eugene J. Mora, Stephen Sternbach,
Chairman and Chief Executive Officer Chairman and Chief Executive Officer
AHI ACQUISITION CORP.
By: /s/ STEPHEN STERNBACH
Stephen Sternbach,
Chairman and Chief Executive Officer
</TABLE>
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EXHIBIT A
TO MERGER AGREEMENT
, 1996
Star Multi Care Services, Inc.
99 Railroad Station Plaza
Hicksville, New York 11801
Gentlemen:
Reference is made to the provisions of the Agreement and Plan of Merger,
dated as of February 9, 1996 (together with any amendments thereto, the "Merger
Agreement") among Star Multi Care Services, Inc. a New York corporation
("Star"), AHI Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Star (the "Merger Sub") and Amserv Healthcare, Inc., a Delaware
corporation, pursuant to which Merger Sub will be merged with and into Amserv
(the "Merger"), with Amserv continuing as the surviving corporation (the
"Surviving Corporation"). This letter consists of the undertakings contemplated
by Section 5.12 of the Merger Agreement and are designed to assure (1)
compliance with Rule 145 ("Rule 145"), and (2) that the Merger will be treated
as a "pooling of interests" for accounting purposes.
1. Compliance with Rule 145. I represent, warrant and covenant as follows:
(a) I understand that I may be deemed to be an "affiliate" of Amserv, 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"), which I will receive upon the consummation of the Merger in
exchange for my shares of common stock, par value $.01 per share, of the
Company (the "Amserv 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 Amserv Common
Stock and Star Common Stock owned by me, including all Amserv Common Stock
as to which I have sole or shared voting or investment power and all rights,
options and warrants to acquire Amserv 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) 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."
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<PAGE>
2. Pooling of Interest Accounting. I represent, warrant and covenant as
follows:
From and after 30 days prior to the effective date of the Merger until after
such time as results covering at least 30 days of combined operations of the
Surviving Corporation and Star have been published by Star, in the form of a
quarterly earnings report, an effective registration statement filed with the
Securities and Exchange Commission (the "SEC"), a report to the SEC on Form
10-K, 10-Q or 8-K, or any other public filing or announcements which includes
the combined results of operations, I will not sell, transfer or otherwise
dispose of any securities of Amserv or of any Star Common Stock received by me
in the Merger or other shares of capital stock of Star except that, with the
written consent of Star and (prior to the effective date of the Merger) the
Company to assure compliance with applicable "pooling of interest" accounting
requirements (which consents shall not be unreasonably withheld), I may make
transfers or other dispositions that, taking into account the actions of other
affiliates of both Amserv and Star, are (a) permitted by SEC Staff Accounting
Bulletin No. 76 (a copy of which is annexed hereto as Appendix B) and (b) will
not otherwise prevent Star from accounting for the Merger as a "pooling of
interests".
3. Miscellaneous. I hereby represent, warrant and covenant as follows:
(a) 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.
(b) I understand the requirements of this letter and the limitations
imposed upon the sale, pledge, transfer or other disposition of the Star
Common Stock.
(c) The receipt of this letter by Star is an inducement to Star's
obligation to consummate the Merger under the Merger Agreement.
(d) 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,
A-33
<PAGE>
EXHIBIT B
TO MERGER AGREEMENT
OPINION OF PARKER CHAPIN 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 February 1,
1996, 2,309,675 shares of Star Common Stock and no shares of Preferred Stock
were issued and outstanding, (ii) options to acquire 570,462 shares of Star
Common Stock were outstanding under all stock option plans of Star, (iii)
1,099,603 shares were reserved for issuance pursuant to all employee benefit
plans of Star and (iv) warrants to purchase 112,922 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, $1.00 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. To the best of our knowledge, except as disclosed in Section 3.3 of the
Star Disclosure Schedule or in Section 3.2 of 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 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.
5. 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 stockholders 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
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<PAGE>
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.
6. 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.
A-35
<PAGE>
EXHIBIT C
TO MERGER AGREEMENT
OPINION OF LATHAM & WATKINS
1. Each of Amserv and the Amserv Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdictions 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 Amserv. The Amserv Disclosure Schedule contains a complete and accurate list
of all of the Amserv Subsidiaries. Neither Amserv nor any Amserv Subsidiary is
in violation of any provision of its charter or bylaws which could have a
Material Adverse Effect on Amserv.
2. The authorized capital stock of Amserv consists in its entirety of (i)
15,000,000 shares of common stock, $.01 par value, and (ii) 3,000,000 shares of
Preferred Stock, $.01 par value. As of February 9, 1996, 3,304,953 shares of
Amserv Common Stock were issued and outstanding, (ii) 195,106 shares of Class B
Redeemable Preferred Stock were issued and outstanding and were the only shares
of Amserv Preferred Stock issued and outstanding, (iii) options to acquire
252,366 shares of Amserv Common Stock were outstanding under the Amserv Option
Plans, (iv) 1,177,027 shares of Amserv Common Stock were reserved for issuance
under all of the Amserv Option Plans and (v) 150,000 shares of Class C Junior
Participating Preferred Stock were reserved for issuance under the Rights
Agreement between Amserv and First Interstate Bank of California, dated as of
January 24, 1996. All of the outstanding shares of capital stock of each of the
Amserv Subsidiaries are owned beneficially and of record by Amserv or an Amserv
Subsidiary free and clear of all liens, charges and encumbrances. All of the
outstanding shares of capital stock of Amserv and each of the Amserv
Subsidiaries have been validly issued and are fully paid and nonassessable.
3. To the best of our knowledge, except as disclosed in Section 4.3 of the
Amserv Disclosure Schedule or in Section 4.2 of 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 Amserv or any Amserv Subsidiary any of the outstanding, authorized
but unissued, unauthorized or treasury shares of the common stock or any other
security of Amserv or any Amserv Subsidiary, and there is no outstanding
security of any kind convertible into or exchangeable for such capital stock. To
the best of our knowledge, except as disclosed in Section 4.3 of the Amserv
Disclosure Schedule, no options or rights to acquire equity securities granted
by Amserv have provisions which accelerate the vesting or right to exercise such
options or rights or terminate any rights of Amserv upon the consummation of the
Merger.
