[LOGO] HARBORSIDE 470 Atlantic Avenue
Healthcare Boston, MA 02210
Telephone 888-742-7267
March 31, 1997
Dear Fellow Stockholder:
You are cordially invited to attend the first Annual Meeting of
Stockholders of Harborside Healthcare Corporation to be held on Wednesday, May
14, 1997 at 9:00 a.m., at The Back Bay Hilton, 40 Dalton Street, Boston,
Massachusetts 02115. Coffee and refreshments will be available at the meeting
site beginning at 8:30 a.m.
The proxy statement that accompanies this letter describes the matter
which will be presented at the meeting: the election of two directors.
If you intend to attend the Annual Meeting or send a representative
please call us at the telephone number above so that we can be assured of having
sufficient space for all. We will be pleased to provide directions to anyone so
requesting. While we anticipate having the capacity to seat all who desire to
attend, if many Stockholders should attempt to attend without informing us we
must reserve the right to limit attendance, with those who have called to
reserve admission being assured of the right to admission.
Whether or not you plan to attend the meeting in person it is important
that your shares be voted at the meeting. THEREFORE, STOCKHOLDERS ARE URGED TO
FILL IN, DATE AND SIGN THE ENCLOSED PROXY CARD PROMPTLY AND RETURN IT IN THE
ENCLOSED ENVELOPE. Your vote is important, no matter how many shares you may
own.
Thank you for taking the time to review the enclosed materials.
Very truly yours,
/s/ Stephen Guillard
Stephen Guillard
President and Chief Executive Officer
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HARBORSIDE HEALTHCARE CORPORATION
470 Atlantic Avenue
Boston, Massachusetts 02210
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 1997
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TO THE STOCKHOLDERS OF HARBORSIDE HEALTHCARE CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of
Harborside Healthcare Corporation (the "Company") will be held on Wednesday, May
14, 1997 at 9:00 a.m., at the Back Bay Hilton, 40 Dalton Street, Boston,
Massachusetts 02115, for the purpose of considering and acting upon the
following matters, which are more fully described in the attached proxy
statement:
1. Election of Two Directors;
2. Such other business as may properly be brought before the
meeting. The Board of Directors at present knows of no other
formal business to be brought before the meeting.
Following the official business, there will be a review of the results
of operations for 1996 and management will review the Company's investments and
discuss the future outlook of the Company. The Directors and management will be
available for questions and discussion after the meeting.
The Board of Directors has fixed March 17, 1997 as the record date for
the determination of the stockholders who will be entitled to vote and receive
notice of such meeting or any adjournment or adjournments thereof. A list of
such stockholders will be open to the examination of such stockholders for any
purpose germane to the Annual Meeting at the Annual Meeting and during ordinary
business hours for a period of ten days prior to the Annual Meeting at the
office of the Company at 470 Atlantic Avenue, Boston, Massachusetts 02210.
/s/ Scott D. Spelfogel
---------------------------
Scott D. Spelfogel
Secretary
March 31, 1997
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PLEASE FILL IN, DATE AND SIGN THE ACCOMPANYING PROXY, WHICH IS SOLICITED BY THE
BOARD OF DIRECTORS OF THE COMPANY, AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE PAID ENVELOPE. YOU MAY NEVERTHELESS VOTE IN PERSON IF YOU ATTEND THE
MEETING.
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PROXY STATEMENT DATED MARCH 31, 1997
This Proxy Statement is submitted to the Stockholders of Harborside
Healthcare Corporation (the "Company") for solicitation of the accompanying
proxy for use at the Annual Meeting of the Stockholders of the Company to be
held, for the purposes set forth in this Proxy Statement, at 9:00 a.m. on
Wednesday, May 14, 1997 at the Back Bay Hilton, 40 Dalton Street, Boston,
Massachusetts 02115, or any adjournment or adjournments thereof. The Company's
principal executive offices are located at 470 Atlantic Avenue, Boston,
Massachusetts 02210. This Proxy Statement, together with a Proxy Form and an
Annual Report to Stockholders, will be mailed to Stockholders on or about March
31, 1997.
REVOCABILITY OF PROXY
The proxy is revocable by the Stockholders at any time before it is
voted by filing a later dated proxy, by filing a written notice of revocation
with Scott D. Spelfogel, Secretary of the Company, or by voting at the Meeting.
Unless so revoked, properly executed proxies will be voted, and where choices
are indicated on the proxy, they will be voted as specified, and if no choices
are indicated, the proxies will be voted in favor of the proposals on the proxy.
PERSONS MAKING THE SOLICITATION
The solicitation is made by the Board of Directors of the Company.
SOLICITATION
Solicitation of proxies is to be made by the use of the mails. In
addition, representatives of the Company may, under instructions from the Board
of Directors and acting only for the Company, solicit such proxies for the Board
of Directors by means of telephone or personal calls. The Company does not
intend to hire a proxy solicitation firm. The Company will pay all expenses in
connection with the solicitation of these proxies.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only Stockholders of the Company of record at the close of business on
March 17, 1997 will be entitled to vote at the Annual Meeting. As of March 17,
1997 there were 8,000,000 shares of the Company's common stock outstanding. No
shares of the Company's preferred stock were outstanding on that date. Each
share is entitled to one vote. The Stockholders do not have cumulative voting
rights. The holders of a majority of the Company's outstanding common stock
represented in person or by proxy, constitute a quorum at the Meeting, but if
less than a quorum is present, a majority in interest of those present may
adjourn the Meeting. The Company's by-laws require that elections be by a
plurality and that matters be approved by a majority of the votes cast unless a
higher number is required for a particular proposal by the certificate of
incorporation, by-laws or applicable law. For purposes of Proposal No. 1 (the
election of directors) proxy cards marked to indicate an abstention will be
counted in determining the presence of a quorum, but will not be considered to
be a vote cast. Broker non-votes (proxy cards returned unmarked as to a proposal
by brokers) will be counted in determining the presence of a quorum but will
have no effect on the approval or disapproval of the proposal. There are no
rights of appraisal or similar rights of dissenters with respect to Proposal No.
