<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 5) *
NORTHSTAR HEALTH SERVICES, INC.
(Name of Issuer)
Common Stock, $0.01 Par Value
(Title of Class of Securities)
666903109
(CUSIP Number)
Thomas W. Zaucha
Northstar Health Services, Inc.
665 Philadelphia Street
Indiana, PA 15701
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
May 8, 1997
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|.
Check the following box if a fee is being paid with the statement |_|.** (A fee
is not required only if the reporting person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7)
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
Continued on following page(s)
Page 1 of 37 Pages
Exhibit Index: Page 11
- ------------------------
* A filing fee is not being paid with this statement pursuant to SEC
Release No. 33-7331 whereby the filing fee has been eliminated for
Schedule 13D.
1
<PAGE>
SCHEDULE 13D
CUSIP No. 666903109
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Thomas W. Zaucha
2 Check the Appropriate Box If a Member of a Group*
a. |_|
b. |X|
3 SEC Use Only
4 Source of Funds*
Not applicable
5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) [ ].
6 Citizenship or Place of Organization
United States of America
7 Sole Voting Power
Number of 75,000
Shares
Beneficially 8 Shared Voting Power
Owned By 667,201 (with Alice L. Zaucha as Tenants by the
Each Entirety)
Reporting 207,757 (as co-general partner Zaucha Family
Person Limited Partnership)
With 9 Sole Dispositive Power
75,000
10 Shared Dispositive Power
667,201 (with Alice L. Zaucha as Tenants by
the Entirety)
207,757 (as co-general partner Zaucha Family
Limited Partnership)
11 Aggregate Amount Beneficially Owned by Each Reporting Person
949,958
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares*
|_|
13 Percent of Class Represented By Amount in Row (11)
16.19%
14 Type of Reporting Person*
IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
2
<PAGE>
SCHEDULE 13D
CUSIP No. 666903109
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Commonwealth Associates
2 Check the Appropriate Box If a Member of a Group*
a. |_|
b. |X|
3 SEC Use Only
4 Source of Funds*
WC
5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e)
6 Citizenship or Place of Organization
New York limited partnership
7 Sole Voting Power
Number of 92,647
Shares
Beneficially 8 Shared Voting Power
Owned By 0
Each
Reporting 9 Sole Dispositive Power
Person 92,647
With
10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
92,647
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares*
|_|
13 Percent of Class Represented By Amount in Row (11)
1.58%
14 Type of Reporting Person*
BK
*SEE INSTRUCTIONS BEFORE FILLING OUT!
3
<PAGE>
SCHEDULE 13D
CUSIP No. 666903109
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Michael S. Falk
2 Check the Appropriate Box If a Member of a Group*
a. |_|
b. |X|
3 SEC Use Only
4 Source of Funds*
WC
5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e)
6 Citizenship or Place of Organization
United States of America
7 Sole Voting Power
Number of 92,647
Shares
Beneficially 8 Shared Voting Power
Owned By 0
Each
Reporting 9 Sole Dispositive Power
Person 92,647
With
10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
92,647
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares*
|_|
13 Percent of Class Represented By Amount in Row (11)
1.58%
14 Type of Reporting Person*
IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
4
<PAGE>
SCHEDULE 13D
CUSIP No. 666903109
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Joseph F. Micallef
2 Check the Appropriate Box If a Member of a Group*
a. |_|
b. |X|
3 SEC Use Only
4 Source of Funds*
Not applicable
5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) .
6 Citizenship or Place of Organization
United States of America
7 Sole Voting Power
Number of 40,000
Shares
Beneficially 8 Shared Voting Power
Owned By
Each
Reporting 9 Sole Dispositive Power
Person 40,000
With
10 Shared Dispositive Power
11 Aggregate Amount Beneficially Owned by Each Reporting Person
40,000
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares*
|_|
13 Percent of Class Represented By Amount in Row (11)
0.68%
14 Type of Reporting Person*
IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
5
<PAGE>
SCHEDULE 13D
CUSIP No. 666903109
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
Basil J. Asciutto
2 Check the Appropriate Box If a Member of a Group*
a. |_|
b. |X|
3 SEC Use Only
4 Source of Funds*
Not applicable
5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e)
6 Citizenship or Place of Organization
United States of America
7 Sole Voting Power
Number of 20,000
Shares
Beneficially 8 Shared Voting Power
Owned By 0
Each
Reporting 9 Sole Dispositive Power
Person 20,000
With
10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
20,000
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares*
|_|
13 Percent of Class Represented By Amount in Row (11)
0.34%
14 Type of Reporting Person*
IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
6
<PAGE>
Item 1.
