<PAGE>1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 3)*
NORTHSTAR HEALTH SERVICES, INC.
(Name of Issuer)
Common Stock, $0.01 Par Value
(Title of Class of Securities)
666903109
(CUSIP Number)
Thomas W. Zaucha
The Committee to Protect Northstar Health
100 Lafayette Street
Indiana, PA 15701
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
March 24, 1997
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|.
Check the following box if a fee is being paid with the statement |_|.** (A fee
is not required only if the reporting person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7)
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
- ------------------------
* Initial filing with respect to Michael S. Falk.
** A filing fee is not being paid with this statement pursuant to SEC Release
No. 33-7331 whereby the filing fee has been eliminated for Schedule 13D.
<PAGE>2
SCHEDULE 13D
CUSIP No. 666903109
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Thomas W. Zaucha
2 Check the Appropriate Box If a Member of a Group*
a. |_|
b. |X|
3 SEC Use Only
4 Source of Funds*
Not applicable
5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant
to Items 2(d) or 2(e) [ ].
6 Citizenship or Place of Organization
United States of America
7 Sole Voting Power
Number of 75,000
Shares
Beneficially 8 Shared Voting Power
Owned By 667,201 (with Alice L. Zaucha as
Each Tenants by the Entirety)
Reporting 207,757 (as co-general partner
Person Zaucha Family Limited Partnership)
With
9 Sole Dispositive Power
75,000
10 Shared Dispositive Power
667,201 (with Alice L. Zaucha as
Tenants by the Entirety)
207,757 (as co-general partner
Zaucha Family Limited Partnership)
11 Aggregate Amount Beneficially Owned by Each Reporting Person
949,958
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain
Shares* |_|
13 Percent of Class Represented By Amount in Row (11)
16.19%
14 Type of Reporting Person*
IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>3
SCHEDULE 13D
CUSIP No. 666903109
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Commonwealth Associates
2 Check the Appropriate Box If a Member of a Group*
a. |_|
b. |X|
3 SEC Use Only
4 Source of Funds*
WC
5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) [ ]
6 Citizenship or Place of Organization
New York limited partnership
7 Sole Voting Power
Number of 80,497
Shares
Beneficially 8 Shared Voting Power
Owned By 0
Each
Reporting 9 Sole Dispositive Power
Person 80,497
With
10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
80,497
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain
Shares* |_|
13 Percent of Class Represented By Amount in Row (11)
1.37%
14 Type of Reporting Person*
BK
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>4
SCHEDULE 13D
CUSIP No. 666903109
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Michael S. Falk
2 Check the Appropriate Box If a Member of a Group*
a. |_|
b. |X|
3 SEC Use Only
4 Source of Funds*
WC
5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) [ ]
6 Citizenship or Place of Organization
United States of America
7 Sole Voting Power
Number of 80,497
Shares
Beneficially 8 Shared Voting Power
Owned By 0
Each
Reporting 9 Sole Dispositive Power
Person 80,497
With
10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
80,497
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain
Shares* |_|
13 Percent of Class Represented By Amount in Row (11)
1.37%
14 Type of Reporting Person*
IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>5
SCHEDULE 13D
CUSIP No. 666903109
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Joseph F. Micallef
2 Check the Appropriate Box If a Member of a Group*
a. |_|
b. |X|
3 SEC Use Only
4 Source of Funds*
Not applicable
5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant
to Items 2(d) or 2(e) [ ]
6 Citizenship or Place of Organization
United States of America
7 Sole Voting Power
Number of 40,000
Shares
Beneficially 8 Shared Voting Power
Owned By 0
Each
Reporting 9 Sole Dispositive Power
Person 40,000
With
10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
40,000
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain
Shares* |_|
13 Percent of Class Represented By Amount in Row (11)
0.68%
14 Type of Reporting Person*
IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>6
SCHEDULE 13D
CUSIP No. 666903109
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Basil J. Asciutto
2 Check the Appropriate Box If a Member of a Group*
a. |_|
b. |X|
3 SEC Use Only
4 Source of Funds*
Not applicable
5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant
to Items 2(d) or 2(e) [ ]
6 Citizenship or Place of Organization
United States of America
7 Sole Voting Power
Number of 20,000
Shares
Beneficially 8 Shared Voting Power
Owned By 0
Each
Reporting 9 Sole Dispositive Power
Person 20,000
With
10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
20,000
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain
Shares* |_|
13 Percent of Class Represented By Amount in Row (11)
0.34%
14 Type of Reporting Person*
IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>7
Item 1.
Item 1 of Amendment No. 2 (as defined below) is hereby amended as follows.
This Amendment No. 3 to Schedule 13D ("Amendment No. 3") relates to shares of
common stock, $0.01 par value per share (the "Common Stock"), of Northstar
Health Services, Inc., a Delaware corporation ("Northstar" or the "Company"),
with principal executive offices located at The Atrium, 665 Philadelphia Street,
Indiana, PA 15701. This Amendment No. 3 supplements and amends Amendment No. 2
to Schedule 13D ("Amendment No. 2") as filed by Thomas W. Zaucha, one of the
Reporting Persons (as defined herein), with the Securities and Exchange
Commission (the "Commission") on February 24, 1997. Amendment No. 2 is
supplementally amended as follows.
Item 2. Identity and Background.
It has recently come to the attention of the Committee to Protect Northstar
Health (the "Committee") that Michael S. Falk, as President and Chief Executive
Officer of Commonwealth Associates, a New York limited partnership
("Commonwealth"), and Chairman of the Board of its general partner, Commonwealth
Associates Management Company, Inc. ("CAMC"), is required to be disclosed on
this statement on Schedule 13D as a reporting person. Consequently, the list of
reporting persons in Item 2 of Amendment No. 2 is hereby amended and
supplemented to include the following persons.
This statement is being filed on behalf of each of the following persons
(collectively, the "Reporting Persons"):
i) Thomas W. Zaucha ("Mr. Zaucha"),
ii) Commonwealth Associates,
iii) Michael S. Falk ("Mr. Falk"),
iv) Joseph F. Micallef ("Mr. Micallef") and
v) Basil J. Asciutto ("Mr. Asciutto").
Mr. Falk
The principal occupation of Michael S. Falk, a United States Citizen, is his
position President and Chief Executive Officer of Commonwealth and Chairman of
the Board of its general partner, CAMC. The principal business of Commonwealth
is to act as a registered broker-dealer (providing brokerage services), an
investment bank and a market maker. The address of its principal office and
business is 733 Third Avenue, New York, NY 10017.
During the past five years, none of the Reporting Persons, the general partner
of any such limited partnership nor any executive officer or director of such
general partner ultimately in control of such limited partnership, to the
knowledge of the Reporting Persons, has been (a) convicted in a criminal
proceeding, or (b) a party to any civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of which was or is
subject to a judgment, decree or final order enjoining future
<PAGE>8
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws, or finding any violation with respect to such laws.
Item 4. Purpose of Transaction.
Item 4 of Amendment No. 2 is hereby supplemented by adding the following to the
end thereof:
At a meeting of the board of directors of Northstar Health
Services, Inc. (the "Board") held on February 13, 1997, Mr. Zaucha submitted a
resolution to the Board seeking shareholder approval before any of the
self-serving stock options Steven N. Brody, Robert J. Smallacombe, David D.
Watson, Charles B. Jarrett, Jr. and Timothy L. Pesci (collectively, the "Brody
Board") had granted themselves on January 15, 1997 could be exercised. Mr.
Zaucha's proposed resolution is set forth below:
RESOLVED, that all options granted under the Stock Option Plan
approved by the Board of Directors on December 27, 1996,
including without limitation the options purportedly granted
thereunder on January 15, 1997, be, and they hereby are,
declared not exercisable, and not vested in whole or in part,
unless and until such plan and such grants are approved by the
vote of a majority of the shares present and voting at an
annual or special meeting of stockholders of the Company, at
which a quorum is present and acting throughout, and shall be
subject to such further vesting and other terms as shall be
set following such approval, if any, by the Compensation
Committee in consultation with Company securities counsel,
subject to final Board approval.
Messrs. Brody, Smallacombe and Jarrett opposed Mr. Zaucha's resolution, Messrs.
Pesci and Watson abstained from the vote, and Mr. Zaucha voted in favor of the
resolution. A counter-resolution was then offered by Mr. Jarrett to submit Mr.
Zaucha's resolution to the Compensation Committee for consideration. The Board
approved this resolution over Mr. Zaucha's objection. Although six weeks has
passed since the Compensation Committee began to deliberate on this resolution,
they have yet to produce a recommendation.
After referring Mr. Zaucha's proposal to the Compensation
Committee, the Brody Board voted to remove Mr. Zaucha from office as the
Company's Chief Executive Officer and the Chairman of the Board without
providing a factual basis for their actions. Mr. Zaucha opposed the motion.
Although this action has been subsequently characterized by the Brody Board as
having been "for cause," Mr. Zaucha believes that his removal was occasioned by
his commencement of a solicitation of stockholder consents to remove and replace
the Brody Board. The Brody Board then elected Mr. Brody its Chairman. Mr. Zaucha
voted against this appointment.
Just four days later, at a Board meeting held on February 17,
1997, the Brody Board named Mr. Smallacombe Chief Executive Officer of the
Company and then voted to convert his existing consulting agreement into an
employment contract with the same terms. Mr. Smallacombe's $6,500 per four-day
week consulting fee became his $6,500 per four-day week salary. Mr. Zaucha voted
against this appointment.
On February 28, 1997, the Committee mailed its definitive
consent statement on Schedule 14A (the "Consent Statement") to Northstar's
shareholders and filed it with the Securities and
<PAGE>9
Exchange Commission ("the Commission"). The Consent Statement
is attached hereto as Exhibit A. The Committee promptly mailed its Consent
Statement and its blue consent card to the Northstar stockholders of record as
of February 5, 1997 (the "Record Date") and on or about March 4, 1997 began to
solicit the consent of the holders of outstanding shares of Common Stock. The
Committee also mailed several letters to the Company's shareholders and issued
press releases in its efforts to obtain the consent of the Company's
shareholders. These letters and press releases, which were filed with the
Commission on February 10, 1997, February 28, 1997, March 7, 1997, March 13,
1997, March 25, 1997 and March 27, 1997, respectively, are attached hereto as
Exhibit B.
On March 6, 1997, the Brody Board filed on their own behalf
and on behalf of the Company, a preliminary consent statement on Schedule 14A
(the "First Revocation Statement") seeking the revocation of the Committee's
consents. One day later, the Brody Board amended their First Revocation
Statement. Although over 21 days has passed since this preliminary filing, the
Brody Board has not yet filed definitive materials.
As a result of the Brody Board's failure to pass muster with
the Commission, they have been unable to mail revocation of consent cards to
shareholders. However, since they do have preliminary materials on file with the
Commission, the Brody Board has been allowed to communicate with shareholders
and has taken advantage of this opportunity. Not only have they mailed numerous
letters and press releases dated February 13, 1997, February 28, 1997, March 10,
1997, March 14, 1997 and March 19, 1997, respectively, a copy of each of which
is attached hereto as Exhibit C, but Mr. Zaucha believes that they have met with
certain shareholders and have therefore had the opportunity to fully communicate
their side of the story.
On March 19, 1997, the Committee announced Mr. Zaucha's own
personal pledge to shareholders with respect to his interest in the Company. Mr.
Zaucha promised he would (i) submit to independent review all of the terms of
the leases between Mr. Zaucha and the Company, even though all of his leases
with the Company were negotiated at arm's length, (ii) convert all of his
subordinated debt into equity of the Company in order to put Northstar on a firm
financial basis for future growth and (iii) establish a shareholder advisory
committee to provide fast and efficient channels of communication between the
investors and the Board and to continue the fruitful dialogue and rapport Mr.
Zaucha has now established with the Company's investors.
Also on March 19, 1997, almost six weeks after the Committee's
preliminary materials were first made publicly available, the Brody Board caused
the Company to file an action in the United States District Court for the
Western District of Pennsylvania (the "Pennsylvania Complaint"; Civil Action No.
97-0510) against the members of the Committee, Commonwealth and certain of its
principals and the Committee's nominees to the board of directors of the
Company. In the Pennsylvania Complaint, the Brody Board alleges, among other
things, that the Consent Statement contains false and misleading information and
omissions.
On March 21, 1997, the Brody Board established an executive
committee consisting of all the members of the Board except Mr. Zaucha and
empowered this executive committee to conduct the business of Northstar. Mr.
Zaucha voted against this resolution and the remainder of the Board voted for
it. This executive committee allows the Brody Board to make critical decisions
about the operation of the Company without Mr.
Zaucha's knowledge or consent.
Fully six weeks after the Committee's preliminary materials
were first publicly filed, on the very date that shareholders' blue consent
cards were due to be delivered to the Committee, the Company filed an
application for a Temporary Restraining Order, Preliminary Injunction and
<PAGE>10
Expedited Discovery (the "TRO") again in the Western District of Pennsylvania
and again against the Committee's members, Commonwealth and its principals and
the Committee's nominees to the Company's board of directors. As of the time of
filing, the TRO had not been granted.
On March 24, 1997, in accordance with the provisions of
Section 228 of the Delaware General Corporation Law, the Committee delivered to
the Company, both at its headquarters in Indiana, Pennsylvania and at the
offices of The Corporation Trust System, the Company's registered agent in the
State of Delaware, the written consent of the holders of over 61% of the
outstanding shares of Common Stock in favor of the adoption of the Committee's
proposals, based on the Committee's knowledge of the number of outstanding
shares of Common Stock. The consents duly delivered to the Company represented
the consent of the holders of 3,581,797 of the 5,867,153 outstanding shares of
Common Stock of the Company as of the Record Date.
Upon this delivery of the consents of the holders of a
majority of the outstanding shares of Northstar Common Stock, in accordance with
the provisions of Section 228 of the General Corporation Law of the State of
Delaware all four of the Committee's proposals were duly adopted by the Company.
That is, as of March 24, 1997, the By-laws were amended to increase the number
of directors to eleven (11) and to eliminate the classified Board of Directors
thereby enabling stockholders to remove directors without cause. Lawrence F.
Jindra, M.D., James H. McElwain, Mark G. Mykityshyn, Roger J. Reschini and David
B. White, Esq. became duly elected members of the Board and Steven N. Brody,
Robert J. Smallacombe, David D. White, Timothy L. Pesci and Charles B. Jarrett,
Jr. were removed from the Board by vote of the shareholders of Northstar.
The Committee believes that the actual number of outstanding
shares of Common Stock of the Company is less than the number shown as
outstanding on the records of The Continental Stock Transfer & Trust Company,
the Company's stock transfer agent (the "Transfer Agent"). On February 5, 1997,
the Transfer Agent issued a list of shareholders of the Company which reported
6,229,717 shares of Common Stock outstanding. However, the Committee has
knowledge, and has confirmed this knowledge in telephone conversations with
counsel to both parties concerned, that in December 1996 the Company foreclosed
on 362,564 shares of its Common Stock pledged to the Company by Samuel
Armfield, III (the "Armfield Shares") to secure a $2,100,000 loan. The
discrepancy in the Committee's understanding of the number of shares
outstanding and the number of shares listed on the Transfer Agent's records
arises because the Transfer Agent continues to list Mr. Armfield as a
stockholder and lists the Armfield Shares as outstanding in spite of the
Company's re-acquisition of the Armfield Shares which converted them into
treasury stock not entitled to vote. The Brody Board appears to agree with this
conclusion since the Pennsylvania Complaint states that "[t]he Company is a
public company which as of March 3, 1997 had 5.8 million shares of common
stock, par value $0.01 per share, outstanding held by over 800 stockholders."
Consequently, the Committee believes that the minimum number of votes necessary
to effect its proposals is 2,933,577, an absolute majority of 5,867,153. Using
the higher number of outstanding shares, the number of votes necessary to
effect the proposals would be 3,114,859, an absolute majority of 6,229,717. In
either case, since the Committee delivered the consent of the holders of
3,581,797 shares of Common Stock, the Committee's proposals have been approved
and adopted by the shareholders of Northstar regardless of which number of
shares outstanding is correct. A break-down of the vote is set forth below:
<PAGE>11
<TABLE>
<CAPTION>
- ---------------------------------------------- --------------------------- -------------- -----------------
Proposal For* Against Abstain
- ---------------------------------------------- --------------------------- -------------- -----------------
<S> <C> <C> <C>
ONE: Amend Article III, Section 1 of the
By-Laws of the Company pursuant to the 3,581,797 28,100 7,200
resolutions set forth in the Consent
Statement to set the number of directors on 61.05% 0.48% 0.12%
the Board of Directors at eleven (11).
(57.50%) (0.45%) (0.12%)
- ---------------------------------------------- --------------------------- -------------- -----------------
TWO: Eliminate the classified Board of
Directors and re-affirm the ability of a 3,580,797 28,100 8,200
majority of the stockholders to remove
non-classified directors without cause in 61.03% 0.48% 0.14%
accordance with Delaware law pursuant to the
resolutions set forth in the Consent (57.48%) (0.45%) (0.13%)
Statement.
- ---------------------------------------------- --------------------------- -------------- -----------------
THREE: Elect the Committee's five nominees
to fill the newly created directorships 3,578,797 28,100 10,200
pursuant to the resolutions set forth in the
Consent Statement. 61.00% 0.48% 0.17%
(57.45%) (0.45%) (0.16%)
- ---------------------------------------------- --------------------------- -------------- -----------------
FOUR: Remove the Brody Board pursuant to
the resolutions set forth in the Consent 3,417,797 192,600 6,700
Statement.
