<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 MARCH 31, 2000
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)
724-349-7500
(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 __X__ NO ____
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date:
CLASS OUTSTANDING AS OF May 5, 2000
- -------------------------------------- -----------------------------
Common Stock, par value $.01 per share 5,975,424
Transitional Small Business Disclosure Format (Check one):
YES ____ NO __X__
<PAGE> 2
NORTHSTAR HEALTH SERVICES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX PAGE
- ----- ----
<S> <C> <C> <C>
Part I - FINANCIAL INFORMATION
Item 1.
Condensed Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999 1
Condensed Consolidated Statements of Operations
for the three months ended March 31, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 5
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3.
Quantitative and Qualitative Disclosure About Market
Risk Sensitive Instruments 10
Part II - OTHER INFORMATION
Item 1. - Legal Proceedings 10
Item 2. - Changes in Securities and Use of Proceeds 10
</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 March 31, December 31,
----------- 2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 405 $ 755
Accounts receivable-
Patients, net of allowances for doubtful accounts of
$ 313 and $ 406 respectively 4,420 4,138
Management fees 5 13
Miscellaneous 122 156
Prepaid expenses and other current assets 271 113
------- -------
Total current assets 5,223 5,175
------- -------
PROPERTY AND EQUIPMENT, net 1,352 1,414
INTANGIBLE ASSETS, net (Note 2) 19,273 19,477
OTHER ASSETS 108 112
------- -------
TOTAL ASSETS $25,956 $26,178
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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NORTHSTAR HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Note 1)
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31,
------------------------------------ 2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt (Note 3)
Senior Debt $ 12,749 $ 13,802
Thomas Zaucha and Zaucha Family Limited Partnership 5,005 4,989
Other debt 103 87
Accounts payable 498 591
Accrued expenses
Thomas Zaucha and Zaucha Family Limited Partnership 9,757 9,827
Other Obligations 1,884 1,913
Contractual obligations to employees 758 709
-------- --------
Total current liabilities 30,754 31,918
-------- --------
LONG-TERM DEBT (Note 3) 259 306
-------- --------
MINORITY INTEREST 312 220
-------- --------
Total liabilities 31,325 32,444
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share, 1,000,000 shares
authorized, none issued -- --
Common stock, par value $.01 per share, 20,000,000 shares authorized;
6,337,988 shares issued at March 31, 2000 and December 31, 1999 63 63
Additional paid-in capital 22,642 22,642
Warrants outstanding 1,487 1,487
Retained deficit (29,108) (30,005)
Less: Treasury stock, 362,564 shares in 2000 and 1999, at cost (453) (453)
-------- --------
Total stockholders' equity/(deficit) (5,369) (6,266)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,956 $ 26,178
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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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 March 31,
----------------------------
2000 1999
------ ------
<S> <C> <C>
REVENUE:
Net patient service revenue $7,886 $6,660
Management fee revenue 11 323
------ ------
Total revenue 7,897 6,983
COSTS OF SERVICE 3,259 3,069
------ ------
Gross profit 4,638 3,914
OPERATING EXPENSES:
Selling, general and administrative expenses 2,716 2,477
Bad debt expense (15) 108
Amortization of intangibles 204 228
Depreciation and amortization 93 138
Management fee expenses -- 309
------ ------
Total operating expenses 2,998 3,260
------ ------
OPERATING INCOME 1,640 654
NON-OPERATING EXPENSES:
Interest expense, net 497 503
Other expense, net (1) (2)
------ ------
Total non-operating expenses 496 501
------ ------
INCOME BEFORE INCOME TAXES 1,144 153
INCOME TAX PROVISION (CREDIT) 20 (14)
------ ------
INCOME BEFORE MINORITY INTEREST 1,124 167
MINORITY INTEREST 227 91
------ ------
NET INCOME $ 897 $ 76
====== ======
NET INCOME PER SHARE - BASIC $ 0.15 $ 0.01
====== ======
NET INCOME PER SHARE - DILUTED $ 0.15 $ 0.01
====== ======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 5,975,424 5,975,424
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND EQUIVALENTS
6,177,955 6,065,801
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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NORTHSTAR HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Note 1)
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
------- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 897 $ 76
Adjustments to reconcile net income to net cash provided by operating
activities-
Depreciation and amortization 405 551
Provision for doubtful accounts (15) 108
Interest on discounted obligation 19 38
