<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ --------------
Commission file number 0-21752
NORTHSTAR HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1697152
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
665 PHILADELPHIA STREET, INDIANA, PENNSYLVANIA 15701
(Address of principal executive offices)
412-349-7500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
--- ---
State the number of shares outstanding of each of the issuer's classes of commn
stock, as of the latest practicable date:
Class Outstanding as of August 14, 1997
- -------------------------------------- ---------------------------------
Common Stock, par value $.01 per share 5,867,154
Transitional Small Business Disclosure Format (Check one):
Yes No X
--- ---
<PAGE> 2
NORTHSTAR HEALTH SERVICES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX PAGE
- ----- ----
<S> <C>
Part I - FINANCIAL INFORMATION
Item 1
Condensed Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Operations
for the three months ended June 30, 1997 and 1996 3
Condensed Consolidated Statements of Operations
for the six months ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3.
Quantitative and Qualitative Disclosure About Market
Risk Sensitive Instruments 18
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings 19
Item 3 - Defaults Upon Senior Securities 21
Item 6 - Exhibits and Reports on Form 8-K 22
</TABLE>
<PAGE> 3
Item 1. - Financial Statements
NORTHSTAR HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Note 1)
(Dollars in Thousands)
<TABLE>
<CAPTION>
A S S E T S June 30, December 31,
----------- 1997 1996
-------------- ----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents- $ 650 $ 1,607
Accounts receivable-
Patients, net of allowances for doubtful accounts of
$3,368 and $3,759, respectively 5,146 6,098
Management fees 736 766
Miscellaneous 135 244
Prepaid expenses and other current assets 282 731
--------- ----------
Total current assets 6,949 9,446
--------- ----------
PROPERTY AND EQUIPMENT, net 3,148 3,682
INTANGIBLE ASSETS, net (Note 2) 20,301 21,132
OTHER ASSETS 212 282
--------- ----------
TOTAL ASSETS $ 30,610 $ 34,542
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
NORTHSTAR HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Note 1)
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31,
------------------------------------ 1997 1996
-------------- ---------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt (Note 3)
IBJ Schroder $ 14,083 $ 14,083
Thomas Zaucha and Zaucha Family Limited Partnership 2,108 1,285
Other debt 2,257 1,893
Accounts payable 1,631 2,048
Accrued expenses 7,465 5,323
Contractual obligations to employees 1,611 1,633
---------- ------------
Total current liabilities 29,155 26,265
---------- ------------
LONG-TERM DEBT
Thomas Zaucha and Zaucha Family Limited Partnership 2,027 3,183
Other debt 1,066 1,718
---------- ------------
Total long term debt 3,093 4,901
MINORITY INTEREST 119 184
---------- ------------
Total liabilities 32,367 31,350
---------- ------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share, 1,000,000 shares
authorized, none issued -- --
Common stock, par value $.01 per share, 10,000,000 shares authorized;
6,229,718 shares issued; 5,867,154 shares outstanding at June 30,
1997 and December 31, 1996 62 62
Additional paid-in capital 26,208 26,208
Warrants outstanding 1,951 1,951
Retained deficit (29,525) (24,576)
Less: Treasury stock, 362,564 shares in 1997 and 1996 (453)
(453)
---------- ------------
Total stockholders' equity/(deficit) (1,757) 3,192
---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30,610 $ 34,542
========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
NORTHSTAR HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Note 1)
(Dollars in Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
--------------------------
1997 1996
--------- ----------
<S> <C> <C>
REVENUE:
Net patient service revenue $ 7,690 $ 9,342
Management fee revenue 342 770
----------- --------
Total revenue 8,032 10,112
COSTS OF SERVICE 4,333 5,042
----------- --------
Gross profit 3,699 5,070
OPERATING EXPENSES:
Selling, general and administrative expenses 2,381 3,231
Bad debt expense 836 470
Restructuring and other non-recurring expenses (Note 5) 1,974 1,542
Amortization of intangibles 284 480
Depreciation and amortization 142 147
Management fee expenses 638 813
----------- --------
Total operating expenses 6,255 6,683
----------- --------
OPERATING LOSS (2,556) (1,613)
NON-OPERATING EXPENSES:
Interest expense, net 613 524
Other expense, net 117 49
----------- --------
Total non-operating expenses 730 573
----------- --------
LOSS BEFORE INCOME TAXES (3,286) (2,186)
INCOME TAXES 65 35
----------- --------
LOSS BEFORE MINORITY INTEREST (3,351) (2,221)
MINORITY INTEREST 2 117
----------- --------
NET LOSS $ (3,353) $ (2,338)
=========== ========
NET LOSS PER SHARE $ (0.57) $ (0.38)
=========== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND EQUIVALENTS 5,867,154 6,229,718
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
NORTHSTAR HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Note 1)
(Dollars in Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
----------- ----------
<S> <C> <C>
REVENUE:
Net patient service revenue $ 16,327 $ 19,378
Management fee revenue 888 1,584
----------- -----------
Total revenue 17,215 20,962
----------- -----------
COSTS OF SERVICE 8,490 10,264
----------- -----------
Gross profit 8,725 10,698
OPERATING EXPENSES:
Selling, general and administrative expenses 5,243 6,645
Bad debt expense 1,352 977
Restructuring and other non-recurring expenses (Note 5) 3,495 3,234
Amortization of intangibles 587 974
Depreciation and amortization 291 298
Management fee expense 1,301 1,674
----------- -----------
Total operating expenses 12,269 13,802
----------- -----------
OPERATING LOSS (3,544) (3,104)
NON-OPERATING EXPENSES:
Interest expense, net 1,137 1,067
Other expense, net 67 105
----------- -----------
Total non-operating expenses 1,204 1,172
----------- -----------
LOSS BEFORE INCOME TAXES (4,748) (4,276)
INCOME TAXES 130 196
----------- -----------
LOSS BEFORE MINORITY INTEREST (4,878) (4,472)
MINORITY INTEREST 71 234
----------- -----------
NET LOSS $ (4,949) $ (4,706)
=========== ===========
NET LOSS PER SHARE $ (0.84) $ (0.76)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND EQUIVALENTS 5,867,154 6,229,718
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE> 7
NORTHSTAR HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Notes 1 and 2)
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,949) $ (4,706)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities-
Depreciation and amortization 1,522 2,692
Gain on legal settlement (47) --
Provision for doubtful accounts 1,352 977
Loss on note receivable collateralized by common stock -- 1,479
Loss on write off of investment -- 39
Interest on discounted obligation 114 188
(Gain)/loss on sale of equipment (23) 43
Provision for increase in contractual obligations to employees (142) 138
Stock option compensation expense 60 57
Minority interest 71 196
Change in current assets and liabilities-
(Increase) in receivables (261) (1,258)
Decrease in other current assets 449 83
Increase/(decrease) in accounts payable (417) 667
Increase in accrued expenses 2,262 403
------------ ------------
Net cash (used in)/provided by operating activities (9) 998
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired -- (24)
Capital expenditures (2) (222)
Deposits, loans and investments 10 (77)
------------ ------------
Net cash (used in)/provided by investing activities 8 (323)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (820) (1,060)
Payment of acquisition note to Thomas Zaucha -- (5,100)
Distributions to minority interests (136) (99)
Borrowings on long-term debt -- 466
------------ ------------
Net cash used in financing activities (956) (5,793)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (957) (5,118)
CASH AND CASH EQUIVALENTS, beginning balance 1,607 5,730
------------ ------------
CASH AND CASH EQUIVALENTS, end balance $ 650 $ 612
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid $ 696 $ 602
Income taxes paid 133 159
NONCASH INVESTING ACTIVITIES:
Capital lease obligations 62 342
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 8
NORTHSTAR HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General
These condensed consolidated financial statements of Northstar Health Services,
Inc. (the Company) are unaudited and reflect all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results of operations for the interim
period. These statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Company's Form 10-K for
the year ended December 31, 1996.
Management Fees
The Company manages two businesses on a contract basis that provide mobile
diagnostics and physician services. In conjunction with these contracts, the
Company receives compensation in the form of a monthly management fee. This fee
is equal to the net income or loss of the managed business after the payment of
certain agreed-upon salaries and benefits to certain parties.
Effect of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share". SFAS No. 128
differs from current accounting guidance in that earnings per share is
classified as basic earnings per share and diluted earnings per share, compared
to primary earnings per share and fully diluted earnings per share under the
current standards. Basic earnings per share differs from primary earnings per
share in that it includes only the weighted average common shares outstanding
and does not include any dilutive securities in the calculation. Diluted
earnings per share under the new standard differs in certain calculations when
compared to fully diluted earnings per share under the existing standards.