58.25% 3.28% 0.11%
(54.86%) (3.09%) (0.11%)
- ---------------------------------------------- --------------------------- -------------- -----------------
<FN>
* The percentages have been calculated on the assumption that there are
5,867,154 shares outstanding as of the Record Date. The percentages in
parenthesis reflect the number of shares outstanding if as of the Record Date
there were 6,229,717 shares outstanding.
</FN>
</TABLE>
Immediately following their election to the Board, on March
24, 1997, Mr. Zaucha and the newly-elected directors (the "Zaucha Board"),
having been advised by counsel that the proposals had been adopted by the
Company's shareholders and that the Zaucha Board was duly authorized and
entitled to act for the Company, held a meeting of the Board of Directors of the
Company. The purposes of the meeting were: (i) to announce the consent of the
holders of a majority of the outstanding shares of Common Stock of the Company
to the proposals submitted by the Committee in the Consent Statement; (ii) to
adopt the proposals of the Committee as described in the Consent Statement;
(iii) to elect new officers of the Company and to remove the existing officers
of the Company; and (iv) to conduct various other administrative matters in
connection with assuming the operation of the Company and fulfilling the mandate
given to the Zaucha Board by the shareholders. Additionally, at its first
meeting, the Zaucha Board unanimously elected Mr. Zaucha as the Company's
Chairman, President and Chief Executive Officer and took other actions to
expedite the Company's recovery, including approving a new Audit Committee and
authorizing the Audit Committee to file a Form 10-K for the fiscal years ended
December 31, 1996 and 1995.
<PAGE>12
On March 28, 1997, Mr. Zaucha and the other defendants in the
Pennsylvania Complaint moved to dismiss the complaint therein on the grounds
that the Committee's successful completion of its consent solicitation,
culminating in the delivery of consents to the Company and the consequent
removal and replacement of a majority of the Board of Directors earlier in the
week had mooted the principal relief sought (i.e., an injunction against the
Committee's soliciting and delivering consents).
Item 5. Interest in Securities of the Issuer.
Item 5 of Amendment No. 2 is hereby amended and restated in its entirety as
follows.
(a)(i) On the date of this Statement, the Reporting Persons may be
deemed collectively to beneficially own 1,090,455 shares of Common Stock or
18.59% of the outstanding shares of Common Stock.
(ii) On the date of this Statement, the aggregate number of shares
of Common Stock of which Mr. Zaucha may be deemed a beneficial owner is 949,958
shares (approximately 16.19% of the Common Stock outstanding). Of the 949,958
shares, 667,201 shares are held by Mr. Zaucha in Tenancy by the Entirety with
his spouse, 207,757 shares are held by the Zaucha Family Limited Partnership
whose sole general and limited partners are currently Mr. Zaucha, his spouse and
their four children and 75,000 shares are held by Mr. Zaucha as sole beneficial
owner.
(iii) On the date of this Statement, Commonwealth may be deemed to
be a beneficial owner of 80,497 shares of Common Stock or 1.37% of the Common
Stock outstanding. Commonwealth disclaims beneficial ownership with respect to
any of the shares of Common Stock reported as owned by Mr. Zaucha and his spouse
or the Zaucha Family Limited Partnership. In addition, Commonwealth holds
730,084 shares of Common Stock for the account of its customers as described in
Item 5(b)(iv) below.
(iv) On the date of this Statement, Mr. Falk may be deemed to be a
beneficial owner of 80,497 shares of Common Stock or 1.37% of the Common Stock
outstanding. Mr. Falk disclaims beneficial ownership with respect to any of the
shares of Common Stock reported as owned by Mr. Zaucha and his spouse or the
Zaucha Family Limited Partnership. In addition, Mr. Falk holds 730,084 shares of
Common Stock for the account of Commonwealth's customers as described in Item
5(b)(iv) below.
(v) On the date of this Statement, the aggregate number of shares
of Common Stock of which Mr. Micallef may be deemed a beneficial owner is 40,000
shares (approximately 0.68% of the Common Stock outstanding). All such shares of
Common Stock of the Company are held by Mr. Micallef as sole beneficial owner.
(vi) On the date of this Statement, the aggregate number of shares
of Common Stock of which Mr. Asciutto may be deemed a beneficial owner is 20,000
shares (approximately 0.34% of the Common Stock outstanding). All such shares of
Common Stock of the Company are held by Mr. Asciutto as sole beneficial owner.
(b)(i) By virtue of their position as co-general partners of
the Zaucha Family Limited Partnership, Mr. and Mrs. Zaucha may be deemed to
share the power to direct the voting and to direct the disposition of the
207,757 shares of Common Stock held for the account of Zaucha Family Limited
<PAGE>13
Partnership. The address of Mrs. Zaucha and the Zaucha Family Limited
Partnership is 100 Lafayette Circle, Indiana, PA 15701. Neither Mrs. Zaucha nor
the Zaucha Family Limited Partnership has been convicted during the last five
years in any criminal proceeding or been a party to any civil proceeding or
administrative actions under federal or state securities laws. Mrs. Zaucha is a
citizen of the United States of America and the Zaucha Family Limited
Partnership is a Pennsylvania limited partnership.
(ii) By virtue of his position as a Tenant by the Entirety with
his spouse, Mr. Zaucha may be deemed to share the power to direct the voting and
the disposition of 667,201 shares of Common Stock with Mrs. Zaucha.
(iii) Mr. Zaucha may be deemed to have sole voting power and
dispositive power over 75,000 shares of Common Stock.
(iv) As of the date of this Statement, Commonwealth holds 865,581
shares of Company Common Stock, constituting approximately 14.75% of the
outstanding shares, for the brokerage accounts of its various customers, which
holdings include 80,497 shares held for its own account as of the close of
business on March 26, 1997 in connection with its market-making activity in the
Common Stock and 55,000 shares held in the accounts of Commonwealth's officers
and directors. Such customers have sole voting and dispositive power over such
shares and Commonwealth disclaims any beneficial ownership thereof, although it
intends to recommend to its customers that they support the changes described in
Item 4.
(v) As of the date of this Statement, Mr. Falk, by virtue of his
positions at Commonwealth and CAMC, may be deemed to be a beneficial owner of
the 865,581 shares of Company Common Stock held by Commonwealth as described in
(iv) above.
(vi) Mr. Micallef may be deemed to have sole voting power and
dispositive power over 40,000 shares of Common Stock.
(vii) Mr. Asciutto may be deemed to have sole voting power and
dispositive power over 20,000 shares of Common Stock.
As a result of the lapse of seventeen months since the Issuer's
last filing with the SEC, the Reporting Persons have reason to be believe that
the information filed in the most recently available filing is not current.
Therefore the percentages used herein are calculated based upon the 5,867,154
shares of Common Stock believed by the Reporting Persons to be issued and
outstanding as of February 5, 1997, based on the most current analysis of the
ownership of the Common Stock known to the Reporting Persons, a Certificate of
Continental Stock Transfer & Trust Company, the Company's transfer agent, and
discussions with former shareholders of the Company.
(c) Except as otherwise described in this Item 5(c), none of the
persons named in response to paragraph (a) has engaged in any transactions with
respect to the shares of Common Stock of the Issuer within the past sixty (60)
days. During the last sixty (60) days, Commonwealth has acted as the sole market
maker in the Common Stock. Consequently it has, and continues to, buy and sell
the Common Stock both for its own account and for the account of its customers
on a regular basis.
(d) To the knowledge of the Reporting Persons other persons are
known to have the right or the power to direct the receipt of dividends from, or
the proceeds from the sale of, the Common Stock. To the knowledge of the
Reporting Persons, except as identified in this Item 5, the only other persons
with an interest in more than five percent of the Common Stock are J.P. Morgan &
Co.
<PAGE>14
Incorporated, The Dreyfus Corporation, Mellon Bank Corporation, Mellon
Bank, N.A. and Premier Capital Growth Fund.
(e) Not applicable.
Item 7. Material to Be Filed as Exhibits
Item 7 of Amendment No. 2 is hereby amended by adding the following to the end
thereof:
1. Definitive consent statement on Schedule 14A filed by Mr. Zaucha and
the Committee to Protect Northstar Health with the Securities and Exchange
Commission on February 28, 1997.
2. Letters to shareholders and press releases issued by Mr. Zaucha and the
Committee to Protect Northstar Health, as filed with the Securities and Exchange
Commission on February 28, 1997, March 7, 1997, March 13, 1997, March 25, 1997
and March 27, 1997.
3. Letters to shareholders and press releases issued by Northstar Health
Services, Inc., dated February 13, 1997, February 28, 1997, March 10, 1997,
March 14, 1997 and March 19, 1997.
4. Joint Filing Agreement, dated March 27, 1997, pursuant to Rule
13d-f(1) between Thomas W. Zaucha, Commonwealth Associates, Michael S. Falk,
Joseph F. Micallef and Basil J. Asciutto.
<PAGE>15
SIGNATURES
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Date: March 27, 1997 THOMAS W. ZAUCHA
/s/ Thomas W. Zaucha
Thomas W. Zaucha
Date: March 27, 1997 COMMONWEALTH ASSOCIATES
By:Commonwealth Associates Management
Company, Inc., its general partner
By: /s/ Basil Asciutto
Name: Basil Asciutto
Title: Chief Operating Officer
Date: March 27, 1997 MICHAEL S. FALK
/s/ Michael S. Falk
Michael S. Falk
Date: March 27, 1997 JOSEPH F. MICALLEF
/s/ Joseph F. Micallef
Joseph F. Micallef
Date: March 27, 1997 BASIL J. ASCIUTTO
/s/ Basil J. Asciutto
Basil J. Asciutto
<PAGE>16
EXHIBIT INDEX
A. Definitive consent statement on Schedule 14A filed by Mr. Zaucha
and the Committee to Protect Northstar Health with the Securities and
Exchange Commission on February 28, 1997
B. Letters to shareholders and press releases issued by Mr. Zaucha and
the Committee to Protect Northstar Health, as filed with the
Securities and Exchange Commission on February 28, 1997, March 7,
1997, March 13, 1997, March 25, 1997 and March 27, 1997
C. Letters to shareholders and press releases issued by Northstar Health
Services, Inc., dated February 13, 1997, February 28, 1997, March 10,
1997, March 14, 1997 and March 19, 1997
D. Joint Filing Agreement, dated March 27, 1997, between Thomas W.
Zaucha, Commonwealth Associates, Michael S. Falk, Joseph F. Micallef
and Basil J. Asciutto
<PAGE>
SCHEDULE 14A INFORMATION
Consent Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant |_|
Filed by a Party other than the Registrant |X|
Check the appropriate box:
|_| Preliminary Consent Statement
|X| Definitive Consent Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Northstar Health Services, Inc.
(Name of Registrant as Specified In Its Charter)
Thomas W. Zaucha
(Name of Person(s) Filing Consent Statement)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and
0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>1
CONSENT STATEMENT OF
THE COMMITTEE TO PROTECT
NORTHSTAR HEALTH
This solicitation statement, the accompanying letter and the
enclosed form of written consent are being furnished by and on behalf of the
Committee to Protect Northstar Health (the "Committee") on or about March 3,
1997, in connection with the solicitation by the Committee from the holders of
shares of common stock, par value $.01 per share (the "Common Stock") of
Northstar Health Services, Inc., a Delaware corporation ("Northstar" or the
"Company") of written consents to take the following actions without a
stockholders' meeting, as permitted by Delaware law:
(1) amend Article III, Section 1 of the By-laws of the
Company by deleting the second sentence thereof and inserting in its place the
following sentence to set the number of directors on the Board of Directors of
the Company (the "Board") at eleven (11) as follows: "The Board of Directors
shall be comprised of eleven (11) directors.";
(2) amend Article III, Section 1 of the By-laws of the
Company by deleting the third, fourth and fifth sentences thereof and inserting
in their place a provision to eliminate the classified Board of Directors which
will enable stockholders to remove directors without cause. The proposed
amendment reads as follows: "Each director shall serve for a term of one year
and shall hold office until such director's successor is elected and qualified
or until such director's earlier resignation or removal. Directors may be
removed without cause by the holders of a majority of the shares then entitled
to vote.";
(3) elect the five nominees listed on Annex A hereto as
directors of the Company to fill newly-created directorships on the Board of
Directors and to serve until their respective successors are duly elected and
qualified; and
(4) remove all current members of the Board of Directors
other than Thomas W. Zaucha, such other members being, at the present time,
Steven N. Brody, Robert J. Smallacombe, Charles B. Jarrett, Jr., Timothy L.
Pesci and David D. Watson, and any other person or persons (other than the
persons elected pursuant to this consent) elected or appointed to the Board of
Directors of the Company prior to the effective date of the shareholder action
in addition to or in lieu of any of such individuals to fill any newly-created
directorship or vacancy on the Board of Directors of the Company, or otherwise,
other than Thomas W. Zaucha (together with (1), (2) and (3), the "Proposals").
Stockholders of Northstar are being asked to express their
consent to the Proposals by MARKING, SIGNING and DATING the enclosed BLUE
consent card and returning it to MacKenzie Partners, Inc. in accordance with
the instructions set forth below.
All percentages shown herein assume that the number of shares
outstanding on February 5, 1997 (the "Record Date") is 5,867,153 shares of the
Company's Common Stock based on a shareholder list supplied by the Company's
transfer agent and the Committee's knowledge of certain transactions occurring
prior to the Record Date that are not reflected in the shareholder list. See
"Proposals."
<PAGE>2
THE COMMITTEE RECOMMENDS THAT
YOU CONSENT TO EACH OF THE PROPOSALS
SUMMARY OF CONSENT PROCEDURE
The Committee believes that the Proposals will become
effective on the date when the written consent of holders of a majority of the
shares of the Company's Common Stock outstanding on the Record Date is
delivered to Northstar, so long as such consent is obtained within sixty days
after the Record Date. In order to facilitate prompt adoption of the Proposals,
the Committee requests that you give your consent by March 21, 1997.
A consent executed by a stockholder may be revoked in writing
at any time prior to the time that the action authorized by the executed
consent is taken. The Committee intends to deliver executed consents to the
Company once the Committee has obtained valid and unrevoked consents
representing a majority of the issued and outstanding shares of Common Stock of
the Company as of the record date. Since the Committee cannot predict the date
on which it will receive a majority of the consents, the period within which a
consent may be revoked is uncertain.
THE COMMITTEE RECOMMENDS THAT YOU CONSENT TO EACH OF THE
PROPOSALS. YOUR CONSENT IS IMPORTANT. PLEASE MARK, SIGN AND DATE THE ENCLOSED
BLUE CONSENT CARD AND RETURN IT IN THE ENCLOSED POSTAGE PAID ENVELOPE PROMPTLY.
FAILURE TO RETURN YOUR CONSENT WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE
PROPOSALS.
The Committee has retained MacKenzie Partners, Inc.
("MacKenzie") to assist in the solicitation. If your shares are held in your
name, please mark, sign, date and mail the enclosed BLUE consent card to
MacKenzie in the postage-paid envelope provided. If your shares are held in the
name of a brokerage firm, bank nominee or other institution, you should receive
a BLUE consent card and envelope which should be used to give your instructions
to the person responsible for your account. Only that institution can execute a
BLUE consent card with respect to your shares and only upon receipt of specific
instructions from you. The Committee urges you to confirm in writing your
instructions to the person responsible for your account and to provide a copy
of those instructions to the Committee in care of MacKenzie at the address set
forth below so that the Committee will be aware of all instructions given and
can attempt to ensure that such instructions are followed.
If you have any questions about executing your consent or
require assistance, please contact:
MACKENZIE PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500
(call collect)
or
Toll Free: (800) 322-2885
<PAGE>3
THE COMMITTEE
The Committee is at present comprised of its founding member,
Mr. Zaucha, Joseph F. Micallef, Chairman and Chief Executive Officer,
Associated Sales Tax Consultants Incorporated, and Basil J. Asciutto, Chief
Operating Officer of Commonwealth Associates, L.P. ("Commonwealth"), who are
referred to collectively in this Consent Statement as "Committee members." As
of the date hereof, Committee members own an aggregate of 1,009,958 shares of
the Company's common stock, representing approximately 17.21% of the Company's
shares currently outstanding. See "Proposals."
In addition, Commonwealth, though not a Committee member, has
been retained as the Committee's financial advisor and acts as a market-maker
in the Common Stock in the ordinary course of its brokerage business.
Commonwealth holds 1,307,658 shares of Company Common Stock, constituting
approximately 22.29% of outstanding shares, for the account of its customers,
including 71,397 shares held for its own account as of the close of business on
February 24, 1997 in connection with its market making activities and 55,000
shares held in the accounts of Commonwealth's officers, directors and
employees. Such customers have sole voting and dispositive power over such
shares, and Commonwealth and the Committee disclaim any beneficial ownership
thereof, although Commonwealth intends to recommend to its customers that they
support the recommendations of the Committee. See "Proposals." See Appendix A
for further information regarding Commonwealth's relationships with the
Company.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Additional information about the Committee Members, Committee
Nominees and certain other persons is set forth in Annex A and under the
heading "The Committee's Nominees."
BACKGROUND OF THE CONSENT SOLICITATION
The Northstar-Keystone Merger
Mr. Zaucha became the Company's Chief Executive Officer and
joined its Board of Directors in November 1995, at the time of the closing of
the merger of Northstar and Keystone Rehabilitation Systems, Inc. ("Keystone"),
a privately-held rehabilitation company theretofore controlled by Mr. Zaucha.