Provision for increase(decrease) in contractual obligations to
employees 57 (50)
Minority interest 227 91
Change in current assets and liabilities-
(Increase)/Decrease in receivables (224) 220
(Increase)/Decrease in other current assets (158) 245
(Decrease)/Increase in accounts payable (92) 19
(Decrease) in accrued expenses (99) (38)
------- ------
Net cash provided by operating activities 1,017 1,260
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment -- 1
Capital expenditures (99) (172)
Deposits, loans and investments 4 (18)
------- ------
Net cash used in investing activities (95) (189)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt (1,127) (164)
Distributions to minority interests (136) (66)
Payments of contractual obligations to employees (9) (33)
------- ------
Net cash used in financing activities (1,272) (263)
------- ------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
(350) 808
CASH AND CASH EQUIVALENTS, beginning balance 755 901
------- ------
CASH AND CASH EQUIVALENTS, ending balance $ 405 $1,709
======= ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid $ 542 $ 445
Income taxes paid/(refunded) 20 (14)
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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NORTHSTAR HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED 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, 1999.
Management Fees
The Company previously managed a business on a contract basis that provided
mobile diagnostic services. In conjunction with this contract, the Company
received compensation in the form of a monthly management fee. This fee was
equal to the net income or loss of the managed business after the payment of
certain agreed-upon salaries and benefits to certain parties. The Company's
mobile diagnostic services business was terminated on August 13, 1999.
Earnings Per Common Share
Earnings per share for the three months ended March 31, 2000 and 1999 were
calculated in accordance with Statement of Financial Accounting Standards No.
128 (SFAS No. 128), "Earnings per Share", using the weighted average number of
shares outstanding during the period and including the effect of stock options
outstanding. Pursuant to the Company's 1992, 1994, and 1997 Stock Option plans
and certain stock options granted outside of these plans, options for a total of
2,500 shares of the Company's common stock have been granted and no options have
been exercised for the three month period ended March 31, 2000.
The following table reconciles the number of shares utilized in the earnings per
share calculations for the three-month periods ended March 31, 2000 and 1999
(dollars in thousands):
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
2000 1999
---- ----
<S> <C> <C>
Basic earnings per share:
Net income $ 897 $ 76
Average shares outstanding 5,975,424 5,975,424
Income per share $0.15 $0.01
Diluted earnings per share:
Net income $ 897 $ 76
Average shares outstanding 5,975,424 5,975,424
Stock options 202,531 90,377
------------------------------------
Diluted average shares outstanding 6,177,955 6,065,801
Income per share $0.15 $0.01
</TABLE>
For the three month periods ended March 31, 2000 and 1999, options to purchase
959,719 and 580,800 and warrants to purchase 454,953 and 565,000 shares of
common stock, respectively, were outstanding, but were not included in the
computation of diluted earnings per share because the options' and warrants'
exercise prices were greater than the average market price of the Company's
common shares for the periods. Also, not included in the calculation of diluted
earnings per share were the shares that may be issued to the Zaucha's in
connection with the Keystone merger. See Note 5. The Zaucha Stock Guarantee
could be satisfied by all cash, all stock, or a combination of both cash and
stock.
5
<PAGE> 8
2. INTANGIBLE ASSETS:
Intangible assets and the related amortization periods consist of the following
(dollars in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Excess of cost over net assets acquired (40 years) $19,144 $19,144
Employment agreements (2 to 7 1/2 years) 625 625
Keystone tradename (20 years) 2,500 2,500
Covenant not to compete (5 years) -- 53
Assembled Keystone workforce (5 years) 400 400
Deferred financing and other costs (5 years) -- 754
------- -------
Gross intangible assets 22,669 23,476
Less- accumulated amortization (3,396) (3,999)
------- -------
Net intangible assets $19,273 $19,477
======= =======
</TABLE>
3. DEBT:
Debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Amended and Restated Credit Agreement with two Senior Lenders $ 12,749 $ 13,802
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% 147 192
Other debt 353 380
-------- --------
Total long-term debt 18,274 19,399
Less:
Current portion (17,857) (18,878)
Debt discount (158) (215)
-------- --------
Long-term debt $ 259 $ 306
======== ========
</TABLE>
During the first quarter of 2000, the Company's weighted average interest rate
was 9.8%.