Adoption of SFAS No. 128 is required for interim and annual periods ending
after December 15, 1997. As a result of the Company's reported net loss, there
would be no impact on earnings per share compared to the results presented if
the Company had applied SFAS No. 128.
Reclassifications
Certain reclassifications have been made to prior year financial statements to
conform with the current year presentation.
6
<PAGE> 9
2. INTANGIBLE ASSETS:
Intangible assets and the related amortization periods consist of the following
(dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Excess of cost over net assets acquired (40 years) $ 17,481 $ 17,481
Employment agreements (2 to 7-1/2 years) 2,409 2,660
Keystone tradename (20 years) 2,500 2,500
Covenant not to compete (5 years) 1,258 1,258
Assembled Keystone workforce (5 years) 1,000 1,000
Deferred financing and other costs (5 years) 861 861
------------ ------------
Gross intangible assets 25,509 25,760
Less-accumulated amortization (5,208) (4,628)
------------ ------------
Net intangible assets $ 20,301 $ 21,132
============ ============
</TABLE>
3. DEBT:
Debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Term loan with IBJ Schroder $ 6,083 $ 6,083
Revolving line of credit with IBJ Schroder 2,000 2,000
Acquisition facility with IBJ Schroder 6,000 6,000
Non-interest bearing term notes to Thomas Zaucha and the Zaucha
Family Limited Partnership 2,625 2,625
Term notes to Thomas Zaucha and the Zaucha Family Limited
Partnership 2,400 2,400
Capital lease obligations with interest rates ranging from 9% to
15.6% 2,799 3,059
Other debt 587 1,157
---------- -----------
Total long-term debt 22,494 23,324
Less:
Current portion (18,448) (17,261)
Debt discount (953) (1,162)
---------- -----------
Long-term debt $ 3,093 $ 4,901
========== ===========
</TABLE>
As of June 30, 1997, the Company has no unused amounts under its existing
credit facilities. During the second quarter of 1997, the Company's weighted
average interest rate was 10.4%. The Company is currently in default of its
obligations under its credit facility with IBJ Schroder Bank & Trust Company.
Please refer to the Liquidity section of Item 2 for further discussion.
7
<PAGE> 10
4. PROXY SOLICITATION:
On February 6, 1997, Thomas W. Zaucha, the current and then Chairman of the
Board of Directors and Chief Executive Officer of Northstar, commenced a
solicitation of Northstar shareholder consents to remove and replace the other
members of the Northstar Board of Directors and effectuate related changes in
Northstar's bylaws (the "Consent Solicitation") . Shortly thereafter, the Board
of Directors terminated Mr. Zaucha's employment with the Company, though he
remained a member of the Board of Directors. On March 24, 1997, Mr. Zaucha
delivered executed consents representing the votes of 61% of the outstanding
shares in favor of his proposals and, following confirmation of the decision by
the Delaware Chancery Court on May 8, 1997, Mr. Zaucha resumed his duties as
the Company's Chief Executive Officer.
The ruling of the Delaware Chancery Court was appealed to the Delaware Supreme
Court by three of the Board members removed from office as a result of the
Chancery Courts' decision. On August 1, 1997, a unanimous panel of the Delaware
Supreme Court affirmed the decision of the Delaware Chancery Court confirming
the election of the current Board. The ruling of the Delaware Supreme Court is
described in the Company's Current Report on Form 8-K, dated August 1, 1997.
5. NON-RECURRING EXPENSES:
Through March 28, 1997, the Company incurred costs of approximately $527,000 in
connection with its defense against the Consent Solicitation outlined in Note
4. On March 28, 1997, the opposing sides in the Consent Solicitation reached
an agreement at a conference before Chief District Judge Ziegler of the United
States District Court for the Western District of Pennsylvania. Under this
agreement, Mr. Zaucha, on one hand, and the other individual Directors, on the
other hand, would thereafter bear their own respective expenses. Under the
agreement, only the side confirmed as the winner of the contested vote by the
Delaware courts, after all appeals, would be entitled to reimbursement of
expenses from the Company.
As described in Note 4, Mr. Zaucha has been confirmed as the winner by the
Delaware Supreme Court and, as such, is entitled to seek reimbursement for the
costs he incurred during the Consent Solicitation. Mr. Zaucha has informed the
Company that he expects his reimbursable expenses incurred in connection with
the Consent Solicitation will approximate $1,900,000. This represents an
increase over amounts previously estimated and is due, in part, to the costs
associated with the appeal to the Delaware Supreme Court that was filed by
Steven N. Brody, Robert J. Smallacombe and Charles B. Jarrett, Jr., three of
the Board members who were removed from office as a result of the Consent
Solicitation. Of this total, the Company has recorded an expense during the
first six months of $1,650,000 that represents the expenses incurred by Mr.
Zaucha through June 30, 1997. The Company anticipates an additional expense of
approximately $250,000 during the third quarter.
In addition, since 1996, the Company has incurred significant accounting, legal
and consulting expenses arising out of its investigation of apparent wrongdoing
on the part of the management team that controlled Northstar prior to 1996 and
the resulting litigation brought
8
<PAGE> 11
both against and by the Company. Please refer to the Legal Proceedings section
in Part II for a discussion of these matters.
A summary of these unusual and non-recurring expenses is as follows:
<TABLE>
<CAPTION>
For six months ended June 30,
-----------------------------
1997 1996
---------- -----------
<S> <C> <C>
Company costs related to proxy solicitation incurred by $ 527 $ --
former management
Proxy solicitation cost incurred by Mr. Zaucha 1,650 --
Loss on notes receivable collateralized with common stock -- 1,479
Additional legal and accounting fees 472 287
Write off of intangible assets 230 960
Litigation and investigation costs 307 433
Corporate restructuring costs 309 75
--------- ---------
Total $ 3,495 $ 3,234
========= =========
</TABLE>
6. RELATED-PARTY TRANSACTIONS:
Keystone Acquisition
In connection with the Keystone acquisition, Mr. Thomas Zaucha and Mr. David
Watson, who are now or were officers with Northstar, and Mr. Zaucha's family
limited partnership, have debt and other amounts due directly to them of
$3,573,00, $224,000, and $1,007,000 as of June 30, 1997, respectively.
The Company also rents office and clinical space in buildings owned by the
Zaucha Family Limited Partnership and other related entities. Through June 30,
1997, the Company has incurred an expense of $235,180 related to rent due on
these spaces, of which approximately $118,000 of past due expenses remained
unpaid by the Company, and are being repaid on a monthly payment schedule
through November 15, 1997. A Special Committee of the Board of Directors of the
Company has been appointed and is evaluating the fair market lease rates for
these properties.
In conjunction with the acquisition of Keystone by Northstar, Mr. Zaucha and
the Zaucha Family Limited Partnership were granted certain contingent payments
(earn out payments) based on the financial performance of Keystone during the
period from 1996 to 2000. A Special Committee of the Board of Directors of the
Company has been appointed and is evaluating the earn out calculation for 1996.
If an earn out is determined to be due, the additional consideration would be
recorded as goodwill.
9
<PAGE> 12
7. COMMITMENTS AND CONTINGENCIES:
Zaucha Stock Guarantee
The Company has issued a guarantee of the value of certain stock issued to Mr.
Zaucha and the Zaucha Family Limited Partnership to be at least $5,600,000 for
a period not to extend beyond December 31, 1997. The Company has an obligation
to fund any shortfall in stock value through the issuance of additional shares
of stock or a cash payment equal to the shortfall. As of the June 30, 1997
closing stock price, the shortfall results in a liability of $2,884,988. The
Company would need to issue 1,003,474 shares to fulfill this obligation.
8. STOCK OPTIONS:
At the Board of Directors meeting held on June 18, 1997, the outside Directors
and Officers of the Company were each granted 25,000 stock options valued at
the stock quotation price as of March 24, 1997, which was also the stock
quotation price on June 18, 1997, with a term of five (5) years or, upon
vacancy in office, six (6) months.
9. SUBSEQUENT EVENTS:
Consent Solicitation
Please refer to Note 4 for a discussion of the Consent Solicitation and related
issues.
Contractual Obligations to Employees
The Company is terminating its existing profit-sharing arrangements with four
of its therapists pursuant to the terms of their employment agreements. This
event is described in the Company's Current Report on Form 8-K dated August 1,
1997.
10
<PAGE> 13
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Information Relating to Forward-Looking Statements
Management's Discussion and Analysis and other sections of this
Quarterly Report include forward-looking statements that reflect the Company's
current expectations concerning future results. The words "expects", "intends",
"believes", "anticipates", "likely", "will", and similar expressions identify
forward-looking statements. These forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those anticipated in the forward-looking statements.