Item 1 of Amendment No. 4 (as defined below) is hereby amended as follows.
This Amendment No. 5 to Schedule 13D ("Amendment No. 5") relates to shares of
common stock, $0.01 par value per share (the "Common Stock"), of Northstar
Health Services, Inc., a Delaware corporation ("Northstar" or the "Company"),
with principal executive offices located at The Atrium, 665 Philadelphia Street,
Indiana, PA 15701. This Amendment No. 5 supplements and amends Amendment No. 4
to Schedule 13D ("Amendment No. 4"), as filed by Thomas W. Zaucha, one of the
Reporting Persons, with the Securities and Exchange Commission (the
"Commission") on April 8, 1997. Capitalized terms used but not otherwise defined
herein shall have the meanings ascribed to them in the prior amendments to this
Schedule 13D. Amendment No. 4 is supplementally amended as follows.
Item 4. Purpose of Transaction.
Item 4 of Amendment No. 4 is hereby supplemented by adding the following to the
end thereof:
On April 1, 1997, Mr. Zaucha commenced an action under Section 225 of the
Delaware General Corporation Law before the Delaware Chancery Court (the
"Delaware Action") in order to obtain a ruling on the validity of the outcome of
the consent solicitation, including a determination that the members of the
Zaucha Board are the duly elected directors of Northstar. On April 3, 1997, the
Brody Board filed their answer to the Section 225 complaint, and, in addition,
Mr. Brody filed six counterclaims, four of which were subsequently stayed.
On April 4, 1997, Chief District Judge Donald E. Ziegler of the United District
Court for the Western District of Pennsylvania entered an order making the
transcript of the proceedings in the action encaptioned Northstar Health
Services, Inc. v. Thomas W. Zaucha, Zaucha Family L.P., Alice L. Zaucha,
Commonwealth Associates, L.P., Michael S. Falk, Andreas Bello, Joseph F.
Micallef, Basil J. Asciutto, Lawrence F. Jindra, James H. McElwain, Mark G.
Mykityshyn, Roger J. Reschini and David B. White, Esq. (the "Pennsylvania
Action") held before him on March 28, 1997 part of the record in the case and
ordering that the transcript constitute a record of the settlement reached by
the parties on March 28, 1997. Thereafter, pursuant to an Order, dated April 8,
1997, the parties each submitted a proposed order to the Court, including a
proposed settlement agreement (the "Settlement Agreement"). On May 5, 1997,
Chief Judge Ziegler decreed that the Settlement Agreement submitted by the
Zaucha Board and the other defendants in the action be entered as an Order of
the United States District Court for the Western District of Pennsylvania in the
Pennsylvania Action. Chief Judge Ziegler retained continuing jurisdiction to
enforce the terms of the settlement. A copy of Chief Judge Ziegler's Order,
dated May 5, 1997, is attached as EXHIBIT A hereto.
The Delaware Action was tried on May 7 and 8, 1997, before Hon. Bernard Balick,
Vice Chancellor. At the end of the trial, Vice Chancellor Balick ruled in favor
of Mr. Zaucha and confirmed the results of the Committee's consent solicitation,
including that the Zaucha Board constituted the lawful Board of Directors of
Northstar as of March 24, 1997. A copy of the ruling in the Delaware Action is
attached hereto as EXHIBIT B.
Accordingly, on May 9, 1997, Mr. Zaucha and the Zaucha Board assumed control of
the Company. The Brody Board, while no longer in office, may appeal the ruling
of the Delaware Chancery Court.
7
<PAGE>
A copy of the press release, dated May 9, 1997, issued by the Company regarding
the ruling in the Delaware Chancery Court is attached hereto as EXHIBIT C.
Item 5. Interest in Securities of the Issuer.
Item 5 of Amendment No. 4 is hereby supplementally amended as follows.