On September 30, 1999, the Company restructured its credit facility with its
Senior Lender, Cerberus Capital Management, LLC, pursuant to an Amended and
Restated Credit Agreement (the "Restated Credit Agreement"). As a result, the
Company is no longer in default of its obligations to its Senior Lender. The
restructured credit facility is due and payable in monthly installments with a
final payment of all remaining obligations due on or before December 31, 2000.
Please refer to the Liquidity and Capital Resources section of Item 2 for
further discussion.
6
<PAGE> 9
4. RELATED-PARTY TRANSACTIONS:
Keystone Acquisition
In connection with the Company's acquisition of Keystone Rehabilitation Systems,
Inc., on November 15, 1995, Mr. Thomas Zaucha, Chairman and CEO of the Company,
and the Zaucha Family Limited Partnership, have debt and other amounts due
directly to them of $3,919,500 and $1,105,500, respectively, as of March 31,
2000. In addition, Mr. Zaucha and the Zaucha Family Limited Partnership have
other amounts due directly to them of $7,733,000 and $2,024,000, respectively,
as of March 31, 2000.
The Company also rents office and clinical space in buildings owned by the
Zaucha Family Limited Partnership and other related entities. Through March 31,
2000, the Company has incurred an expense of $122,465 related to rent due on
these spaces.
5. COMMITMENTS AND CONTINGENCIES:
Zaucha Stock Guarantee
The Company guaranteed the value of certain stock issued to Mr. Zaucha and the
Zaucha Family Limited Partnership to be at least $5,600,000 through certain
periods ending no later than December 31, 1997. The Company has an obligation to
fund the shortfall in stock value through a cash payment equal to the shortfall
or, with shareholder approval, through the issuance of additional shares of
Common Stock in an amount equal to the shortfall. As of the December 31, 1997
final determination date, the Company was obligated to either make a cash
payment of $4,693,423 or issue approximately 4,888,982 additional shares of
Common Stock.
The Company presently does not have sufficient cash to meet its obligations
under this guarantee. This amount is recorded as a liability in accrued
expenses. At the Company's Annual Meeting held on June 11, 1998, the Company's
stockholders approved the issuance of up to 4,888,982 shares of Common Stock in
order to enable the Company to fully satisfy the obligations of the Company
under the guarantee in stock if deemed appropriate. The Company has not issued
any shares of Common Stock to Mr. Zaucha to satisfy this obligation.
Other
David D. Watson, former President of the Company has made claims against the
Company in relation to an Employment Agreement and Note. In 1999, a settlement
was reached between the Company and David D. Watson.
6. MERGER AGREEMENT
On March 15, 2000, the Company signed an Agreement and Plan of Merger by and
among the Company, Benchmark Medical, Inc., a privately held Delaware
corporation ("BMI"), and Northstar Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of BMI ("NAC"), providing for the merger of NAC with and
into the Company with the Company being the surviving corporation (the
"Merger"), and pursuant to which each outstanding share of the Company's common
stock will be converted into the right to receive $1.50 in cash, without
interest, at the effect time of the Merger. The total consideration is
approximately $36 million, which includes payments to stockholders and repayment
or assumption of certain obligations of the company. The transaction is subject
to certain closing conditions including expiration of the Hart-Scott Rodino
waiting period. The transaction is expected to close during the second calendar
quarter of this current year.