1.
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The following table sets forth certain information with respect to the
beneficial ownership of certain voting securities of the Company by all persons
known by the Company to own beneficially more than 5% of the shares of any class
of the Company's stock, each of the Company's Directors, the named executive
officers and by all Directors and executive officers as a group, as of March 17,
1997:
CLASS OF STOCK NAME AND ADDRESS(1) OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL INTEREST OF CLASS
- ------------------------------------------------------------------------------
Common Stock George Krupp(2) 3,382,305 shares 42.3%
Common Stock Douglas Krupp(2) 3,382,305 shares 42.3%
Common Stock Laurence Gerber(3) 2,830,155 shares 35.4%
Common Stock The Berkshire Companies
Limited Partnership 2,696,903 direct 3.7%
Common Stock The Douglas Krupp 1994
Family Trust(4) 622,042 direct 7.8%
Common Stock The George Krupp 1994
Family Trust(4) 622,042 direct 7.8%
Common Stock Dresdner Bank AG(5)
Jurgen-Ponton-Platz 1
60301 Frankfurt, Germany 796,000 direct 9.9%
Common Stock Robert T. Barnum 13,000 direct +
Common Stock David F. Benson 2,000 direct +
Common Stock Robert M. Bretholtz 10,000 direct +
Common Stock Sally W. Crawford 5,000 direct +
Common Stock Stephen L. Guillard(6) 262,261 shares 3.3%
Common Stock Damian N. Dell'Anno(7) 65,800 shares +
Common Stock Bruce J. Beardsley 3,100 direct +
Common Stock William H. Stephan 4,000 direct +
Common Stock Kenneth Montgomery 500 direct +
Common Stock All Directors and Officers 3,819,358 shares 47.7%
+ The amount owned does not exceed one percent of the common stock of the
Company outstanding as of March 17, 1997.
(1) The address of each person, except as noted, is c/o Harborside Healthcare
Corporation, 470 Atlantic Avenue, Boston, Massachusetts 02210.
(2) Includes 2,696,903 shares of Common Stock received by The Berkshire
Companies Limited Partnership ("BCLP") and 63,360 shares of Common Stock
received by Krupp Enterprises Limited Partnership ("Enterprises"), in each case
in connection with the reorganization of the Company's predecessors that
occurred in connection with the Company's initial public offering (the
"Reorganization"). The general partners of BCLP are KGP-1, Inc. ("KGP-1") and
KGP-2, Inc. ("KGP-2") and the general partner of Enterprises is KGP-1. KGP-1 and
KGP-2 are both 50% owned by each of George Krupp and Douglas Krupp. By virtue of
their interests in the general partners of BCLP and Enterprises, George Krupp
and Douglas Krupp may each be deemed to beneficially own the 2,760,263 shares of
Common Stock held by BCLP and Enterprises. In addition, George Krupp and Douglas
Krupp may each be deemed to beneficially own the 622,042 shares of Common Stock
held by their respective family trusts. See Note 4, below.
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(3) Includes 69,892 shares of Common Stock received in connection with the
Reorganization. Also includes an aggregate of the 2,760,263 shares of Common
Stock held by BCLP and Enterprises, which Mr. Gerber may be deemed to
beneficially own because of his position as President of KGP-1 and KGP-2.
(4) Includes 622,042 shares of Common Stock received in connection with the
Reorganization by each of The George Krupp 1994 Family Trust ("GKFT") and The
Douglas Krupp 1994 Family Trust ("DKFT"). Each of George Krupp and Douglas Krupp
may be deemed to beneficially own the 622,042 shares of Common Stock held by
GKFT and DKFT, respectively. The trustees of both GKFT and DKFT are Lawrence I.
Silverstein, Paul Krupp and M. Gordon Ehrlich (the "Trustees"). The Trustees
share control over the power to dispose of the assets of GKFT and DKFT and thus
each may be deemed to beneficially own the 622,042 shares of Common Stock held
by GKFT and DKFT; however, each of the Trustees disclaims beneficial ownership
of all of such shares which are or may be deemed to be beneficially owned by
George Krupp or Douglas Krupp.
(5) According to its filing on Schedule 13G made with the Securities and
Exchange Commission, Dresdner Bank AG ("Dresdner") is an international banking
organization headquartered in Frankfurt, Germany. RCM Capital Management, L.L.C.
("RCM"), a wholly owned subsidiary of Dresdner, is an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940. Dresdner
has stated that it has beneficial ownership of the Company's stock only to the
extent that Dresdner may be deemed to have beneficial ownership of securities
deemed to be beneficially owned by RCM.
(6) Includes 260,161 shares of Common Stock received in connection with the
Reorganization and 2,100 shares owned by Mr. Guillard's immediate family for
which he disclaims beneficial ownership.