4. Amserv 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 Amserv and the
consummation of the transactions contemplated on its part thereby have been duly
authorized by its Board of Directors and duly approved by Amserv's stockholders,
and no other corporate proceedings on the part of Amserv are necessary to
authorize the execution and delivery of the Merger Agreement by Amserv or the
consummation of the transactions contemplated on its part thereby. The Merger
Agreement has been duly executed and delivered by Amserv, and constitutes the
legal, valid and binding obligation of Amserv, enforceable against Amserv 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. Except as disclosed in Section 4.5 of the Amserv Disclosure Schedule,
the execution, delivery and performance of the Merger Agreement by Amserv and
the consummation by it of the transactions contemplated thereby do not (i)
violate or conflict with any provision of any law applicable to Amserv or any
Amserv
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<PAGE>
Subsidiary or by which any of its property or assets are bound, (ii) require the
consent, waiver, approval, license or authorization of or any filing by Amserv
or any Amserv Subsidiary with any public authority (other than as described in
clause (ii) of the first sentence of Section 3.6 of the Merger 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 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 Amserv or
any Amserv Subsidiary 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, instrument, order, judgment, ordinance, Amserv Permit, law,
regulation or decree to which Amserv or Amserv Subsidiary is subject or by which
Amserv or any Amserv 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
Amserv or on Amserv's ability to consummate the transactions contemplated by the
Merger Agreement.
6. Upon filing of the Certificate of Merger with the Secretary of State of
the State of Delaware, the Merger will be effective in accordance with the terms
of the Certificate of Merger and the DGCL.
7. To the best of our knowledge, the Assets are not subject to any
mortgage, security interest, pledge, lien, claim, encumbrance or charge, or
restraint of 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.
8. To the best of our knowledge, except as set forth in Section 4.7 of the
Amserv Disclosure Schedule or in the Amserv SEC Filings, there are no suits,
arbitrations, mediations, actions, proceedings, unfair labor practice complaints
or grievances pending or threatened against Amserv or any Amserv Subsidiary.
A-37
<PAGE>
APPENDIX B
BATCHELDER & PARTNERS, INC.
4330 LA JOLLA VILLAGE DRIVE, SUITE 200
SAN DIEGO, CALIFORNIA 92122
DAVID H. BATCHELDER TELEPHONE: (619) 456-6655
PRESIDENT TELECOPIER: (619) 456-7969
February 9, 1996
Board of Directors
AMSERV HEALTHCARE, INC.
3252 Holiday Court, Suite 204
La Jolla, CA 92037
Gentlemen:
You have requested that we render our opinion as to the fairness, from a
financial point of view, to the shareholders of AMSERV HEALTHCARE, INC.
("AMSERV") of the "Merger" as defined and provided for in the Agreement and Plan
of Merger between AMSERV and Star Multi Care Services, Inc. ("STAR") dated as of
February 8, 1996 (the "Agreement"). Pursuant to the Merger, each outstanding
share of AMSERV common stock shall be converted into and become 0.409 validly
issued, fully paid and nonassessable shares of common stock of STAR.
In connection with our opinion, we have reviewed the Agreement and all
schedules and exhibits thereto. We have also reviewed relevant financial and
other information concerning AMSERV and STAR that was publicly available or
furnished to us by AMSERV or STAR, including information provided during
discussions with their respective managements. We reviewed pro forma combined
financial information and financial projections furnished to us by AMSERV and
STAR and we reviewed the business prospects of AMSERV and STAR as furnished to
us in our discussions with their respective managements. We have considered the
relative contribution of each company to the combined revenues, net income,
assets and net worth of the combined entity based upon the financial information
provided to us by AMSERV and STAR. In addition, we have compared certain
financial and securities data of AMSERV and STAR with that of various other
companies whose securities are publicly traded, reviewed the historical prices
and trading volumes of the common stock of AMSERV and STAR, and conducted such
other financial analyses as we have determined, based upon our judgment as
investment bankers, to be appropriate for purposes of this opinion. In rendering
this opinion, we have reviewed certain third party proposals or indications of
interest for an alternative potential business combination as presented to
AMSERV and made available to us. However, we have not assumed any responsibility
for and we have not made or received any independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of AMSERV or STAR.
In rendering this opinion, we have relied on the accuracy and completeness
of all financial and other information that was publicly available, furnished or
otherwise communicated to us by AMSERV or STAR or otherwise reviewed by us, and
we have not assumed any responsibility for an independent verification of any
such information. With respect to financial projections reviewed by us, we have
assumed that the projections were reasonably prepared, based upon assumptions
reflecting the best currently available estimates and good faith judgments of
management as to the future performance of AMSERV and STAR and that management
of AMSERV and of STAR do not have any information or beliefs that would make the
projections materially misleading. We have assumed that the operating benefits
contemplated by the Merger as reflected in the financial projections provided to
us by AMSERV and STAR will be achieved.
B-1
<PAGE>
We have also assumed, with your consent, that (i) the Merger will be
accounted for under the pooling of interests method of accounting; (ii) the
Merger will be a tax-free reorganization; (iii) the employment and consulting
agreements between AMSERV and its chief executive officer represent valid and
enforceable obligations of AMSERV and the payments to him following his
anticipated termination, without cause by STAR following the consummation of the
Merger will be deductible for federal income tax purposes; and (iv) any material
liabilities (contingent or otherwise, known or unknown) of AMSERV and STAR are
as set forth in the consolidated financial statements of AMSERV and STAR,
respectively.
We have been engaged by AMSERV to render investment banking advisory
services to the Board of Directors of AMSERV in connection with its solicitation
and consideration of proposals for the merger or other sale or disposition of
the stock or assets of AMSERV for which we have received customary consideration
for such services. AMSERV will pay us a separate fee for our services in
connection with the Merger and in rendering this opinion which is contingent
upon the consummation of the Merger. AMSERV has agreed to indemnify us for
certain liabilities arising out of our engagement.
Our opinion is based upon an analysis of the factors described in this
letter in light of our assessment of general economic, financial and market
conditions as they exist and as they can be evaluated by us as of the date
hereof. Our opinion is directed to the Board of Directors of AMSERV and does not
constitute a recommendation to any shareholder of AMSERV as to how such
shareholder should vote on the Merger. Our opinion does not address the
underlying business decision to sell a controlling interest in AMSERV or to
enter into the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the terms of the Merger are fair to the shareholders of AMSERV from
a financial point of view.