7
<PAGE> 10
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 relating to such matters as anticipated financial performance,
business prospects, and projected plans for and results of its operations. A
variety of factors could cause the Company's actual results to differ materially
from the anticipated results or other expectations expressed in the Company's
forward looking statements. The risks and uncertainties that may affect the
operations and performance of the Company's business include the following:
changes in regulatory, governmental and payor policies regarding reimbursement;
competition, both directly in terms of other providers of physical therapy and
other services, and the competition for qualified personnel; the outcomes of the
current litigation involving the Company; defaults in borrowing arrangements,
defaults in bank financing, including an inability to comply with various
covenants in connection with such financing; the ability of the Company to have
its Common Stock relisted on the NASDAQ National Market System or listed on a
stock exchange; and the uncertainties surrounding the healthcare industry in
general.
Results of Operations
Three Months Ended March 31, 2000 and 1999
Total revenue
During the first quarter of 2000, the Company's total revenues increased by
$914,000, or 13.1%, from $6,983,000 for the first quarter of 1999 to $7,897,000
for the first quarter of 2000. The Company opened new outpatient offices and
entered into new contracts that resulted in an increase in net patient service
revenues of $519,000. Net patient service revenue from continuing operations
increased by $853,000 as a result of better weather conditions experienced in
January 2000 than in January 1999 and improved market penetration. Partially
offsetting these increases was a decrease in revenue of approximately $146,000
as the result of the closure or termination of certain clinics and contracts and
a decline in management fee revenues of approximately $312,000 is attributable
to the termination of all mobile diagnostic services effective August 13, 1999.
Costs of service and Gross profit
Costs of service increased $190,000 from $3,069,000 for the first quarter of
1999 to $3,259,000 for 2000, or 6.2% reflecting the increase in volume noted
above. As a percentage of net patient service revenue, costs of service
decreased from 46.1% in the first quarter of 1999 to 41.3% in the first quarter
of 2000 due to the impact of ongoing cost reduction programs. As a result of
these factors, and the closing of the mobile diagnostic business in August 1999,
gross profit increased $724,000, from $3,914,000 (56.1% of total revenue) for
the first quarter of 1999 to $4,638,000 (58.7% of total revenue) for 2000.
Selling, general and administrative expense
Total selling, general and administrative expenses for the first quarter
increased $239,000 from $2,477,000 in 1999 to $2,716,000 in 2000. The 9.6%
increase is mainly due to increased lease costs and additional leases for new
facilities. Additional costs for more frequent Board of Directors meetings and
certain other costs also impacted SG&A expense.
Bad debt expense
The Company incurred a net bad debt credit of $15,000 during the first quarter
of 2000 versus $108,000 charge or approximately 1.6% of net patient revenue
during the first quarter of 1999. Bad debt expense
8
<PAGE> 11
in both years was reduced by the recovery of contract billings deemed
uncollectible in prior years. Bad debt expense without any recoveries would have
been approximately 1.0% and 2.9%, respectively, in the first quarter of 2000 and
1999.
Interest and other non-operating expenses
Interest expenses were $497,000 for the first quarter of 2000 compared to
$503,000 for 1999. This decrease can be attributed to a reduction in the
principal balance for the senior debt offset somewhat by increases in the
effective interest rate.
Income taxes
The Company has recorded a tax provision of $20,000 during the first quarter of
2000 and none in 1999. As a result of the losses experienced in 1999 and prior
years, the Company anticipates that substantially all taxable income in 2000
will be offset by tax loss carryforwards.
Net income
The net income for the first quarter of 2000 was $897,000 compared to $76,000
for the same period in 1999. This significant increase in profitability is due
to improved net operating volume resulting, in part, from the elimination of
unprofitable operations of the Mobile Diagnostic service business which was
closed in 1999.
Liquidity and Capital Resources
On September 30, 1999, the Company restructured its credit facility with its
Senior Lender, Cerberus Capital Management, LLC, pursuant to the Restated Credit
Agreement. As a result, the Company is no longer in default of its obligations
to its Senior Lender. The restructured credit facility is due and payable in
monthly installments with a final payment of all remaining obligations due on or
before December 31, 2000.
During the three months ended March 31, 2000, $1,017,000 versus $1,260,000 of
net cash was provided by operating activities during the first three months of
1999 primarily due to increased net income offset by increases in accounts
receivables related to increased revenue and an increase in prepaid and other
current assets and a decrease in accounts payable during the period. The net
cash used in investing activities decreased from $189,000 in the first three
months of 1999 to $95,000 in the first three months of 2000 resulting primarily
from a decrease in capital expenditures.