Keystone had 1995 revenues of approximately $22,000,000, as compared to Company
revenues for the same period of approximately $13,000,000 (not giving effect to
the merger). Pursuant to the terms of the Merger Agreement, Mr. Zaucha and
related entities received $7,600,000 in cash, 944,351 shares of Company Common
Stock, $2,400,000 principal amount of 6% subordinated promissory note due 1998,
$2,625,000 principal amount of interest-free subordinated promissory notes due
2000, all of which notes are convertible into an aggregate of 843,386 shares of
Common Stock following Company shareholder approval (for an effective exercise
price of $5.93 per share) and an earn-out provision providing for payment of
$1,600,000 per year for five years, contingent on the Company achieving certain
earnings levels. David D. Watson, a Keystone executive, became the Company's
President following the merger, and in connection with the merger entered into
a release agreement under which he receives $75,000 annually from the Company
payable in the form of a note. Because the Company's policy prior to the Merger
was to lease, rather than to own, its real estate, Mr. Zaucha agreed, at the
Company's request, to purchase the real property then owned by Keystone for
$5,200,000 in cash ($4,800,000 of which Keystone used to repay all of its
outstanding indebtedness prior to the merger) and to lease back the portion of
the space the Company wished to occupy following the merger at an aggregate
monthly rental of $39,197 on five different locations. Mr. Zaucha also entered
into an employment agreement with the Company providing for him to be employed
as Chief Executive Officer of the Company for annual cash compensation of
$125,000. The Merger Agreement provided that, following the merger, the
Company's Board of
<PAGE>4
Directors would consist of its former directors, Mark A. DeSimone and Michael
Pitterich, Mr. Zaucha and his consultant Steven N. Brody.
DeSimone Resignation
Shortly after assuming his duties as the Company's Chief
Executive Officer, Mr. Zaucha began to learn elements of what appeared to be
irregular, self-interested transactions between Northstar and its former CEO,
Mr. DeSimone. Mr. Zaucha confronted Mr. DeSimone with these irregularities and
brought them to the attention of KPMG Peat Marwick, L.L.P. ("KPMG"). (Prior to
the Merger, the Company's financial statements had been audited by Richard A.
Eisner & Co. Following the merger, in light of the Company's increased size,
the Company engaged KPMG, a "big six" accounting firm to audit its 1995
financial statements.) In March 1996, KPMG informed the Board that it was
unable to complete the 1995 audit due to what it termed questions stemming from
the prior management's integrity and related party transactions by the prior
management.
Mr. Zaucha thereupon demanded and received the resignation
from the Board of Directors of Messrs. DeSimone and Pitterich, and promptly
suspended, and subsequently terminated, the employment of Michael Kulmoski, the
Company's former Chief Financial Officer. On May 31, 1996, trading of the
Company's Common Stock on NASDAQ was suspended.
Payments to Brody and Smallacombe Begin
On March 21, 1996, Mr. Brody recommended that Mr. Brody be
appointed to serve as a one-person committee of the Board to conduct an
investigation of the alleged irregularities and related party transactions.
Mr. Zaucha agreed to this recommendation. The Company retained Arthur Andersen
as its new auditors and Mr. Brody was also charged with expediting the audit of
the 1995 fiscal year and attempting to restore the Company's NASDAQ listing.
Mr. Brody hired legal and other professional advisors selected by him and
compensated by the Company.
Mr. Brody also requested that Northstar enter into a separate
engagement letter with him relating to such services. Under a letter agreement
dated April 2, 1996, drafted by Mr. Brody, Mr. Brody was to head a special
investigation and be paid for his services at the rate of (i) $150 per hour for
sixty hours per month and (ii) $250 per hour for all hours in excess of 60
hours per month, plus expenses. Mr. Brody also received an advance retainer of
$25,000. Mr. Zaucha approved of this retention. As of January 6, 1997,
according to information which Mr. Zaucha learned in the course of his duties
as Chief Executive Officer of Northstar, Mr. Brody has been paid in excess of
$224,000 by the Company for services as a director and pursuant to his
consulting agreement.
In May 1996, Mr. Brody recommended that Robert J.
Smallacombe, a business consultant, be appointed to fill one of the vacancies
on the Company's Board of Directors. On May 20, 1996, Mr. Smallacombe and Mr.
Watson, the Company's President and a former Keystone executive, joined the
Board. Mr. Zaucha voted in favor of this resolution.
Mr. Brody subsequently recommended that the Company retain
Mr. Smallacombe as a consultant. On August 20, 1996, the Company entered into
an Independent Consulting Contract with Mr. Smallacombe for a six month term
pursuant to which he was to provide consulting, advisory and administrative
services and be paid $6,500 per week to work four days per week. Mr. Zaucha
voted in favor of this retention. On January 15, 1997, Mr. Brody recommended
that Mr. Smallacombe's consulting contract, which was set to expire in February
1997, be extended to September 30, 1997. The Board approved this recommendation
over Mr. Zaucha's objection. As of January 6, 1997, according to information
which Mr. Zaucha learned in the course of his duties as Chief Executive Officer
of Northstar, Mr. Smallacombe has been paid in excess of $210,000 by the
Company for his services as a director and pursuant to his consulting
agreement.
<PAGE>5
In May 1996, at Mr. Brody's recommendation the Board
appointed Mr. Brody and Mr. Smallacombe to be a two-member Audit Committee with
Mr. Smallacombe as Chairman. At Mr. Brody's recommendation, the Board also
appointed Mr. Brody, Mr. Smallacombe and Mr. Zaucha to be the Compensation
Committee. Mr. Zaucha voted in favor of this resolution.
On May 29, 1996, Mr. Smallacombe provided the report of the
Compensation Committee and recommended that outside director compensation be
set as follows: (i) a monthly retainer of $3,000 per quarter; (ii) a payment of
$1,000 per Board meeting and $500 per committee meeting; and (iii) $250 per
formal telephonic Board meeting. It was further recommended that each outside
director receive a stock option grant of 25,000 shares for serving on the
Board. The Board approved this recommendation by unanimous vote.
Shortly thereafter, over the objections of Mr. Zaucha, the
Board dismissed the Company's 36-year-old Chief Financial Officer, who had 15
years experience. The Company's Financial Controller with a nine-year tenure
with the Company was also subsequently dismissed and replaced by a 23-year old
accountant.
In November 1996, Mr. Brody and Mr. Smallacombe recommended
that the Board be expanded to five members. The motion to expand the Board was
approved over Mr. Zaucha's objection. Charles B. Jarrett, Jr. was appointed to
fill the newly created directorship. Mr. Brody and Mr. Smallacombe also
recommended that the Board create a three member Nominating Committee,
consisting of Mr. Brody, Mr. Smallacombe and Mr. Watson, to recommend further
appointments to the Board. The Board approved this recommendation over Mr.
Zaucha's objection.
On December 20, 1996, the Audit Committee, chaired by Mr.
Smallacombe, recommended that the Company's outside legal counsel, Buchanan
Ingersoll and Joseph McDonough of Manion McDonough & Lucas, the Company's
banking counsel, each be fired and replaced with counsel recommended by Mr.
Smallacombe and Mr. Brody. This motion was approved with Mr. Zaucha abstaining.
Stock Options to Board Members Granted
On December 27, 1996, the Compensation Committee, chaired by
Mr. Brody, recommended to the Board the adoption of a stock option plan
providing for the grant of 10-year options to purchase up to 1,500,000 shares
of Company Common Stock (increasing by an additional 500,000 shares over a 3
year period) to officers, directors and key employees. Mr. Zaucha believed that
a stock option plan was necessary for the Company to attract, retain and
motivate quality executives and key employees and that modest grants to
directors were also appropriate. He also believed that the number of shares
authorized in the plan would be sufficient to provide for option grants for
many years to come. Accordingly, Mr. Zaucha joined in approving the stock
option plan. At this same meeting, the Nominating Committee recommended that
the Board be expanded and the appointment of State Representative Timothy L.
Pesci as a director of the Company, effective January 1, 1997. The motion was
approved.
On January 15, 1997, Mr. Brody presented the recommendation
of the Compensation Committee that 1,020,000 of the 1,500,000 option shares
only recently approved by the Board be granted to outside directors and certain
employees subject to legal review. Mr. Zaucha, although a member of the
Compensation Committee, was never consulted in connection with this
recommendation. Mr. Zaucha vigorously objected to this recommendation at the
Board meeting.
<PAGE>6
The Board, over Mr. Zaucha's objection, nevertheless approved
option grants which, if exercised, would equal approximately 17% of the
Company's outstanding stock. (See "Proposals") The options granted are as
follows:
<TABLE>
<CAPTION>
Grantee Grant Status Amount
- ------- ------------ ------
<S> <C> <C>
Steven N. Brody Director/consultant (outside) 200,000
Robert J. Smallacombe Director/consultant (outside) 200,000
David D. Watson Director/President and 205,000
Chief Operating Officer
Charles B. Jarrett, Jr. Director (outside) 25,000
Timothy L. Pesci Director (outside) 25,000
John Lombardi Executive Vice President and Chief 110,000
Financial Officer
Brian K. Strong Key employee 100,000
Edward Banos Key employee 55,000
Elaine Professori Key employee 50,000
Ralph Sweithelm Key employee 50,000
----------
TOTALS (shares) 1,020,000
</TABLE>
Mr. Zaucha objected to these option grants and abstained from voting. All
other Board members voted for them. When Mr. Zaucha asked Mr. Watson how his
option grant came to be set at 205,000 shares, Mr. Watson replied, "I told
those guys [i.e., Messrs. Brody and Smallacombe], I don't care what anybody
gets, as long as I get more than them." At a Board meeting held on February
13, 1997, Mr. Watson denied making this statement.
Entrenchment Measures Adopted
On January 21, 1997, at a Board meeting called by the Audit
Committee, the Board of Directors received a presentation on "shark-repellent"
anti-takeover measures by the Company's new legal counsel and proposed
amendments to the Company's By-laws. The Board, over Mr. Zaucha's abstention,
approved amendments to the Company's By-laws which purport to: (i) eliminate
the right of stockholders to call a special meeting of stockholders; (ii)
eliminate the right of stockholders to act by written consent; (iii) eliminate
the right of stockholders to remove directors without cause; and (iv) eliminate
the right of a majority of stockholders to remove any director by requiring a
two-thirds vote of the outstanding shares of common stock (collectively, the
"By-law amendments"). Mr. Zaucha objected to such proposals as taking
fundamental rights away from the shareholders. The By-law amendments were
nonetheless adopted by vote of the Directors other than Mr. Zaucha.
Zaucha Commences Consent Process and Litigation
On February 5, 1997, Mr. Zaucha delivered his written Consent
to the Proposals to the Company's registered office in the State of Delaware,
establishing the Record Date for this solicitation pursuant to Section 213(b)
of the Delaware General Corporation Law and on February 6, 1997 formally
retained the services of Commonwealth Associates as his and the Committee's
financial advisor.
On February 10, 1997, Mr. Zaucha filed a Complaint for
Declaratory and Injunctive Relief (the "Complaint") in the Court of Chancery of
the State of Delaware in and for New Castle County. In the Complaint, Mr.
Zaucha seeks declaratory and injunctive relief that the above-mentioned By-law
amendments are invalid and that the other Board Members may not enforce them.
Specifically, the Complaint requests that an order be entered:
(i) declaring the By-law amendments invalid and
unenforceable;
<PAGE>7
(ii) declaring that Mr. Zaucha retains the right to act by
written consent as provided for in Section 228 of the Delaware General
Corporation Law including the right to amend the By-laws, to eliminate the
classified board, to remove directors without cause, and to fill vacancies or
newly-created directorships on the Company's Board;
(iii) declaring that the current directors may be removed
without cause by the majority consent of the outstanding stock;
(iv) enjoining the current directors from taking any action
to enforce the By-law amendments;
(v) enjoining the current directors from seeking to enforce
the By-law amendments in any other court;
(vi) awarding to Mr. Zaucha the costs and disbursements of
this action, including reasonable attorneys' fees; and
(vii) granting such other and further relief as the Court
deems just and proper.
The Committee believes that the By-law amendment purporting
to strip shareholders of the right to take action by consent is invalid because
Section 228(a) of the Delaware General Corporation Law provides:
"Unless otherwise provided in the certificate of
incorporation, any action required by this chapter to be taken at any annual or
special meeting of such stockholders of a corporation, or any action which may
be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting for the action so taken, shall be 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 and shall be
delivered to the corporation by delivery to its registered office in this
State, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded." (emphasis added)
The Company is a Delaware corporation, and its certificate of incorporation
contains no such provision. The Committee therefore believes that the actions
proposed by this Consent Solicitation are valid.
In addition, the Committee believes that the by-law amendment
purporting to eliminate the right of a majority of the stockholders to remove
directors without cause will be ineffective following the elimination of the
classified board of directors because Section 141(k) of the Delaware General
Corporation Law provides that if the board is not classified:
Any director or the entire board of directors may be removed,
with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors. . .
Accordingly, if a majority of the stockholders consent to the
proposal to eliminate the classified board, stockholders will, pursuant to
Section 141(k), have the right to remove directors without cause.
<PAGE>8
At the February 13, 1997 meeting of the Company's Board, Mr.
Zaucha introduced a resolution that the stock option grants previously awarded
to Messrs. Brody, Smallacombe and Watson on January 15, 1997 be declared not
exercisable unless and until approved by a majority of the Company's
shareholders. Mr. Zaucha's proposed resolution states:
RESOLVED, that all options granted under the Stock Option
Plan approved by the Board of Directors on December 27, 1996,
including without limitation the options purportedly granted
thereunder on January 15, 1997, be, and they hereby are,
declared not exercisable, and not vested in whole or in part,
unless and until such plan and such grants are approved by
the vote of a majority of the shares present and voting at an
annual or special meeting of stockholders of the Company, at
which quorum is present and acting throughout, and shall be
subject to such further vesting and other terms as shall be
set following such approval, if any, by the Compensation
Committee in consultation with Company securities counsel,
subject to final Board approval.
Messrs. Brody, Smallacombe and Jarrett opposed Mr. Zaucha's resolution, Messrs.
Pesci and Watson abstained, and Mr. Zaucha voted in favor of the resolution. A
counter-resolution was offered by Mr. Jarrett to submit Mr. Zaucha's proposed
resolution to the Compensation Committee for consideration. The Board approved
this resolution over Mr. Zaucha's objection.
At the same meeting, Mr. Zaucha was removed as the Chief
Executive Officer and Chairman of the Board of the Company by Messrs. Brody,
Smallacombe, Watson, Jarrett and Pesci. Mr. Brody was elected Chairman of the
Board. Mr. Zaucha voted against his appointment.
At a Board meeting held on February 17, 1997, Mr. Smallacombe
was named Chief Executive Officer of Northstar and the Board voted to convert
the terms of his existing consulting agreement into an employment contract. Mr.
Zaucha voted against his appointment.
REASONS FOR THE CONSENT SOLICITATION
The Committee believes that shareholders should adopt the
Proposals as promptly as practicable in order to replace the Board with a slate
of nominees who are committed to the Company's return to its long-term
strategic plan. In order to restore the liquidity of the Company's common
stock, the Committee believes that the Company should fulfill its financial
reporting responsibilities, hold its Annual Meeting of Stockholders and restore
its focus on its core business under the leadership of Mr. Zaucha. The
Committee believes that the track record of the members of the Board of
Directors, other than Mr. Zaucha, speaks for itself against the continuation
of those directors on the Company's Board.
The Committee's goal is to restore Northstar's ability to
respond effectively to the challenges it faces by forming a united team,
endorsed by stockholders, under the supervision of a Board of Directors that
combines true independence with integrity, real commitment to the Company and
its stockholders, and experienced judgment from a variety of fields. The
Committee believes that Mr. Zaucha, the person responsible for founding or
acquiring most of the Company's clinics, the largest shareholder and a
well-known and respected physical therapist with more than 29 years of
experience in Pennsylvania, is the best person to lead the Company past its
current difficulties and to execute a strategy of soundly-financed growth. A
united management team, faithfully executing its
<PAGE>9
fiduciary duties, will be well positioned to put the Company's ongoing
litigation matters to rest, restructure the Company's senior debt, comply with
its audit and SEC reporting responsibilities and get its strategic plan back on
track.
PROPOSALS
This solicitation statement and the accompanying form of
written consent are first being furnished by the Committee on or about March 3,
1997, in connection with the solicitation by the Committee from the holders of
shares of Common Stock of written consents to take the following actions
without a stockholders meeting, as permitted by Delaware law:
(1) Amend Article III, Section 1 of the Bylaws to set the
number of directors on the Board of Directors at eleven (11) as follows:
"RESOLVED, that Article III, Section 1 be amended by
deleting the second sentence thereof and inserting in its place the
following sentence:
The Board of Directors shall be comprised of eleven
(11) directors."
(2) Amend Article III, Section 1 of the Bylaws by deleting
the third, fourth and fifth sentences thereof and inserting in their place a
provision to eliminate the classified Board of Directors which will enable
stockholders to remove non-classified directors from the Board without cause as
follows:
"RESOLVED, that Article III, Section 1 be amended by
deleting the third, fourth and fifth sentences thereof and inserting
in their place the following sentences:
Each director shall serve for a term of one year and
shall hold office until such director's successor is elected and
qualified or until such director's earlier resignation or removal.