Results of Operations
Three Months Ended June 30, 1997 and 1996
Total revenue
During the second quarter of 1997, the Company's total revenues
declined by $2,080,000, or 21%, from $10,112,000 for the second quarter of 1996
to $8,032,000 for the second quarter of 1997. Approximately $1,050,000 of the
decrease was the result of an agreement reached with the former owner of the
Company's subsidiary, NW Rehabilitation Services, Inc., ("NWR") who severed her
relationship with the Company in 1996, and retained the rights to certain of
NWR's contract businesses. The Company also experienced the closure or
termination of certain clinics and contracts, the majority of which were
unprofitable, that resulted in a decline in net patient service revenues of
approximately $1,020,000. A decline in management fee revenues of approximately
$430,000 is attributable to a change in the reimbursement of certain diagnostic
services and the termination of services in unprofitable areas. The Company
entered the sub-acute care business in late 1996. Sub-acute revenues
contributed approximately $145,000 in the second quarter. The Company has
terminated the separate sub-acute care division of the Company due to its poor
operating performance. The Company also opened new outpatient offices and
entered into new contracts that resulted in an increase in net patient service
revenues of $160,000. The remaining increase in net patient service revenues of
$115,000 is a result of net growth in continuing operations.
Costs of service and Gross profit
Due to the decrease in total revenues, the Company's costs of service
also decreased a substantial total of $709,000 from $5,042,000 for the second
quarter of 1996 to $4,333,000 for 1997, or 14%. However, as a percentage of net
patient service revenue, costs of service increased slightly during the second
quarter of 1997, from 54% in 1996 to 56% in 1997. A large portion of this
increase can be attributed to the high direct costs experienced in certain
sub-acute contracts that have resulted in poor gross margins and have since
been terminated. As a result of this increase and the decline in total revenue,
gross profit declined $1,371,000, from $5,070,000 (50% of total revenue) for
the second quarter of 1996 to $3,699,000 (46% of total revenue) for 1997.
11
<PAGE> 14
Selling, general and administrative expense
Total selling, general and administrative expenses for the second
quarter declined $850,000 from $3,231,000 in 1996 to $2,381,000 in 1997. The
26% decrease can be attributed to increased efficiency and consolidation of the
Indiana, PA and Pittsburgh, PA corporate office functions, a reduction of
expenses arising from the above noted NWR severance agreement, and a reduction
of corporate office salary and consulting expenses as a result of personnel
changes made in connection with the reinstatement of current management as a
result of the Consent Solicitation. The Company is committed to continuing
reductions in overhead expenses wherever possible by continually evaluating all
administrative expenses for necessity and value.
Bad debt expense
The Company incurred bad debt expense of approximately $836,000 or
approximately 10.9% of net patient service revenue during the second quarter of
1997 versus $470,000 or approximately 5.0% during the second quarter of 1996.
This increase is the direct result of a $400,000 bad debt reserve in the second
quarter of 1997 directly attributed to a sub-acute contract in Illinois that
has been determined to be uncollectible. Without this specific reserve, bad
debt expense would have been $436,000 for the second quarter of 1997, or 5.7%
of net patient service revenue, which is comparable to 1996.
Restructuring and non-recurring expense
During the second quarter of 1997, certain expenses deemed
non-recurring were $1,974,000 compared to $1,542,000 for 1996. A significant
portion of the 1997 expense arose from legal fees and other expenses incurred
relating to the Consent Solicitation initiated by Thomas Zaucha, the Company's
current Chief Executive Officer. These expenses totaled approximately
$1,239,000 for the second quarter of 1997. In addition, the Company continued
to incur higher than normal audit, legal and other professional fees resulting
from continuing reorganization of the Company, shareholder litigation against
the Company, and the Company's lawsuit against former management. Intangible
assets written off for both 1997 and 1996 represented the write off of the
remaining employment contracts with former employees.
Depreciation and amortization
Other operating costs include amortization of intangibles arising from
past acquisitions, depreciation and other deferred charges, primarily finance
costs. Amortization of intangibles for the second quarter of 1997 of $284,000
declined by $196,000 from the 1996 total, reflecting (1) intangible asset
write-offs that occurred after the second quarter of 1996, and (2) completion
of the amortization period for certain assets acquired during previous
acquisitions by the Company.
12
<PAGE> 15
Interest and other non-operating expenses
Interest expenses were $613,000 for the second quarter of 1997
compared to $524,000 for 1996. The increase can be attributed to an increase in
the Company's weighted average interest rate from 1996 to 1997 due to the
inability of the Company to qualify in 1997 for the lower interest rates that
were available in the early part of 1996 with its senior lender. The Company
reported net non-operating expenses of $117,000 in 1997 compared to net
non-operating expenses of $49,000 in 1996. The expense for 1997 includes a
provision for legal contingencies related to pending litigation.
Income taxes
The Company has recorded an expense of $65,000 during the second
quarter of 1997 versus an expense of $35,000 during the second quarter of 1996.
This expense is necessary to provide for state income and franchise taxes for
certain subsidiary corporations.
Net loss
The net loss for the second quarter of 1997 was $3,353,000 compared to
a loss of $2,338,000 for the same period in 1996. After taking into account the
Company's non-recurring expenses, the Company showed the following net loss
compared to that of 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net loss ($3,353,000) ($2,338,000)
Non-recurring expenses 1,974,000 1,542,000
Unusual bad debt expense 400,000 --
----------- -----------
Net loss prior to non-recurring expenses ($979,000) ($796,000)
=========== ===========
</TABLE>
The increase in the net loss from 1996 to 1997 was experienced as the
result of net operating losses in certain contracts related to the Company's
venture into the sub-acute care business. These contracts were terminated in
July 1997.
Results of Operations
Six Months Ended June 30, 1997 and 1996
Total revenue
For the six month period ended June 30, 1997, the Company's total
revenues declined by $3,747,000, or 18%, from $20,962,000 for 1996 to
$17,215,000 for 1997. Approximately $2,115,000 of the decrease was the result
of an agreement reached with the former owner of the Company's subsidiary, NW
Rehabilitation Services, Inc., ("NWR") who severed her relationship with the
Company in 1996, and retained the rights to certain of NWR's contract
businesses. The Company also experienced the closure or termination of certain
clinics and contracts, the majority of which were unprofitable, that resulted
in a decline in net patient service revenues of approximately $1,450,000. A
decline in management fee revenues of
13
<PAGE> 16
approximately $695,000 is attributable to a change in the reimbursement of
certain diagnostic services and the termination of services in unprofitable
areas. The Company entered the sub-acute care business in late 1996. Sub-acute
revenues contributed approximately $350,000 in the first six months. The
Company has terminated the separate sub-acute care division of the Company due
to its poor operating performance. The Company also opened new outpatient
offices and entered into new contracts that resulted in an increase in net
patient service revenues of $280,000. The remaining decrease in net patient
service revenues of $117,000 is a result of a net decline in reimbursement in
continuing operations for the six month period.
Costs of service and Gross profit
Due to the decrease in total revenues, the Company's costs of service
also decreased a substantial total of $1,774,000 from $10,264,000 for the first
six months of 1996 to $8,490,000 for 1997, or 17%. As a percentage of net
patient service revenue, costs of service decreased slightly during the first
six months of 1997, from 53% in 1996 to 52% in 1997. As a result of the decline
in total revenue, gross profit declined $1,973,000, from $10,698,000 for the
first six months of 1996 to $8,725,000 for 1997. However, as a percentage of
total revenue, gross profit remained steady at 51% for the first six months of
1996 and 1997.
Selling, general and administrative expense
Total selling, general and administrative expenses for the first six
months declined $1,402,000 from $6,645,000 in 1996 to $5,243,000 in 1997. The
21% decrease can be attributed to increased efficiency and consolidation of the
Indiana, PA and Pittsburgh, PA corporate office functions, a reduction of
expenses arising from the above noted NWR severance agreement, and a reduction
of corporate office salary and consulting expenses as a result of personnel
changes made in connection with the reinstatement of current management as a
result of the Consent Solicitation. The Company is committed to continuing
reductions in overhead expenses wherever possible by continually evaluating all
administrative expenses for necessity and value.
Bad debt expense
The Company incurred bad debt expense of approximately $1,352,000 or
approximately 8.3% of net patient service revenue during the first six months
of 1997 versus $977,000 or approximately 5.0% for 1996. This increase is the
direct result of a $400,000 bad debt reserve in the second quarter of 1997
directly attributed to a receivable for a sub-acute contract that has been
determined to be uncollectible. Without this specific reserve, bad debt expense
would have been $952,000 for the six month period, or 5.8% of net patient
service revenue, which is comparable to 1996.