(a)(i) On the date of this Statement, the Reporting Persons may be
deemed collectively to beneficially own 1,102,605 shares of Common Stock or
18.79% of the outstanding shares of Common Stock.
(iii) On the date of this Statement, Commonwealth may be deemed to be
a beneficial owner of 92,647 shares of Common Stock or 1.58% of the Common Stock
outstanding. Commonwealth disclaims beneficial ownership with respect to any of
the shares of Common Stock reported as owned by Mr. Zaucha and his spouse or the
Zaucha Family Limited Partnership. In addition, Commonwealth holds 759,484
shares of Common Stock for the account of its customers as described in Item
5(b)(iv) below.
(iv) On the date of this Statement, Mr. Falk may be deemed to be a
beneficial owner of 92,647 shares of Common Stock or 1.58% of the Common Stock
outstanding. Mr. Falk disclaims beneficial ownership with respect to any of the
shares of Common Stock reported as owned by Mr. Zaucha and his spouse or the
Zaucha Family Limited Partnership. In addition, Mr. Falk holds 759,484 shares of
Common Stock for the account of Commonwealth's customers as described in Item
5(b)(iv) below.
(b)(iv) As of the date of this Statement, Commonwealth holds 852,131
shares of Company Common Stock, constituting approximately 14.52% of the
outstanding shares, for the brokerage accounts of its various customers, which
holdings include 92,647 shares held for its own account as of the close of
business on May 15, 1997 in connection with its market-making activity in the
Common Stock and 55,000 shares held in the accounts of Commonwealth's officers
and directors. Such customers have sole voting and dispositive power over such
shares and Commonwealth disclaims any beneficial ownership thereof, although it
intends to recommend to its customers that they support the changes described in
Item 4.
(v) As of the date of this Statement, Mr. Falk, by virtue of his
positions at Commonwealth and Commonwealth Associates Management Company, Inc.,
may be deemed to be a beneficial owner of the 852,131 shares of Company Common
Stock held by Commonwealth as described in (iv) above.
The percentages used herein are calculated based upon the 5,867,154
shares of Common Stock reported to be outstanding as of December 31, 1996 in the
Form 10-K filed by the Brody Board on March 31, 1997 and believed by the
Reporting Persons to be issued and outstanding as of February 5, 1997, based on
a Certificate of Continental Stock Transfer & Trust Company, the Company's
transfer agent, and discussions with former shareholders of the Company.
8
<PAGE>
Item 7. Material to Be Filed as Exhibits
Item 7 of Amendment No. 4 is hereby amended by adding the following to the end
thereof:
1. Order of the United States District Court for the Western District of
Pennsylvania, dated May 5, 1997, in Northstar Health Services, Inc. v. Thomas W.
Zaucha et al. (Civil Action No. 97-0510).
2. Ruling of The Court of Chancery of the State of Delaware, dated May 8, 1997,
in Thomas W. Zaucha v. Steven N. Brody et al. (Civil Action No. 15638).
3. Press release, dated May 9, 1997, issued by Northstar Health Services, Inc.
regarding the ruling in the Delaware Chancery Court.
4. Joint Filing Agreement, dated May 16, 1997, pursuant to Rule 13d-f(1)
between Thomas W. Zaucha, Commonwealth Associates, Michael S. Falk, Joseph F.
Micallef and Basil J. Asciutto.
9
<PAGE>
SIGNATURES
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Date: May 16, 1997 THOMAS W. ZAUCHA