Directors may be removed without cause by the holders of a majority of
the shares then entitled to vote.";
(3) Elect the five persons listed on Annex A hereto to
fill the newly created directorships:
"RESOLVED, that the following persons are hereby
elected as directors of the Company to fill the newly created
directorships on the Board of Directors, and to serve until their
respective successors are duly elected and qualified: Lawrence F.
Jindra, M.D., James H. McElwain, Mark G. Mykityshyn, Roger J. Reschini
and David B. White."; and
(4) Remove the existing directors of the Board of
Directors (other than Thomas W. Zaucha) (the "Brody Directors"):
"RESOLVED, that each member of the Board of
Directors of the Company, other than Thomas W. Zaucha, such other
members consisting of Steven N. Brody, Charles B. Jarrett, Jr.,
Timothy L. Pesci, Robert J. Smallacombe and David D. Watson, and any
other person or persons (other
<PAGE>10
than the persons elected pursuant to this consent) elected or
appointed to the Board of Directors of the Company prior to the
effective date of this resolution in addition to or in lieu of any of
the aforenamed individuals to fill any newly created directorship or
vacancy on the Board of Directors of the Company, or otherwise, is
hereby removed and the office of each member of the Board of Directors
(other than the office of Thomas W. Zaucha) is hereby declared
vacant."
See Annex A for more information about the Committee's
Nominees. The Committee proposes that the nominees named in Annex A hereto (the
"Nominees") once elected, serve until the next Annual Meeting of the
Stockholders and until their successors have been duly elected and qualified.
Each of the Committee's Nominees has consented to serve as a director of
Northstar if elected.
Of the five Nominees, except as disclosed above, none is
employed or otherwise affiliated with the Company, and none is employed by or
affiliated with any members of the Committee. All of the Nominees are citizens
of the United States.
The Committee has agreed to indemnify each of the Nominees
against all liabilities, including liabilities under the federal securities
laws, in connection with this consent solicitation and such person's
involvement in the operation of the Company and to reimburse such Nominee for
his out-of-pocket expenses.
In the event that less than all of the Proposals are approved
as set forth above, the Committee reserves the right to withhold consent cards
until the Proposals expire without presenting them to the Company, depending on
which alternative the Committee believes is more likely to achieve its
objectives. A discussion of the possible scenarios should less than all of the
Proposals be approved by the shareholders is included in Appendix B.
Additionally, Article III, Section 1 of the By-laws of the Company in its
current form and in its proposed form should the shareholders approve both
Proposals (1) and (2) are set forth in Appendix C hereto.
The accompanying BLUE consent card will be voted in
accordance with the stockholder's instruction on such BLUE consent card. As to
the proposals set forth herein, stockholders may consent to an entire proposal
or may withhold their consent by marking the proper box in the BLUE consent
card. If the enclosed BLUE consent card is signed and returned and no
direction is given, it will be deemed to constitute consent to the proposals.
The Committee seeks the consent of an absolute majority of
the Company's issued and outstanding stock in order to act on the Proposals set
forth in this consent statement.
BROKER NON-VOTES, ABSTENTIONS AND THE FAILURE TO RETURN A
SIGNED CONSENT WILL HAVE THE SAME EFFECT AS WITHHOLDING CONSENT TO THE
PROPOSAL.
Consents Required
The written consent of an absolute majority of the
outstanding Common Stock is required to adopt and approve each of the
Proposals. According to a Certificate of Continental Stock Transfer & Trust
Company, the Company's stock transfer agent (the "Transfer Agent"), dated
September 9, 1996, there were 6,229,717 shares of Common Stock outstanding as
of that date. On February 5, 1997, the Transfer Agent issued a list of
shareholders of the Company which again
<PAGE>11
reported 6,229,717 shares of Common Stock outstanding. The Committee believes,
however, and has confirmed by telephone conversations with counsel to the
parties involved, that in December 1996 the Company foreclosed on 362,564
shares of its Common Stock pledged to the Company by Samuel Armfield, III (the
"Armfield Shares") to secure a $2,100,000 loan. The list originally furnished
by the Transfer Agent erroneously lists Mr. Armfield as a stockholder and lists
the Armfield Shares as outstanding notwithstanding the fact that the Armfield
Shares are treasury stock and are not issued and outstanding or entitled to
vote. Therefore, the Committee believes that as of the Record Date there were
5,867,153 shares of Common Stock issued and outstanding.
Each share of Common Stock entitles the Record Date holder to
one vote on the Proposals. Accordingly, based on the information known to the
Committee, written consents by holders representing 2,933,577 shares of Common
Stock will be required to adopt and approve each of the Proposals. If the
Armfield Shares are deemed for any reason to be outstanding on the Record Date,
approval of the Proposals will require the written consent of holders of
3,114,859 shares of Common Stock. Accordingly, each abstention and broker
non-vote with respect to any of the Proposals will have the same effect as
withholding consent to the adoption of such proposal.
Special Instructions
If you were a record holder as of the close of business on
the Record Date, you may elect to consent to, withhold consent or abstain with
respect to each Proposal by marking the "CONSENT", "CONSENT WITHHELD" OR
"ABSTAIN" box, as applicable, underneath each such Proposal on the accompanying
BLUE consent card and signing, dating and returning it promptly in the enclosed
postage-paid envelope.
IF THE STOCKHOLDER WHO HAS EXECUTED AND RETURNED THE CONSENT
CARD HAS FAILED TO CHECK A BOX MARKED "CONSENT", "CONSENT WITHHELD" OR
"ABSTAIN" FOR EITHER OR BOTH OF THE PROPOSALS, SUCH STOCKHOLDER WILL BE DEEMED
TO HAVE CONSENTED TO SUCH PROPOSAL OR PROPOSALS.
THE COMMITTEE RECOMMENDS THAT YOU CONSENT TO EACH OF THE
PROPOSALS. YOUR CONSENT IS IMPORTANT. PLEASE MARK, SIGN AND DATE THE ENCLOSED
BLUE CONSENT CARD AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE PROMPTLY.
FAILURE TO RETURN YOUR CONSENT WILL HAVE THE SAME EFFECT AS WITHHOLDING CONSENT
TO THE PROPOSALS.
If your shares are held in the name of a brokerage firm, bank
nominee or other institution, you should contact the person for your account
and give instructions for the BLUE consent card representing your shares to be
mailed, dated and signed. Only that institution can execute a BLUE consent card
with respect to your shares and only upon receipt of specific instructions from
you. The Committee urges you to confirm in writing your instructions to the
person responsible for your account and to provide a copy of those instructions
to the Committee in care of MacKenzie at the address set forth below using the
stamped self-addressed envelope included in the packet so that the Committee
will be aware of all instructions given and can attempt to ensure that such
instructions are followed.
THE CONSENT PROCEDURE
Section 228 of the Delaware General Corporation Law (the
"DGCL") states that, unless otherwise provided in the certificate of
incorporation, any action that may be taken at any
<PAGE>12
annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if consents in writing, setting forth
the action so taken, shall be 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, and those consents are delivered to the corporation by
delivery to its registered office in Delaware, its principal place of business
or an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. In the case of this
Consent Solicitation, written, unrevoked consents of the holders of a majority
of the outstanding shares of Common Stock as of the Record Date must be
delivered to the Company as described above to effect the actions as to which
consents are being solicited hereunder. Section 228 of the DGCL further
provides that no written consent shall be effective to take the corporate
action referred to therein unless, within 60 days of the earliest dated consent
delivered in the manner required by Section 228, written consents signed by a
sufficient number of holders to take such action are delivered to the
corporation in the manner required by Section 228. In order to facilitate
prompt adoption of the Proposals the Committee requests that you give your
consent by March 21, 1997. The date on which the earliest consent expires is
April 6, 1997.
The Committee intends to tender consents to the Company after
it receives the consent of a majority of the outstanding shares of Common Stock
of the Company. Following such delivery, in the event the Company disputes the
validity of the consents, Mr. Zaucha intends to file a complaint in the
Delaware Court of Chancery seeking relief pursuant to Section 225 ("Section
225") of the Delaware General Corporation Law for, among other things, a
declaration that the Nominees and Mr. Zaucha constitute the duly elected board
of the Company. Section 225 establishes a summary proceeding pursuant to which
the Court may decide any of the issues presented in the February 10, 1997
Complaint, if such decisions are necessary to the Court's determination of the
membership of the board of directors of the Company. Once sufficient unrevoked
and unexpired consents are delivered to the Company to take the actions set
forth therein, such consents will not expire, even if the Section 225
proceeding extends beyond the expiration date of any such consents.
IT IS CURRENTLY THE INTENTION OF THE COMMITTEE TO DELIVER
CONSENTS TO THE COMPANY IN THE MANNER REQUIRED BY SECTION 228 OF THE DGCL ONCE
THE COMMITTEE HAS DETERMINED THAT VALID AND UNREVOKED CONSENTS REPRESENTING A
MAJORITY OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK AS OF THE RECORD
DATE HAVE BEEN OBTAINED. WHEN CONSENTS FOR A MAJORITY OF THE COMPANY'S COMMON
STOCK HAVE BEEN OBTAINED AND DELIVERED TO THE COMPANY, A SHAREHOLDER WILL BE
UNABLE TO REVOKE HIS OR HER CONSENT.
Section 213(b) of the DGCL provides that the record date for
a consent solicitation shall be as established by the board of directors of the
corporation or, if no record date is so established, shall be the first date on
which a signed written consent is delivered to the corporation. Since the first
written consent was delivered to the Company on February 5, 1997, the Record
Date has been set as February 5, 1997.
If the actions described herein are taken, the Company will
promptly notify the stockholders who have not consented to the actions taken as
required by the DGCL.
Consents may only be executed by stockholders of record at
the close of business on the Record Date. The Committee believes that there are
5,867,153 shares of Common Stock outstanding on the date hereof. Therefore, the
number of votes necessary to effect the Proposals is 2,933,577 (an absolute
majority of 5,867,153). However, according to the records of the Transfer
<PAGE>13
Agent, the Company has outstanding 6,229,717 shares of Common Stock. In that
case, the number of votes necessary to effect the proposals would be 3,114,859
(an absolute majority of 6,229,717).
Based on its review of publicly available information, the
Committee is not aware of any other material change since February 5, 1997, in
the number of outstanding shares of Common Stock. Each share of Common Stock
entitles the record holder thereof to cast one vote. The Company's Certificate
of Incorporation and Bylaws do not provide for cumulative voting.
Since the Committee must receive consents from a majority of
the Company's outstanding shares in order for the Proposals to be adopted, a
broker non-vote or direction to withhold authority to vote on the blue card
will have the same effect as a "no" vote with respect to the Committee's
solicitation.
BROKER NON VOTES, ABSTAINING OR NOT RETURNING A SIGNED
CONSENT WILL HAVE THE SAME EFFECT AS WITHHOLDING CONSENT TO THE PROPOSED
ACTIONS. THE COMMITTEE URGES EACH STOCKHOLDER TO ENSURE THAT THE RECORD HOLDER
OF HIS OR HER SHARES MARKS, SIGNS, DATES AND RETURNS THE ENCLOSED CONSENT AS
SOON AS POSSIBLE.
VOTING; COSTS OF CONSENT SOLICITATION
Consents will be solicited by mail, telephone, telegram
and/or personal solicitation, by officers, employees and agents of the
Committee. No such persons shall receive additional compensation for such
solicitation other than MacKenzie and Commonwealth. In addition, the Committee
has retained MacKenzie to act as an advisor in the submission of this Consent
Solicitation. The Committee has agreed to pay MacKenzie a fee estimated not to
exceed $60,000 plus reasonable out-of-pocket expenses. In an engagement letter
with Commonwealth executed on February 6, 1997, the Committee agreed to pay
Commonwealth $10,000 in the aggregate in two installments by February 28, 1997.
The Committee further agreed to pay Commonwealth a "success fee" of $50,000,
plus $.03 per vote successfully solicited from customers of Commonwealth, if
the proposals are approved by an absolute majority of the Company's issued and
outstanding common stock and to pay Commonwealth's reasonable out-of-pocket
expenses. Mr. Zaucha has also agreed to pledge 75,000 shares of Common Stock
beneficially owned by him to Commonwealth as security for its fees and
expenses. The pledge agreement does not grant Commonwealth prior to default
the power to vote or direct the vote of the pledged securities or the power to
dispose or direct the disposition of the pledged securities.
If your shares are registered in your own name, you may mail
or fax your consent to the Committee at the address or fax number listed below.
If your shares are held in "street name" - held by your
brokerage firm or bank - immediately instruct your broker or bank
representative to sign the Committee's BLUE consent and mail to the Committee
and we will promptly deliver it. Please be certain to include the name of your
brokerage firm or bank. If you have additional questions, please call:
MACKENZIE PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
CALL: (212) 929-5500
FAX: (212) 929-0308
<PAGE>14
The Committee anticipates that a total of approximately
$285,000 will be spent in connection with the solicitation. Actual expenditures
may vary materially from the estimate, however, as many of the expenditures
cannot be readily predicted. To date, expenses of approximately $100,000 have
been incurred in connection with the solicitation. The entire expense of
preparing, assembling, printing and mailing this Consent Statement and any
other consent soliciting materials and the cost of soliciting consents will
initially be borne by the Committee. If the Committee's nominees are elected,
the Committee intends to request reimbursement from the Company for these
expenses. This request will not be submitted to a vote of the Company's
stockholders. Banks, brokerage houses and other custodians, nominees and
fiduciaries may be requested to forward the Committee's solicitation material
to the beneficial owners of the shares they hold of record, and the Committee
will reimburse them for their reasonable out-of-pocket expenses.
A consent executed by a stockholder may be revoked at any
time before its exercise by submitting a written, dated revocation of such
consent covering the same shares. A revocation may be in any written form
validly signed by the record holder as long as it clearly states that the
consent previously given is no longer effective and must be executed and
delivered prior to the time that the action authorized by the executed consent
is taken. The revocation may be delivered to the Committee, c/o MacKenzie
Partners, Inc., 156 Fifth Avenue, New York, New York 10010, Attn.: Mark
Harnett. Although a revocation delivered only to the Company will be effective
to revoke a previously executed consent, the Committee requests that if a
revocation is delivered to the Company, a photocopy of the revocation also be
delivered to the Committee, at the address set forth above, so that the
Committee will be aware of such revocation.
YOUR CONSENT IS IMPORTANT. NO MATTER HOW MANY OR HOW FEW
SHARES YOU OWN, PLEASE CONSENT TO THE AMENDMENT TO THE BY-LAWS, THE ELECTION OF
THE COMMITTEE NOMINEES AND THE REMOVAL OF CERTAIN DIRECTORS BY MARKING,
SIGNING, DATING AND MAILING THE ENCLOSED BLUE CONSENT PROMPTLY. ONLY YOUR
LATEST DATED CONSENT COUNTS.
<PAGE>1
APPENDIX A
The names, business addresses, principal occupations and
number of shares of Common Stock beneficially owned as of the date hereof
unless otherwise noted by the Committee, and the Committee's executive officers
who are participants, and of all other participants, in this solicitation are
set forth below:
COMMITTEE MEMBERS
<TABLE>
<CAPTION>
- ---------------------- ---------------------------- ----------------------------- -----------------
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership* Percent of Class
- ---------------------- ---------------------------- ----------------------------- -----------------
<S> <C> <C> <C>
Common Stock Thomas W. Zaucha 949,958 (Direct) 16.19%**
100 Lafayette Circle
Indiana, PA 15701
- ---------------------- ---------------------------- ----------------------------- -----------------
<FN>
* Mr. Zaucha holds a $2,400,000 in aggregate principal amount 6% subordinated
promissory note due 1998 and a $2,625,000 in aggregate principal amount
interest-free subordinated promissory note due 2000 both of which are
convertible into shares of common stock in an event of default subject to
shareholder approval. Apart from the ownership reported above all of which
consists of issued and outstanding shares of Common Stock, Mr. Zaucha has no
options, warrants, or other rights to acquire shares of Common Stock.
** See "Proposals."
</TABLE>
Purchase (Sales and Transfers in brackets) by Mr. Zaucha within the last two
years:
Dates Number of Shares
- ----- ----------------
11/15/95 736,594 (with spouse Alice L. Zaucha, as
tenants by the entirety)
11/15/95 207,757 (as co-general partner with spouse, Alice L.
Zaucha, Zaucha Family Limited Partnership)
2/02/96 (50,000) (transfer to Steven Brody)
2/02/96 (18,550) (transfer to Michael Delaney)
2/02/96 (843) (transfer to Walter Lewis)
12/06/96 10,000
12/17/96 15,000
12/20/96 25,000
12/20/96 25,000
-------
Total 949,958
=======
<PAGE>2
<TABLE>
<CAPTION>
- ---------------------- ----------------------------- ----------------------------- ---------------
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of
Class
- ---------------------- ----------------------------- ----------------------------- ---------------
<S> <C> <C> <C>
Common Stock Joseph F. Micallef 40,000 (Direct) 0.68%*
Associated Sales Tax
Consultants Incorporated
3353 Bradshaw Road, Suite
106
Sacramento, CA 95827
- ---------------------- ----------------------------- ----------------------------- ---------------
<FN>
* See "Proposals."
</TABLE>
Purchases by Mr. Micallef within the last two years:
Dates Number of Shares
- ----- ----------------
5/19/95 3,000
6/08/95 2,000
6/09/95 5,000
7/05/95 7,000
11/02/95 13,000
3/27/96 10,000
------
Total 40,000
======
<TABLE>
<CAPTION>
- ---------------------- ---------------------------- ----------------------------- ---------------
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of
Class
- ---------------------- ---------------------------- ----------------------------- ---------------
<S> <C> <C> <C>
Common Stock Basil J. Asciutto 20,000 (Direct) 0.34%*
Commonwealth Associates,
L.P.