Restructuring and non-recurring expense
During the six month period ended June 30, 1997, certain expenses
deemed non-recurring were $3,495,000 compared to $3,234,000 for 1996. A
significant portion of the 1997 expense arose from legal fees and other
expenses incurred relating to the Consent Solicitation initiated by Thomas
Zaucha, the Company's current Chief Executive Officer. These expenses
14
<PAGE> 17
totaled approximately $2,177,000 for the first six months 1997. In addition,
the Company continued to incur higher than normal audit, legal and other
professional fees resulting from continuing reorganization of the Company,
shareholder litigation against the Company, and the Company's lawsuit against
former management. Intangible assets written off for both 1997 and 1996
represented the write off of the remaining employment contracts with former
employees.
Depreciation and amortization
Other operating costs include amortization of intangibles arising from
past acquisitions, depreciation and other deferred charges, primarily finance
costs. Amortization of intangibles for the first six months of 1997 of $587,000
declined by $387,000 from the 1996 total, reflecting (1) intangible asset
write-offs that occurred after the first half of 1996, and (2) completion of
the amortization period for certain assets acquired during previous
acquisitions by the Company.
Interest and other non-operating expenses
Interest expenses were $1,137,000 for the first six months of 1997
compared to $1,067,000 for 1996. The increase can be attributed to an increase
in the Company's weighted average interest rate from 1996 to 1997 due to the
inability of the Company to qualify in 1997 for the lower interest rates that
were available in the early part of 1996 with its senior lender. The Company
reported net non-operating expenses of $67,000 in 1997 compared to net
non-operating expenses of $105,000 in 1996. The expense for 1997 was offset by
a gain on legal settlement of $47,000.
Income taxes
The Company has recorded an expense of $130,000 during the first six
months of 1997 versus an expense of $196,000 during 1996. This expense is
necessary to provide for state income and franchise taxes for certain
subsidiary corporations.
Net loss:
The net loss for the first six months of 1997 was $4,949,000 compared
to a loss of $4,706,000 for the same period in 1996. After taking into account
the Company's non-recurring expenses, the Company showed an improved net loss
compared to that of 1996.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net loss ($4,949,000) ($4,706,000)
Non-recurring expenses 3,495,000 3,234,000
Unusual bad debt expense 400,000 --
----------- -----------
Net loss prior to non-recurring expenses ($1,054,000) ($1,472,000)
=========== ===========
</TABLE>
The improvement in the operating loss was accomplished through the
elimination of unprofitable clinics and contracts, which was offset by
operating losses experienced in contracts
15
<PAGE> 18
related to the Company's venture into the sub-acute care business. These
sub-acute contracts were terminated in July 1997.
Effect of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share". SFAS
No. 128 differs from current accounting guidance in that earnings per share is
classified as basic earnings per share and diluted earnings per share, compared
to primary earnings per share and fully diluted earnings per share under the
current standards. Basic earnings per share differs from primary earnings per
share in that it includes only the weighted average common shares outstanding
and does not include any dilutive securities in the calculation. Diluted
earnings per share under the new standard differs in certain calculations when
compared to fully diluted earnings per share under the existing standards.
Adoption of SFAS No. 128 is required for interim and annual period ending after
December 15, 1997. As a result of the Company's reported net loss, there would
be no impact on earnings per share compared to the results presented if the
Company had applied SFAS No. 128.
Liquidity and Capital Resources
The Company is currently in default of its obligations under the
credit facility with IBJ Schroder Bank & Trust Company (IBJ). Failure to reach
an agreement with this senior creditor relative to a restructuring of the
Company's outstanding debt obligations would likely result in acceleration of
the loan and a filing of a petition for relief under the Federal Bankruptcy
Code.
During the six months ended June 30, 1997, the Company used $9,000 in
its operations versus $793,000 of cash provided by operations during the first
six months of 1996. This change in cash from operations can be attributed to a
number of items including:
o Accounts payable decreased $417,000 during the first six months of 1997
versus a significant increase of $667,000 during the same period in 1996.
o Accounts receivable increased $261,000 during the first six months of 1997
as compared to an increase of $1,258,000 in 1996. This change reflects the
decrease in total revenues during 1997 and the outsourcing of collections
to a third party in early 1997.
The Company also expended less money on investing activities in 1997
versus that expended during 1996. The net cash used in investing activities
declined from $323,000 in 1996 to a provision of $8,000 in 1997 resulting from
reduced capital investment.
The Company also had a significant change in its cash used in
financing activities. During 1996, the Company had a net usage of $5,796,000
during the first six months of the year. This total was used to:
o Pay $5,100,000 of a note due to Thomas Zaucha and the Zaucha Family
Limited Partnership as a result of the Keystone acquisition and
o Make payments of approximately $1,060,000 that were used to amortize long
term debt and other obligations of the Company.
16
<PAGE> 19
The net figure presented above also includes a $400,000 cash inflow during
the first quarter of 1996 resulting from a direct borrowing on the Company's
line of credit with IBJ.
During 1997, the Company made net debt payments of $820,000 during the
first six months of the year which were primarily to pay debts owed to former
owners and managers of the Company as well as scheduled debt and lease
payments. In addition, the Company paid approximately $136,000 to minority
interest holders in companies controlled by Northstar. During the first six
months of 1997, the Company made no additional material borrowings under any
debt arrangements.
Summary
The Company is presently experiencing a severe liquidity crisis as a
result of the extraordinary expenses related to its recently concluded contest
for corporate control; investigation and litigation expenses arising out of
certain actions taken by the Company's pre-1996 management; continuing
operating losses; and current obligations to buy out existing profit-sharing
interests in several of the Company's key clinics. As a result of these
circumstances, the Company's access to the capital and debt markets has been
severely impaired. If it is unable to raise additional capital and/or effect a
permanent restructuring of the terms of its outstanding long-term debt
obligations before the end of 1997, the Company could be required to file a
petition for relief under the provisions of the Bankruptcy Code.
In response to these developments, the Company has terminated its
separate sub-acute care division which had incurred significant operating
losses and experienced a high rate of uncollectible receivables, and has
focused its efforts on improving the performance of the mobile diagnostics and
core physical therapy and rehabilitation businesses. The Company is also
continuing to review all overhead expenses in an effort to reduce costs
wherever possible. The extraordinary expenses associated with the Company's
recent proxy fight have ended, and the Company's Chairman has indicated that he
will not demand immediate reimbursement of all expenses due to him in
connection therewith. While the Company is currently in default of its
obligations under its Credit Agreement, the Company has been engaged in
negotiations with IBJ that it expects will lead to the execution of a
Forbearance Agreement in the near future. Even if such an agreement were
executed, however, a permanent restructuring of the Company's long-term debt
would be required.
There can be no assurance that the Company will be successful in
raising additional equity or other capital, or that it will be in a position to
do so on terms that will not dilute the equity interest of the Company's
existing stockholders. The Company is not currently eligible to utilize Form
S-3 to register offerings of securities under the Securities Act of 1933, and
its shares are not currently listed on either the NASDAQ National Market or the
NASDAQ Small Cap Market. These circumstances could adversely affect the
Company's ability to attract additional equity capital. Moreover, the Company
has been advised that its capital-raising efforts should not commence in
earnest until a settlement of pending lawsuits, related to certain actions of
the Company's pre-1996 management, has been effected. Please see Part II, Item
1, "Legal Proceedings" for further discussion of the pending legal actions.
17
<PAGE> 20
Item - 3. Quantitative and Qualitative Disclosure About Market Risk Sensitive
Instruments
The Company currently does not invest excess funds in derivative financial
instruments or other market risk sensitive instruments for the purpose of
managing its foreign currency exchange rate risk or for any other purpose.
18
<PAGE> 21
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings
In September 1996, after an internal corporate investigation by an
independent committee of Northstar directors, Northstar filed suit under the
Racketeer Influenced and Corrupt Organization Act ("RICO") in federal court in
Pittsburgh against Mark A. DeSimone, his wife Leslie M. DeSimone, his cousin
James P. Shields and several other related parties, as well as Richard A.
Eisner & Co., LLP, Northstar's former accountants and auditors (No. 96-1695
W.D. Pa.). The lawsuit seeks damages from the defendants for their allegedly
illegal actions that harmed the Company and its shareholders from late 1991
through early 1996. The lawsuit sets forth allegations in connection with the
defendants' ongoing pattern of alleged fraud, deceptive conduct, theft, and
other offenses, as well as DeSimone's and his associates' misappropriation,
diversion and conversion of Northstar assets and funds for their own illegal
benefit. Northstar's claims against Richard A. Eisner & Co., LLP are based on
that accounting firm's alleged negligence, recklessness and failure to conduct
proper audits which enabled DeSimone and the other defendants to defraud the
Company, resulting in sizeable losses to the Company and its shareholders.