(7) Includes 65,600 shares of Common Stock received in connection with the
Reorganization, of which 18,037 shares of Common Stock received consist of the
Bonus Payment, and 200 shares owned by Mr. Dell'Anno's spouse for which he
disclaims beneficial ownership.
No director, officer or affiliate of the Company is a party adverse to
the Company or has a material interest adverse to the Company in any material
proceedings.
A list of Stockholders as of the record date will be open to the
examination of such Stockholders for any purpose germane to the Annual Meeting
at the Annual Meeting and during ordinary business hours for a period of ten
days prior to the Annual Meeting at the office of the Company at 470 Atlantic
Avenue, Boston, Massachusetts 02210.
DIRECTORS, EXECUTIVE OFFICERS AND PROPOSALS
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Pursuant to the Company's Amended and Restated Certificate of
Incorporation and By-laws, the Directors are to be, and have been classified,
with respect to the time for which they severally hold office, into three
classes, with one class to be elected annually. In 1997, the Class I Directors
must be
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elected; the Company currently has two Class I Directors, both of whom
have been nominated for reelection by the Board of Directors for a term expiring
in the year 2000. The election will be decided by a plurality vote.
The following table sets forth the names and ages of each Director of
the Company and of the management nominees for election as a Director, their
principal offices with the Company, their term of office as a Director and any
periods during which they have served as such:
NOMINEES:
<TABLE>
<CAPTION>
Name and Principal Offices with the Company Age Class Term Expires No. of Years
Director
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David F. Benson, Director 47 I 1997 1
Stephen L. Guillard, President, Chief Executive
Officer and Director 47 I 1997 1
DIRECTORS NOT STANDING FOR ELECTION IN 1997:
Name and Principal Offices with the Company Age Class Term Expires No. of Years
Director
- ----------------------------------------------------------------------------------------------------
Robert T. Barnum 51 III 1999 1
Robert M. Bretholtz 52 II 1998 1
Sally W. Crawford 43 II 1998 1
Laurence Gerber 40 II 1998 1
Douglas Krupp 50 III 1999 1
</TABLE>
Stephen L. Guillard has served as President and Chief Executive Officer
of the Company since March 21, 1996 and of the predecessors of the Company since
May 1988 and as a Director and Chairman of the Board of the Company since its
incorporation. Mr. Guillard previously served as Chairman, President and Chief
Executive Officer of Diversified Health Services ("DHS"), a long-term care
company which Mr. Guillard co-founded in 1982. DHS operated approximately 7,500
long-term care and assisted living beds in five states. Mr. Guillard has a total
of 25 years of experience in the long-term care industry and is a licensed
Nursing Home Administrator.
Douglas Krupp, a Director of the Company and Chairman of the
Executive Committee since its incorporation, is Co-founder and Chairman of The
Berkshire Group ("Berkshire"), a holding company with approximately $3 billion
under management for individual and institutional investors. Separately, Mr.
Krupp is Chairman of The Board of Directors of Berkshire Realty Company, Inc.
("BRI"), a $500 million equity real estate investment trust that is publicly
traded on the New York Stock Exchange and he serves as Chairman of the Board of
Trustees for Krupp Government Income Trust and Krupp Government Income Trust II.
Since 1990, Douglas Krupp has been a trustee of Bryant College and he serves as
a Corporate Overseer for Brigham and Women's Hospital.
Laurence Gerber, a Director of the Company since its incorporation, is
the President and Chief Executive Officer of Berkshire. Prior to becoming
President and Chief Executive Officer in 1991, Mr. Gerber held various positions
within Berkshire, where his responsibilities included strategic planning and
corporate finance. Mr. Gerber also serves as a Director of BRI and as President
and Trustee of Krupp Government Income Trust and Krupp Government Income Trust
II.
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David F. Benson, a Director of the Company since June 11, 1996, has
been President of Meditrust, a real estate investment trust, since September
1991 and was Treasurer of Meditrust from June 1987 to May 1992. He was Treasurer
of The Mediplex Group, Inc. ("Mediplex"), a long term care company, from January
1986 through June 1987. He was previously associated with Coopers & Lybrand
L.L.P., from 1979 to 1985. Mr. Benson is a trustee of Mid-Atlantic Realty Trust,
a publicly-held shopping center real estate investment trust.
Robert T. Barnum, a Director of the Company since June 11, 1996, was
President, Chief Operating Officer and a Director of American Savings Bank
("American") from 1992 until the sale of the bank in 1997. He joined American,
the largest privately held thrift in the United States, in 1989 as Chief
Financial Officer. Mr. Barnum was also a Director of National RE Holdings
Corporation, a publicly held reinsurance holding company, until its sale in
October 1996. He currently is acting as a private investor.
Robert M. Bretholtz, a Director of the Company since June 11, 1996, was
President and a Director of Madison Cable Corp., a privately held manufacturing
company, from 1976 to 1995. Mr. Bretholtz is the Chairman of the Board of
Trustees of Brigham and Women's Hospital in Boston and a Corporator for Partners
Healthcare System, Inc., the parent organization of the hospital. In addition,
he is Trustee of the Foundation for Neurological Diseases.
Sally W. Crawford, a Director of the Company since June 11, 1996 served
from 1985 through 1996 as Chief Operating Officer of Healthsource, Inc., a
publicly held managed care organization headquartered in New Hampshire. Ms.
Crawford's responsibilities at Healthsource, Inc. included leading that
company's Northern Region operations and marketing efforts. Ms. Crawford
currently is acting as a consultant. She is a director of Yankee Publishing,
publisher of Yankee Magazine and The Old Farmers Almanac.
