SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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240.14a-12
Northstar Health Services, Inc.
...............................................................................
(Name of Registrant as Specified In Its Charter)
...............................................................................
(Name of Person(s) Filing Proxy Statement if Other than the Registrant)
Date of Filing: March 14, 1997
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NORTHSTAR HEALTH SERVICES, INC.
The Atrium, 665 Philadelphia Street (412) 349-7500
P.O. Box 1289 Fax: (412) 465-3250
Indiana, PA 15701
MAKE YOUR INVESTMENT DECISIONS WITH FULL DISCLOSURE
March 19, 1997
Dear Fellow Northstar Shareholder:
As you know, Northstar shareholders have been without adequate financial
disclosures for nearly two years. Now, just before you will receive the facts
you need to make an informed decision about your investment, Thomas W. Zaucha,
former Chairman and CEO recently fired for cause, is attempting to seize control
of your company.
WHY IS ZAUCHA COMING AFTER YOUR COMPANY NOW --
ONLY A FEW WEEKS BEFORE NORTHSTAR'S
1995 AND 1996 ANNUAL REPORTS ARE SCHEDULED FOR RELEASE?
The answer is clear: ZAUCHA DOESN'T WANT YOU TO KNOW ABOUT HIS CONFLICTS OF
INTEREST, HIS FRAUDULENT INSIDER PURCHASES OF STOCK IN DECEMBER 1996, AND HIS
BLATANT ATTEMPTS TO IMPROPERLY REMOVE FUNDS FROM A COMPANY ALREADY BADLY
PLUNDERED BY HIM AND FORMER MANAGEMENT AND SADDLED WITH NEARLY $30 MILLION DEBT
AND CONTINGENT PAYMENTS TO ZAUCHA.
As yet undisclosed to shareholders is Zaucha's accelerated earn-out in the event
of a sale of either Northstar or Keystone, Zaucha's former company which he sold
to Northstar for an excessive price on November 15, 1995. The earn-out, designed
by Zaucha and DeSimone, gives Zaucha an $8,200,000 payment no matter what price
is paid for the Company or its Keystone subsidiary. Together with the rest of
the Company's debt, there is a nearly $5 per share debt and contingent payment
burden which benefits Zaucha alone.
Despite his seriously conflicted position, Zaucha says he wants to enhance
shareholder value. We believe that full disclosure will make it clear that
Zaucha can firesale the Company and win big. Just compare what shareholders
would get vs what Zaucha would take home, if Northstar were sold:
Suppose Northstar The Estimated Value to But Zaucha Would
Were Sold at This Northstar Shareholders Stakeholders Take Home
per Share Price: would be:* Value:** Approximately:
$1.00 $5,890,000 $0 $13,974,000
$2.00 $11,780,000 $255,000 $14,923,000
$3.00 $17,670,000 $1,275,000 $15,872,000
$4.00 $23,560,000 $2,295,000 $16,821,000
$5.00 $29,450,000 $3,315,000 $17,770,000
$6.00 $35,340,000 $4,335,000 $18,719,000
$10.00 $58,900,000 $8,925,000 $22,515,000
* Includes Zaucha's 15% holdings.
**Includes key employees and individuals to whom Zaucha has made
contractual obligations himself as the former CEO of Northstar.
<PAGE>
FOR MONTHS YOUR CURRENT BOARD, ACTING IN THE INTERESTS OF ALL SHAREHOLDERS, HAS
BEEN TRYING TO GET ZAUCHA TO RESTRUCTURE HIS DEBT AND EARN-OUT IN A PLAN THAT WE
WOULD THEN PUT UP FOR SHAREHOLDER APPROVAL.