Northstar is currently engaged in discovery and settlement discussions with
certain defendants. A copy of the complaint is available from the Company upon
the request of any shareholder. On August 14, 1997, the Company and certain of
the defendants in this suit are scheduled to submit to the court for its
approval a Settlement Agreement resolving the claims of Northstar against those
the defendants in conjunction with the proposed settlement of the shareholder
class actions referred to below.
In response to Northstar's suit against DeSimone and the other
defendants, Coregis Insurance Company, which insured DeSimone's former law
firm, brought an action in federal court (No. 96-2243 W.D. Pa.) to determine
its obligations to defend DeSimone and his former law firm. Although the action
names Northstar, its primary purpose is to determine the obligations of the
insurance company; the outcome of this suit may have an impact upon Northstar's
ability to recover damages in connection with its lawsuit against DeSimone and
others. This action will be resolved as a consequence of the settlement
referred to in the preceding paragraph.
In April 1996, the first of seven class action lawsuits against
Northstar and certain of its former officers and directors was filed in federal
court by Northstar shareholders; all of such suits were consolidated into one
action (No. 96-1399 W.D. Pa.). The suit alleges violations of federal
securities laws by Northstar and its former officers and directors Mark A.
DeSimone, Michael Pitterich, Michael Kulmoski, Jonathon Petruska and Daniel
Dickman in connection with the defendants' alleged scheme to disseminate false
and misleading information regarding the Company, its operations, financial
status and related-party transactions and to enrich themselves in the process.
Settlement negotiations, which also involve Richard A. Eisner & Co., LLP,
Northstar's former independent accountant and auditor, have resulted in a
Settlement Agreement which all of the parties to these consolidated class
actions are scheduled to submit to the court on August 14, 1997, for its
preliminary approval and which would resolve all of the claims in these
actions.
In May 1996, a group of some 38 individual Northstar shareholders
filed an action in the Superior Court of Los Angeles County California (No.
BC149867) against Northstar and its
19
<PAGE> 22
former officers and directors Mark A. DeSimone, Michael J. Kulmoski, Jr. and
Northstar's former auditors, Richard A. Eisner & Co., LLP. The suit alleges
violations of California state law, as well as breaches of fiduciary duty and
fraud. These claims also arise out of the allegedly false and misleading
statements concerning Northstar and its financial condition, which were
disseminated by the individual defendants. In June 1997, the parties agreed to
a settlement of this action and a Settlement Agreement is being circulated
among them for signature that will result in a dismissal of this action with
prejudice.
In July 1996, Michael Kulmoski, Jr., a named defendant in both the
shareholder class actions and the individual action described above, filed a
demand for arbitration against Northstar for the alleged breach of his
employment contract and other related matters. Kulmoski is seeking damages of
approximately $500,000. The Company is contesting liability vigorously and
believes that the potential maximum damage claim, even assuming liability, is
less than 25% of the amount alleged. An arbitration hearing has been scheduled
for November 6 and 7, 1997 on this claim.
In March 1997, Ultrasonics, Inc. confessed judgement against two
subsidiaries of the Company, and filed suit against the Company itself, in the
Court of Common Pleas of Allegheny County Pennsylvania, for alleged
non-performance under two lease agreements with the Company. In addition to
challenging the legality and enforceability of these lease agreements as
fraudulent in the RICO action discussed above, the Company has filed a petition
to open the confessed judgement against its subsidiaries and has filed an
answer and counterclaim against Ultrasonics for fraud.
On February 6, 1997, Thomas W. Zaucha, the current and then Chairman
of the Board of Directors and Chief Executive Officer of Northstar, commenced a
solicitation of Northstar shareholder consents to remove and replace the other
members of the Northstar Board of Directors and effectuate related changes in
Northstar's bylaws (the "Consent Solicitation") . Shortly thereafter, the Board
of Directors terminated Mr. Zaucha's employment with the Company, though he
remained a member of the Board of Directors. On March 24, 1997, Mr. Zaucha
delivered executed consents representing the votes of 61% of the outstanding
shares in favor of his proposals and, following confirmation of the decision by
the Delaware Chancery Court on May 8, 1997, Mr. Zaucha resumed his duties as
the Company's Chief Executive Officer. The ruling of the Delaware Chancery
Court was appealed to the Delaware Supreme Court by three of the Board members
removed from office as a result of the Chancery Courts' decision. On August 1,
1997, a unanimous panel of the Delaware Supreme Court affirmed the decision of
the Delaware Chancery Court confirming the election of the current Board. The
ruling of the Delaware Supreme Court is described in the Company's Current
Report on Form 8-K, dated August 1, 1997.
20
<PAGE> 23
Item 3 - Defaults Upon Senior Securities
The Company is currently in default of its financial and other covenants and
payment obligations under its Credit Agreement with IBJ Schroder Bank & Trust.
As of the date of the filing of this report, the Company is in arrears on its
principal obligations in the amount of $1,916,000 and accrued interest in the
amount of approximately $1,200,000. Please refer to the Liquidity and Capital
Resources and Summary sections of the Management's Discussion and Analysis
(Part I, Item 2).
21
<PAGE> 24
Item 6 - Exhibits and Reports on Form 8-K
Exhibits
Bylaws of Northstar Health Services, Inc.
Form 8-K
Form 8-K covering Item 1 for the event dated August 1, 1997.
22
<PAGE> 25
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHSTAR Health Services, Inc.
(Registrant)
By: /s/ Thomas W. Zaucha
------------------------
Thomas W. Zaucha
Chairman of the Board, President and Chief Executive Officer
Date: August 14, 1997
By: /s/ Thomas W. Zaucha
------------------------
Thomas W. Zaucha
Acting Chief Financial Officer
Date: August 14, 1997
23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 650
<SECURITIES> 0
<RECEIVABLES> 8,514
<ALLOWANCES> (3,368)
<INVENTORY> 0
<CURRENT-ASSETS> 6,949
<PP&E> 3,148
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,610
<CURRENT-LIABILITIES> 29,155
<BONDS> 3,093
0
0
<COMMON> 62
<OTHER-SE> (1,819)
<TOTAL-LIABILITY-AND-EQUITY> 30,610
<SALES> 17,215
<TOTAL-REVENUES> 17,215
<CGS> 8,490
<TOTAL-COSTS> 12,269
<OTHER-EXPENSES> 67
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,137
<INCOME-PRETAX> (4,748)
<INCOME-TAX> 130
<INCOME-CONTINUING> (4,878)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,949)
<EPS-PRIMARY> (.84)
<EPS-DILUTED> (.84)
</TABLE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 1, 1997
NORTHSTAR HEALTH SERVICES, INC.
----------------------------------------------------
(Exact name of registrant as specified in charter)
DELAWARE 0-21752 25-1697152
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
665 PHILADELPHIA STREET, INDIANA, PENNSYLVANIA 15701
-------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 349-7500
Not Applicable
-------------------------------------------------------------------
(Former name or former address, if changed from last report)
<PAGE> 2
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
On August 1, 1997, a unanimous panel of the Delaware Supreme Court affirmed
the decision of the Delaware Chancery Court confirming the election of five
new directors to the Company's Board of Directors and the concurrent
removal of all of the incumbent directors other than Thomas W. Zaucha. The
present Northstar Board, which has been in office since May 8, 1997, was
elected by written consent of the holders of 61% of Northstar's outstanding
common shares and consists of Mr. Zaucha (Chairman), Lawrence F. Jindra,
M.D., James H. McElwain, Mark G. Mykityshyn, Roger J. Reschini and David B.
White.
Northstar's 1997 Annual Meeting of Stockholders is currently scheduled for
September 11, 1997, in Indiana, Pennsylvania.
ITEM 5. OTHER EVENTS.
The Company is also terminating its existing profit-sharing arrangements
with the four therapists charged with managing the Company's clinics in
Indiana, PA, Blairsville, PA, Natrona Heights, PA, Saltsburg, PA and
Holiday Park, PA. The Company expects to pay approximately $550,000 in
termination payments pursuant to existing agreements with these employees.
Under these arrangements, the Company paid these employees approximately
$130,000 in the first six months of 1997 and will no longer incur such
costs following the contemplated transaction.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of businesses being acquired: None.
(b) Pro Forma financial information: None.
(c) Exhibits:
99.1 Press release, dated August 4, 1997, issued by the Company
regarding the ruling of the Delaware Supreme Court.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTHSTAR HEALTH SERVICES, INC.
/s/ THOMAS W. ZAUCHA
----------------------------
Name: Thomas W. Zaucha
Title: Chief Executive Officer
and President
August 5, 1997
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
- ------- ----
<S> <C> <C>
99.1 Press release, dated August 4, 1997, issued by the Company
regarding the ruling of the Delaware Supreme Court................ 5
</TABLE>
<PAGE> 5
Contact: Thomas W. Zaucha, CEO
Northstar Health Services, Inc.