/s/ Thomas W. Zaucha
Thomas W. Zaucha
Date: May 16, 1997 COMMONWEALTH ASSOCIATES
By: Commonwealth Associates Management
Company, Inc., its general partner
By: /s/ Basil Asciutto
Name: Basil Asciutto
Title: Chief Operating Officer
Date: May 16, 1997 MICHAEL S. FALK
/s/ Michael S. Falk
Michael S. Falk
Date: May 16, 1997 JOSEPH F. MICALLEF
/s/ Joseph F. Micallef
Joseph F. Micallef
Date: May 16, 1997 BASIL J. ASCIUTTO
/s/ Basil J. Asciutto
Basil J. Asciutto
10
<PAGE>
EXHIBIT INDEX
Page
A. Order of the United States District Court for the Western
District of Pennsylvania, dated May 5, 1997, in Northstar
Health Services, Inc. v. Thomas W. Zaucha et al. (Civil
Action No. 97-0510)...................................... 12
B. Ruling of The Court of Chancery of the State of Delaware,
dated May 8, 1997, in Thomas W. Zaucha v. Steven N. Brody
et al. (Civil Action No. 15638)........................... 20
C. Press release, dated May 9, 1997, issued by the Company
regarding the ruling in the Delaware Chancery
Court..................................................... 34
D. Joint Filing Agreement, dated May 16, 1997, between Thomas
W. Zaucha, Commonwealth Associates, Michael S. Falk, Joseph
F. Micallef and Basil J.
Asciutto.................................................. 36
11
<PAGE>
EXHIBIT A
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
NORTHSTAR HEALTH SERVICES, INC. ) Civil Action No. 97-0510
)
)
Plaintiff, ) Judge Ziegler
) Magistrate Judge Sensenich
)
v. )
)
)
THOMAS W. ZAUCHA, )
ZAUCHA FAMILY L.P. )
ALICE L. ZAUCHA, )
COMMONWEALTH ASSOCIATES, L.P., ) JURY TRIAL DEMANDED
MICHAEL S. FALK, )
JOSEPH F. MICALLEF, )
BASIL J. ASCIUTTO, )
ANDREAS V. BELLO, )
LAWRENCE F. JINDRA, )
JAMES H. MCELWAIN, )
MARK G. MYKITYSHYN, )
ROGER J. RESCHINI, and )
DAVID B. WHITE )
)
Defendants. )
ORDER OF COURT
--------------
AND NOW, this 5th day of May 1997, IT IS HEREBY ORDERED, ADJUDGED and
DECREED that the Settlement attached hereto is entered as an Order of this
Court. This Court shall have continuing jurisdiction to enforce the terms of the
Settlement.
/s/ Donald E. Ziegler
-------------------------
Donald E. Ziegler
Chief Judge
1
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
NORTHSTAR HEALTH SERVICES, INC. ) Civil Action No. 97-0510
)
)
Plaintiff, ) Judge Ziegler
) Magistrate Judge Sensenich
)
v. )
)
)
THOMAS W. ZAUCHA, )
ZAUCHA FAMILY L.P. )
ALICE L. ZAUCHA, )
COMMONWEALTH ASSOCIATES, L.P., ) JURY TRIAL DEMANDED
MICHAEL S. FALK, )
JOSEPH F. MICALLEF, )
BASIL J. ASCIUTTO, )
ANDREAS V. BELLO, )
LAWRENCE F. JINDRA, )
JAMES H. MCELWAIN, )
MARK G. MYKITYSHYN, )
ROGER J. RESCHINI, and )
DAVID B. WHITE )
)
Defendants. )
SETTLEMENT
----------
This Settlement, by and between Steven N. Brody, Charles B. Jarrett,
Jr., Timothy C. Pesci, Robert J. Smallacombe, and David D. Watson, individually
(collectively and hereinafter referred to as the "Brody Board"), and Thomas W.
Zaucha, Zaucha Family L.P., Alice L. Zaucha, Commonwealth Associates, L.P.,
Michael S. Falk, Joseph F. Micallef, Basil J. Asciutto, Andreas V. Bello,
Lawrence F. Jindra, James H. McElwain, Mark G. Mykityshyn, Roger G. Reschini,
and David B. White, individually, (collectively and hereinafter referred to as
the "Zaucha Group").
2
<PAGE>
The Brody Board and Zaucha Group are collectively referred to herein as "the
Parties."
1. The Parties have sought and will diligently pursue an expedited
resolution of the Delaware Section 225 Action before the Delaware Chancery
Court.
2. The Parties agree to stay the dispute entitled Northstar Health
Services, Inc. v. Thomas W. Zaucha et al. (C.A. No. 97-0510 W.D. Pa.) (the
"Western District Action"), pending the outcome of the claims and counterclaims
filed in a Section 225 Action in Delaware Chancery Court entitled Thomas W.
Zaucha v. Steven N. Brody, et al. (C.A. No. 15638) and scheduled for hearing on
May 7, 1997 (the "Delaware Section 225 Action").
3. Each party agrees to pay all of their own attorney fees and
expenses incurred from and after March 28, 1997, arising in connection with the
Delaware Section 225 Action and in connection with the Western District Action.
