Item 11. Executive Compensation
Summary Compensation Table
Annual Compensation Long Term Compensation
------------------- --------------------------------------------------------------
Other Awards
Name and Annual Restricted ------
Principal Compen- Stock Securities LTIP All Other
Position Year Salary($) Bonus($) sation Awards Underlying Options(#) Payments($) Compensation
----------- ---- --------- -------- -------- ---------- --------------------- ----------- ------------
Stephen Sternbach 2002 $275,529 $ 0 -- -- 100,000 $32,660.40(2)
Chief Executive Officer, 2001 $289,956 $ 0 -- -- 0
President and 2000 $275,917 $25,000 -- 67,098 $27,000(1)
Chairman of the Board
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(1) Represents $27,000 credited by the Company to a book reserve account as
contingent deferred compensation for the benefit of Mr. Sternbach pursuant
to a Non-Qualified Retirement and Death Benefit Agreement between the
Company and Mr. Sternbach.
(2) Represents forgiveness of note owed to Company.
Option/SAR Grants in Last Fiscal Year
Potential
Realized Value at
Assumed Annual
Rates of Stock
Price
Appreciation
for Option Term
------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date 5% 10%
------------------------------------------------------------------------------------------------------------
Stephen Sternbach 100,000 71.4% $.45 02/10/07 $12,433 $27,473
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Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table contains information concerning the number and value,
at May 31, 2000, of the exercised and unexercised options held by Mr.
Sternbach.
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options Held at Fiscal In-the-Money Options Held at
Acquired on Value Year-End Fiscal Year-End (1)
Name Exercise (#) Realized ($) (Exercisable/Unexercisable) (Exercisable/Unexercisable)
---- ------------ ------------ --------------------------- ---------------------------
Stephen Sternbach 0 0 151,112/0 $0
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(1) Fair market value of underlying securities (the closing price of the
Company's Common Stock on the Nasdaq National Market) at fiscal year end
(May 31, 2000), minus the then effective exercise price.
19
Employment Agreements and Termination of Employment and Change in Control
Arrangements.
The Company has an employment agreement with Stephen Sternbach dated as of
December 3, 1995 (the "Sternbach Employment Agreement"). The Sternbach
Employment Agreement has a term of five years and provides for an initial annual
salary of $250,000 (subject to annual increase by the amount of the increase in
the Consumer Price Index from the immediate preceding year) plus a bonus of 6%
of the Company's net profit before taxes in excess of $1,200,000, not to exceed
an aggregate annual bonus of $500,000. The Sternbach Employment Agreement
provides that after a Change in Control (as defined in the Sternbach Employment
Agreement) of the Company has occurred, if either Mr. Sternbach terminates his
employment within six months after he has obtained actual knowledge of the
Change in Control or the Company (or any successor thereto) terminates his
employment with the Company within one year after the Change in Control, Mr.
Sternbach will be entitled to receive (i) his salary, bonuses, awards,
perquisites and benefits including, without limitation, benefits and awards
under the Company's stock option plans and pension and retirement plans and
programs, accrued through the date Mr. Sternbach's employment with the Company
is terminated and (ii) a lump-sum payment in cash equal to 2.99 times Mr.
Sternbach's base amount.
On June 21, 2000, the Board of Directors of the Company renewed the employment
agreement with Stephen Sternbach originally dated as of December 3, 1995, as
amended, for an additional five year term (the "Renewed Sternbach Employment
Agreement"). The Renewed Sternbach Employment Agreement provides for an annual
salary of $280,813.52, his base salary prior to renewal (subject to annual
increase by the amount of the increase in the Consumer Price Index from the
immediate preceding year) plus a bonus of 6% of the Company's net profit before
taxes in excess of $1,200,000. The Renewed Sternbach Employment Agreement
provides that after a Change in Control (as defined in the Sternbach Employment
Agreement) of the Company has occurred, if either Mr. Sternbach terminates his
employment within six months after he has obtained actual knowledge of the
Change in Control or the Company (or any successor thereto) terminates his
employment with the Company within one year after the Change in Control, Mr.
Sternbach will be entitled to receive (i) his salary, bonuses, awards,
perquisites and benefits including, without limitation, benefits and awards
under the Company's stock option plans and pension and retirement plans and
programs, accrued through the date Mr. Sternbach's employment with the Company
is terminated and (ii) a lump-sum payment in cash equal to 2.99 times Mr.
Sternbach's base amount.
On October 6, 2001, Mr. Sternbach voluntarily waived the cost of living increase
that was scheduled to go into affect and further reduced his salary to $275,500
from $290,080. Additionally, in October 2002, he again waived the cost of living
increase that was scheduled to go into affect.