During the first three months of 1999, the Company made debt principal payments
of $164,000 which primarily were scheduled debt and lease payments other than to
the Senior Lender, as well as, payments on debt to former owners and managers of
the Company. This amount increased to $1,127,000 for the first three months of
2000 due to principal payments made to the Senior Lender in accordance with the
Amended and Restated Credit Agreement. In addition, during the three months of
2000, the Company paid approximately $136,000 to minority interest holders in
companies controlled by Northstar and $9,000 under contractual obligations with
certain employees. During the first three months of 1999 and 2000, the Company
made no additional material borrowings under any debt arrangements.
Summary of Financial Condition and Results of Operations
The Company continues to experience problems with liquidity as a result of the
expenses related to the contest for corporate control in 1997; the investigation
and litigation expenses arising out of certain actions taken by the Company's
pre-1996 management; prior year's operating losses; and prior obligations to buy
out 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 refinancing of its outstanding long-term debt obligations in the
foreseeable future, the Company could be required to file a petition for relief
under the provisions of the Bankruptcy Code.
9
<PAGE> 12
In response to these developments, the Company continues to focus its efforts on
improving the performance of its core physical therapy and rehabilitation
businesses. During the third quarter of 1999, the Company negotiated the sale of
its Penn Vascusonics mobile diagnostic business, which had been unprofitable.
The Company is also continuing to review all expenses in an effort to reduce
costs wherever possible, and to seek additional sources of revenues. The
Company's Chairman continues to indicate that he will not demand immediate
reimbursement of all amounts currently due to him and his family partnership.
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 significantly 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.
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 interest rate risk or for any other purpose.
Part II - OTHER INFORMATION
Item 1. - Legal Proceedings
On or about February 18,1998, Robert J. Smallacombe, a former director, employee
and consultant of the Company commenced on action by filing a Praecipe Writ of
Summons against the Company, Mr. Zaucha and other related parties. Mr.
Smallacombe believes he is entitled to the balance of his employment contract
and certain stock options that may or may not have been granted. The Company
believes that it has counterclaims against Mr. Smallacombe, and intends to
vigorously defend itself against any claims bought by Mr. Smallacombe. On March
17, 2000, Mr. Zaucha filed a petition with the Court seeking the dismissal of
the action because of Mr. Smallacombe's failure to prosecute same. On or about
March 29, 2000, Mr. Smallacombe filed a complaint, alleging breach of contract
and defamation, and seeking compensatory and punitive damages. On March 31,2000,
the court of Common Pleas of Westmoreland County, Pennsylvania, entered a stay
of the action pending the resolution of Mr. Zaucha's petition seeking dismissal
of the case.
Item 2. - Changes in Securities and Use of Proceeds
Chapter 1, Title 8, Section 170 of the Delaware Corporation Law provides that
the directors of every corporation may declare and pay dividends either out of
surplus or, in the event that there is no surplus, out of net profits for the
fiscal year in which the dividend is declared and/or the preceding fiscal year.
The Company has experienced a loss for fiscal year 1999 and a profit for the
first quarter of 2000, the Company has not had surplus during the past fiscal
year and does not have surplus during the first quarter of fiscal year 2000, and
therefore, the Company does not plan to declare and pay dividends on its Common
Stock.
In addition, the Company is prohibited from declaring any dividend, other than
dividends payable solely in common stock, on any shares of any class of stock
under the terms of the Restated Credit Agreement with its Senior Lender.
10
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Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits Required by Item 601 of Regulation S-K
The following exhibits required by Item 601 of Regulation S-K are set
forth in the following list and are filed either by incorporation or by
reference from previous filings with the Securities and Exchange
Commission or by attachment to this Form 10-Q.
3.1.1 Articles of Incorporation of Northstar Health Services, Inc., as filed
in the state of Delaware, filed as an exhibit to the Company's Annual
Report on Form 10-K for fiscal year ended December 31, 1996, is
incorporated by reference.
3.1.2 Amendment to Certificate of Incorporation, as filed in the state of
Delaware, filed as an exhibit to the Company's Quarterly Report on Form
10-Q dated August 7, 1998, is incorporated by reference.