733 Third Avenue
New York, NY 10017
- ---------------------- ---------------------------- ----------------------------- ---------------
<FN>
* See "Proposals."
</TABLE>
Purchases by Basil J. Asciutto within the last two years:
Dates Number of Shares
- ----- ----------------
1/2/97 10,000
1/15/97 10,000
------
Total 20,000
======
<PAGE>3
OTHER PARTICIPANTS
<TABLE>
<CAPTION>
- ---------------------- ---------------------------------------- ------------------------------ ---------------
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of
Class
- ---------------------- ---------------------------------------- ------------------------------ ---------------
<C> <C> <C> <C>
Common Stock Commonwealth Associates, L.P. 71,397 (Direct)* 1.22%**
733 Third Avenue
New York, NY 10017
- ---------------------- ---------------------------------------- ------------------------------ ---------------
<FN>
*As of February 24, 1997.
** See "Proposals."
</TABLE>
INFORMATION ABOUT COMMONWEALTH
Pursuant to an underwriting agreement with the Company, Commonwealth acted as
the lead underwriter during the Company's last public offering of its Common
Stock in May 1995. Commonwealth engages in normal market-making activities with
respect to the Common Stock in the ordinary course of its business and
consequently buys, sells and beneficially owns shares of the Common Stock for
its own account on a regular basis.
That May 1995 secondary stock offering of Northstar Common Stock yielded gross
proceeds to the Company of $12.8 million, with Commonwealth, its co-manager and
syndicate members sharing an aggregate of $1.3 million in customary
underwriting discounts, commissions and fees. In addition, in November 1995,
Commonwealth arranged and advised the Company in connection with a $16 million
credit facility for a fee of $240,000. Commonwealth also performed certain
financial advisory functions in connection with the Company's merger with
Keystone and the Company's acquisition of Penn Vascular, for which Commonwealth
received an advisory fee of $200,000.
<PAGE>1
APPENDIX B
SCENARIOS IF LESS THAN ALL OF THE PROPOSALS ARE APPROVED
The Committee recommends that stockholders vote in favor of
all of the Proposals, although stockholders retain the right to vote for some,
but not all of them. This Appendix B summarizes the effects of the adoption of
some but less than all of the Proposals. The Committee reserves the right to
withhold consent cards until they expire without presenting them to the Company
in the event that some but not all of the Proposals are approved.
In the event that all but one of the Proposals is approved by
the stockholders holding a majority of the outstanding shares of stock of the
Company, the following chart summarizes the results:
<TABLE>
<CAPTION>
- ------------------------ ---------------------- ---------------------- -----------------------
All But Proposal (1) All But Proposal (2) All But Proposal (3) All But Proposal (4)
is Approved is Approved is Approved is Approved
- ------------------------ ---------------------- ---------------------- -----------------------
<S> <C> <C> <C>
The five Nominees Proposal (4) would There would be The Board would
would fill the be ineffective, so eleven seats on the consist of eleven
directorships. At that the Brody non-classified Board non-classified
such time, the Directors would of Directors but the members with the
non-classified board retain their sole member of the Nominees forming a
would have six members classified seats Board of Directors majority of the Board
consisting of the until the end of would be Thomas with Thomas Zaucha.
Nominees and Thomas their current terms Zaucha.
Zaucha. but the elected
Nominees together
with Thomas Zaucha
would constitute a
majority of the
eleven-member
classified Board.
- ------------------------ ---------------------- ---------------------- -----------------------
</TABLE>
Additionally, a majority of the shares outstanding may be
cast in favor of a combination of the Proposals with the following effects:
(i) In the event that Proposals (1) and (2) are not approved
but Proposals (3) and (4) are, the Nominees will not be elected to the
Board. Instead the Committee's measures would be defeated in their
entirety and the Brody Directors will remain classified directors and
will be allowed to serve out their current term before they are
eligible for removal or re-election by the shareholders.
(ii) If Proposals (2) and (3) are not approved but Proposals
(1) and (4) are approved, the Board composition will be essentially
unchanged. Only the Brody Directors and Mr. Zaucha would sit on the
Board. Directors would be classified and not removable without cause.
The sole change would be that the size of the Board would be increased
to eleven possible seats of which five would be vacant.
<PAGE>2
(iii) If Proposals (3) and (4) are not approved but
Proposals (1) and (2) are approved, the Brody Directors will retain
their seats on the Board and will serve out their current terms. The
Board will not be classified and will consist of eleven members with
five vacancies. The shareholders' statutory right to remove
non-classified directors without cause will be reinstated. None of the
Committee's Nominees would be entitled to serve on the Board.
(iv) Similarly, if Proposals (1) and (4) are not approved
but Proposals (2) and (3) are approved, the Brody Directors would
retain their seats on the non-classified Board. The shareholders'
statutory right to remove non-classified directors without cause will
be reinstated. However, none of the Committee's Nominees would be
entitled to sit on the Board.
(v) Should Proposals (1) and (3) fail to pass, the end
result would be a non-classified Board of Directors with five
vacancies on it. The sole Director of Northstar would be Mr. Zaucha.
(vi) If a majority of the outstanding shares are voted for
Proposals (1) and (3) but not for Proposals (2) and (4), the Board
would consist of eleven members including the Brody Directors, the
Nominees and Mr. Zaucha. There would be no vacancies on the Board.
The Board would continue to be classified and the directors could not
be removed without cause. The Nominees and Mr. Zaucha would command a
majority of the votes on the Board.
Moreover, in certain cases it is possible for shareholders to
vote in favor of portions of a Proposal. In the event that a portion of any
Proposal is not approved but all the other Proposals are approved, the
following scenarios could occur:
<TABLE>
<CAPTION>
- -------------------- ------------------ ------------------- ------------------ ------------------
The Board is Not Fewer Than Five Fewer Than Five Fewer Than Five
Declassified Nominees are Brody Directors Nominees are
Elected are Removed Elected and
Fewer Than Five
Brody Directors
are Removed
- -------------------- ------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
All Other Proposal (2) The Board would The Board would Control of the
Proposals are fails in its have eleven consist of Board would be
Approved entirety. non-classified eleven uncertain.
Directors seats. Those non-classified Depending on who
continue to be Nominees who were seats. The sits on the
classified and elected would sit Nominees would Board either the
are permitted to on the Board sit on the Board Brody Directors
serve for the along with Mr. with Mr. Zaucha or the Nominees
duration of Zaucha. There and those Brody would control.
</TABLE>
<PAGE>3
<TABLE>
<S> <C> <C> <C> <C>
their terms. would be a number Directors who If an even
Classified of vacancies on were not number of Brody
Directors cannot the Board. removed. The Directors and
be removed Nominees Nominees
without cause. together with including Mr.
The Board would Mr. Zaucha would Zaucha is
consist of have a majority elected, the
eleven of the votes on Board might be
classified the Board. deadlocked.
directors
including the
Brody Directors,
the Nominees and
Mr. Zaucha. The
Nominees and Mr.
Zaucha would
constitute a
majority of the
Board.
- -------------------- ------------------ ------------------- ------------------ ------------------
</TABLE>
Furthermore, if only one of the Proposals is approved, the
Board will remain in its current configuration with six classified members
comprised of the Brody Directors and Mr. Zaucha. Each director will be permitted
to serve his full term and none of the Nominees would be entitled to sit on the
Board.
<PAGE>
APPENDIX C
Article III, Section 1 of the By-laws of the Company currently states in its
entirety:
The business of the Corporation shall be managed by its Board
of Directors, which may exercise all powers of the Corporation and perform all
lawful acts that are not by law, the Certificate of Incorporation, or these
Bylaws directed or required to be exercised or performed by the stockholders.
The Board of Directors shall be comprised of seven (7) directors. The directors
shall be elected at the annual meeting of the stockholders, except as provided
in Section 2 of this Article. The directors shall be divided into three
classes, as nearly equal in number as possible, with the term of office of the
first class to expire at the 1998 Annual Meeting of Stockholders, the term of
office of the second class to expire at the 1999 Annual Meeting of Stockholders
and the term of office of the third class to expire at the 2000 Annual Meeting
of Stockholders. At each Annual Meeting of Stockholders following such initial
classification and election, directors elected to succeed those directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding Annual Meeting of Stockholders after their election. Directors need
not be stockholders.
If both Proposal (1) and Proposal (2) are approved by the shareholders, Article
III, Section 1 of the By-laws of the Company as set forth above would be
replaced in its entirety with the following provision:
The business of the Company shall be managed by its Board of
Directors, which may exercise all powers of the Company and perform all acts
that are not by law, the Certificate of Incorporation, or these Bylaws directed
or required to be exercised or performed by the shareholders. The Board of
Directors shall be comprised of eleven (11) directors. Each director shall
serve for a term of one year and shall hold office until such director's
successor is elected and qualified or until such director's earlier resignation
or removal. Directors may be removed without cause by the holders of a
majority of the shares then entitled to vote. Directors need not be
stockholders.
<PAGE>
- -----------------------------------------------------------------------------
YOUR VOTE IS EXTREMELY IMPORTANT
1. Please SIGN, MARK, DATE and MAIL your BLUE consent in the enclosed
postage-paid envelope as soon as possible before April 6, 1997. If you
wish to consent to the amendments to the By-laws, the election of the
Committee's Nominees and/or the removal of the current Directors (with
the exception of Thomas W. Zaucha), you must submit the enclosed
consent.
2. If your shares are held for you by a bank or brokerage firm, only your
bank or broker can vote your shares and only after receiving your
instructions. Please call your bank or broker and instruct your
representative to consent to the amendments to the By-laws, the
election of the Committee's Nominees and/or the removal of the current
Board (with the exception of Thomas W. Zaucha) on the BLUE consent.
3. Time is short. Please vote today!
If you have questions or need assistance in voting your shares or in
changing your vote please contact the Committee at the number listed
below:
c/o MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
CALL: (212) 929-5500
or
(800) 322-2885
- -----------------------------------------------------------------------------
<PAGE>
NORTHSTAR HEALTH SERVICES, INC.
CONSENT OF STOCKHOLDERS TO ACTION WITHOUT A MEETING
THIS CONSENT IS SOLICITED BY
THE COMMITTEE
The undersigned, a stockholder of record of NORTHSTAR HEALTH
SERVICES, INC. ("Northstar" or the "Company"), hereby consents pursuant to
Section 228 of the Delaware General Corporation Law, with respect to the number
of shares of Common Stock, par value $.01 per share, of the Company held by the
undersigned, to each of the following actions without a prior notice and
without a vote as more fully described in the Committee's consent statement
("Consent Statement") (receipt thereof is hereby acknowledged).
THE COMMITTEE STRONGLY RECOMMENDS THAT STOCKHOLDERS CONSENT
TO THE FOLLOWING PROPOSALS:
PROPOSAL ONE: Amend Article III, Section 1 of the By-Laws of
Northstar pursuant to the resolutions set forth in the
Consent Statement to set the number of directors on the Board
of Directors at eleven (11).
[ ] CONSENT [ ] CONSENT WITHHELD [ ] ABSTAIN
If no box is marked with respect to Proposal One, the
undersigned will be deemed to consent to the increase in the number of
directors on the Board of Directors as set forth above.
PROPOSAL TWO: Eliminate the classified Board of Directors and
re-affirm the ability of a majority of the stockholders to
remove non-classified directors without cause in accordance
with Delaware law pursuant to the resolutions set forth in
the Consent.
[ ] CONSENT [ ] CONSENT WITHHELD [ ] ABSTAIN
PROPOSAL THREE: Elect the following five persons listed below
to fill the newly created directorships (the "Nominees")
pursuant to the resolutions set forth in the Consent
Statement:
--------------------------------
For ELECTION
--------------------------------
Lawrence F. Jindra, M.D.
James H. McElwain
Mark G. Mykityshyn
Roger J. Reschini
David B. White
--------------------------------
[ ] CONSENT [ ] CONSENT WITHHELD [ ] ABSTAIN
<PAGE>
To withhold consent to a proposed Nominee, specify the Nominee
in the following space:
If no box is marked above with respect to Proposal Three, the
undersigned will be deemed to consent to the election of all five Nominees.
PROPOSAL FOUR: Remove the members of the Board of Directors
of Northstar other than Thomas W. Zaucha and the directors
elected by this consent, pursuant to the resolutions set
forth in the Consent Statement (the "Brody Directors"):
--------------------------------
For REMOVAL
--------------------------------
Steven N. Brody
Charles B. Jarrett, Jr.
Timothy L. Pesci
Robert J. Smallacombe
David D. Watson
--------------------------------
[ ] CONSENT [ ] CONSENT WITHHELD [ ] ABSTAIN
To withhold consent to the removal of a Brody Director,
specify the Brody Director or Directors in the following space:
If no box is marked above with respect to Proposal Four, the
undersigned will be deemed to consent to the removal of all five Brody
Directors.
PLEASE ACT PROMPTLY. IMPORTANT: THIS CONSENT MUST BE SIGNED
AND DATED TO BE VALID.
Dated: ______________________, 1997
Signature:___________________________
Signature
(if held jointly):______________________
Title or authority
(if applicable):_______________________
Please sign exactly as your name appears hereon. If your
shares are registered in more than one name, the signature of all such persons
should be provided. A corporation should sign in its full corporate name by a
duly authorized officer, stating his title. Trustees, guardians, executors, and
administrators should sign in their official capacity, giving their full title
as such. If the shares are held in the name of a partnership, please have the
authorized persons sign on behalf of the partnership. The consent card votes all
shares in all capacities.
<PAGE>
PLEASE MARK, SIGN AND DATE THIS CONSENT BEFORE MAILING THIS
CONSENT IN THE ENCLOSED ENVELOPE.
<PAGE>
ANNEX A
THE COMMITTEE'S NOMINEES
The following sets forth information about the Nominees.
Lawrence F. Jindra, M.D. (38) has served as the Independent
Scientific/Technical Consultant to Biomedical Venture Finance since 1982. Dr.
Jindra has also served as the Assistant Chief of Ophthalmology (Northport
Veterans Affairs Medical Center) and as the Founder and Director of the
Glaucoma Consultation Unit of the United States Department of Veterans Affairs
since 1994 and 1989, respectively. From 1992 to 1993, Dr. Jindra served as a
White House Fellow, Office of Science & Technology Policy and President's Task
Force for National Health Care Reform. Dr. Jindra has rendered consulting
service to Commonwealth Associates from time to time.
James H. McElwain (50) has served as the Chief Operating Officer of S. W. Jack
Drilling Company since January 1995. From September 1988 until December 1994,
Mr. McElwain served as the Vice President of Finance of Keystone Rehabilitation
Systems, Inc., which merged with the Company in 1995.
Mark G. Mykityshyn (39) has served as a Technical and Financial Consultant with
High Technology Venture Finance since 1995. Mr. Mykityshyn has also served as a
Management and Technology Consultant with Booz Allen & Hamilton, Inc. since
1993 and was an Adjunct Professor of Aeronautics at The George Washington
University from 1994-1995. Prior to 1993, Mr. Mykityshyn served as an aviator
in the United States Marine Corps (1982-1989) and earned the Degree of Engineer
of Aeronautical and Astronautical Engineering and the Degree of Master of
Science in Aeronautical and Astronautical Engineering from the Massachusetts
Institute of Technology and a Masters Degree in Public Administration (Science
and Technology Policy concentration) from Harvard University (1990-1993).
Roger J. Reschini (59) founded the Reschini Agency, Inc. (the "Reschini
Agency"), a multiple line insurance agency, in 1979 and founded TFID, Inc., a
real estate development company, in 1984. Mr. Reschini has also been the
recipient of a Benjamin Rush Award and a Paul Harris Fellowship. The Reschini
Agency acts as the Company's broker for professional and general liability
insurance for which the Company pays premiums of approximately $300,000
annually and the agency retains customary commissions.
David B. White (41) is a name partner of Burns, White & Hickton (Pittsburgh,
PA). Mr. White was admitted to the practice of law in 1982, and he is currently
a member of the Allegheny County, Pennsylvania and American Bar Associations;
the Hospital Association of Pennsylvania; the National Order of Barristers; and
the Academy of Trial Lawyers. Mr. White's principal practice areas are personal
injury defense law, automobile law, insurance law and health care law.
<PAGE>
THE COMMITTEE'S MEMBERS
The following sets forth information about the Committee's Members.
Basil J. Asciutto (51) the Chief Operating Officer of Commonwealth Associates,
L.P., is a member of Commonwealth's Executive Committee and a Senior Managing
Director of its Trading Department. Prior to joining Commonwealth, Mr.
Asciutto was a Vice President and Manager of the National Market Department and
a Senior Position Listed Block Trader at Merrill Lynch. Mr. Asciutto has over
25 years of experience with institutional and retail customers as well as an
extensive trading background. Mr. Asciutto is also a founding member of the
Wall Street Charity Fund.
Joseph F. Micallef (49) founded Associated Sales Tax Consultants, Inc. (ASTC),
a California firm specializing in arguing tax issues before various
governmental agencies, in 1980 and currently serves as ASTC's Chairman. Mr.
Micallef also serves as the Chairman for SABER (State Alliance for Board of
Equalization Reform), a lobbyist organization he formed in 1987. Mr. Micallef
has worked with California legislators to enact several taxpayer oriented laws,
including the Taxpayer Bill of Rights passed in 1989, and has served as second
chair in various tax litigation matters before state and federal tax agencies.