Only the successful board ("Successful Board" means the party ultimately found
to be in control of Northstar Health Services, Inc. after the final resolution
of the Delaware Section 225 Action (including the resolution of all appeals)),
will be entitled to seek reimbursement of those fees and expenses from Northstar
Health Services, Inc.
4. The Parties agree to be bound by the decision of the trial court in
the Delaware Section 225 Action, such that whichever Board is confirmed by the
Delaware trial court immediately assumes control of Northstar Health Services,
Inc.
3
<PAGE>
The right to appeal the Delaware trial court's decision is retained by the
Defeated Board ("Defeated Board" means the Board not deemed by the Delaware
trial court to be in control of Northstar Health Services, Inc.) but this right
to appeal does not, in any way, delay the assumption of control of Northstar by
the Successful Board. If the Zaucha Board is the Successful Board, Northstar and
the Brody Board agree that they will dismiss with prejudice the entire Western
District Action.
5. During the Interim Period ("Interim Period" means the period
commencing March 28, 1997 following the hearing before Judge Ziegler through the
resolution of the Delaware Section 225 Action by the Chancery Court scheduled
for May 7, 1997), the parties agree to the following:
a. The Company shall not take any action that
requires Board Approval without the mutual consent
of the Brody Board and the Zaucha Board ("Board
Approval" means action for which there is a
requirement under federal or Delaware law or the
Articles or Bylaws of the Company that an approval
by the Board is necessitated before a certain
action of the company can commence). The Parties
will cooperate to the extent that Board Approval
is required.
b. No Company funds will be expended in connection
with the Delaware 225 action, including any
appeals, or the Western District Action. During
4
<PAGE>
the Interim Period, Company funds may be paid for
services rendered in connection with the proxy
solicitation contest provided that such services
were rendered prior to March 28, 1997. During the
Interim Period, Company funds will continue to be
paid to all vendors, suppliers and other contract
holders provided their services are provided to
Northstar Health Services, Inc. in the ordinary
course of business.
c. It is agreed that the person who shall be
responsible for the management of the Company
during this Interim Period will be David Watson.
Mr. Watson shall remain President of the Company
with authority limited to those routine day-to-day
operations of the Company necessary to maintain
the Company, during the Interim Period. Mr. Watson
will be acting in the capacity of a caretaker,
preserving the Company for the management
ultimately determined by the Delaware Section 225
Action.
d. No payments shall be made pursuant to any
consulting or other agreements for services
rendered after March 28, 1997, to either Mr. Brody
or Mr. Smallacomb under their consulting and/or
employment agreements.
5
<PAGE>
e. The Parties acknowledge that the transcript of the
March 28, 1997 proceeding has been submitted to
the U.S. Securities and Exchange Commission. The
Parties also acknowledge that they were unable to
agree upon the language for a press release
summarizing the March 28, 1997 proceeding;
therefore, no press release was filed.
f. The Parties agree not to issue any press releases
relating to the Western District Action until the
Delaware Section 225 Chancery Court proceeding is
completed. ("Press Release" shall mean any written
statement delivered by the parties or their agents
or employees to members of the press.)
6. This Settlement and the transcript of the March 28 Agreement
constitute the entire understanding and agreement of the parties with respect to
the matters which are the subject thereof. Any promises or conditions, whether
written or oral, not specifically incorporated herein or in the March 28
Agreement, shall not be binding upon any of the parties hereto with respect to
the matters contained herein.
7. The parties consent to the continuing jurisdiction of this Court to
enforce the terms of this Order and Settlement Agreement. In the event of a
breach of this Settlement by any party hereto, the prevailing party in any
action to enforce its
6
<PAGE>
rights hereunder shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees.
7
<PAGE>
<PAGE>
EXHIBIT B
<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
THOMAS W. ZAUCHA, :
Plaintiff, :
Civil Action
vs. : No. 15638
STEVEN N. BRODY, ROBERT J. :
SMALLACOMBE, DAVID D. WATSON,
CHARLES B. JARRETT, JR., and
:
TIMOTHY C. PESCI,
:
Defendants.