Respectfully,
/s/ BATCHELDER & PARTNERS, INC.
BATCHELDER & PARTNERS, INC.
B-2
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) Section 722 of the New York Business Corporation Law ("NYBCL") permits,
in general, a New York corporation to indemnify any person made, or threatened
to be made, a party to an action or proceeding by reason of the fact that he or
she was a director or officer of the corporation, or served another entity in
any capacity at the request of the corporation, against any judgment, fines,
amounts paid in settlement and reasonable expenses, including attorneys' fees
actually and necessarily incurred as a result of such action or proceeding, or
any appeal therein, if such person acted in good faith, for a purpose he or she
reasonably believed to be in, or, in the case of service for another entity, not
opposed to, the best interests of the corporation and, in criminal actions or
proceedings, in addition had no reasonable cause to believe that his or her
conduct was unlawful. Section 723 of the NYBCL permits the corporation to pay in
advance of a final disposition of such action or proceeding the expenses
incurred in defending such action or proceeding upon receipt of an undertaking
by or on behalf of the director or officer to repay such amount as, and to the
extent, required by statute. Section 721 of the NYBCL provides that
indemnification and advancement of expense provisions contained in the NYBCL
shall not be deemed exclusive of any rights to which a director or officer
seeking indemnification or advancement of expenses may be entitled, whether
contained in the certificate of incorporation or the by-laws of the corporation
or, when authorized by such certificate of incorporation or by-laws, (i) a
resolution of shareholders, (ii) a resolution of directors or (iii) an
agreement, provided no indemnification may be made on behalf of any director or
officer if a judgment or other final adjudication adverse to the director or
officer establishes that his or her acts were committed in bad faith or were the
result of active or deliberate dishonesty and were material to the cause of
action so adjudicated, or that he or she personally gained in fact a financial
profit or other advantage to which he or she was not legally entitled.
(b) STAR'S Certificate of Incorporation contains no provision regarding
indemnification of officers or directors.
(c) Article X of STAR's By-Laws provides, in general, that STAR shall
indemnify any officer or director (including officers and directors serving
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise in any capacity at STAR's request) made, or threatened to be
made, a party to an action or proceeding (whether civil, criminal,
administrative or investigative) by reason of the fact that he or she was
serving in any of those capacities against judgments, fines, amounts paid in
settlement and reasonable expenses (including attorneys' fees) actually and
necessarily incurred in connection with the defense of or as a result of such
action or proceeding or in connection with any appeal thereof. Indemnification
is not available under Article X if a judgment or other final adjudication
adverse to such director or officer establishes that (i) his or her acts were
committed in bad faith or were the result of active and deliberate dishonesty
and, in either case, were material to the cause of action so adjudicated, or
(ii) he or she personally gained in fact a financial profit or other advantage
to which he or she was not legally entitled.
(d) Pursuant to By-law Article X, STAR has entered into indemnification
agreements with certain of its directors and officers providing for the
indemnification of such directors and officers in derivative actions, as well as
with respect to third party actions. The NYBCL mandates indemnification in
derivative actions if the officer or director has been successful, on the merits
or otherwise, in the defense of the action. The indemnification agreements, as
well as Section 722 of the NYBCL, do not permit indemnification in derivative
actions for (a) proceedings which are settled or otherwise disposed of or (b)
claims to which a person has been adjudged to be liable, unless court approved.
However, in reliance on Section 721 of the NYBCL, which provides that the
statutory indemnification provisions are not exclusive of other rights which may
be provided to an officer or director seeking indemnification, By-law Article X
also extends the right of indemnification to settlements and unsuccessful
defenses of derivative actions without the necessity of a court determination
provided the person seeking indemnification meets the standard described in the
preceding paragraph. STAR is not aware of any judicial determination as to
whether indemnification
II-1
<PAGE>
provisions such as those related to derivative actions in By-Law Article X
(which, by their terms, exceed the scope of NYBCL Section 722 but where the
standard of conduct set forth in NYBCL Section 721 has been met) are enforceable
pursuant to such nonexclusivity provision.
(e) By-law Article X, like the indemnification agreements, provides that the
expenses incurred in defending any action to which a director or officer may be
entitled to indemnification shall be advanced by STAR prior to the final
disposition of the action as long as the indemnitee undertakes to repay such
advances if required by law. STAR has been advised that the NYBCL currently
requires that an officer or director undertake to repay such advances to the
extent they exceed the amount to which the officer or director ultimately is
entitled. The period of time within which STAR is to advance expenses is fifteen
days after request; the time period within which STAR is to provide
indemnification after request is thirty days.
(f) By-law Article X, which by its terms is not the exclusive basis for
granting rights to indemnification or advancement of expenses, establishes
procedures for processing indemnification requests, confirms the authority of
STAR to maintain indemnification insurance and prohibits the repeal of By-law
Article X retroactively. By-law Article X also provides that it applies, to the
fullest extent permitted by law, to acts or omissions occurring prior to its
adoption. By-law Article X further stipulates that the rights granted therein
are contractual in nature, which is meant to prevent any retroactive denial or
reduction of indemnification if By-law Article X is later amended.
(g) Under By-law Article X, the Board of Directors is permitted, to the
fullest extent permitted by law, to establish an appropriate scope of and
procedure for the indemnification of, and advancement of expenses to, employees
and other persons to whom STAR is permitted to provide indemnification or
advancement of expenses.
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- --------------- ---------
<C> <S> <C>
2. (a) Agreement and Plan of Merger Among Star Multi Care Services, Inc., AHI Acquisition Corp.
and AMSERV HEALTHCARE INC., dated as of February 9, 1996, as amended on July 18, 1996.
(Filed as Appendix A to the Joint Proxy Statement/Prospectus).
3. (a) * STAR's Certificate of Incorporation filed April 25, 1961.
(b) * STAR's Certificate of Amendment to Certificate of Incorporation filed February 22, 1989.
(c) * STAR's Certificate of Amendment to Certificate of Incorporation filed December 4, 1990.
(d) STAR's Certificate of Amendment to Certificate of Incorporation filed February 3, 1994.
(Incorporated by reference to Exhibit 3(d) to STAR's Annual Report on Form 10-KSB for the
fiscal year ended May 31, 1994.)
(e) STAR's Certificate of Change filed March 2, 1995. (Incorporated by reference to Exhibit
3(e) to STAR's Annual Report on Form 10-KSB for the fiscal year ended May 31, 1995.)