The Board of Directors of the Company recommends a vote for election of
both of the nominees.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
executive officers of the Company:
NAME AGE POSITION
Stephen L. Guillard 47 Chairman, President, Chief Executive Officer
and Director
Damian N. Dell'Anno 37 Executive Vice President of Operations
William H. Stephan 40 Senior Vice President and Chief Financial
Officer
Bruce J. Beardsley 33 Senior Vice President of Acquisitions
Robert L. Boelter, R.R.T. 46 Senior Vice President of Subacute and Specialty
Services
Michael E. Gomez, R.P.T. 35 Senior Vice President of Rehabilitation Services
Kenneth Montgomery 38 Senior Vice President of Operations
Information on Mr. Guillard appears above.
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Damian N. Dell'Anno has served as Executive Vice President of
Operations of the Company since March 21, 1996 and its predecessors since 1994.
From 1993 to 1994, he served as the head of the specialty services group for the
predecessors of the Company and was instrumental in developing the Company's
rehabilitation therapy business. From 1989 to 1993, Mr. Dell'Anno was Vice
President of Reimbursement for the predecessors of the Company. From 1988 to
1989, Mr. Dell'Anno served as Director of Budget, Reimbursement and Cash
Management for Mediplex. Mr. Dell'Anno has a total of 15 years of experience in
the long-term care industry.
William H. Stephan has served as Senior Vice President and Chief
Financial Officer of the Company since March 21, 1996 and its predecessors since
1994. From 1986 to 1994, Mr. Stephan was a Manager in the health care practice
of Coopers & Lybrand L.L.P. His clients there included long-term care
facilities, continuing care retirement centers, physician practices and acute
care hospitals. Mr. Stephan is a Certified Public Accountant and a member of the
Healthcare Financial Management Association.
Bruce J. Beardsley has served as Senior Vice President of Acquisitions
of the Company since March 21, 1996 and its predecessors since 1994. From 1992
to 1994, he was Vice President of Planning and Development of the predecessors
of the Company with responsibility for the development of specialized services,
planning and engineering. From 1990 to 1992, he was an Assistant Vice President
of the predecessors of the Company responsible for risk management and
administrative services. From 1988 to 1990, Mr. Beardsley served as Special
Projects Manager of the predecessors of the Company. Prior to joining the
predecessors of the Company in 1988, Mr. Beardsley was a commercial and
residential real estate appraiser.
Robert L. Boelter, R.R.T. has served as Senior Vice President of
Subacute and Specialty Services of the Company since June 14, 1996 and its
predecessors since 1995. From 1994 to 1995, he was Vice President of Subacute
and Specialized Services for the predecessors of the Company. From 1992 through
1994, Mr. Boelter was the Manager and later, Corporate Director, of Subacute
Programs for Arbor Health Care Company ("Arbor"), a publicly-held nursing and
subacute care organization based in Lima, Ohio. While at Arbor, Mr. Boelter
assisted with the development of that company's subacute model and directed the
implementation of all distinct subacute programs. From 1984 to 1992, he was
President of Pedi-Medical, a hospital-affiliated home medical equipment
provider. Mr. Boelter is a licensed respiratory therapist.
Michael E. Gomez, R.P.T. has served as Senior Vice President of
Rehabilitation Services of the Company since June 14, 1996 and its predecessors
since 1994. From 1993 to 1994, Mr. Gomez served as Director of Therapy Services
for the predecessors of the Company with responsibility for overseeing the
coordination and direction of physical, occupational and speech therapy
services. From 1991 to 1993, Mr. Gomez was Director of Rehabilitation Services
at Mary Washington Hospital in Fredericksburg, Virginia. From 1988 to 1990, he
was Physical Therapy State Manager for Pro-Rehab, a contract therapy company
based in Boone, North Carolina. Mr. Gomez is a licensed physical therapist.
Kenneth Montgomery has served as Senior Vice President of Operations
for the Company since 1996. Mr. Montgomery joined the Company's predecessors in
1991, originally as Administrator at the Company's Gulf Coast facility in New
Port Richey, Florida. He was promoted to Regional Director of Operations for the
Midwest Region in 1993, and served in that position until 1996. Mr. Montgomery
previously served as Administrator, Marketing Specialist and Regional Director
with a long-term care
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company based in Philadelphia, Pennsylvania, operating facilities throughout the
mid-Atlantic states. He holds a Bachelor's degree in Marketing/Business
Administration from St. Joseph's University, and is a licensed Nursing Home
Administrator in Pennsylvania and Florida.
Each officer of the Company is elected annually by the Board of
Directors for the ensuing year or until a successor is elected and qualified.
There are no family relationships amongst the Officers and Directors.
The Company has an Audit Committee which was established on June 11,
1996, and a Compensation Committee and Stock Plan Committee both of which were
established on June 14, 1996. There is no Nominating Committee, nor is there any
committee performing similar functions. The Audit Committee is comprised of Ms.
Crawford and Mr. Bretholtz, both of whom are Independent Directors. The duties
of the Audit Committee include: reviewing the professional services and
independence of the Company's auditors and the scope of the annual external
audit; ensuring that the scope of the annual external audit is sufficiently
comprehensive; reviewing, with management and the independent auditors, the plan
and results of the annual external audit, the adequacy of the Company's internal
control systems and the results of the Company's internal audits; reviewing,
with management and the auditors, the Company's annual financial statements,
financial reporting practices, and results of each external audit; and
conducting other activities reasonably related to the foregoing. The
Compensation Committee is comprised of Messrs. Barnum, Benson, Gerber and Ms.