:
- --------------------------------------------------------------------------------
STEVEN N. BRODY, :
individually and derivatively
on behalf of nominal counter- :
claim defendant Northstar
Health Services, Inc., :
Counterclaim Plaintiff, :
vs. :
THOMAS W. ZAUCHA, :
Counterclaim Defendant, :
-and- :
NORTHSTAR HEALTH SERVICES,
INC., :
Nominal Counterclaim
Defendant. :
RULING OF THE COURT
May 8, 1997
- --------------------------------------------------------------------------------
CHANCERY COURT REPORTERS
135 Herrmann Courthouse
Wilmington, Delaware 19801
(302) 577-2447
- --------------------------------------------------------------------------------
1
<PAGE>
Chancery Courtroom No. 1
Herrmann Courthouse
Wilmington, Delaware
Thursday, May 8, 1997
---
BEFORE: HON. BERNARD BALICK, Vice Chancellor.
---
2
<PAGE>
THE COURT: This is a summary proceeding to determine the board, in
this case to rule on the validity of the outcome of a contested election by
consent solicitations, initiated by a stockholder under Section 228 of the
Delaware General Corporation Law. It is summary in nature because it is
important to have this determination as quickly as possible, for obvious
reasons.
I will announce a decision. I hope to follow it with a written
opinion, because there are some interesting issues in the case. I say "hope"
because it happens that a number of expedited matters are occurring
simultaneously, and finding the time to get this particular opinion out quickly
might not be easy. So I will try to address the primary issues orally and enter
an order, and I hope I will follow up with more detail.
There are basically two contentions made as to why this result should
not be enforced. One has to do with the timing of the solicitation, and the
other has to do with whether the information provided to stockholders was
accurate or whether, on the other hand, there was deception or breach of the
duty of disclosure.
On the timing, I think the statute itself and the interpretations thus
far by the Supreme Court make it fairly clear that a stockholder has a right to
proceed at any time and is not constrained by considerations such as whether
audited financial reports are available to the company. In the line of cases
dealing with the scheduling of stockholder meetings -- and we know that there
has been none for this corporation for two years -- the courts have tended to
require the holding of those
3
<PAGE>
meetings even though financial statements might not be available to the extent
that management would like. And I think the same principle would apply with
greater force to a consent solicitation by a stockholder.
Moreover, on the facts I am satisfied that there was no inequitable
conduct here. First of all, I accept Mr. Zaucha's testimony as to the timing of
his action having nothing to do with the restriction on the company seeking
revocations of consents. I am satisfied that he wasn't even aware of that at the
time.
Moreover, I don't believe that the existence of audited financial
statements was actually material. The company had an opportunity to provide
those aspects of the financial statements that they thought would benefit the
company in the information provided to the stockholders.
It is debatable whether the existence of the audited reports would
have actually been helpful or harmful to management in the eyes of the
stockholders. There was some indication of savings but there was also indication
of substantial losses. In any event, if the audited reports had existed, there
would have been ample opportunity for the contesting parties to debate who
should take the credit or the blame, because after all, Mr. Zaucha was the chief
executive officer throughout the period that was reported on anyway. So I don't
believe that the timing of the consent solicitation was harmful for the reason
argued.
Of course, a consent solicitation might happen at a time that is not
favorable for management, and the speed of it
4
<PAGE>
might be thought by management to put them at a disadvantage. But that is not
the same as saying that the fact that management did not have the audited
financials and therefore could not solicit revocations was harmful.
And I would add that the preliminary revocation of consent statement
was circulated widely, and the shareholders were informed very clearly by Mr.
Zaucha's committee as well as by that preliminary revocation statement sent out
by management of their right to revoke. There is simply no reason to believe
that the existence of audited reports would have resulted in revocations.
I will turn now to the disclosure issue. I agree with the defendants
on the law and disagree with the plaintiffs. The plaintiffs argue law that one
time did exist, but I think it has been superseded by the developments in the
area of disclosure. The plaintiffs argue that when conducting a consent
solicitation as a stockholder the fraud standard applies. There is older
authority for that, and I believe that is suggested in the learned article on
this subject by Professor Hamermesh.
However, I think that the cases that have held that there is a duty of
disclosure on directors when they seek stockholder action, and perhaps in other
circumstances, applies here as well. Stockholder action -- namely, consents --
were being sought. I do not think there is any sound basis to relieve a director
of his fiduciary duty simply on the basis that he is exercising his right as a
stockholder.