(f) STAR's By-Laws, as amended on November 18, 1992 and September 13, 1993. (Incorporated by
reference to Exhibit 3(e) to STAR's Annual Report on Form 10-KSB for the fiscal year ended
May 31, 1994.)
4. (a) ** Voting Agreement, dated as of February 9, 1996, among AMSERV and Stephen Sternbach.
5. (a) ** Opinion of Parker Chapin Flattau & Klimpl, LLP.
8. (a) ** Opinion of Latham & Watkins.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- --------------- ---------
10. (a) * Form of Indemnification Agreement between STAR and Stephen Sternbach.
<C> <S> <C>
(b) Employment Agreement, dated as of December 3, 1995 between STAR and Stephen Sternbach.
(Incorporated by reference to Exhibit 10.(x) to STAR's Quarterly Report on Form 10-QSB for
the quarterly period ended February 29, 1996.)
(c) * STAR's 1991 Incentive Stock Option Plan
(d) STAR's 1992 Incentive Stock Option Plan, as amended and restated September 13, 1993.
(Incorporated by reference to Exhibit 10(h) to STAR's Annual Report on Form 10-KSB for the
fiscal year ended May 31, 1994.)
(f) Amendment No. 1 to STAR's 1992 Stock Option Plan. (Incorporated by reference to Exhibit
10.(z) to STAR's Quarterly Report on Form 10-QSB for the quarterly period ended February
26, 1996.)
(g) STAR's Employee Stock Purchase Plan, as amended December 15, 1995. (Incorporated by
reference to Exhibit 10.(y) to STAR's Quarterly Report on Form 10-QSB for the quarterly
period ended February 26, 1996.)
(h) Form of Incentive Stock Option Contract. (Incorporated by reference to Exhibit 10(j) to
STAR's Annual Report on Form 10-K for the fiscal year ended May 31, 1993.)
(i) * Agreement relating to purchase of STAR among Stephen Sternbach, Renee Starr and Leonard
Taubenblatt dated December 31, 1986.
(j) * New York State Department of Consumer Affairs Employment Agency License.
(k) * New York State Health Department Home Care License.
(l) * New Jersey Employment Agency License.
(m) Form of Indemnification Agreement between STAR and directors and officers. (Incorporated by
reference to Exhibit 10(k) to STAR's Annual Report on Form 10-K for the fiscal year ended
May 31, 1992.)
(n) Asset Purchase Agreement dated as of November 1, 1991 by and among Unity Care Services,
Inc., Unity Healthcare Holding Company, Inc. and STAR. (Incorporated by reference to
Exhibit 10(l) to STAR's Annual Report on Form 10-K for the fiscal year ended May 31,
1992.)
(o) Asset Purchase Agreement dated as of January 30, 1992 by and among Unity Healthcare Holding
Company, Inc., Unity Care Services, Inc. and STAR. (Incorporated by reference to Exhibit
10.1 to STAR's Current Report on Form 8-K dated May 26, 1992.)
(p) Asset Purchase Agreement dated as of January 30, 1992 by and between Unity Home Care of
Florida, Inc. and STAR. (Incorporated by reference to Exhibit 10.2 to STAR's Current
Report on Form 8-K dated May 26, 1992.)
(q) Employment Agreement, dated February 15, 1990, between Alan Spector and STAR, as assignee
of Unity Home Care of Florida, Inc. (Incorporated by reference to Exhibit 10(o) to STAR's
Annual Report on Form 10-K for the fiscal year ended May 31, 1992.)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- --------------- ---------
(r) Asset Purchase Agreement dated as of November 8, 1993 by and between DSI Health Care
Services, Inc. and Star Multi Care Services of Long Island, Inc., a wholly owned
subsidiary of STAR. (Incorporated by reference to Exhibit 10.1 to STAR's Current Report on
Form 8-K dated November 22, 1993.)
<C> <S> <C>
(s) Asset Purchase Agreement dated as of January 6, 1995, as amended, by and between Long
Island Nursing Registry, Inc. and STAR. (Incorporated by reference to Exhibit 21 to STAR's
Current Report on Form 8-K dated May 19, 1995.)
(t) Employment Agreement dated May 19, 1995 by and between STAR and Gregory Turchan.
(Incorporated by reference to Exhibit 99.1 to STAR's Current Report on Form 8-K dated May
19, 1995.)
(u) Loan Agreement dated November 1, 1995 by and between STAR and Chase Manhattan Bank, N.A.
(Incorporated by reference to Exhibit 10.(w) to STAR's Quarterly Report on Form 10-QSB for
the quarterly period ended November 30, 1995.)
16. (a) Letter dated April 25, 1995, as amended, from Deloitte & Touche LLP to the Securities and
Exchange Commission. (Incorporated by reference to AMSERV's Current Report on Form 8-K/A
dated March 21, 1995.)
23. (a) ** Consent of Holtz Rubenstein & Co., LLP
(b) ** Consent of Ernst & Young LLP
(c) ** Consent of Deloitte & Touche LLP
(d) ** Consent of Paul Josephson C.P.A., P.C.
(e) Consent of Parker Chapin Flattau & Klimpl, LLP (included in their opinion filed as Exhibit
5(a) to this Registration Statement).
(f) Consent of Latham & Watkins (included in their opinion filed as Exhibit 8(a) to this
Registration Statement).
99. (a) ** Form of STAR Proxy Card.
(b) ** Form of AMSERV Proxy Card.
</TABLE>
- ------------------------
* Incorporated by reference to STAR's Registration Statement on Form S-18 dated
May 14, 1991. (Registration No. 33-39697-NY).
** Filed herewith.
ITEM 22. UNDERTAKINGS.
(a)(1) The undersigned registrant hereby undertakes:
(A) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the registration statement.
(iii) To include any material information with respect to the plan of
distribution.
II-4
<PAGE>
(B) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(C) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid for by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter had been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning the transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Hicksville, State of New
York on the 18th day of July 1996.
STAR MULTI CARE SERVICES, INC.