Crawford. Ms. Crawford is Chair. The duties of the Compensation Committee
include establishing salaries, incentives and other forms of compensation for
the Company's Directors and officers and recommending policies relating to the
Company's benefit plans. The Stock Plan Committee is comprised of Messrs. Barnum
and Benson and Ms. Crawford. Ms. Crawford is chair. The Stock Plan Committee
administers the Company's 1996 Long-Term Stock Incentive Plan.
The Board of Directors have regularly scheduled quarterly meetings and
special meetings as required. During 1996, the Board of Directors met 2 times
and acted 5 times by unanimous written consent. The Audit Committee met 1 time.
As the Company first began operating with its new structure following its
initial public offering in June, 1996, neither the Compensation Committee nor
the Stock Plan Committee formally met in 1996. However, both the Compensation
Committee and the Stock Plan Committee met in early 1997 to review and act on
1996 compensation, including the 1996 annual incentive awards. The Executive
Committee met 2 times in 1996. No Director attended fewer than 75% of the total
number of meetings of the Board of Directors or committee on which such Director
served, except Ms. Crawford and Mr. Bretholtz, who each was absent from one of
the two Board Meetings held in 1996, and Mr. Bretholtz was absent from the Audit
Committee meeting.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
REPORT OF THE COMPENSATION COMMITTEE AND
THE STOCK PLAN COMMITTEE ON
COMPENSATION OF EXECUTIVE OFFICERS OF THE COMPANY
The following Report of the Compensation Committee and The Stock Plan
Committee and the performance graphs included elsewhere in this proxy statement
shall not be deemed soliciting material or otherwise deemed filed and shall not
be deemed to be incorporated by reference by any general statement
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incorporating by reference this proxy statement into any other filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent the Company specifically incorporates this Report or the performance
graph by reference therein.
Introduction and Objectives
The Compensation Committee (the "Committee") and the Stock Plan
Committee (the "Stock Committee") of the Board of Directors of Harborside
Healthcare collectively establish and administer the Company's executive
compensation programs. (The Committee approves the salaries of all elected
officers, including the executive officers named in the Summary Compensation
Table included herein (the "Named Executive Officer") and is responsible for all
other elements of executive compensation, including annual incentive awards,
except stock options within the Long-Term Incentive Program for key executives.
The Stock Committee administers the Company's 1996 Long-Term Stock Incentive
Plan.) The goals of the Company's integrated executive compensation programs are
to: (i) align executive compensation with stockholder interests; (ii) attract,
retain, and motivate a highly competent executive team; (iii) link pay to
individual, operating group, and Company performance; and (iv) achieve a balance
between short-term and long-term results.
Harborside Healthcare executive officers are assigned base salaries,
annual incentive award target percentages, and stock option grant guidelines.
These levels are determined by comparing individual responsibilities with
industry survey data and internal executive job responsibilities. The objective
of the Compensation Committee and the Stock Plan Committee is to maintain a
competitive compensation structure for Harborside Healthcare executives at
levels which will be approximately between the 25th and 70th percentile of
comparable companies for both base and total compensation.
Harborside Healthcare executive compensation programs are designed to
provide awards based on individual, operating group, and overall Company
performance measures. To the extent that there is no adverse effect on this
performance-related approach or on the Company's ability to provide competitive
compensation, it is the Committee's policy to minimize executive compensation
expense that is non-deductible by the Company for tax purposes. In 1996, none of
the named executive officers received compensation that was non-deductible by
the Company.
Salaries
In the case of Messrs. Guillard, Dell'Anno, Beardsley and Stephan
salary is paid pursuant to employment agreements; in the case of all other
executive officers, salary is determined and fixed by the Committee, or by
management based upon the policies of the Committee. Base salaries fixed prior
to the completion of the Company's initial offering were fixed by management (in
general utilizing the methodology described herein; such methodology was
thereafter refined and adopted by the Committee). After the initial public
offering, the Committee subsequently reviewed salary levels of executive
officers, utilizing data provided by an outside consulting firm and compared
Harborside Healthcare salaries to those for comparable jobs in similar long term
care and subacute corporations. These companies were selected on the basis of
their comparable size and operating performance, and include a "Core Peer Group"
of approximately 40% of the other 20 publicly-held long term care companies
included in the Dean Witter Long Term Care Company Analysis Report and a larger
industry group comprising a total of 16 of the 20 public long-term care
companies, including the Core Peer Group (the "Peer Group"). (The Peer Group is
comprised of the companies used by the Company in the self-constructed peer
group performance index utilized for the Performance Graph.) Harborside
Healthcare executive officer salary
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levels are targeted for between the 25th and 70th percentile of this benchmark
company group depending on factors including performance, tenure and scope of
responsibility. Executive officer salary adjustments are determined by a
subjective evaluation of performance and by comparisons to peers inside and
outside the Company. Survey data indicates that 1996 base salaries of the Named
Executive Officers are, on average, at or slightly below the median of the Peer
Group.
Annual Incentive Awards
Annual incentive awards are designed to focus management attention on
Company performance. Each senior manager within the Company has an assigned
incentive award percentage (which is a percentage of annual salary) that
provides an incentive opportunity based on Company, regional, and individual
performance. The annual incentive award an executive officer was eligible to
receive in 1996 ranged from 10% to a maximum of 45% of base compensation. The
1996 annual incentive awards for the Named Executive Officers will be paid out
approximately 77.5% in cash and 22.5% in stock.