5
<PAGE>
One of the reasons for the fiduciary duty is the greater access to
knowledge that a director has. A dissident director like Mr. Zaucha has that
knowledge no less simply because he is challenging the controlling board
members. It is also understood that stockholders have a right to assume and
believe that directors will be acting in their interest, and I see no reason why
the stockholders wouldn't continue to hold that assumption as to a director who
is sending them consent solicitations.
So I believe that Mr. Zaucha did have a fiduciary duty of disclosure
when he conducted the consent solicitation. I recognize that there is no case
directly on point that holds that, but that result seems to me to be the logical
and inevitable result of other cases in this evolving area.
Having said that, one must recognize that this situation differs from
many. It has been recognized from way back and continues to be true that in a
contest like this the stockholders will be receiving information by both
contending parties. Here both had access to inside information, and the
stockholders presumably understood that. The process itself is important in
evaluating what is and what is not material and what the consequences ought to
be of any arguable misstatement.
Indeed, I should point out that the cases are clear -- and I refer
back to the Seminole case -- that we are not here focused primarily on whether
there was or was not a breach of fiduciary duty. What we are focused on is
whether the way the election was conducted justifies setting it aside. And the
law
6
<PAGE>
recognizes the practical considerations, like the one I have just been referring
to. It recognizes that it is a serious matter to set aside an election,
particularly for a relatively small company that is in poor financial straits,
and to cause the serious expenditure of funds for this purpose to be wasted. It
also recognizes that elections are not forever. This particular company went a
long time without one, but there will be rights to further elections.
In the circumstances here I am satisfied that it would be completely
unjustified to set aside this election. First of all, it is hard to find
definite serious factual errors. On virtually every point we are talking about
opinions, perspectives, accusations, not only unadjudicated but in most cases
uncharged. And on all the points that the company makes they had an opportunity
to give as good as they got. They sent out information countering Mr. Zaucha's
charges and making many of their own, and there is simply no reason to believe
that any particular misstatement of fact or nondisclosure would have affected
the result of this election. It seems that what happened here was that the
stockholders were confronted with differing styles.
What I am about to say is not to indicate that one side was right or
the other side was wrong. That is really not the Court's business. It is the
voters' business. Our function is simply to make sure that there was a basically
fair process and that the result of the elections is one that the Court can
allow
7
<PAGE>
to stand with some confidence that it represents the true views of the
stockholders.
You have problems of the general kind that this company experienced
when there is this transition from private to public. It is greatly complicated
when you add the discovery of apparent fraud. At least the parties to this
proceeding seem to agree to that. As far as I know, there has been no charge
against Mr. DeSimone yet either. I have been told there certainly will be an
indictment. But I will assume -- I will have to assume that that's true.
The point is that you have a company that has had a very difficult
period. It wasn't sending out financial information. It was delisted. It was
losing money. And there was a basic choice between the man who founded and built
the business, the man whose strengths lie in operations, and others, who also
had legitimate talents in the area of corporate governance but perhaps not quite
the experience and know-how and proven record in bringing in revenue.
And both sides had a lot of communication with stockholders. They met
personally with the larger ones, some of the institutions and others, and made
their cases. And we see the result of the vote. And I see no good justification
for setting it aside.
I think I will leave it at that. I could go through the list of
particular topics that are argued to be inaccurate. It is a fairly long list.
But I am well satisfied that to the extent of any inaccuracy -- and that is
debatable. It is often a
8
<PAGE>
question of interpretation -- that the assumed inaccuracy is highly unlikely to
have affected the result. So I will refrain from going down the list of
individual topics. That will have to suffice at this stage.
I will ask the prevailing party to submit an order.
MR. TULLY: Your Honor, we will put one together tonight and we will
submit it in the morning, first to the defendants for their comment and then to
Your Honor.
THE COURT: Excuse me?
MR. TULLY: Would you prefer that we submit it on notice to the
defendants and then to Your Honor or send it --
THE COURT: Oh, absolutely. In the best of all possible worlds, you can
agree on form. But since we don't live in that particular world, you at least
try. Okay? And, you know, a differing proposal can be presented if it comes to
that as well.
Thank you. We recess.
- - -
(Court adjourned at 5:11 p.m.)