Mr. Micallef has requested that he be considered as a candidate to fill a
vacancy on the Northstar Board of Directors in the event the solicitation by
the Committee of written consents from the holders of shares of Common Stock is
successful. In that event, this request will be considered in due course by the
Board.
Thomas W. Zaucha (51) is a Director of Northstar Health Services, Inc. Mr.
Zaucha founded Keystone Rehabilitation Systems, Inc. ("Keystone") in 1981 and
presided as its Chairman, President and Chief Executive Officer until Keystone
merged with Northstar in 1995. Just prior to the merger, Keystone had annual
revenues of approximately $22 million and Northstar had annual revenues of
approximately $13 million. Mr. Zaucha has approximately 28 years of experience
in health care and physical therapy related industries. Mr. Zaucha is also a
member of numerous professional and community organizations.
<PAGE>
THOMAS W. ZAUCHA
COMMITTEE TO PROTECT NORTHSTAR HEALTH
100 LAFAYETTE CIRCLE
INDIANA, PENNSYLVANIA 15701
February 10, 1997
WHY IS NORTHSTAR'S CHAIRMAN SEEKING TO OUST HIS OWN BOARD?
DEAR FELLOW STOCKHOLDER:
I am writing to seek your support of my efforts to protect our company,
Northstar Health Services, Inc., from what I believe to be a grave threat to our
investment. I am Northstar's Chairman, Chief Executive Officer and its largest
stockholder, and am launching a proxy fight to remove and replace Steven N.
Brody, Robert J. Smallacombe and my other fellow Northstar directors. I believe
their unconscionable course of self-enrichment and entrenchment at the expense
of the Company's stockholders must stop!
LUCRATIVE CONSULTING CONTRACTS TO
NON-EXECUTIVE BOARD MEMBERS
Steven Brody and Robert Smallacombe, two self-described "independent"
members of your Board of Directors, have destroyed their independence and
objectivity by causing the Company to pay them "consulting fees" totaling more
than $400,000 in the last 8 months alone. By way of comparison, the combined
total annual cash compensation of this small Company's two top executive
officers is $200,000.
Brody and Smallacombe have no experience in the health care field and,
I believe, have not delivered fair value to the Company in their role as
highly-paid, part-time consultants. Their consulting contracts should be
terminated by the new Board.
MASSIVE STOCK OPTION GRANTS
In December 1996, the Board adopted a 1,500,000 share stock option plan
for directors, officers and key employees, which I believed would be more than
sufficient to
<PAGE>3
attract, retain and incentivize quality management for many years to come.
However, no sooner was the plan adopted, than:
- The Brody/Smallacombe dominated Compensation Committee made a
recommendation that I found incredible: An immediate grant of 10-year
options on 1,020,000 shares -- at an exercise price of $1.75!
- Of this amount, Brody and Smallacombe voted to grant themselves 400,000
shares combined.
- David Watson, your Company's President, agreed to vote for these grants
and received options for 205,000 shares.
- These option grants, if exercised, would equal approximately 14% of the
Company's outstanding stock.
I believe that stockholders should not, must not and will not stand for
Board members voting themselves excessive amounts of bargain-priced options.
BOARD ENTRENCHMENT ACTIONS
Only six days after the stock option grants, the Board considered a
series of anti-takeover measures such as poison pills and other devices
described to the Board as "shark repellents," some of which were adopted on the
spot. The Brody/Smallacombe dominated Board voted for amendments to the
Company's by-laws, that were designed, among other things, to:
- Eliminate the right of stockholders to call a special meeting of
stockholders.
- Eliminate the right of stockholders to act by written consent.
- Raise the stockholder vote required to remove Directors from 50% to 66
2/3% of all outstanding shares.
- Provide that directors can be removed only for "cause," rather than by a
simple vote of the majority.
I should point out that your Company's respected outside legal counsel,
Buchanan-Ingersol, was dismissed and replaced by the Brody/Smallacombe Board
prior to these actions.
I INTEND TO VIGOROUSLY CHALLENGE THE VALIDITY OF
THESE ATTEMPTS AT SELF-ENTRENCHMENT IN COURT
<PAGE>4
WHAT CAN NORTHSTAR HEALTH STOCKHOLDERS DO?
I have met with several other large Northstar stockholders -- all of
whom are as outraged as I am by the actions of Brody, Smallacombe and their
allies on the Northstar Board. As a result, I have put together a slate of new
directors that combines distinction in many fields with integrity, real
commitment to the Company and its stockholders, and experienced judgment from a
variety of fields, and have begun a solicitation of stockholder consents to
replace the majority of the current Board of Directors.
How can you help? Simply sign and date the BLUE consent card when you
receive our definitive proxy materials asking you to join my consent to the
removal and replacement of the Brody directors and associated by-law changes. In
the meantime, we ask that you review the enclosed preliminary proxy materials,
which describe the consent process and the issues involved in greater detail.
Our nominees and their background and experience are described on Annex A at the
back of our statement.
As Northstar's largest stockholder, second largest creditor and
principal landlord, no one has a greater personal stake in the financial
recovery, growth and prosperity of the Company than I do. As the person
responsible for founding or acquiring the majority of the Company's clinics, and
with more than 28 years of experience as a physical therapy professional, I
believe that I am also the person most qualified to lead Northstar past its
current difficulties and to execute a strategy of soundly-financed growth.
The Company has the market position and the opportunity to execute a
plan of growth, while staying close to its clients in each of its local
markets, eventually positioning the Company as a premium acquisition for one of
the major national healthcare companies. A united management team will be well
positioned to put the Company's ongoing litigation matters to rest, restructure
the Company's senior debt, comply with its audit and SEC reporting
responsibilities and get it's strategic plan back on track.
I appreciate your support, and encourage you to call with your views.
You can reach MacKenzie Partners, Inc., which is assisting the Committee in the
matter TOLL FREE at (800) 322-2885 or at (212) 929-5500 collect.
Very truly yours,
/s/ Thomas W. Zaucha
THOMAS W. ZAUCHA
<PAGE>1
Thomas W. Zaucha
COMMITTEE TO PROTECT NORTHSTAR HEALTH
100 LAFAYETTE CIRCLE
INDIANA, PENNSYLVANIA 15701
MARCH 3, 1997
DEAR FELLOW STOCKHOLDER:
Since announcing my intention to start a proxy contest to oust the
renegade majority of the Board of Directors, I have been overwhelmed by an
outpouring of support for my effort. The stockholders I have spoken with seem as
concerned as I am with the self-serving, self-enriching actions of Steven Brody
and Robert Smallacombe. Stockholders have asked me repeatedly what they can do.
VOTE THE ENCLOSED BLUE CARD TODAY!
Enclosed with this letter is a definitive consent statement and BLUE
consent card. If you are as outraged as I am, and want new directors who are
committed to stockholder value rather than lining their own pockets, then help
me and the Committee to Protect Northstar Health by signing, dating and
returning the enclosed consent card today.
WE ARE REQUESTING THAT YOU RETURN YOUR CARD BY
MARCH 21 OR SOONER!
If we obtain the support of stockholders owning a majority of the
outstanding shares, we will be able to remove the entire board and replace them
with qualified, independent directors. We are setting an initial target date of
March 21, 1997 for the return of the blue consent cards. But remember, if we can
obtain the consents from shareholders representing a majority of the outstanding
shares of Northstar before that date, we can move to replace the Board even
sooner.
SUING TO RESTORE STOCKHOLDERS' RIGHTS
At my own expense, I have commenced litigation in Delaware Chancery
Court seeking to overturn the Board's January 1997 actions to strip the
stockholders of various corporate governance rights, including the right to act
by consent and the right to replace the board by majority vote.
<PAGE>2
RETALIATION FROM A DESPERATE BOARD
On February 13, 1997, the unelected, Brody/Smallacombe-dominated board
dismissed me as Company Chairman and CEO as soon as it learned of my efforts to
protect the rights of Northstar stockholders. But I have not wavered in my
efforts, because I know that we, the stockholders, will have the last word on
Brody and Smallacombe's self-dealing.
REMEMBER THE ISSUES
Steven Brody and Robert Smallacombe have continued their efforts to
take control of your Company. After removing me as Chairman and CEO, the
unelected, Brody/Smallacombe-dominated board wasted no time in naming Brody as
Chairman of the Board and Smallacombe as the Company's CEO on February 17, 1997.
Don't forget Brody and Smallacombe have destroyed their independence
and objectivity by causing the Company to pay them "consulting fees" totaling
more than $400,000 in the 8 months preceding their self-appointment on February
17 as Company officers. By way of comparison, the combined total annual salary
compensation of this small Company's two top executive officers during this
period was only $200,000.
Brody and Smallacombe have no experience in the health care field and,
I believe, have not delivered fair value to the Company in their role as
highly-paid, part-time consultants. Their consulting contracts and any
employment agreements they award themselves in the future should be terminated
by the new Board.
In December 1996, the Board adopted a 1,500,000 share stock option plan
for directors, officers and key employees, which I believed would be more than
sufficient to attract, retain and incentivize quality management for many years
to come. However, no sooner was the plan adopted, than:
- The Brody/Smallacombe dominated Compensation Committee made a
recommendation that I found incredible: An immediate grant of 10-year
options on 1,020,000 shares -- at an exercise price of $1.75!
- Of this amount, Brody and Smallacombe voted to grant themselves 400,000
shares combined.
- David Watson, your Company's President, agreed to vote for these grants
and he himself received options for 205,000 shares.
- These option grants, if exercised, would equal approximately 17% of your
Company's outstanding stock.
Brody and Smallacombe seem to have forgotten that they are stewards of
the shareholders' investment. I have not forgotten.
<PAGE>3
These excessive bargain-priced options must not stand!
THE COMMITTEE'S PROGRAM
At the February 13 Board meeting, I made a motion designed to prevent
any of the January 1997 option grants from vesting or becoming exercisable
unless shareholder approval is first obtained. This was an offer to Brody,
Smallacombe and their allies on the Northstar Board of one last chance to
cleanse those egregious options of the taint of self-dealing that infects them
now. I told them at the meeting that if members of the Board believe that those
options are legitimate, they should be ready to condition them upon prior
shareholder approval.
Not surprisingly, Brody and Smallacombe led a vote defeating my motion,
although two Board members abstained from voting. My motion has been remanded to
the Compensation Committee for so-called "further study." The new Board will use
every lawful means to invalidate, rescind or prevent the exercise of these
excessive, bargain-priced options, and will only grant new options at fair
market value upon shareholder approval, and only after the Company has issued
and filed complete and current audited financial statements.
I also warned Brody and Smallacombe not to drain the corporate Treasury
to defend their options and fees, but challenged them to do as I have done and
communicate to stockholders directly, at their own expense, with reimbursement
from the Company only to the side the stockholders elect to lead them.
As Northstar's largest stockholder, second largest creditor and
principal landlord, no one has a greater personal stake in the financial
recovery, growth and prosperity of the Company than I do. As the person
responsible for founding or acquiring the majority of the Company's clinics and
as a physical therapy professional with more than 28 years of experience in the
practice and business of physical therapy, as well as in leadership and advocacy
in professional physical therapy organizations in Pennsylvania, I believe that I
am also the person most qualified to lead Northstar past its current
difficulties and to execute a strategy of soundly-financed growth.
The Company has the market position and the opportunity to build its
business, while staying close to its clients in each of its local markets,
eventually positioning the Company as a premium acquisition for one of the major
national healthcare companies. A united Northstar management team will be well
positioned to:
1. Put ongoing litigation matters to rest.
2. Restructure the senior and subordinated debt.
3. Comply with audit and SEC reporting responsibilities.
4. Get our strategic plan back on track.
<PAGE>4
Please take the time today to sign, date and return the BLUE consent
card. I appreciate your support, and encourage you to call with your views. You
can reach MacKenzie Partners, Inc., which is assisting the Committee in the
matter, TOLL FREE at (800) 322-2885 or at (212) 929-5500, collect.
Very truly yours,
THOMAS W. ZAUCHA
COMMITTEE TO PROTECT
NORTHSTAR HEALTH
<PAGE>1
Thomas W. Zaucha
COMMITTEE TO PROTECT NORTHSTAR HEALTH
100 LAFAYETTE CIRCLE
INDIANA, PENNSYLVANIA 15701
MARCH 7, 1997
DEAR FELLOW STOCKHOLDER:
By now you should have received a definitive proxy statement and a BLUE
consent card that will enable you to join me in my fight to regain control of
Northstar Health. My earlier letters have described the reasons why Steve Brody,
Bob Smallacombe and their followers must be removed as Northstar directors. I am
writing you now to urge you to send in your BLUE cards as soon as you can (an
extra card is enclosed with this mailing for your convenience), because:
THE SOONER WE VOTE
THE SOONER THEY'RE OUT!
Under the Delaware law governing consent solicitations of this kind,
we, the stockholders, can take action as soon as we have the written consent of
a majority of the outstanding shares. My group, the Committee to Protect
Northstar Health, has asked you to send in your BLUE card no later than March
21, 1997, but the sooner we reach a majority, the less time Brody and
Smallacombe will have to further drain the corporate treasury to enrich and
entrench themselves.
SILENCE = DEFEAT
You may have recently received a letter from the Brody/Smallacombe
group of directors, urging shareholders not to send in their BLUE cards until
the Board furnishes "detailed information". Don't be fooled by this request.
Under the Delaware law governing consents, my effort will fail if I haven't
collected SIGNED, DATED consent cards representing the requisite majority within
60 days of February 5, the record date for this consent action. The
Brody/Smallacombe group doesn't need to send you a card, or garner a single vote
in favor of its position in order to remain in office: all it has to do is
persuade the stockholders not to act. A share not voted is a vote for Brody and
Smallacombe.
That is why I say that silence equals defeat. If we fail to act, or
fail to act in time, Brody and Smallacombe will win.
<PAGE>2
CALL BRODY AND SMALLACOMBE TO ACCOUNT!
Brody and Smallacombe's letter offers no defense of their outrageous
stock options or their entrenchment actions. It only hints at "detailed
information" to be provided at some unspecified future date. Many Northstar
stockholders, in addition to the members of the Committee, have already told me
that they are ready to vote with us. Nevertheless, if you feel you need to learn
about Brody and Smallacombe's "detailed information" before you vote, I have a
suggestion: call Steve Brody or Bob Smallacombe yourself at the Company's
offices at (412) 349-7500 and ask them the following questions:
- Do you deny anything that Tom Zaucha has been telling shareholders
about your lucrative consulting contracts, stock options and management
entrenchment actions?
- Why did you grant yourselves 200,000 options each at $1.75 per share,
before the Company's 1995 or 1996 financial results were published?
- Why did you vote against Tom Zaucha's motion to condition the vesting
of your options on stockholder approval?
- Do you seriously expect stockholders to believe that you fired Tom
Zaucha for any "cause" other than his campaign to have you voted out of
office?
Unless you receive a convincing answer to these questions, I don't
think Brody and Smallacombe's "additional information" will be worth waiting
for.
DON'T BE MISLED BY BRODY AND SMALLACOMBE
Brody and Smallacombe's letter doesn't even try to deny or defend their
actions. Those actions are too well documented to deny, and too egregious to
defend. Instead, they have launched a smear campaign in an attempt to distract
your attention from the real issues. In answer, I simply note the following:
Northstar is much more than a financial investment to me: it represents
my life's work. Two-thirds of our clinics are facilities I founded or acquired
as the owner of Keystone Rehabilitation. As soon as this fight is over, I am
fully committed as stockholder, lessor and subordinated debt holder to working
with the independent directors on the new Northstar board and with the Company's
senior lenders to develop and implement a sound capital restructuring plan that
is fair to all concerned.
I was the person who uncovered the related party transactions involving
prior management, and demanded the resignation of my predecessor, Mark DeSimone.
Brody and Smallacombe know full well that it was the questions regarding
DeSimone's integrity and related party transactions that KPMG Peat Marwick cited
as reasons for its resignation, and that resulted in shareholder suits and
government investigations. No one suffered greater losses at the hands of Mr.
DeSimone than I, and no one has been more instrumental in causing his departure
and pursuing him through legal means. Any suggestion that Mark DeSimone has any
connection with this proxy fight is absolutely false and totally absurd.
<PAGE>3
The Committee's financial advisor, Commonwealth Associates, and the
Northstar stockholders who are its clients have also suffered as a result of the
Company's recent difficulties, and Commonwealth has assured me that it has had
no business dealings with DeSimone since his resignation.
In fact, it seems to me that the only people who have benefited from
DeSimone's dealings with the Company are named Brody and Smallacombe, the
self-described "crisis managers" who have turned Northstar's crisis into a
bonanza for themselves. Brody and Smallacombe have now collected consulting and
other fees from the Company in the last 10 months alone in the staggering
amount of $562,000!
I've been told by institutional investors friendly to our cause that
Brody and Smallacombe recently have been visiting them and telling wild tales
about my character that nobody who knows me would believe for one second. By way
of a response, I'm enclosing an unsolicited letter to the editor published in
the Indiana Gazette last week, that talks about some of the things I've given
back to the community that has supported Keystone/Northstar for over 18 years.
I've also been very moved by an outpouring of support from all levels
of the Company's workforce. My message to those loyal employees has been simple,
"Thanks, but just keep your head down, do your job and don't do anything that
could get you fired. I have the resources to handle this fight, and I plan to be
back at Northstar soon." Our key facility directors are chafing under Brody's
and Smallacombe's top-down style of management by decree, and I am convinced
that once my team is back in office, our partnership relationships with our key
clinics will be stabilized and enhanced.