By: /s/ STEPHEN STERNBACH
-----------------------------------
Stephen Sternbach
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated, each of whom also constitutes and
appoints Stephen Sternbach and William Fellerman, acting singly or together, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him in any and all capacities, to sign any and all amendments
and post-effective amendments to this Registration Statement, and to file the
same, with exhibits thereto and any other documents in connection therewith with
the Securities and Exchange Commission, granting unto each attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary in connection with such matters, and hereby ratifying
and confirming all that each attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
/s/ STEPHEN STERNBACH Chairman of the Board of Directors,
------------------------------------------- President and Chief Executive Officer July 18, 1996
Stephen Sternbach (Principal Executive Officer)
/s/ WILLIAM FELLERMAN Chief Financial Officer, Secretary,
------------------------------------------- Treasurer and Director (Principal July 18, 1996
William Fellerman Financial and Accounting Officer)
/s/ JOHN P. INNES
------------------------------------------- Director July 18, 1996
John P. Innes II
/s/ MATTHEW SOLOF
------------------------------------------- Director July 18, 1996
Matthew Solof
/s/ CHARLES BERDAN
------------------------------------------- Director July 18, 1996
Charles Berdan
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- --------------- ---------
<C> <S> <C>
2. (a) Agreement and Plan of Merger Among STAR, Merger Sub and AMSERV dated as of February 9,
1996, as amended on July 18, 1996. (Filed as Appendix A to the Joint Proxy
Statement/Prospectus).
3. (a) * STAR's Certificate of Incorporation filed April 25, 1961.
(b) * STAR's Certificate of Amendment to Certificate of Incorporation filed February 22, 1989.
(c) * STAR's Certificate of Amendment to Certificate of Incorporation filed December 4, 1990.
(d) STAR's Certificate of Amendment to Certificate of Incorporation filed February 3, 1994.
(Incorporated by reference to Exhibit 3 (d) to STAR's Annual Report on Form 10-KSB for the
fiscal year ended May 31, 1994.)
(e) STAR's Certificate of Change filed March 2, 1995. (Incorporated by reference to Exhibit
3(e) to STAR's Annual Report on Form 10-KSB for the fiscal year ended May 31, 1995.)
(f) STAR's By-Laws, as amended on November 18, 1992 and September 13, 1993. (Incorporated by
reference to Exhibit 3(e) to STAR's Annual Report on Form 10-KSB for the fiscal year ended
May 31, 1994.)
4. (a) ** Voting Agreement, dated as of February 9, 1996, among AMSERV and Stephen Sternbach.
5. (a) ** Opinion of Parker Chapin Flattau & Klimpl, LLP.
8. (a) ** Opinion of Latham & Watkins.
10. (a) * Form of Indemnification Agreement between STAR and Stephen Sternbach.
(b) Employment Agreement, dated as of December 3, 1995 between STAR and Stephen Sternbach.
(Incorporated by reference to Exhibit 10.(x) to STAR's Quarterly Report on Form 10-QSB for
the quarterly period ended February 29, 1996.)
(c) * STAR's 1991 Incentive Stock Option Plan
(d) STAR's 1992 Incentive Stock Option Plan, as amended and restated September 13, 1993.
(Incorporated by reference to Exhibit 10(h) to STAR's Annual Report on Form 10-KSB for the
fiscal year ended May 31, 1994.)
(f) Amendment No. 1 to STAR's 1992 Stock Option Plan. (Incorporated by reference to Exhibit
10.(z) to STAR's Quarterly Report on Form 10-QSB for the quarterly period ended February
26, 1996.)
(g) STAR's Employee Stock Purchase Plan, as amended December 15, 1995. (Incorporated by
reference to Exhibit 10.(y) to STAR's Quarterly Report on Form 10-QSB for the quarterly
period ended February 26, 1996.)
(h) Form of Incentive Stock Option Contract. (Incorporated by reference to Exhibit 10(j) to
STAR's Annual Report on Form 10-K for the fiscal year ended May 31, 1993.)
(i) * Agreement relating to purchase of STAR among Stephen Sternbach, Renee Starr and Leonard
Taubenblatt dated December 31, 1986.
(j) * New York State Department of Consumer Affairs Employment Agency License.
(k) * New York State Health Department Home Care License.
(l) * New Jersey Employment Agency License.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- --------------- ---------
(m) Form of Indemnification Agreement between STAR and directors and officers. (Incorporated by
reference to Exhibit 10(k) to STAR's Annual Report on Form 10-K for the fiscal year ended
May 31, 1992.)
<C> <S> <C>
(n) Asset Purchase Agreement dated as of November 1, 1991 by and among Unity Care Services,
Inc., Unity Healthcare Holding Company, Inc. and STAR. (Incorporated by reference to
Exhibit 10 (l) to STAR's Annual Report on Form 10-K for the fiscal year ended May 31,
1992.)
(o) Asset Purchase Agreement dated as of January 30, 1992 by and among Unity Healthcare Holding
Company, Inc., Unity Care Services, Inc. and STAR. (Incorporated by reference to Exhibit
10.1 to STAR's Current Report on Form 8-K dated May 26, 1992.)
(p) Asset Purchase Agreement dated as of January 30, 1992 by and between Unity Home Care of
Florida, Inc. and STAR. (Incorporated by reference to Exhibit 10.2 to STAR's Current
Report on Form 8-K dated May 26, 1992.)
(q) Employment Agreement, dated February 15, 1990, between Alan Spector and STAR, as assignee
of Unity Home Care of Florida, Inc. (Incorporated by reference to Exhibit 10(o) to STAR's
Annual Report on Form 10-K for the fiscal year ended May 31, 1992.)
(r) Asset Purchase Agreement dated as of November 8, 1993 by and between DSI Health Care
Services, Inc. and Star Multi Care Services of Long Island, Inc., a wholly owned
subsidiary of STAR. (Incorporated by reference to Exhibit 10.1 to STAR's Current Report on
Form 8-K dated November 22, 1993.)
(s) Asset Purchase Agreement dated as of January 6, 1995, as amended, by and between Long
Island Nursing Registry, Inc. and STAR. (Incorporated by reference to Exhibit 21 to STAR's
Current Report on Form 8-K dated May 19, 1995.)
(t) Employment Agreement dated May 19, 1995 by and between STAR and Gregory Turchan.
(Incorporated by reference to Exhibit 99.1 to STAR's Current Report on Form 8-K dated May
19, 1995.)
(u) Loan Agreement dated November 1, 1995 by and between STAR and Chase Manhattan Bank, N.A.