(412) 465-3201
Tracey I. Missien, Director of Marketing
Northstar Health Services, Inc.
(412) 465-3711
FOR IMMEDIATE RELEASE
DIRECTORS LED BY THOMAS ZAUCHA CONFIRMED
AS BOARD OF NORTHSTAR HEALTH
INDIANA, PA - AUGUST 4, 1997 - Northstar Health Services, Inc. (NSTR:OTCBB)
announced today that the Delaware Supreme Court has confirmed the March 1997
election of a new slate of directors led by Thomas W. Zaucha and the ouster of
a rival director group. Mr. Zaucha, a professional physical therapist, founded
Northstar's principal subsidiary Keystone Rehabilitation Systems in 1981, and
has been a member of the Northstar Board since 1995.
Mr. Zaucha, who became Northstar's Chief Executive Officer in 1995 and
Chairman of the Board in 1996, had experienced widening disagreements with
other Board members concerning a variety of corporate governance issues, which
ultimately led to his commencement, in February 1997, of a consent solicitation
to remove all the other members of the Board and to elect five new Directors.
On March 24, 1997, Mr. Zaucha delivered written consents representing 61% of
the outstanding Northstar shares. The results of the election were confirmed by
the Delaware Chancery Court on May 8, 1997 in a decision affirmed last Friday
by the Delaware Supreme Court.
Mr. Zaucha stated: "This decision is an important milestone in our efforts to
bring Northstar back to financial and operational health. We now have a united,
hardworking Board, dedicated to the interests of stockholders, employees and
patients. Many challenges lie ahead, but with the affirmation of this Board it
is now time to move forward."
Northstar plans to hold an annual meeting of stockholders on September 11,
1997, in Indiana Pennsylvania.
Northstar Health Services, Inc. is a leading regional provider of physical
rehabilitation, mobile diagnostics and contracted long term care services
at outpatient rehabilitation clinics and by contract to other healthcare
facilities in Pennsylvania, Ohio and West Virginia.
<PAGE> 6
BYLAWS
OF
NORTHSTAR HEALTH SERVICES, INC.
ARTICLE I. OFFICES.
Section 1. Registered Office. The registered office of the Corporation
shall be at The Corporation Trust Company, 1209 Orange Street, in the City of
Wilmington, County of New Castle. State of Delaware 19801.
Section 2. Additional Offices. The Corporate may also have offices at
such other places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II. MEETINGS OF STOCKHOLDERS.
Section 1. Time and Place. A meeting of stockholders for any purpose
may be held at such time and place within or without the State of Delaware as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2. Annual Meeting. Annual meetings of stockholders, commencing
with the year 1993, shall be held on the second Tuesday in May if not a legal
holiday, or, if a legal holiday, then on the next secular day following, at
10:00 a.m., or at such other date and time as shall, from time to time, be
designated by the Board of Directors and stated in the notice of the meeting.
At such annual meetings, the stockholders shall elect a Board of Directors and
transact such other business as may properly be brought before the meetings.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting, stating the place, date, and time thereof, shall be given to each
stockholder entitled to vote at such meeting not less than ten (unless a longer
period is required by law) nor more than sixty days prior to the meeting.
Section 4. Special Meetings. Special meetings of the stockholders may
be called for any purpose or purposes, unless otherwise prescribed by statute
or by the Certificate of Incorporation, by the Chairman of the Board, if any,
or the President, and shall be called by the President or Secretary at the
request, in writing, of a majority of the Board of Directors or of the
stockholders owning a majority of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose of the proposed meeting.
<PAGE> 7
Section 5. Notice of Special Meetings. Written notice of a special
meeting, stating the place, date, and time thereof and the purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting not less than ten (unless a longer period is required by
law) nor more than sixty days prior to the meeting.
Section 6. List of Stockholders. The transfer agent or the officer in
charge of the stock ledger of the Corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, at a
place within the city where the meeting is to be held, which place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced and kept at the place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present in
person thereat.
Section 7. Presiding Officer and Order of Business.
(a) Meetings of stockholders shall be presided over by the Chairman of
the Board. If he is not present or there is none, they shall be presided over
by the President, or, if he is not present or there is none, by a Vice
President, or if he is not present or there is none, by a person chosen by the
Board of Directors, or, if no such person is present or has been chosen, by a
chairman to be chosen by the stockholders owning a majority of the shares of
capital stock of the Corporation issued and outstanding and entitled to vote at
the meeting and who are present in person or represented by proxy. The
Secretary of the Corporation, or, if he is not present, an Assistant Secretary,
or, if he is not present, a person chosen by the Board of Directors, shall act
as Secretary at meetings of stockholders; if no such person is present or has
been chosen, the stockholders owning a majority of the shares of capital stock
of the Corporation issued and outstanding and entitled to vote at the meeting
who are present in person or represented by proxy shall choose any person
present to act as Secretary of the meeting.
(b) The following order of business, unless otherwise determined at
the meeting, shall be observed as far as practicable and consistent with the
purposes of the meeting:
(1) Call of the meeting to order.
(2) Presentation of proof of mailing of the notice of the meeting
and, if the meeting is a special meeting, the call thereof.
(3) Presentation of proxies.
(4) Announcement that a quorum is present.
(5) Reading and approval of the minutes of the previous meeting.
(6) Reports, if any, of officers.
(7) Election of directors, if the meeting is an annual meeting or a
meeting called for that purpose.
<PAGE> 8
(8) Consideration of the specific purpose or purposes, other than the
election of directors, for which the meeting has been called, if
the meeting is a special meeting.
(9) Transaction of such other business as may properly come before
the meeting.
(10) Adjournment.
Section 8. Quorum and Adjournments. The presence in person or
representation by proxy of the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote
shall be necessary to, and shall constitute a quorum for, the transaction of
business at all meetings of the stockholders, except as otherwise provided by
statute or by the Certificate of Incorporation. If, however, a quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat who are present in person or represented by proxy
shall have the power to adjourn the meeting from time to time until a quorum
shall be present or represented. If the time and place of the adjourned meeting
are announced at the meeting at which the adjournment is taken, no further
notice of the adjourned meeting need be given. Even if a quorum shall be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat who are present in person or represented by proxy
shall have the power to adjourn the meeting from time to time for good cause to
a date that is not more than thirty days after the date of the original
meeting. Further notice of the adjourned meeting need not be given if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At any adjourned meeting at which a quorum is present in person or
represented by proxy, any business may be transacted that might have been
transacted at the meeting as originally called. If the adjournment is for more
than thirty days, or if, after the adjournment, a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote thereat.
Section 9. Voting.
(a) At any meeting of the stockholders, every stockholder having the
right to vote shall be entitled to vote in person or by proxy. Except as
otherwise provided by law or the Certificate of Incorporation, each stockholder
of record shall be entitled to one vote for each share of capital stock
registered in his name on the books of the Corporation.
(b) All elections shall be determined by a plurality vote, and, except
as otherwise provided by law or the Certificate of Incorporation, all other
matters shall be determined by a vote of a majority of the shares present in
person or represented by proxy and voting on such other matters
Section 10. Action by Consent. Any action required or permitted by law
or the Certificate of Incorporation to be taken at any meeting of stockholders
may be taken without a meeting, without prior notice if a written consent,
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 or represented by proxy and voted. Such
written consent shall be filed with the minutes of the meetings of
stockholders. Prompt
<PAGE> 9
notice of the taking of the Corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing thereto.
ARTICLE III. DIRECTORS.
Section 1. General Powers, Number, and Tenure. 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 up to 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.
Section 2. Vacancies. If any vacancies occur in the Board of
Directors, or if any new directorships are created, they may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. Each director so chosen shall hold office until the
next Annual Meeting of Stockholders and until his successor is duly elected and
shall qualify. If there are no directors in office, any officer or stockholder
may call a special meeting of stockholders in accordance with the provisions of
the Certificate of Incorporation or these Bylaws, at which meeting such
vacancies shall be filled
Section 3. Removal or Resignation.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, 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.
(b) Any director may resign at any time by giving written notice to
the Board of Directors, the Chairman of the Board, if any, or the President or
Secretary of the Corporation. Unless otherwise specified in such written
notice, a resignation shall take effect on delivery thereof to the Board of
Directors or the designated officer. It shall not be necessary for a
resignation to be accepted before it becomes effective.
Section 4. Place of Meetings. The Board of Directors may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. Annual Meeting. The annual meeting of each newly elected
Board of Directors shall be held immediately following the Annual Meeting of
Stockholders, and no notice of such meeting shall be necessary to the newly
elected directors in order to constitute the meeting legally, provided a quorum
shall be present.