If you have any questions about the mechanics of getting your proxy
card in, call our proxy solicitors, MacKenzie Partners, Inc. toll free at (800)
322-2885 or (212) 929-5500 collect. And if you would like to talk to me
personally about Northstar and its future, about Brody and Smallacombe or about
me, you can call me at home, toll free at (800) 646-2506.
Send in your BLUE proxy card today. The Committee to Protect Northstar
Health needs your vote by March 21, 1997 to put Northstar back on the road to
recovery.
Very truly yours,
Thomas W. Zaucha
P.S. Don't forget to SIGN and DATE your consent card. A card which is missing
either one will not be counted as valid, and failing to vote, or vote validly,
is the same as a vote against the Zaucha slate.
<PAGE>1
THOMAS W. ZAUCHA
COMMITTEE TO PROTECT NORTHSTAR HEALTH
100 LAFAYETTE CIRCLE
INDIANA, PENNSYLVANIA 15701
MARCH 13, 1997
DEAR FELLOW STOCKHOLDER:
BOARD SPENDING $750,000 TO SAVE THEIR JOBS!
Brody, Smallacombe and their fellow directors Jarrett, Pesci and Watson
have finally spoken. In a preliminary filing with the SEC, dated March 7, they
propose spending $750,000 of Company money --YOUR COMPANY'S MONEY-- in an
attempt to prevent you from voting them out of office. In fact, in the same
document, they admit to already having spent $250,000. By way of comparison,
H.F. Ahmanson, which is currently seeking to acquire Great Western Financial
from its 160,000 shareholders for more than $6 billion, has stated in public
documents that it has budgeted a total of $750,000 for its entire proxy contest.
$750,000 PLUS "FEES" OF $560,000
EQUALS 8% OF NORTHSTAR'S MARKET CAP!
Remember-- Brody and Smallacombe have raked in an astonishing $560,000
worth of consulting and other fees for themselves in just the past 10 months.
Those fees together with their $750,000 campaign costs total $1.3 million-- 8%
of Northstar's $16 million current market cap. Apparently, these two will spend
whatever it takes to protect their lucrative positions.
DON'T LET THEM SPEND ANOTHER DIME.
VOTE THEM OUT TODAY!
Please SIGN, DATE and MAIL your BLUE consent card today. The sooner you
do so, the sooner we can stop Brody and Smallacombe from draining your Company's
treasury to pay for their outlandish consulting fees and proxy expenses and from
diluting your shareholdings with their outrageous stock options.
TRUTH VS. LIES
I would like to take this opportunity to refute a false rumor that I
understand Brody and Smallacombe have been spreading: that I intend to "fire
sale" our Company. This is completely untrue. My strategy for Northstar's future
is one of soundly-financed growth. While I and the new Board will always be
ready to consider the possibility of selling Northstar when the time and price
are right, there is no plan or proposal for any such transaction now, and there
is considerable work to be done on the audit, litigation and recapitalization
fronts before such a possibility can even be considered. No one has a bigger
stake in Northstar than I do, and the Keystone merger, in which I acquired
substantially all of my interests, valued Northstar at $5.90 per share.
Northstar stockholders can count on me and the new Board to make long-term
shareholder value Northstar's primary objective.
<PAGE>2
TIME IS SHORT!
We need your signed consent before March 21, 1997. I am enclosing
another BLUE consent card. If you have not yet voted, please do so TODAY. If you
have previously voted, do so again to be certain your vote is counted. Don't
worry, it cannot be double-counted. If you have any questions about the
mechanics of getting your consent card in, please call MacKenzie Partners, Inc.,
which is assisting the Committee in this matter, toll free at (800) 322-2885 or
(212) 929-5500 collect.
Very truly yours,
THOMAS W. ZAUCHA
COMMITTEE TO PROTECT
NORTHSTAR HEALTH
<PAGE>1
FOR IMMEDIATE RELEASE
CONTACT:
Mark H. Harnett
MacKenzie Partners, Inc.
(212) 929-5877
ZAUCHA GROUP ANNOUNCES VICTORY IN
NORTHSTAR HEALTH SERVICES PROXY FIGHT
WITH MORE THAN 60% OF THE VOTE
Thomas Zaucha and his Committee to Protect Northstar Health announced
today that they have removed and replaced a majority of the Board of Directors
of Northstar Health Services, Inc. (NSTRE:O) by collecting and delivering to the
company the written consents of a majority of all Northstar shares outstanding.
The new Northstar Board of Directors has already met and has elected Mr. Zaucha
as Chairman of the Board, President and Chief Executive Officer. Former
directors Steven Brody, Robert Smallacombe and David Watson have been removed
from their executive positions with Northstar.
"This is a great day for Northstar Health, and all of its shareholders,
therapists, employees and clients. Now that the shareholders have given
the new board this prompt and resounding endorsement, it's time to get
back down to business," Zaucha said.
The Committee delivered consents representing 3,581,797 shares, or 61%
of the 5,867,153 Northstar shares outstanding. Michael Lyall of Commonwealth
Associates commented:
"This remarkably high percentage reflects a sense of genuine outrage on
the part of Northstar's large and small shareholders alike being shut
out of their company for the past year. It constitutes a firm mandate
to Tom Zaucha and the new Board to end wasteful investigations and
spending and to focus management efforts on restoring ties with the
capital markets and with shareholders. It also sends an unmistakable
message to Brody and Smallacombe that there is no point in further
expensive legal quibbling with shareholders and new Board."
Mr. Zaucha stated that he believed that this vote means a quick end to
all outstanding disputes:
"Several members of the old Board have told me that they see no sense
in tying up the Company in litigation now that a solid vote is in. If
this responsible attitude prevails, we can start moving forward right
away to restore Northstar to health."
-more-
<PAGE>2
Committee to Protect Northstar
March 24, 1997
Page two
Mr. Zaucha also reaffirmed his recent pledges to convert all of the
Northstar subordinated debt he holds into preferred or common equity on terms to
be approved by both an independent committee of the new board and by a majority
of unaffiliated stockholders, and to submit all of his leases with the Company
to review by independent appraisers. The new Board has also agreed to establish
a Shareholder Advisory Committee that will meet regularly with the Board of
Directors and management to keep them apprised of shareholder views.
In addition to Mr. Zaucha, the new members of the Northstar Board are:
Lawrence F. Jindra, M.D. (38) has served as a principle with Life Science
Ventures Ltd. since 1994. Dr. Jindra has also served as the Assistant Chief of
Ophthalmology and as the Founder and Director of the Glaucoma Consultation Unit
of the United States Department of Veteran's Affairs Northport V.A. Medical
Center since 1994 and 1989, respectively.
James H. McElwain (50) has served as the Chief Operating Officer of S. W. Jack
Drilling Company since January 1995. From September 1988 until December 1994,
Mr. McElwain served as Vice President of Finance of Keystone Rehabilitation
Systems, Inc., which merged with the Company in 1995.
Mark G. Mykityshyn (39) has served as a Technical and Financial Consultant with
High Technology Venture Finance since 1995. Mr. Mykityshyn has also served as a
Management and Technology Consultant with Booz Allen & Hamilton, Inc. since 1993
and was an Adjunct Professor of Aeronautics at The George Washington University
from 1994-1995. Prior to 1993, Mr. Mykityshyn served as an aviator in the United
States Marine Corps (1982-1989) and earned the Degree of Engineer of
Aeronautical and Astronautical Engineering and the Degree of Master of Science
in Aeronautical and Astronautical Engineering from the Massachusetts Institute
of Technology and a Master of Science Degree in Public Administration (Science
and Technology Policy concentration) from Harvard University (1990-1993).
Roger J. Reschini (59) founded the Reschini Agency, Inc. (the "Reschini
Agency"), a multiple line insurance agency, in 1979 and founded TFID, Inc. a
real estate development company, in 1984. Mr. Reschini has also been recipient
of a Benjamin Rush Award and a Paul Harris Fellowship. The Reschini Agency acts
as the Company's broker for professional and general liability insurance for
which the Company pays premiums of approximately $300,000 annually and the
agency retains customary commissions.
David B. White (41) is a name partner of Burns, White & Hickton (Pittsburgh,
PA). Mr. White was admitted to the practice of law in 1982, and he is currently
a member of the Allegheny County, Pennsylvania and American Bar Associations;
the Hospital Association of Pennsylvania; the National Order of Barristers; and
the Academy of Trial Lawyers. Mr. White's practice areas are personal injury
defense law, automobile law, insurance law and health care law.
-more-
<PAGE>3
Committee to Protect Northstar
March 24, 1997
Page three
PARTICIPANT INFORMATION
The committee to Protect Northstar Health is comprised of its founding member
Mr. Zaucha, Basil J. Asciutto, the Chief Operating Officer of the investment
banking firm Commonwealth Associates, and Joseph F. Micalleff, the Chief
Executive Officer of Associated Sales Tax Consultants, Inc., who own an
aggregate of 1,009,958 shares of the Company's common stock, representing
approximately 16.21% of the Company's shares currently outstanding.
In addition, Commonwealth Associates, the Committee's financial advisor and a
market-maker in the Common Stock in the ordinary course of its brokerage
business, holds 1,257,785 shares of Company Common Stock, constituting
approximately 20.19% of outstanding shares. Commonwealth's customers have sole
voting and dispositive power over such shares, and Commonwealth and the
Committee disclaim any beneficial ownership thereof, although Commonwealth has
recommended to its customers that they support the recommendations of the
Committee.
# # #
<PAGE>1
Thomas W. Zaucha
COMMITTEE TO PROTECT NORTHSTAR HEALTH
100 LAFAYETTE CIRCLE
INDIANA, PENNSYLVANIA 15701
March 19, 1997
DEAR FELLOW STOCKHOLDER:
As our target date of March 21, 1997 approaches, many of you have
already heeded my call to action to protect Northstar Health Services from the
continuing depredations of Steven Brody and Robert Smallacombe. I hope that
every stockholder who cares about the value of his or her investment will join
me in this fight to put our Company under responsible management, end wasteful
expenditures and get back down to business.
To that end, I am publicly making the following pledge:
As soon as my slate of directors is elected, I will implement these
actions:
INDEPENDENT REVIEW OF ALL LEASE TERMS
Even though all of my leases with the Company were negotiated at arm's
length, and provide for what I believe to be market rental rates both then and
now, I will submit all of my leases with the Company to review by a qualified,
independent appraiser selected by the independent members of the new Board. If
the appraisal shows that the aggregate rentals are above current market rates, I
will adjust the rents downward for the remainder of the lease terms,
notwithstanding my rights under the existing leases. If, on the other hand, the
appraisal comes out the other way, I will give Northstar the continuing benefit
of its rights under the leases.
CONVERSION OF SUBORDINATED DEBT TO EQUITY
In order to put Northstar on a firm financial basis for future growth,
I intend to convert all the debt securities Northstar issued to me in connection
with the Northstar/Keystone merger into Northstar equity securities as soon as
possible following the successful conclusion of this proxy fight. This will be
the cornerstone of a sound capital restructuring plan to be negotiated with the
Company's senior lender that will be fair to all concerned. In order to ensure
that the terms of this conversion are fair to other Northstar stockholders, I
will ask the new Board to establish a Special Committee of independent
directors, who will have the authority to select and engage their own financial
and legal advisors and negotiate the terms of this transaction on behalf of the
Company.
<PAGE>2
I will even go one step further to reassure all of you of my entire
good faith and dedication to shareholder interests: whether or not it is
required by law, I will submit any recapitalization plan involving my debt to a
vote of shareholders, and will not implement it without the vote of a majority
of shares voting, excluding all of the shares owned by me and my affiliates.
CREATION OF SHAREHOLDER ADVISORY COMMITTEE
I have spoken with many of you personally during this difficult period,
and I have been greatly encouraged by your support, the interest you have shown
in my plans for Northstar, and your own ideas about Northstar's future and
goals. In order to keep this fruitful dialogue going, and in response to a
number of shareholder requests, I will ask the new Northstar Board to establish
a Shareholder Advisory Committee, which Mr. Richard Konrad of Lincluden Asset
Management has already agreed to chair. This committee, which will initially be
comprised of substantial stockholders who have expressed an interest in
participating, will establish its own rules for membership, and meet regularly
with the Board of Directors and management to keep us apprised of shareholder
views.
Remember: even though Brody and Smallacombe's proxy materials haven't
cleared the SEC yet, they don't need to send you a card, or garner a single vote
in favor of their position in order to remain in office: all they need is
shareholder apathy. Every share not voted is a vote for Brody and Smallacombe.
Send in your card today, because if we fail to act, or fail to act in time,
Brody and Smallacombe will win.
For further information on how to register your vote of support, please
call MacKenzie Partners, Inc. TOLL FREE at (800) 322-2885, and feel free to call
me personally to discuss any matters relating to the future of our company at
(800) 646-2506.
Turn in your vote by immediately, and put Northstar Health back on the
road to recovery.
Sincerely yours,
Thomas W. Zaucha
P.S. Don't forget to sign and date your consent card. A card which is missing
either one will not be counted as valid.
<PAGE>1
For more information contact: Melissa M. Krantz
The Krantz Group, Inc.
(212) 891-7235
For Immediate Release
Northstar Health Services, Inc.
Board of Directors Responds to 14A Filing
(Indiana, Pennsylvania) -- February 13, 1997 -- The Board of Directors
of Northstar Health Services, Inc., released the following statement in
response to SEC filings seeking control of the Board of Directors of Northstar
filed by Thomas Zaucha, entities he controls, and Commonwealth Associates, an
investment banking firm, formerly and perhaps currently, closely associated
with former Chairman, Mark DeSimone:
"This action by the Zaucha-Commonwealth group is absurd at this time.
Under direction of this board, Northstar Health Services is in the
best position it has been in some time: it is close to settling its
litigation with shareholders; it is working successfully on its bank
financing; it has successfully restructured its operations; and the
1995 and 1996 audits and annual reports are approaching completion --
all without the assistance of Mr. Zaucha. This proxy fight is an
attempt to return the Company to its prior suspect management.
Specifically, the history, conduct and motivation of this group are,
at a minimum, suspect and clearly not in the best interests of
Northstar or its shareholders:
1) Commonwealth Associates' apparent collaboration with Mr.
Zaucha's "committee" represents an attempt by them to avoid
rectifying their serious conflicts of interest which have
plagued Northstar and are being corrected by the new Board of
Directors. Mr. Zaucha and Commonwealth Associates, his
representative, had responsibility for the due diligence that
was supposed to have been done with respect to Northstar in
1995. Both failed to properly examine the self-dealing
transactions of Mark DeSimone that has led up to the
resignation of the Company's auditors in March 1996. In fact,
before being hired by Mr. Zaucha to pursue his proxy fight,
Commonwealth Associates (which was paid over $1,800,000 in
1995 for purported services to Northstar, including due
diligence) was fired by the Board of Northstar for its
refusal to cooperate with the Company's representatives and
its continuing secret discussions and relationship with Mr.
DeSimone
<PAGE>2
following disclosure of his defalcations. Prior to that
dismissal, Commonwealth Associates was identified by the
Company's independent investigators as the prime subject of
further investigation and a potential defendant in the
racketeering act claims filed by the Company against Mr.
DeSimone and others.
Further, Commonwealth was subpoenaed on November 21, 1996 and directed
to provide documents pertinent to that racketeering case on December
22, 1996. To date, Commonwealth has not provided a single one of those
documents and the Company is in the process of requesting that they be
held in contempt of court.
2) Mr. Zaucha persistently acts in his own interest with little
regard for his responsibility to shareholders of Northstar.
Mr. Zaucha has refused to renegotiate terms of leases on
real estate which he owns directly or controls and which were
leased to Northstar through supposed "arms length"
negotiations with Mr. DeSimone. An investigation recently
revealed that rents paid by the Company to Zaucha-related
entities are at least twice the local rental rates for office
space, as a result of sweetheart deals with Mr. DeSimone.
3) In his latest efforts to exploit the Company, Mr. Zaucha
sought to obtain approximately $115,000 inappropriately from
the Company by requisitions for payment of tax refunds to
which the Company is legally entitled. Mr. Zaucha was not
entitled to such payment.
In conclusion, the Board of Directors believes that it is in the best
interest of the shareholders to support the Board of Directors so that
they can stay on their successful course to ensure shareholder value
and continued vitality. Any change in corporate governance at this
time would be a disruption of the progress this Board has made. The
last thing Northstar's stakeholders need is a return to the conflicts
of interest of prior management."
Northstar Health Services, Inc. is a leading regional provider of
rehabilitation therapy, mobile diagnostics, subacute contracted care and
related services at outpatient rehabilitation clinics and by contact to other
health care facilities in Pennsylvania, Ohio, Illinois and West Virginia.
<PAGE>1
NORTHSTAR Health Services, Inc.
The Atrium, 665 Philadelphia Street (412) 349-7500
P.O. Box 1289 (412) 465-3250
Indiana, PA 15701
PRELIMINARY
To: [Shareholders]
From: Steven N. Brody, Chairman
David D. Watson, President and Chief Operating Officer
John Lombardi, Executive Vice President and Chief Financial Officer
Subject: Northstar/Corporate Governance
Thank you for the time you gave us to hear our side of the Northstar
dispute. We agree that corporate governance and maximization of shareholder
value are the issues of paramount importance.
We sincerely request that you continue to listen to management's side
of the issue. Full disclosure is the only way for the shareholders to judge
what has been accomplished since KPMG left the audit in March 1996.
- A forensic investigation was completed, as required.