(Incorporated by reference to Exhibit 10.(w) to STAR's Quarterly Report on Form 10-QSB for
the quarterly period ended November 30, 1995.)
16. (a) Letter dated April 25, 1995, as amended, from Deloitte & Touche LLP to the Securities and
Exchange Commission. (Incorporated by reference to AMSERV's Current Report on Form 8-K/A
dated March 21, 1995.)
23. (a) ** Consent of Holtz Rubenstein & Co., LLP
(b) ** Consent of Ernst & Young LLP
(c) ** Consent of Deloitte & Touche LLP
(d) ** Consent of Paul Josephson C.P.A., P.C.
(e) Consent of Parker Chapin Flattau & Klimpl, LLP (included in their opinion filed as Exhibit
5(a) to this Registration Statement).
(f) Consent of Latham & Watkins (included in their opinion filed as Exhibit 8(a) to this
Registration Statement).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- --------------- ---------
99. (a) ** Form of STAR Proxy Card.
<C> <S> <C>
(b) ** Form of AMSERV Proxy Card.
</TABLE>
- ------------------------
* Incorporated by reference to STAR's Registration Statement on Form S-18 dated
May 14, 1991. (Registration No. 33-39697-NY).
** Filed herewith.
<PAGE>
EXHIBIT 4(A)
VOTING AGREEMENT
VOTING AGREEMENT (this "AGREEMENT"), dated as of February 9, 1996, among
AMSERV HEALTHCARE INC., a Delaware corporation ("AMSERV"), and STEPHEN STERNBACH
(the "STOCKHOLDER").
RECITALS
Concurrently herewith, Amserv, Star Multi Care Services, Inc., a New York
corporation ("STAR"), and AHI Acquisition Corp., a Delaware corporation (the
"MERGER SUB"), are entering into an Agreement and Plan of Merger dated the date
hereof (the "MERGER AGREEMENT"; capitalized terms used but not defined herein
shall have the meanings set forth in the Merger Agreement), pursuant to which
the Merger Sub will merge with and into Amserv (the "MERGER"), and each share of
common stock, par value $.01 per share, of Amserv (the "AMSERV COMMON STOCK")
issued and outstanding immediately prior to the Effective Time (as defined in
the Merger Agreement) will be converted into the right to receive .4090 shares
of common stock, par value $.001 per share, of Star (the "STAR COMMON STOCK").
As of the date hereof, the Stockholder directly beneficially owns 847,155
shares of Star Common Stock (the "SHARES").
As a condition to its willingness to enter into the Merger Agreement and to
consummate the transactions contemplated thereby, Amserv has required that the
Stockholder agree (i) to execute and deliver this Agreement and (ii) to grant a
proxy to vote all of the Shares owned by the Stockholder on the terms and
conditions provided for herein.
AGREEMENT
To implement the foregoing and in consideration of the mutual agreements
contained herein, the parties agree as follows:
1. AGREEMENT TO VOTE; PROXY. (a) The Stockholder, in his capacity as such,
hereby agrees that, during the time this Agreement is in effect, at any meeting
of the stockholders of Star, however called, or in connection with any written
consent of the stockholders of Star, the Stockholder shall vote (or cause to be
voted) the Shares in favor of the Merger, the execution and delivery by Star of
the Merger Agreement and the approval of the terms thereof and each of the other
actions contemplated by the Merger Agreement and this Agreement. The Stockholder
shall not enter into any agreement or understanding with any person or entity
prior to the termination hereof to vote or give instructions after the
termination hereof in any manner inconsistent with the preceding sentence.
(b) PROXY. THE STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS, AMSERV AND THE
SECRETARY OF AMSERV AND THE CHIEF FINANCIAL OFFICER OF AMSERV, IN THEIR
RESPECTIVE CAPACITIES AS OFFICERS OF AMSERV, AND ANY INDIVIDUAL WHO SHALL
HEREAFTER SUCCEED TO ANY SUCH OFFICE OF AMSERV, AND ANY OTHER DESIGNEE OF
AMSERV, AND EACH OF THEM INDIVIDUALLY, THE STOCKHOLDER'S IRREVOCABLE PROXY AND
ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE THE SHARES AS
INDICATED IN SECTION 1(a). THE STOCKHOLDER INTENDS THIS PROXY TO BE IRREVOCABLE
AND COUPLED WITH AN INTEREST, AFFIRMS THAT THIS PROXY IS GIVEN AS A CONDITION OF
THIS VOTING AGREEMENT AND AS SUCH IS SO COUPLED WITH AN
1
<PAGE>
INTEREST AND WILL TAKE SUCH FURTHER ACTION OR EXECUTE SUCH OTHER INSTRUMENTS AS
MAY BE NECESSARY TO EFFECTUATE THE INTENT OF THIS PROXY AND HEREBY REVOKES ANY
PROXY PREVIOUSLY GRANTED BY HIM WITH RESPECT TO THE SHARES.
2. EXPIRATION. This Agreement and Amserv's right to vote the Shares
covered hereby as set forth herein shall terminate on the Expiration Date. As
used herein, the term "EXPIRATION DATE" means the first to occur of (a) the
Effective Time and (b) termination of the Merger Agreement in accordance with
its terms.
3. FURTHER ASSURANCES. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further action as may be necessary or
desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
4. MISCELLANEOUS. (a) ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (i)
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (ii) shall not be assigned by operation of law or otherwise.
(b) AMENDMENTS. This Agreement may not be modified, amended, altered
or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
(c) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly received if so be given) by hand delivery,
telegram, telex or telecopy, or by mail (registered or certified mail,
postage prepaid, return receipt requested) or by any courier service, such
as Federal Express, providing proof of delivery. All communications
hereunder shall be delivered to the respective parties at the following
addresses:
<TABLE>
<S> <C>
If to the Stephen Sternbach
Stockholder: c/o Star Multi Care Services,
Inc.
326 Walt Whitman Road
Huntington Station, New York
11746
If to Amserv: Amserv Healthcare Inc.
3252 Holiday Court, #204
La Jolla, California 92037
Attention: Eugene Mora
copy to: Latham & Watkins
701 "B" Street, Suite 2100
San Diego, California 92101
Attention: Scott N. Wolfe, Esq.
</TABLE>
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(d) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
(e) SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
2
<PAGE>
(f) COUNTERPARTS. This Agreement may be executed in two counterparts, each
of which shall be deemed to be an original, but both of which shall constitute
one and the same Agreement.