- - -
9
<PAGE>
CERTIFICATE
-----------
I, LORRAINE B. MARINO, Official Reporter for the Court of Chancery of
the State of Delaware and Notary Public, do hereby certify that the foregoing
pages numbered 3 through 12 contain a true and correct transcription of the
proceedings as stenographically reported by me at the hearing in the above cause
before the Vice Chancellor of the State of Delaware, on the date therein
indicated.
IN WITNESS WHEREOF I have hereunto set my hand at Wilmington, this 9th
day of May, 1997.
/s/Lorraine B. Marino
--------------------------
Official Reporter for the
Court of Chancery of the
State of Delaware
10
<PAGE>
<PAGE>
EXHIBIT C
<PAGE>
FOR IMMEDIATE RELEASE
Contact: Thomas W. Zaucha
(412) 465-3201
FORMER CHAIRMAN'S INSURGENT SLATE
CONFIRMED AS NEW BOARD OF DIRECTORS
OF NORTHSTAR HEALTH
INDIANA, PENNSYLVANIA, May 9, 1997. Northstar Health Services, Inc. (NSTRE:OTC)
today announced that the Delaware Chancery Court has confirmed the victory of an
insurgent slate of directors led by Thomas W. Zaucha. In so doing, the Court
overruled claims of fraud and inequitable conduct made against Mr. Zaucha's
solicitation by incumbent management. Mr. Zaucha began his proxy fight in
February of this year, after he became convinced that there was no other way to
prevent his fellow Board members from continuing a course of self-enrichment and
entrenchment at the expense of the company's shareholders. Mr. Zaucha had
objected, among other things, to management consulting fees and option grants
paid to nonexecutive board members that he considered excessive, as well as to
corporate governance provisions that the board's own counsel had described as
"shark repellents." Holders of 61% of Northstar's outstanding shares voted in
favor of Mr. Zaucha's slate.
Mr. Zaucha, a physical therapist by training, had built the largest
privately-held physical therapy company in the state of Pennsylvania before
selling it to Northstar for cash and securities in 1995 and becoming Northstar's
chairman. The proxy fight was the culmination of a widening rift between Mr.
Zaucha and other members of the Board of Directors. The opposing faction was led
by Mr. Zaucha's former close personal financial advisor, Steven M. Brody.
In his ruling, Vice-Chancellor Balick said: "There was a basic choice between
the man who founded and built the business and whose strengths lie in
operations, and others, who also had legitimate talents in the area of corporate
governance but perhaps not quite the experience and know-how and proven record
in bringing in revenue. And both sides had a lot of communication with
shareholders. They met personally with the larger ones, some of the institutions
and others, and made their cases. And we see the result of the vote. I see no
good justification for setting it aside."
Mr. Zaucha stated, "We are gratified that the Delaware court has given Northstar
back to its shareholders and their duly-elected representatives. Many challenges
lie ahead, but with a unified Board of Directors and management team committed
to restoring Northstar's financial health, our Company is ready to begin its
long-awaited return to profitability and growth."
1
<PAGE>
EXHIBIT D
<PAGE>
JOINT FILING AGREEMENT
The undersigned hereby agree that Amendment No. 5 to the statement on
Schedule 13D with respect to the shares of Common Stock of Northstar Health
Services, Inc., dated May 16, 1997, and any further amendments thereto signed by
each of the undersigned shall be filed on behalf of each of them pursuant to and
in accordance with the provisions of Rule 13d-1(f) under the Securities Exchange
Act of 1934.
Date: May 16, 1997 THOMAS W. ZAUCHA
/s/ Thomas W. Zaucha
Thomas W. Zaucha
Date: May 16, 1997 COMMONWEALTH ASSOCIATES
By: Commonwealth Associates Management
Company, Inc., its general partner
By: /s/ Basil Asciutto
Name: Basil Asciutto
Title: Chief Operating Officer
Date: May 16, 1997 MICHAEL S. FALK
/s/ Michael S. Falk
Michael S. Falk
Date: May 16, 1997 JOSEPH F. MICALLEF
/s/ Joseph F. Micallef
Joseph F. Micallef
Date: May 16, 1997 BASIL J. ASCIUTTO
/s/ Basil J. Asciutto
Basil J. Asciutto