Messrs. Guillard, Dell'Anno, Beardsley and Stephan are entitled to
minimum incentive compensation awards of 15% pursuant to their employment
contracts. The actual incentive awards approved by the Committee were based on
evaluation of Company and operating group performance. Company performance was
evaluated based on the achievement of operating group goals, as well as progress
toward specific long-term goals of quality, profitability, and growth. Operating
group performance was evaluated based primarily on operating plan measures of
(a) attainment of specified corporate objectives including completion of the
initial public offering; (b) customer, employee, and referral group
satisfaction; productivity and financial performance; and (d) growth of the
company through acquisitions in 1996.
Evaluation of Company performance each year takes into consideration a
comparison with the performance of peer and premier companies and the overall
industry environment. For 1996, the Committee assessment was that the Company
performed well, completed essential projects and acquisitions and achieved the
financial targets.
Stock Options
Stock options are granted to provide a long-term incentive that is
directly linked to stockholder value. To recognize the different levels of
responsibilities within the Company, the number of stock options an executive
officer is granted is determined by the officer's salary, scope of
responsibilities and accomplishments. In 1996, stock options were granted with
an exercise price equal to the fair market value of Harborside Healthcare stock
on the date of grant, have a ten year term and become exercisable in thirds over
a three year vesting period. The grants to Named Executive Officers are
consistent with these guidelines.
Chief Executive Officer Compensation
As Chief Executive Officer, Mr. Guillard was compensated during 1996
pursuant to his employment agreement described under "Employment Agreements and
Change of Control Arrangements", below. As discussed above, under "Salaries",
Mr. Guillard's base salary was fixed prior to the completion of the Company's
initial offering by management, which relied upon a 1996 survey by an
independent consultant. Upon the constitution of the Committee, a separate study
was commissioned by a different independent consultant. Mr. Guillard's total
compensation package is targeted for between
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the 50th and 70th percentile of the Peer Group. Mr. Guillard's 1996
compensation, excluding the special bonus described under "Employment Agreements
and Change of Control Arrangements", below, was at the 50th percentile for the
Core Peer Group and below the 50th percentile for the Peer Group.
Mr. Guillard was eligible to receive a minimum annual incentive award
of 15% of his base salary under his employment agreement. His incentive program
originally set by management and ratified by the Committee set a threshold level
of 25%, a target of 35%, and a maximum of 45% for 1996. Overall company
performance, an objective standard, comprises 80% of Mr. Guillard's incentive
award calculation, while individual performance, a subjective standard,
comprises 20% of Mr. Guillard's incentive award calculation. Annually a
threshold, target and maximum is established for the objective financial measure
(in 1996 this was based upon completing the offering, achieving budgeted net
operating income, meeting acquisition targets and managing insurance and managed
care); incentive payments are earned when the company achieves 90% of the net
operating income amount. During 1996, Mr. Guillard's primary personal goal
related to achieving new subacute programs and minimizing survey deficiencies.
The Committee's assessment was that Mr. Guillard met his personal goals and
financial targets and the Company achieved its financial target. Accordingly,
Mr. Guillard's annual incentive was fixed at 35% of his base salary, the target
amount.
Mr. Guillard also received a special bonus in 1996, as described under
"Employment Agreements and Change of Control Arrangements", below. As this was a
one time, special bonus related to prior time periods, it was not considered by
the Committee in fixing Mr. Guillard's 1996 compensation.
HARBORSIDE HEALTHCARE COMPENSATION COMMITTEE:
David Benson
Robert Barnum
Sally Crawford
Laurence Gerber
HARBORSIDE HEALTHCARE STOCK PLAN COMMITTEE:
David Benson
Robert Barnum
Sally Crawford
10
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE COMPENSATION SUMMARY TABLE
- -------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
--------------------------- ------------
Awards Payouts
------------------------------------ --------------------------- ------------
Securities
Name and Other Restricted Underlying LTIP
Principal Annual Stock Options/ Payouts
Position Year Salary Bonus Compen- Award(s) SARs ($)
($) ($) sation ($) (#)
(1) (2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stephen Guillard, 1996 310,802 548,000 23,727 0 80,000 0
Chairman, President and 1995 267,800 80,000 4,063 0 0 0
Chief Executive Officer
- -------------------------------------------------------------------------------------------------------------------
Damian Dell'Anno, 1996 176,371 266,000 5,152 0 50,000 0
Executive Vice President 1995 159,326 32,000 1,573 0 0 0
of Operations
- -------------------------------------------------------------------------------------------------------------------
Bruce Beardsley, 1996 131,905 237,333 7,385 0 40,000 0
Senior Vice President of 1995 117,192 37,306 3,191 0 0 0
Acquisitions
- -------------------------------------------------------------------------------------------------------------------
William H. Stephan, 1996 127,605 180,250 6,423 0 40,000 0
Senior Vice President and 1995 120,000 24,000 5,954 0 0 0
Chief Financial Officer
- -------------------------------------------------------------------------------------------------------------------
Kenneth Montgomery, 1996 106,173 87,000 11,173 0 10,000 0
Senior Vice President of 1995 96,423 18,900 13,279 0 0 0
Operations
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)1996 amounts includes special bonuses paid to Messrs. Guillard and Dell'Anno
of $438,000 and $212,000, respectively and payments to Messrs. Beardsley,
Stephan and Montgomery in the amounts of $185,250, $150,250 and $67,000,
respectively, under the Executive Plan. See "Employment Agreements and Change of
Control Arrangements", below.