Instead of dealing honestly with the Board and the Company's senior creditors,
Zaucha has chosen to launch a costly proxy fight, whipping up a frenzy over
stock options (which he committed to contractually, but have never been issued),
and slandering the very individuals who have been working tirelessly to turn
around your Company. These key employees and consultants have dedicated
themselves over the last 14 months to attempting, on your behalf, to settle
litigation, get bank forbearance on corporate debt, complete the audit,
restructure the balance sheet to facilitate a return to the capital markets, get
Northstar relisted on NASDAQ, stabilize management, and maintain revenues. WHERE
HAS ZAUCHA BEEN FOR THE PAST 14 MONTHS? HE CERTAINLY HASN'T BEEN RUNNING
NORTHSTAR.
Zaucha says he will restructure his debt as soon as he and his hand-picked
fellow nominees are in control. Why didn't he do it before, when he was CEO
drawing $275,000 in compensation, bringing in $470,000 in inflated rentals to
his real estate partnership, building his $3.5 million ice center and running
his Impulse Development Corp.?
We believe that when you know what your present Board has uncovered, you'll know
exactly why Zaucha has never restructured his debt. We want you to have full
disclosure of all of Zaucha's related-party transactions and conflicts of
interest.
In the meantime, ask Zaucha these questions at his toll-free 800 number:
1. Where was he when Northstar had to halt trading in its stock,
pending the announcement of KPMG's departure from the 1995 audit?
2. Where was Zaucha in mid-November 1996 when key Compensation
Committee meetings were being called to review an outside fairness
opinion regarding proposed option grants to key personnel?
3. Why did Northstar stop doing business with Zaucha's solely-owned
Impulse Development Corporation, which did maintenance and repair
work in his former Keystone Rehabilitation Systems clinics?
4. Who approved the increases in rentals paid to his real estate
partnerships?
5. Why is Zaucha complaining about consulting contracts and fees
which he personally negotiated and signed?
6. Why has he refused to benefit all the shareholders by
restructuring his debt to avoid a going-concern opinion?
7. Why is the senior management of Northstar concerned about
Zaucha's high-risk decision-making?
8. Why did Zaucha buy 75,000 Shares of Northstar in December while in
possession of information which the other shareholders did not
have?
<PAGE>
MOST OF THESE QUESTIONS WILL BE ANSWERED IN THE FULL DISCLOSURE PROVIDED IN THE
AUDITED FINANCIALS. WE URGE YOU TO WAIT JUST A FEW WEEKS FOR THE INFORMATION YOU
NEED TO MAKE A SOUND ECONOMIC DECISION.
IF YOU HAVE NOT ALREADY CONSENTED, PLEASE SIMPLY DISCARD ZAUCHA'S BLUE CARD.
IF YOU PREVIOUSLY SENT IN A CONSENT ON THE BLUE CARD, AND WISH TO REVOKE YOUR
CONSENT, PLEASE CALL GEORGESON & COMPANY INC., WHO IS ASSISTING US, AT
1-800-223-2064 FOR INSTRUCTIONS.
Thank you for your continued support.
Sincerely yours,
Steven N. Brody
Charles B. Jarrett, Jr.
Hon. Timothy L. Pesci
Robert J. Smallacombe
David D. Watson
The participants in this solicitation include Northstar Health
Services, Inc. (NSTR) and the following directors of NSTR: Steven N.
Brody, Charles B. Jarrett, Jr., and Timothy L. Pesci. NSTR's employee
participants include John Lombardi (Executive Vice-President and Chief
Financial Officer), Robert J. Smallacombe (Director and Chief Executive
Officer), David D. Watson (Director, President and Chief Operating
Officer), Edward Banos (President of Northstar Medical Services, Inc.),
Elaine Professori (President of Direct Provider Network, Inc.), Brian
K. Strong (President of Ability Plus Rehabilitation Management
Company), and Ralph Sweithelm (President of Keystone Rehabilitation
Systems, Inc.). No participant individually owns more than 1% of the
outstanding shares of NSTR's common stock, with the exception of Steven
N. Brody, who owns 1.8% of the outstanding shares of NSTR's common
stock, David D. Watson, who owns 1.5% of the outstanding shares of
NSTR's common stock, and Brian K. Strong, who owns 1.6% of the
outstanding shares of NSTR's common stock.