(g) DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(h) SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
IN WITNESS WHEREOF, Amserv and the Stockholder have caused this Agreement to
be duly executed as of the day and year first above written.
AMSERV HEALTHCARE INC.
By: /s/ EUGENE MORA
-----------------------------------
Name: Eugene Mora
Title: President
STEPHEN STERNBACH
/s/ STEPHEN STERNBACH
--------------------------------------
3
<PAGE>
EXHIBIT 5(A)
[Letterhead]
July 18, 1996
Star Multi Care Services, Inc.
99 Railroad Station Plaza
Hicksville, New York 11801
Gentlemen:
This opinion is rendered to you in connection with the filing by Star Multi
Care Services, Inc. ("Star"), a New York corporation, of a Registration
Statement on Form S-4 (the "Registration Statement") with the Securities and
Exchange Commission relating to the registration under the Securities Act of
1933, as amended, of an aggregate of up to 1,445,496 shares (the "Shares") of
Star's common stock, par value $.001 per share, in connection with the proposed
merger (the "Merger") of AHI Acquisition Corp. ("Merger Sub"), a Delaware
corporation and wholly-owned subsidiary of Star, into Amserv Healthcare Inc.
("Amserv"), a Delaware corporation, pursuant to the Agreement and Plan of Merger
among Star, Merger Sub and Amserv, dated as of February 9, 1996, as amended on
July 18, 1996 (the "Merger Agreement"), and the transactions related thereto.
In rendering this opinion we have examined, among other things, the Merger
Agreement, the Certificate of Incorporation and By-laws of Star and such other
corporate documents and records as we have deemed necessary or appropriate. We
have also made such examination of law as we have deemed necessary or
appropriate. As to any facts material to such opinion, we have, to the extent
that relevant facts were not established by us, relied upon certificates and
statements of public officials and officers and other representatives of Star.
In all such examinations we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the accuracy and
conformity with original documents of documents submitted to us as copies.
Based upon and subject to the foregoing, it is our opinion that the Shares,
when issued in accordance with the terms of the Merger Agreement, will be
validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Proxy Statement/Prospectus constituting a part of the
Registration Statement.
Very truly yours,
/s/ PARKER CHAPIN FLATTAU & KLIMPL,
LLP
<PAGE>
EXHIBIT 8(A)
[Latham & Watkins' Letterhead]
July 18, 1996
Board of Directors
Amserv Healthcare Inc.
3252 Holiday Court
Suite No. 204
La Jolla, California 92037
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
The facts, as we understand them, are set forth in the above-referenced
Registration Statement on Form S-4 and exhibits thereto to be filed with the
Securities and Exchange Commission (the "Registration Statement"). In addition,
we will receive certain representations from Amserv Healthcare Inc.
("AMSERV") and Star Multicare Services, Inc. ("STAR") at the Effective Time (as
defined in the Registration Statement).
Based on such facts and representations, the discussion under the caption
"Certain Federal Income Tax Consequences" on pages 44 and 45 of the Proxy
Statement included in the Registration Statement sets forth Latham & Watkins'
opinion as to the material federal income tax consequences expected, under
currently applicable law, to result to holders of AMSERV Common Stock (who hold
their shares as capital assets) from the merger of AHI Acquisition Corp., a
Delaware corporation, and a wholly-owned subsidiary of STAR, with and into
AMSERV with AMSERV becoming a wholly-owned subsidiary of STAR.
This opinion and the Proxy Statement discussion do not address all aspects
of federal income taxation that may be relevant to particular AMSERV
shareholders in light of their personal investment circumstances, or to certain
types of shareholders subject to special treatment under the federal income tax
laws, including, without limitation, insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign persons, and
shareholders who acquired AMSERV Common Stock pursuant to the exercise of
employee stock options or otherwise as compensation. In addition, this
discussion does not address the conversion of AMSERV Options into options to
purchase shares of STAR Common Stock pursuant to the Merger.
The discussion under the caption "Certain Federal Income Tax Consequences"
is based on current provisions of the Internal Revenue Code of 1986, as amended,
applicable Treasury Regulations, judicial authority and administrative rulings
and practice, all of which are subject to change either prospectively or
retroactively. Also, any variation or difference in the facts or representations
as referred to herein might affect the conclusion stated herein.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our firm name under the caption "Certain Federal
Income Tax Consequences" in the Proxy Statement included in the Registration
Statement.
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE>
EXHIBIT 23(A)
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Joint Proxy Statement/Prospectus of Star Multi
Care Services, Inc. of our report dated July 19, 1996 (except for Note 4, as to
which the date is August 16, 1995) appearing in the Prospectus which is part of
this Registration Statement.
We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
____/s/_HOLTZ RUBENSTEIN & CO., LLP___
Holtz Rubenstein & Co., LLP
Melville, New York
July 18, 1996
<PAGE>
EXHIBIT 23(B)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 11, 1995, with respect to the consolidated
financial statements of AMSERV HEALTHCARE, INC., included in the Proxy Statement
of Star Multi Care Services, Inc. that is made a part of the Registration
Statement (Form S-4) and Prospectus of Star Multi Care Services, Inc. for the
registration of 1,445,496 shares of its common stock.
/s/ ERNST & YOUNG LLP
--------------------------------------
ERNST & YOUNG LLP
SAN DIEGO, CALIFORNIA
JULY 18, 1996
<PAGE>
EXHIBIT 23(C)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Star Multi Care
Services, Inc. on Form S-4 of our report dated October 7, 1994 relating to the
financial statements of AMSERV HEALTHCARE INC. as of June 30, 1994 and for each
of the two years in the period ended June 30, 1994, appearing in the Prospectus,
which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/_DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Las Vegas, Nevada
July 18, 1996
<PAGE>
EXHIBIT 23(D)
CONSENT OF PAUL JOSEPHSON C.P.A., P.C., INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated June 5, 1995, with respect to the balance sheet of
Long Island Nursing Registry, Inc. and the related statements of income and
accumulated deficit and cash flows and our report on supplemental information
also dated June 5, 1995, included in the Proxy Statement of Star Multi Care
Services, Inc. that is made a part of the Registration Statement (Form S-4) and
Prospectus of Star Multi Care Services, Inc. for the registration of its common
stock.