Section 6. Regular Meetings. Additional regular meetings of the Board
of Directors may be held without notice of such time and place as may be
determined from time to time by the Board of Directors.
<PAGE> 10
Section 7. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President, or by two
or more directors on at least two days' notice to each director, if such notice
is delivered personally or sent by telegram, or on at least three days' notice
if sent by mail. Special meetings shall be called by the Chairman of the Board,
President, Secretary, or two or more directors in like manner and on like
notice on the written request of one-half or more of the number of directors
then in office. Any such notice need not state the purpose or purposes of such
meeting, except as provided in Article XI.
Section 8. Quorum and Adjournments. At all meetings of the Board of
Directors, a majority of the directors then in office shall constitute a quorum
for the transaction of business, and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by law or the
Certificate of Incorporation. If a quorum is not present at any meeting of the
Board of Directors, the directors present may adjourn the meeting from time to
time, without notice other than announcement at the meeting at which the
adjournment is taken, until a quorum shall be present.
Section 9. Compensation. Directors shall be entitled to such
compensation for their services as directors and to such reimbursement for any
reasonable expenses incurred in attending directors' meetings as may from time
to time be fixed by the Board of Directors. The compensation of directors may
be on such basis as is determined by the Board of Directors. Any director may
waive compensation for any meeting. Any director receiving compensation under
these provisions shall not be barred from serving the Corporation in any other
capacity and receiving compensation and reimbursement for reasonable expenses
for such other services.
Section 10. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting,
and without prior notice, if a written consent to such action is signed by all
members of the Board of Directors and such written consent is filed with the
minutes of its proceedings.
Section 11. Meetings by Telephone or Similar Communications Equipment.
The Board of Directors may participate in a meeting by conference telephone or
similar communications equipment by means of which all directors participating
in the meeting can hear each other, and participation in such a meeting shall
constitute presence in person by any such director at such meeting.
ARTICLE IV. COMMITTEES.
Section 1. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board, may appoint an Executive Committee
consisting of one or more directors, one of whom shall be designated as
Chairman of the Executive Committee. Each member of the Executive Committee
shall continue as a member thereof until the expiration of his term as a
director or his earlier resignation, unless sooner removed as a member or
as a director.
<PAGE> 11
Section 2. Powers. The Executive Committee shall have and may exercise
those rights, powers, and authority of the Board of Directors as may from time
to time be granted to it by the Board of Directors to the extent permitted by
law, and may authorize the seal of the Corporation to be affixed to all papers
that may require it.
Section 3. Procedure and Meetings. The Executive Committee shall fix
its own rules of procedure and shall meet at such times and at such place or
places as may be provided by such rules or as the members of the Executive
Committee shall fix. The Executive Committee shall keep regular minutes of its
meetings, which it shall deliver to the Board of Directors from time to time.
The Chairman of the Executive Committee or, in his absence, a member of the
Executive Committee chosen by a majority of the members present, shall preside
at meetings of the Executive Committee; and another member chosen by the
Executive Committee shall act as Secretary of the Executive Committee.
Section 4. Quorum. A majority of the Executive Committee shall
constitute a quorum for the transaction of business, and the affirmative vote
of a majority of the members present at any meeting at which there is a quorum
shall be required for any action of the Executive Committee; provided, however,
that when an Executive Committee of one member is authorized under the
provisions of Section 1 of this Article, that one member shall constitute a
quorum.
Section 5. Other Committees. The Board of Directors, by resolutions
adopted by a majority of the whole Board, may appoint such other committee or
committees as it shall deem advisable and with such rights, power, and
authority as it shall prescribe. Each such committee shall consist of one or
more directors.
Section 6. Committee Changes. The Board of Directors shall have the
power at any time to fill vacancies in, to change the membership of, and to
discharge any committee.
Section 7. Compensation. Members of any committee shall be entitled to
such compensation for their services as members of the committee and to such
reimbursement for any reasonable expenses incurred in attending committee
meetings as may from time to time be fixed by the Board of Directors. Any
member may waive compensation for any meeting. Any committee member receiving
compensation under these provisions shall not be barred from serving the
Corporation in any other capacity and from receiving compensation and
reimbursement of reasonable expenses for such other services.
Section 8. Action by Consent. Any action required or permitted to be
taken at any meeting of any committee of the Board of Directors may be taken
without a meeting if a written consent to such action is signed by all members
of the committee and such written consent is filed with the minutes of its
proceedings.
Section 9. Meetings by Telephone or Similar Communications Equipment.
The members of any committee designated by the Board of Directors may
participate in a meeting of such committee by conference telephone or similar
communications equipment by means of which all persons participating in such
meeting can hear each other, and participation in such a meeting shall
constitute presence in person by any such committee member at such meeting.
<PAGE> 12
ARTICLE V. NOTICES.
Section 1. Form and Delivery. Whenever a provision of any law, the
Certificate of Incorporation, or these Bylaws requires that notice be given to
any director or stockholder, it shall not be construed to require personal
notice unless so specifically provided, but such notice may be given in
writing, by mail addressed to the address of the director or stockholder as it
appears on the records of the Corporation, with postage prepaid. These notices
shall be deemed to be given when they are deposited in the United States mail.
Notice to a director may also be given personally or by telephone or by
telegram sent to his address as it appears on the records of the Corporation.
Section 2. Waiver. Whenever any notice is required to be given under
the provisions of any law, the Certificate of Incorporation, or these Bylaws, a
written waiver thereof signed by the person entitled to said notice, whether
before or after the time stated therein, shall be deemed to be equivalent to
such notice. In addition, any stockholder who attends a meeting of stockholders
in person or is represented at such meeting by proxy, without protesting at the
commencement of the meeting the lack of notice thereof to him, or any director
who attends a meeting of the Board of Directors without protesting at the
commencement of the meeting of the lack of notice, shall be conclusively deemed
to have waived notice of such meeting.
ARTICLE VI. OFFICERS.
Section 1. Designations. The officers of the Corporation shall be
chosen by the Board of Directors. The Board of Directors may choose a Chairman
of the Board, a President, a Vice President or Vice Presidents, a Secretary, a
Treasurer, one or more Assistant Secretaries and/or Assistant Treasurers, and
other officers and agents that it shall deem necessary or appropriate. All
officers of the Corporation shall exercise the powers and perform the duties
that shall from time to time be determined by the Board of Directors. Any
number of offices may be held by the same person unless the Certificate of
Incorporation or these Bylaws provide otherwise.
Section 2. Term of, and Removal from, Office. At its first regular
meeting after each Annual Meeting of Stockholders, the Board of Directors shall
choose a President, a Secretary, and a Treasurer. It may also choose a Chairman
of the Board, a Vice President or Vice Presidents, one or more Assistant
Secretaries and/or Assistant Treasurers, and such other officers and agents as
it shall deem necessary or appropriate. Each officer of the Corporation shall
hold office until his successor is chosen and shall qualify. Any officer
elected or appointed by the Board of Directors may be removed, with or without
cause, at any time by the affirmative vote of a majority of the directors then
in office. Removal from office, however, shall not prejudice the contract
rights, if any, of the person removed. Any vacancy occurring in any office of
the Corporation may be filled for the unexpired portion of the term by the
Board of Directors.
Section 3. Compensation. The salaries of all officers of the
Corporation shall be fixed from time to time by the Board of Directors,
and no officer shall be prevented from receiving a salary because he is
also a director of the Corporation.
<PAGE> 13
Section 4. The Chairman of the Board. The Chairman of the Board, if
any, shall be an officer of the Corporation and, subject to the direction of
the Board of Directors, shall perform such executive, supervisory, and
management functions and duties as may be assigned to him from time to time by
the Board of Directors. He shall, if present, preside at all meetings of
stockholders and of the Board of Directors.
Section 5. The President.
(a) The President shall be the Chief Executive Officer of the
Corporation and, subject to the direction of the Board of Directors, shall have
general charge of the business, affairs, and property of the Corporation and
general supervision over its other officers and agents. In general, he shall
perform all duties incident to the office of President and shall see that all
orders and resolutions of the Board of Directors are carried into effect.
(b) Unless otherwise prescribed by the Board of Directors, the
President shall have full power and authority to attend, act, and vote on
behalf of the Corporation at any meeting of the security holders of other
corporations in which the Corporation may hold securities. At any such meeting,
the President shall possess and may exercise any and all rights and powers
incident to the ownership of such securities that the Corporation might have
possessed and exercised if it had been present. The Board of Directors may from
time to time confer like powers upon any other person or persons.