3.2.1 Bylaws of Northstar Health Services, Inc., filed as an exhibit to the
Company's Quarterly Report on Form 10-Q dated August 14, 1997, is
incorporated by reference.
3.2.2 Amendment to the Bylaws of Northstar Health Services, Inc., filed as an
exhibit in the Company's Form 8-K, dated September 1, 1998, is
incorporated by reference.
4.1 1997 Stock Option Plan, filed as an exhibit to the Company's Annual
Report on Form 10-K for fiscal year ended December 31, 1997, is
incorporated by reference.
4.2 1992 Stock Option Plan, as amended, filed as an exhibit to the
Company's Annual Report on Form 10-K for fiscal year ended December 31,
1996, is incorporated by reference.
4.3 Form S-8 Registration Statement (No. 33-94584), 1992 Stock Option Plan
filed July 14, 1995, is incorporated by reference.
4.4 Form S-8 Registration Statement (No. 333-57051), 1997 Stock Option Plan
filed June 17, 1998, is incorporated by reference.
4.5 Post Effective Amendment No. 1 to Form S-8 Registration Statement (No.
33-94584), 1994 Stock Option Plan, filed June 17, 1998, is incorporated
by reference.
10.1 Employment Agreement dated November 15, 1995, between Northstar Health
Services, Inc. and Thomas W. Zaucha, filed as an exhibit to the
Company's Form 8-K dated November 15, 1995, is incorporated by
reference.
10.2 Amended and Restated Credit Agreement, filed as an exhibit to the
Company's Quarterly Report on Form 10-Q dated November 12, 1999, is
incorporated by reference.
10.3 Amended and Restated Promissory Note: Cerberus Capital Management, LLC,
filed as an exhibit to the Company's Quarterly Report on Form 10-Q
dated November 12, 1999, is incorporated by reference.
10.4 Amended and Restated Promissory Note: Bear Stearns & Co., filed as an
exhibit to the Company's Quarterly Report on Form 10-Q dated
November 12, 1999, is incorporated by reference.
10.5 Amended and Restated Company Security Agreement, filed as an exhibit to
the Company's Quarterly Report on Form 10-Q dated November 12, 1999, is
incorporated by reference.
10.6 Amended and Restated Subsidiaries Guaranty, filed as an exhibit to the
Company's Quarterly Report on Form 10-Q dated November 12, 1999, is
incorporated by reference.
11
<PAGE> 14
10.7 Amended and Restated Company Pledge Agreement, filed as an exhibit to
the Company's Quarterly Report on Form 10-Q dated November 12, 1999, is
incorporated by reference.
10.8 Amended and Restated Subsidiaries Stock Pledge Agreement, filed as an
exhibit to the Company's Quarterly Report on Form 10-Q dated
November 12, 1999, is incorporated by reference.
10.9 Amended and Restated Subsidiaries Security Agreement, filed as an
exhibit to the Company's Quarterly Report on Form 10-Q dated
November 12, 1999, is incorporated by reference.
10.10 Zaucha Subordination Agreement, filed as an exhibit to the Company's
Quarterly Report on Form 10-Q dated November 12, 1999, is incorporated
by reference.
10.11 Zaucha Payment Letter, filed as an exhibit to the Company's Quarterly
Report on Form 10-Q dated November 12, 1999, is incorporated by
reference.
10.12 Warrant to Purchase Shares of Common Stock, filed as an exhibit to the
Company's Quarterly Report on Form 10-Q dated November 12, 1999, is
incorporated by reference.
27 Financial Data Schedule
(b) Reports on Form 8-K
99 Form 8-K, dated March 6, 2000, Item 5 "Other Events" reported.
99 Form 8-K, dated March 20, 2000, Item 5 "Other Events" reported.
12
<PAGE> 15
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
(Principal Executive Officer)
Date: May 11, 2000
By:/s/ James R. Martin
-------------------
James R. Martin
Executive Vice President and Chief Financial Officer
and Treasurer
(Principal Accounting and Financial Officer)
Date: May 11, 2000
13
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