- Based on the results of the investigation, litigation for
recoveries against DeSimone and others has enabled
plaintiff shareholders to bolster their claims against
prior management. (Your long-suffering investors will
benefit from this.)
- Our senior creditor, IBJ-Schroder, is co-operating with
us in an effort to stretch out the Company's debt in a
manner that removes "going concern" issues and
facilitates re-listing and a return to the capital
markets or best available alternatives to maximize
shareholder value.
- Over $1,500,000 in annual expenses has been designed and
proposed to motivate key management and provide them a
measure of protection from all the non-revenue
generating, non-business development, non-operating
issues burdening the Company while they produce revenue
for shareholders.
<PAGE>2
- A cohesive senior management group has been organized
through the carefully planned integration of original
Northstar operations and the merged operations of Keystone
Rehabilitations Systems, Inc. This post-merger integration
process has had the full attention and co-operation of all
former Keystone executives and key employees except Mr.
Zaucha. They want the Company to do well, they want the
shareholders to do well, they want to do well and they are
the real assets of Northstar.
Frankly, we do not understand the actions of the Committee. If Zaucha
wants to maximize the value of his investment why not co-operate in the
restructuring of his debt and earnout as requested by the bank? This could all
have been done as a fitting conclusion to the Northstar corporate recovery.
Northstar is well on its way to timely SEC filings, a re-listing, settlement of
its plaintiff shareholder suits and the opportunity for investors to judge
fairly what the comparable values are between continued independence (with
execution of a well thought out business plan), a sale of the Company to a
strategic buyer who understands the value of Northstar in its regional
marketplace and who will "pay up" for such positioning, or a quick sale to a
Commonwealth/Zaucha group netting them profits on shares acquired questionably,
at bargain prices will below what you, your investors, and all of us paid. We
hired Advest to counsel us about the alternative valuation scenarios and the
methods available to maximize shareholder value. Clearly, we believe that an
Advest-driven process will better serve this objective than Commonwealth
Associates, Thomas Zaucha and his Committee of one.
<PAGE>1
NORTHSTAR Health Services, Inc.
The Atrium, 665 Philadelphia Street (412) 349-7500
P.O. Box 1289 (412) 465-3250
Indiana, PA 15701
February 28, 1997
Dear Fellow Shareholder:
DO NOT JEOPARDIZE
THE VALUE OF YOUR INVESTMENT
You may have recently received consent materials from Thomas Zaucha and his
so-called "Committee to Protect Northstar Health, who seek to seize control of
your Company by removing your recently appointed Board and replacing it with
his handpicked nominees. THERE IS NO REASON TO BE STAMPEDED INTO RESPONDING TO
THE "COMMITTEE'S" GRAB FOR CONTROL.
Your Board will soon be sending you important, detailed information about Mr.
Zaucha and his affiliates, and about what your new Board is doing to restore
your Company to profitability. The Board was chosen specifically for its crisis
management skills, independence and public company experience, and is committed
to protecting the financial interests of all Northstar shareholders. TO PROTECT
THE VALUE OF YOUR INVESTMENT, WE STRONGLY URGE YOU NOT TO RETURN ANY BLUE
CONSENT CARD YOU MAY RECEIVE FROM THE ZAUCHA/COMMONWEALTH "COMMITTEE."
MR. ZAUCHA -- FIRED FOR CAUSE
You should know that your new Board recently fired Mr. Zaucha from his
positions as Chairman and CEO for cause. The Board believes that Mr. Zaucha has
acted solely to his own benefit, enriching himself and his associates to the
detriment of Northstar shareholders. His lucrative deals with former management
have burdened your Company with heavy debt. For example, he was the owner of
Keystone Rehabilitation Services, Inc., which Northstar paid dearly for in
November 1995; and he currently owns Northstar headquarters, three clinics, and
a warehouse which he leases back to Northstar at excessive, above-market rates.
The owner of more than 15% of the Company's stock, Mr. Zaucha is also its
second largest creditor.
It was under Mr. Zaucha's reign as CEO that Northstar auditors, KPMG Peat
Marwick, L.L.P., resigned, citing concerns about related-party transactions and
questioning the integrity of management. Subsequently, the value of your
investment plummeted; NASDAQ delisted Northstar; and several former members
<PAGE>2
of the Company's Board were forced to resign. Northstar came under the scrutiny
of the SEC, the U.S. Attorney and the Federal Bureau of Investigation; and a
number of stockholders brought suit.
You should also know that Mr. Zaucha has retained Commonwealth Associates as
the Committee's financial advisor and counts as one of his "Committee" Basil J.
Asciutto, the Chief Operating Officer of Commonwealth. Commonwealth is an
investment banking firm which has been closely associated with Mark DeSimone,
against whom your Company has filed racketeering charges.
AN INDEPENDENT BOARD IS
CRITICAL TO NORTHSTAR'S SURVIVAL
Your Board believes that the history, conduct and motivation of Zaucha's group
are, at a minimum, suspect and clearly not in the best interests of Northstar
or its shareholders. Upon learning of KPMG Peat Marwick's concerns last March,
your new Board took immediate action to return your Company to financial
health. Continued independent and pro-active crisis management is critical to
the very existence of Northstar. The Board regards Mr. Zaucha's actions as
seriously disruptive to the significant progress made by the new Board in
turning around the value of your investment.
YOUR BEST DECISION IS AN INFORMED ONE
AGAIN, THE BOARD URGES YOU NOT TO SIGN ANY BLUE CONSENT FORM UNTIL YOU GET THE
FACTS, AND WE WELCOME ANY QUESTIONS YOU MAY HAVE.
If you need information, please call the company assisting us in our efforts,
Georgeson Company Inc., toll-free at 1-800-223-2064.
Sincerely yours,
/s/ Steven N. Brody
Steven N. Brody
/s/ Charles B. Jarrett, Jr.
Charles B. Jarrett, Jr.
/s/ Hon. Timothy L. Pesci
Hon. Timothy L. Pesci
<PAGE>3
/s/ Robert J. Smallacombe
Robert J. Smallacombe
/s/ David D. Watson
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 1.6% of the outstanding shares of NSTR's common stock, David D.
Watson who owns 1.4% of the outstanding shares of NSTR's common stock, and
Brian K. Strong, who owns 1.5% of the outstanding shares of NSTR's common
stock.
<PAGE>1
For more information contact: Melissa M. Krantz
The Krantz Group, Inc.
(212) 891-7235
For Immediate Release
Northstar Retains Advest to Maximize Value
Cites Insider Trading By Dissident Group
(Indiana, Pennsylvania) -- March 10, 1997 -- Northstar Health
Services, Inc. says it has filed a preliminary Schedule 14A Revocation of
Consent Statement with the Securities and Exchange Commission. The filing
details why Northstar believes shareholders should support the current Board
and urges shareholders to revoke any consent they may already have filed at the
request of the "Committee" organized by Thomas W. Zaucha, recently terminated
for cause from his position as Northstar's CEO.
According to the Company, Zaucha and Commonwealth have acted
irresponsibly toward shareholders through persistent acts of conflicts of
interest, attempts to remove corporate assets, and apparent acts of insider
trading and stock price manipulation. Unbeknownst to the Company, Zaucha
purchased 75,000 shares of Northstar common stock during December 1996 while in
possession of material insider information. These purchases, together with
purchases by others associated with his "Committee", represent egregious acts
of securities fraud.
In joining with Commonwealth, Mr. Zaucha further defied the
admonitions of Northstar's Special Counsel to the Investigation and the Board
of Directors which terminated the Company's relationship with Commonwealth in
October 1996 for its refusal to cooperate with the Special Investigation of the
Board. The investigation was conducted to resolve questions regarding the
resignation of KPMG Peat Marwick L.L.P., who had cited concerns about
related-party transactions and issues of management integrity.
The Company stated, given the fraud revealed by its investigation and
litigation against prior management, Northstar's turnaround requires
considerable time and involvement on the part of the Board of Directors and
management if it is to be completed. In the Board's view, it is a process that,
because of the Board's extensive knowledge of the Company's business,
operations and customers, will be better carried out by this Board than by the
Committee's nominees.
<PAGE>2
In a related matter, Northstar reconfirmed its commitment to explore
all alternatives to maximize shareholder value by instructing Advest, Inc., its
financial adviser, to aggressively pursue all such opportunities including
those which Zaucha or his Committee may propose.
Northstar Health Services, Inc. is a leading regional provider of
rehabilitation therapy, mobile diagnostics, subacute contracted care and
related services at outpatient rehabilitation clinics and by contact to other
health care facilities in Pennsylvania, Ohio, Illinois and West Virginia.
<PAGE>1
NORTHSTAR Health Services, Inc.
The Atrium, 665 Philadelphia Street (412) 349-7500
P.O. Box 1289 Fax: (412) 465-3250
Indiana, PA 15701
DON'T GAMBLE WITH THE FUTURE OF YOUR INVESTMENT
March 14, 1997
Dear Fellow Northstar Shareholder:
The future value of your investment in Northstar is at stake. As you know,
Thomas Zaucha, the former Chairman and CEO of Northstar, who was recently fired
for cause, is seeking your consent in an attempt to seize control of your
Company in a campaign which we believe will benefit Zaucha personally at the
expense of other Northstar stockholders. IN YOUR FINANCIAL SELF-INTEREST, WE
URGE YOU TO WAIT FOR THE FULL DISCLOSURE YOU NEED IN ORDER TO MAKE AN INFORMED
DECISION. YOUR COMPANY EXPECTS TO SEND YOU SUCH DISCLOSURE IN A MATTER OF WEEKS.
MEANWHILE, YOU SHOULD SIMPLY DISCARD ANY BLUE CARD YOU RECEIVE FROM ZAUCHA.
KEEP THE FOX OUT OF THE CHICKEN COOP
Don't be fooled by Zaucha's attempt to portray himself as an innocent victim.
Under Zaucha's "leadership":
* Northstar's price plummeted from $5.93 to as low as $0.88.
Curiously, Mr. Zaucha saw fit to purchase 75,000 shares at
prices between $1.28 and $1.50 last December while in
possession of what we believe was material non-public
information regarding Northstar's business prospects.
Incredibly, Mr. Zaucha has publicly stated that his possession
of such insider information didn't influence his decision to
buy Northstar shares at bargain-basement prices. Don't you
think Northstar shareholders, particularly the sellers of
those shares, would have liked the same information?
Details regarding Zaucha's insider trading have been referred
to the Securities and Exchange Commission by your Company.
* Northstar's accountants, KPMG Peat Marwick, L.L.P. resigned,
citing concerns about related party transactions and
questioning the integrity of management.
* Northstar was delisted by NASDAQ. Where was Mr. Zaucha and
Northstar's former CFO on the date of Northstar's
<PAGE>2
trading halt, when NASDAQ sought to contact your Company
pending the release of critical information? In Atlantic City
at a well-known casino because, according to Mr. Zaucha, he
was "too stressed out."
* While Northstar's stock price suffered, Zaucha and
Commonwealth (not to mention discredited former CEO Mark
DeSimone) were lining their pockets with rental income and
fees, respectively, at rates which we believe were
significantly above market.
NORTHSTAR'S TURNAROUND IS SOLIDLY UNDERWAY
In contrast, here's what your new Board and management have already
accomplished, without Mr. Zaucha's cooperation:
* Appointed a Special Investigative Committee to examine past
abuses by former officers and advisers of Northstar. The
Committee's Interim Report led to litigation and other actions
against DeSimone and others to recover damages for fraud
perpetrated against the Company.
* Completed a comprehensive business plan for the Company that,
among other things, deals with a comprehensive restructuring
of the Company's finances, including Zaucha's $5 million notes
and other obligations of the Company to Zaucha.
* Negotiated the cooperation of Northstar's senior creditor, IBJ
Schroder in stretching out the Company's debt in a manner that
removes "going concern" issues and facilitates relisting and a
return to the capital markets or best available alternatives
to maximize shareholder value.
* Organized a cohesive senior management group through the
carefully planned integration of original Northstar operations
and the merged operations of Keystone. This post-merger
integration process has had the full attention of cooperation
of all former Keystone executives and key employees except Mr.
Zaucha. They are the real assets of Northstar. Many of them
have publicly stated that they would leave Northstar should
Mr. Zaucha regain control.
* Designed a stock option plan appropriate to the fair
compensation of directors, executives, consultants and
special advisors in corporate recovery and turnaround
<PAGE>3
situations, as well as to Northstar's currently low
cash supply.
Don't be distracted by Zaucha's attacks on option grants to
key personnel. You should know that Zaucha personally approved
approximately 80% of the options granted and that additional
grants were given to key personnel because the Company did not
have enough cash to retain them otherwise. You should also
know that, contrary to Zaucha's claims, not a single option
has been issued, pending the Company's ability to provide full
disclosure.
* Terminated Northstar's relationship with Zaucha's Impulse
Development Corp., which had been billing the Company
excessive rates for maintenance and construction work in
Zaucha's former Keystone clinics. Impulse's then-President is
the husband of Northstar's former CFO, and Impulse had enjoyed
"preferred vendor" payment status with Northstar.
GIVEN CONTROL, ZAUCHA STANDS TO GAIN MILLIONS--
WHILE YOU STAND TO LOSE
In November 1995, Zaucha sold his company Keystone to Northstar for $7.6 million
up front in cash and short-term notes and other lucrative consideration,
including a questionable "earn-out" provision that pays Zaucha $1,600,000 per
year for five years, assuming Keystone's EBITA stays above $2,5000,000.(1) In
addition to all this, Zaucha was given a generous compensation package that
included a $275,000 annual salary plus a six-week vacation plus benefits plus a
$1,200/month leased Mercedes. FURTHERMORE, ZAUCHA'S AGREEMENT WITH MARK DESIMONE
PROVIDED THAT IF EITHER NORTHSTAR OR KEYSTONE WERE SOLD, THE "EARN-OUT" WOULD
ACCELERATE TO A ONE-TIME, IMMEDIATE PAYMENT TO ZAUCHA OF $8,000,000.
We believe a fire sale of Northstar prior to disclosure of the Company's
recently completed audit would deprive Northstar shareholders of the true value
of their investment. But while shareholders stand to lose significantly,
Zaucha's $8 million payday would occur immediately. YOUR BOARD IS NOT OPPOSED TO
THE SALE OF NORTHSTAR AT A FAIR PRICE, AND HAS INSTRUCTED ADVEST INC.,
NORTHSTAR'S FINANCIAL ADVISER, TO EXPLORE ALL ALTERNATIVES TO MAXIMIZE
SHAREHOLDER VALUE. HOWEVER, WE FURTHER BELIEVE THAT FAIR VALUE CANNOT BE
REALIZED UNTIL NORTHSTAR SHAREHOLDERS AND THE INVESTMENT COMMUNITY ARE IN
POSSESSION OF ALL RELEVANT FINANCIAL INFORMATION ABOUT NORTHSTAR.
- --------
1 Since Keystone's EBITA at the time of the merger was nearly
$4,000,000, the payment of this so-called "earn-out" would have
seemed secure.
<PAGE>4
YOUR SUPPORT IS IMPORTANT
We are convinced that Northstar is a solid business that has been milked by
prior management and a number of its former advisers. We need your support in
our continuing effort to restore Northstar to financial health. Don't deprive
yourself of the opportunity to realize the full value of your investment in
Northstar. AGAIN, IN YOUR FINANCIAL SELF-INTEREST, WE URGE YOU TO WAIT FOR FULL
DISCLOSURE. SIMPLY DISCARD ANY BLUE CONSENT CARDS ZAUCHA SENDS YOU.
If you have any questions or need further information, please call the company
assisting us in our efforts, Georgeson & Company Inc., toll-free at
1-800-223-2064.
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 l.6% of the outstanding
shares of NSTR's common stock.
<PAGE>1
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:
<PAGE>2
<TABLE>
<CAPTION>
The Estimated Value to
Suppose Northstar Northstar Shareholders would But Zaucha Would Take Home
Were Sold at This per Share be:* Stakeholders Value:** Approximately:
Price:
- --------------------------- ---------------------------- --------------------- --------------------------
<S> <C> <C> <C>
$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
<FN>
- ---------------------------
* Includes Zaucha's 15% holdings.
** Includes key employees and individuals to whom Zaucha has made
contractual obligations himself as the former CEO of Northstar.
</FN>
</TABLE>
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:
<PAGE>3
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?
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
<PAGE>4
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.
<PAGE>
JOINT FILING AGREEMENT
The undersigned hereby agree that Amendment No. 3 to the
statement on Schedule 13D with respect to the shares of Common Stock of
Northstar Health Services, Inc., dated March 27, 1997, and any further
amendments thereto signed by each of the undersigned shall be filed on behalf of
each of them pursuant to and in accordance with the provisions of Rule 13d-1(f)
under the Securities Exchange Act of 1934.
Date: March 27, 1997 THOMAS W. ZAUCHA
/s/ Thomas W. Zaucha
Thomas W. Zaucha
Date: March 27, 1997 COMMONWEALTH ASSOCIATES
By: Commonwealth Associates Management
Company, Inc., its general partner
By: /s/ Basil Asciutto
Name: Basil Asciutto
Title: Chief Operating Officer
Date: March 27, 1997 MICHAEL S. FALK
/s/ Michael S. Falk
Michael S. Falk
Date: March 27, 1997 JOSEPH F. MICALLEF
/s/ Joseph F. Micallef
Joseph F. Micallef
Date: March 27, 1997 BASIL J. ASCIUTTO
/s/ Basil J. Asciutto
Basil J. Asciutto