Section 6. The Vice President. The Vice President, if any, or in the
event there be more than one, the Vice Presidents in the order designated, or
in the absence of any designation, in the order of their election, shall, in
the absence of the President or in the event of his disability, perform the
duties and exercise the powers of the President and shall generally assist the
President and perform such other duties and have such other powers as may from
time to time be prescribed by the Board of Directors.
Section 7. The Secretary. The Secretary shall attend all meetings of
the Board of Directors and the stockholders and record all votes and the
proceedings of the meetings in a book to be kept for that purpose. He shall
perform like duties for the Executive Committee or other committees, if
required. He shall give, or cause to be given, notice of all meetings of
stockholders and special meetings of the Board of Directors, and shall perform
such other duties as may from time to time be prescribed by the Board of
Directors, the Chairman of the Board, or the President, under whose supervision
he shall act. He shall have custody of the seal of the Corporation, and he, or
an Assistant Secretary, shall have authority to affix it to any instrument
requiring it, and, when so affixed, the seal may be attested by his signature
or by the signature of the Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing thereof by his signature.
Section 8. The Assistant Secretary. The Assistant Secretary, if any,
or in the event there be more than one, the Assistant Secretaries in the order
designated, or in the absence of any designation, in the order of their
election, shall, in the absence of the Secretary or in the event of his
disability, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
<PAGE> 14
Section 9. The Treasurer. The Treasurer shall have custody of the
corporate funds and other valuable effects, including securities, and shall
keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories
as may from time to time be designated by the Board of Directors. He shall
disburse the funds of the Corporation in accord with the orders of the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chairman of the Board, if any, the President, and the Board of Directors,
whenever they may require it or at regular meetings of the Board, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation.
Section 10. The Assistant Treasurer. The Assistant Treasurer, if any,
or in the event there shall be more than one, the Assistant Treasurers in the
order designated, or in the absence of any designation, in the order of their
election, shall, in the absence of the Treasurer or in the event of his
disability, perform such other duties and have such other powers as may from
time to time be prescribed by the Board of Directors.
ARTICLE VII. INDEMNIFICATION.
Reference is made to Section 145 and any other relevant provisions of
the General Corporation Law of the State of Delaware. Particular reference is
made to the class of persons, hereinafter called "Indemnitees", who may be
indemnified by a Delaware corporation pursuant to the provisions of such
Section 145, namely, any person, or the heirs, executors, or administrators of
such person, who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that such
person is or was a director, officer, employee, or agent of such corporation or
is or was serving at the request of such corporation as a director, officer,
employee, or agent of such corporation or is or was serving at the request
of such corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise. The
Corporation shall, and is hereby obligated to, indemnify the Indemnitees, and
each of them, in each and every situation where the Corporation is obligated
to make such indemnification pursuant to the aforesaid statutory provisions.
The Corporation shall indemnify the Indemnitees, and each of them, in each
and every situation where, under the aforesaid statutory provisions, the
Corporation is not obligated but is nevertheless permitted or empowered to
make such indemnification, it being understood that before making such
indemnification with respect to any situation covered under this sentence,
(i) the Corporation shall promptly make or cause to be made, by any of the
methods referred to in Subsection (d) of such Section 145, a determination
as to whether each Indemnitee acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
and, in the case of any criminal action or proceeding, had no reasonable cause
to believe that his conduct was unlawful, and (ii) that no such indemnification
shall be made unless it is determined that such Indemnitee acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and in the case of any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
<PAGE> 15
ARTICLE VIII. AFFILIATED TRANSACTIONS AND INTERESTED DIRECTORS.
Section 1. Affiliated Transactions. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors
or officers or have a financial interest, shall be void or voidable solely
for this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof
that authorizes the contract or transaction or solely because his or their
votes are counted for such purpose if:
(a) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum: or
(b) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by the vote of the stockholders; or
(c) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved, or ratified by the Board of Directors, a
committee thereof, or the stockholders.
Section 2. Determining Quorum. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee thereof which authorizes the contract or
transaction.
ARTICLE IX. STOCK CERTIFICATES.
Section 1. Form and Signatures.
(a) Every holder of stock of the Corporation shall be entitled to a
certificate stating the number and class, and series, if any, of shares owned
by him, signed by the Chairman of the Board, if any, or the President and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, and bearing the seal of the Corporation. The signatures and
the seal may be facsimiles. A certificate may be signed, manually or by
facsimile, by a transfer agent or registrar other than the Corporation or its
employees. In case any officer who has signed, or whose facsimile signature was
placed on, a certificate shall have ceased to be such officer before the
certificate is issued, it may nevertheless be issued by the Corporation with
the same effect as if he were such officer at the date of its issue.
(b) All stock certificates representing shares of capital stock that
are subject to restrictions on transfer or to other restrictions may have
imprinted thereon any notation to that effect determined by the Board of
Directors.
<PAGE> 16
Section 2. Registration of Transfer. Upon surrender to the Corporation
or any transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment, or
authority to transfer, the Corporation or its transfer agent shall issue a new
certificate to the person entitled thereto, cancel the old certificate, and
record the transaction upon the books of the Corporation.
Section 3. Registered Stockholders.
(a) Except as otherwise provided by law, the Corporation shall be
entitled to recognize the exclusive right of a person who is registered on its
books as the owner of shares of its capital stock to receive dividends or other
distributions and to vote or consent as such owner, and to hold liable for
calls and assessments any person who is registered on its books as the owner of
shares of its capital stock. The Corporation shall not be bound to recognize
any equitable or legal claim to, or interest in, such shares on the part of any
other person.
(b) If a stockholder desires that notices and/or dividends shall be
sent to a name or address other than the name or address appearing on the stock
ledger maintained by the Corporation, or its transfer agent or registrar, if
any, the stockholder shall have the duty to notify the Corporation, or its
transfer agent or registrar, if any, in writing of his desire and specify the
alternate name or address to be used.
Section 4. Record Date. In order that the Corporation may determine
the stockholders of record who are entitled to receive notice of, or to vote
at, any meeting of stockholders or any adjournment thereof or to express
consent to corporate action in writing without a meeting, to receive payment of
any dividend or other distribution or allotment of any rights, or to exercise
any rights in respect of any change, conversion, or exchange of stock or for
the purpose of any lawful action, the Board of Directors may, in advance, fix a
date as the record date for any such determination. Such date shall not be more
than sixty nor less than ten days before the date of such meeting, nor more
than sixty days prior to the date of any other action. A determination of
stockholders of record entitled to notice of, or to vote at, a meeting of
stockholders shall apply to any adjournment of the meeting taken pursuant to
Section 8 of Article II; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 5. Lost, Stolen, or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued to replace any
certificate theretofore issued by the Corporation that, it is claimed, has
been lost, stolen, or destroyed, upon the making of an affidavit of that fact
by the person claiming the certificate to be lost, stolen, or destroyed. When
authorizing the issue of a new certificate, the Board of Directors may, in
its discretion and as a condition precedent to the issuance thereof, require
the owner of the lost, stolen, or destroyed certificate, or his legal
representative, to advertise the same in such manner as it shall require,
and/or to give the Corporation a bond in such sum, or other security in such
form, as it may direct as indemnity against any claims that may be made against
the Corporation with respect to the certificate claimed to have been lost,
stolen, or destroyed.
<PAGE> 17
ARTICLE X. GENERAL PROVISIONS.
Section 1. Dividends. Subject to the provisions of law and the
Certificate of Incorporation, dividends upon the outstanding capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting, and may be paid in cash, in property, or in shares of the
Corporation's capital stock.
Section 2. Reserves. The Board of Directors shall have full power,
subject to the provisions of law and the Certificate of Incorporation, to
determine whether any, and if so, what part, of the funds legally available
for the payment of dividends shall be declared as dividends and paid to
the stockholders of the Corporation. The Board of Directors, in its sole
discretion, may fix a sum that may be set aside or reserved over and above
the paid-in capital of the Corporation as a reserve for any proper purpose,
and may, from time to time, increase, diminish, or vary such amount.
Section 3. Fiscal Year. Except as from time to time otherwise provided
by the Board of Directors, the fiscal year of the Corporation shall end on
December 31 of each year.
Section 4. Seal. The Corporate seal shall have inscribed thereon
the name of the Corporation, the year of its incorporation, and the words
"Corporate Seal" and "Delaware".
ARTICLE XI. AMENDMENTS.
The Board of Directors shall have the power to alter and repeal these
Bylaws and to adopt new Bylaws by an affirmative vote of a majority of the
whole Board, provided that notice of the proposal to alter or repeal these
Bylaws or to adopt new Bylaws must be included in the notice of the meeting
of the Board of Directors at which such action takes place.
Amended 5/97