In addition, the Renewed Sternbach Employment Agreement terminated the
Non-Qualified Retirement and Death Benefit Agreement dated February 1, 1994
Instead, the Renewed Sternbach Employment Agreement provides for an annual
contribution by the Company to an investment vehicle of Mr. Sternbach's choice
equal to ten percent (10%) of his wages and will no longer be deemed deferred
compensation. Additionally, the Company shall continue to pay the premiums of a
life insurance policy, owned by Mr. Sternbach, insuring his life for $1.2
million. The cash value of this policy was assigned to Mr. Sternbach.
The Company and Mr. Sternbach are also parties to a Consulting Agreement (the
"Sternbach Consulting Agreement") pursuant to which the Company has agreed to
retain Mr. Sternbach as a consultant for a period of two years from the time
that his employment with the Company terminates. Pursuant to the Sternbach
Consulting Agreement, the Company has agreed to pay Mr. Sternbach $150,000 per
year and he will be entitled to participate in the health insurance and similar
benefits which the Company provides to any of its other consultants.
20
Compensation Committee Report
Overview and Philosophy
The Compensation Committee of the Board of Directors is composed of three
directors, Messrs. Berdan, Weinberger and Solof. The Compensation Committee is
responsible for developing and making recommendations to the Board of Directors
with respect to the Company's executive compensation policies. The Compensation
Committee's executive compensation philosophy (which is intended to apply to all
members of the Company's management, including its Chief Executive Officer) is
to provide competitive levels of compensation, integrate managements' pay with
achievement of the Company's performance goals, reward above average corporate
performance, recognize individual initiative and achievement and assist the
Company in attracting and retaining qualified management.
The objectives of the Company's executive compensation program are to:
` Support the achievement of desired Company performance.
* Provide compensation that will attract and retain superior talent
and reward performance.
The executive compensation program provides an overall level of
compensation opportunity that is competitive within the health care industry, as
well as with a broader group of companies of comparable size and complexity.
21
Executive Officer Compensation
The Company's executive officer compensation is comprised of base salary,
annual cash bonus and long-term incentive compensation in the form of stock
options and various benefits, including medical plans generally available to
employees of the Company.
It is the philosophy of the Compensation Committee that compensation of
executive officers should be closely aligned with the financial performance of
the Company. Accordingly, benefits are provided through stock option incentives
and bonuses which are generally consistent with the goal of coordinating the
rewards to management with a maximization of shareholder return. In reviewing
Company performance, consideration is given to the Company's earnings. Also
taken into account are external economic factors that effect results of
operations. An attempt is also made to maintain compensation within the range of
that afforded like executive officers at companies whose size and business is
comparable to that of the Company.
CEO Compensation
In the case of Stephen Sternbach, the Chief Executive Officer, the
Compensation and Stock Option Committee evaluates the Company's mid and long
range strategic planning and its implementation as well as the considerations
impacting the compensation of executive officers generally which are described
above. Mr. Sternbach was awarded a bonus of $25,000 for the year ended May 31,
2000, that will be paid in fiscal 2000-2001.
Benefits
The Compensation Committee endorses the position that equity ownership by
management is beneficial in aligning managements' and shareholders' interest in
the enhancement of shareholder value. Stock options were granted at exercise
prices equal to the market value of the Company's Common Stock on the date of
grant.
The Company provides to executive officers medical benefits that generally
are available to Company employees. The amount of perquisites, as determined in
accordance with the rules of the Securities and Exchange Commission relating to
executive compensation, did not exceed 10% of salary for fiscal 2000.
Compensation of Directors
The Company's non-employee directors are paid a fee of $750 for each Board
of Directors meeting which they attend. They are not paid any additional fee for
serving on any committees of the Board of Directors. However, in September 1998
and May 1999, the outside directors were granted a non-statutory stock option
for the right to purchase up to 1,667 and 3,334 shares, respectively, of common
stock of the Company.
Performance Graph
Set forth below is a graph comparing the yearly change in the cumulative
shareholder return of the Company's Common Stock with the National Association
of Securities Dealers Automated Quotation Market Index and a peer group index of
five competing companies for the same period. The comparison assumes $100 was
invested at the close of business on May 31, 1997 in the Company's Common Stock
and in each of the comparison groups, and assumes reinvestment of dividends. The
Company paid no cash dividends during the periods.
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COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
COMPANIES, PEER GROUPS, INDUSTRY INDEXES AND/OR BROAD MARKETS
------------------------ FISCAL YEAR ENDING ---------------------
COMPANY/INDEX/MARKET 5/30/1997 5/29/1998 5/28/1999 5/31/2000 5/31/2001 5/31/2002
Star Multi Care Services 100.00 54.17 27.78 13.89 3.43 1.70
Customer Selected Stock List 100.00 68.83 45.37 25.94 51.73 85.18
NASDAQ Market Index 100.00 126.97 174.92 250.00 159.46 122.45
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The Customer Selected Stock List is made up of the following securities:
ALLIED HEALTHCARE INTL
GENTIVA HEALTH SVCS
NATIONAL HOME HLTH CARE
NEW YORK HEALTH CARE INC
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