(2)Includes matching contributions made by the Company under its Supplemental
Executive Retirement Plan and 401(k) Plan and any applicable car allowances.
11
<PAGE>
Employment Agreements and Change of Control Arrangements
Upon completion of the Company's initial offering, the Company entered
into employment agreements with Messrs. Guillard, Dell'Anno, Beardsley and
Stephan, each of which has an initial term of two years, subject to automatic
renewal for successive one-year periods unless the Company or the employee gives
notice of non-renewal 60 days prior to expiration. The employment agreements
provide for an annual base salary of $310,000 for Mr. Guillard, $180,000 for Mr.
Dell'Anno, $135,000 for Mr. Beardsley and $130,000 for Mr. Stephan. Such
salaries may be increased, but not decreased, at the discretion of the
Compensation Committee. Each employee will be entitled to participate in all
benefits generally made available to senior executives of the Company and to
receive annual bonus compensation in such amounts and upon such conditions as
determined by the Compensation Committee, but not less than 15% of base salary
in a given year. If any of the employment agreements is terminated by the
Company other than for cause, the employee is entitled to receive all accrued
but unpaid salary and bonus amounts plus termination payments equal to the
employee's monthly base salary for each of the greater of (i) the number of
months remaining under the term of the agreement or (ii) 12 months (24 months in
the case of Mr. Guillard). In the event of an employee's termination due to
disability or death, the employee (or his designated beneficiary) will receive
monthly payments equal to the employee's monthly base salary for 12 months,
reduced by payments made under any disability insurance policy or program
maintained by the Company for the employee's benefit. If any of the employment
agreements is not renewed by the Company at the end of its initial or subsequent
term, the employee will be entitled to receive severance payments equal to the
employee's monthly base salary for 12 months (24 months in the case of Mr.
Guillard).
Each employment agreement provides that neither the employee nor any
business enterprise in which he has an interest may (i) until the later of the
termination of the employee's employment with the Company and the expiration of
two years from the commencement of such employment, engage in activities which
compete with the Company's business, (ii) at any time during the employee's
employment and one year following his termination (two years in the case of Mr.
Guillard), manage or operate any long-term care facility managed or operated by
the Company and (iii) for a period of one year following termination (two years
in the case of Mr. Guillard), solicit or employ persons employed or retained as
a consultant by the Company.
In 1995 Mr. Guillard subscribed for equity interests in certain of the
Company's predecessors pursuant to an Executive Equity Purchase. The aggregate
subscription price of $438,000, equal to the fair market value of such interests
as of December 31, 1995, was paid by Mr. Guillard in 1996 with the proceeds of a
special bonus equal to such purchase price. To pay taxes due with respect to the
Executive Equity Purchase and this bonus, Mr. Guillard received a loan from the
Company, evidenced by a note maturing April 15, 2001, and bearing interest at
7.0% per annum. In connection with the reorganization pursuant to which the
Company ultimately completed its initial offering, the interests subject to the
Executive Equity Purchase and Messrs. Guillard's and Dell'Anno's interests in
Harborside Healthcare Limited Partnership were exchanged for an aggregate of
307,724 shares of Common Stock. Under his prior employment agreement, Mr.
Dell'Anno also received an additional 18,037 shares of Common Stock pursuant to
the Bonus Payment in connection with the offering (with a value of $212,000).
Mr. Dell'Anno also received a loan from the Company to pay income tax
liabilities that resulted from the Bonus Payment. The loan bears interest at 1%
over the prime rate and will mature on the earlier of three years or when
restrictions on sales of Common Stock under Rule 144 in respect of the Bonus
Payment terminate.
12
<PAGE>
The Company adopted an Executive Long-Term Incentive Plan (the
"Executive Plan") effective July 1, 1995. Eligible participants, consisting of
the Company's department heads and regional directors, were entitled to receive
payment upon an initial public offering or sale of the Company above a baseline
valuation of $23,000,000 within two years of the effective date of the plan. The
Executive Plan terminated upon completion of the Offering. The payments to
Messrs. Beardsley, Stephan and Montgomery totaled $185,250, $150,250, and
$67,000, respectively.
401(k) Plan
All Company employees with at least one year of service (defined as 1,000
working hours within a consecutive twelve-month period) are eligible to
participate in the Company's retirement savings program (the "401(k) Plan"),
which is designed to be tax deferred in accordance with the provisions of
Section 401(k) of the Internal Revenue Code of 1986 (the "Code"). The 401(k)
Plan provides that each participant may defer up to 15% of his or her total
compensation, subject to statutory limits, and the Company may also make a
discretionary matching contribution to the 401(k) Plan in an amount to be
determined by the Board of Directors at the end of each year. The Company may
also make additional discretionary contributions, in the Board's discretion, to
non-highly compensated participants.
To be eligible for an allocation of Company matching or discretionary
contributions, an employee must be employed by the Company on the last day of
the year. Company matching or additional contributions vest 20% following the
participant's second year of service and an additional 20% annually thereafter.