/s/_PAUL JOSEPHSON C.P.A., P.C.
Paul Josephson C.P.A., P.C.
Melville, New York
July 18, 1996
<PAGE>
EXHIBIT 99(A)
STAR MULTI CARE SERVICES, INC.
99 RAILROAD STATION PLAZA
HICKSVILLE, NY 11801
THIS PROXY IS SOLICITED BY THE BOARD
OF DIRECTORS OF STAR MULTI CARE SERVICES, INC.
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, AUGUST 23, 1996
The undersigned holder of Common Stock of Star Multi Care Services, Inc., a
New York corporation ("STAR"), hereby appoints Stephen Sternbach and William
Fellerman, and each of them, as proxies for the undersigned, each with full
power of substitution, for and in the name of the undersigned to act for the
undersigned and to vote, as designated below, all of the shares of Common Stock
of STAR that the undersigned is entitled to vote at the Special Meeting of
Shareholders of STAR, to be held on Friday, August 23, 1996 at 12:30 p.m. local
time, at the offices of Parker Chapin Flattau & Klimpl, LLP, (18th Floor), New
York, New York, and at any adjournments or postponements thereof.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF ADOPTION AND APPROVAL
OF THE AGREEMENT AND PLAN OF MERGER.
<TABLE>
<S> <C>
1. Adoption and approval of the Agreement and Plan of Merger dated February 9, 1996, as amended on July 18, 1996, between
AMSERV HEALTHCARE INC., a Delaware corporation ("AMSERV") and STAR, providing for the merger of AHI Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of STAR, with and into AMSERV.
/ / FOR / / AGAINST / / ABSTAIN
2. Upon such other matters as may properly come before the Special Meeting and any adjournments or postponements thereof. In
their discretion, the proxies are authorized to vote upon such other business as may properly come before the Special
Meeting and any adjournments or postponements thereof. This proxy does not convey discretionary authority to adjourn or
postpone the meeting for the purpose of soliciting additional votes.
</TABLE>
(CONTINUE AND SIGN ON OTHER SIDE)
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" THE PROPOSAL SET FORTH IN ITEM 1 AND WITH REGARD TO OTHER MATTERS
THAT MAY COME BEFORE THE SPECIAL MEETING AND ANY ADJOURNMENTS OR POSTPONEMENTS
THEREOF, IN THE DISCRETION OF THE PROXYHOLDERS, AS DESCRIBED IN THE JOINT PROXY
STATEMENT.
The undersigned hereby acknowledges receipt of the Notice of the Special
Meeting and the accompanying Joint Proxy Statement.
Dated: , 1996
-----------------------------------
(Signature)
-----------------------------------
(Signature if held jointly)
Please sign exactly as name(s)
appears hereon and mail it promptly
even though you now plan to attend
the Special Meeting. When shares
are held by joint tenants, both
should sign. When signing as
Attorney, Executor, Administrator,
Guardian or Trustee, please add
your full title as such. If a
corporation, please sign in full
title as such. If a corporation,
please sign in full corporate name
by president or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person.
PLEASE MARK, SIGN AND DATE THIS PROXY CARD AND PROMPTLY RETURN IT IN THE
ENVELOPE PROVIDED.
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
<PAGE>
EXHIBIT 99(B)
AMSERV HEALTHCARE INC.
PROXY SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 23, 1996
The undersigned hereby appoints George A. Rogers and Leslie Hodge, and each
of them, as proxies, each with the power to appoint his or her substitute, and
hereby authorizes either of them to act and to vote at the Annual Meeting of
Shareholders of AMSERV HEALTHCARE INC., a Delaware corporation ("AMSERV"), to be
held on August 23, 1996, and at any adjournments or postponements thereof, as
indicated upon all matters referred to on this proxy card and described in the
accompanying Joint Proxy Statement for the meeting, and, in their discretion,
upon any other matters which may properly come before the meeting.
THE BOARD OF DIRECTORS OF AMSERV RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2 AND
3.
<TABLE>
<S> <C>
Adoption and approval of the Agreement and Plan of Merger
dated as of February 9, 1996, as amended on July 18, 1996,
1. between AMSERV and STAR MULTI CARE SERVICES, INC., a New York
corporation ("STAR"), providing for the merger of AHI
Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of STAR, with and into AMSERV.
/ / FOR / / AGAINST / /
ABSTAIN
2. Elect members of the Board of Directors of AMSERV.
/ / FOR ALL nominees listed below
(except as marked to the contrary).
<CAPTION>
2.
/ / WITHHOLD AUTHORITY to vote for
all nominees listed below.
<CAPTION>
</TABLE>
Eugene J. Mora, Melvin L. Katten, Michael A. Robinton, George A. Rogers and Ben
L. Spinelli
(Instruction: To WITHHOLD AUTHORITY to vote for any individual nominee,
draw a line through (or otherwise strike out) the nominee's name in the list
above.)
<PAGE>
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
<TABLE>
<S> <C>
Ratification and approval of the selection of Ernst & Young
3. LLP as AMSERV's independent public accountants for the fiscal
year ended June 29, 1996.
/ / FOR / / AGAINST / /
ABSTAIN
<CAPTION>
<CAPTION>
3.
</TABLE>
SHARES REPRESENTED BY ALL PROPERLY EXECUTED PROXIES WILL BE VOTED IN
ACCORDANCE WITH INSTRUCTIONS APPEARING ON THIS PROXY CARD AND IN THE DISCRETION
OF THE PROXY HOLDERS AS TO ANY OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE
MEETING. THIS PROXY DOES NOT CONVEY DISCRETIONARY AUTHORITY TO ADJOURN OR
POSTPONE THE MEETING FOR THE PURPOSE OF SOLICITING ADDITIONAL VOTES. IN THE
ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED "FOR" PROPOSALS 1, 2 AND
3.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
and the accompanying Joint Proxy Statement.
Dated: , 1996
-----------------------------------
(Signature)
-----------------------------------
(Signature)
Please sign as name(s) appears on
this proxy card, and date this
proxy card. If a joint account,
each joint owner must sign. If
signing for a corporation or
partnership as agent, attorney or
fiduciary, indicate the capacity in
which you are signing.
PLEASE MARK, SIGN AND DATE THIS PROXY CARD AND PROMPTLY RETURN IT IN THE
ENVELOPE PROVIDED.