Supplemental Executive Retirement Plan
Effective September 15, 1995, the Company established a Supplemental
Executive Retirement Plan ("SERP") to provide benefits for key employees of the
Company. Participants may defer up to 25% of their salary and bonus compensation
(100% for the period from September 16, 1995 to December 21, 1995) by making
contributions to the SERP. Amounts deferred by the participant are credited to
his or her account and are always fully vested. The Company matches 50% of
amounts contributed (up to an amount equal to 10% of base salary) which becomes
vested as of January 1 of the second year following the end of the plan year for
which contributions were credited, provided the employee is still employed with
the Company on that date. In addition, participants will be fully vested in such
matching contribution amounts in the case of death or permanent disability or at
the discretion of the Company.
Participants are eligible to receive benefits distributions upon
retirement or in certain predesignated years. Participants may not receive
distributions prior to a pre-designated year, except in the case of termination,
death or disability or demonstrated financial hardship. Only amounts contributed
by the employee may be distributed because of financial hardship.
Although amounts deferred and Company matching contributions are
deposited in a "rabbi trust," they are subject to risk of loss. If the Company
becomes insolvent, the rights of participants in the SERP would be those of an
unsecured general creditor of the Company.
1996 Long-term Stock Incentive Plan
The Company has adopted, and the Company's stockholders approved, the
Harborside Healthcare Corporation 1996 Long-Term Stock Incentive Plan (the
"Stock Plan").
13
<PAGE>
The Stock Plan is administered by the Stock Plan Committee, which is
comprised of two or more "Non-Employee Directors". Any officer or other key
employee or consultant to the Company or any of its subsidiaries who is not a
member of the Stock Plan Committee may be designated as a participant under the
Stock Plan. The Stock Plan Committee has the sole and complete authority to
determine the participants to whom awards will be granted under the Stock Plan.
The Stock Plan authorizes the grant of awards to participants with
respect to a maximum of 680,000 shares of the Company's Common Stock ("Shares"),
subject to adjustment for stock splits, stock dividends and similar events,
which awards may be made in the form of (i) nonqualified stock options; (ii)
stock options intended to qualify as incentive stock options under section 422
of the Code; (iii) stock appreciation rights; (iv) restricted stock and/or
restricted stock units; (v) performance awards and (vi) other stock based
awards; provided that the maximum number of shares with respect to which stock
options and stock appreciation rights may be granted to any participant in the
Stock Plan in any calendar year shall not exceed 150,000 and the maximum number
of shares which may be paid to a participant in the Stock Plan in connection
with the settlement of any awards designated as a "Performance Compensation
Award" (as defined below) in respect of a single performance period may not
exceed 150,000 or, in the event such Performance Compensation Award is paid in
cash, the equivalent cash value thereof. If, after the effective date of the
Stock Plan, any Shares covered by an award granted under the Stock Plan, or to
which such an award relates, are forfeited, or if an award has expired,
terminated or been canceled for any reason whatsoever (other than by reason of
exercise or vesting), then the shares covered by such award will again be, or
will become, Shares with respect to which awards may be granted under the Stock
Plan.
Awards of options, stock appreciation rights, restricted stock units,
performance awards and other stock based awards granted under the Stock Plan
will be subject to such terms, including exercise price, circumstances of
forfeiture and conditions and timing of exercise (if applicable), as may be
determined by the Stock Plan Committee. Stock options that are intended to
qualify as incentive stock options will be subject to terms and conditions that
comply with such rules as may be prescribed by section 422 of the Code.
Awards in the form of stock options and stock appreciation rights are
intended to qualify as "performance-based compensation" and therefore be
deductible under section 162(m) of the Code provided that the exercise or grant
price, as the case may be, is the fair market value per Share on the date of the
grant. In addition, the Stock Plan Committee may designate awards other than
stock options or stock appreciation rights as a "Performance Compensation
Award." Such awards meeting the criteria described below are also intended to be
deductible under the section 162(m).
Each Performance Compensation Award will be payable only upon
achievement over a specified performance period (ranging from one to three
years) of a pre-established objective performance goal established by the Stock
Plan Committee for such period. The Stock Plan Committee may designate one or
more performance criteria for purposes of establishing a performance goal with
respect to Performance Compensation Awards made under the Stock Plan. The
performance criteria that will be used to establish such performance goals will
be limited to the following: return on net assets, return on Stockholders'
equity, return on assets, return on capital, stockholder returns, profit margin,
earnings per share, net earnings, operating earnings, price per share and sales
or market share.
14
<PAGE>
With regard to a particular performance period, the Stock Plan
Committee will have the discretion, subject to the Stock Plan's terms, to select
the length of the performance period, the type(s) of Performance Compensation
Award(s) to be issued, the performance goals that will be used to measure
performance for the period and the performance formula that will be used to
determine what portion, if any, of the Performance Compensation Award has been
earned for the period. Such discretion shall be exercised by the Stock Plan
Committee in writing no later than 90 days after the commencement of the
performance period and performance for the period will be measured and certified
by the Stock Plan Committee upon the period's close. In determining entitlement
to payment in respect of a Performance Compensation Award, the Stock Plan
Committee may through use of negative discretion reduce or eliminate such award,
provided such discretion is permitted under section 162(m) of the Code.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Grant Date
Individual Grants Value
- -------------------------------------------------------------------------------------------------------------------
Percent of
Number of Total
Securities Options/ Exercise or Expiration Grant Date
Name underlying SARs Base Price Date Present
option/SARs Granted to ($/Sh) Value $
Granted Employees (3)
(#) in Fiscal
Year
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stephen Guillard(1) 80,000 17.3 11.75 June 14, 2006 $427,200
- -------------------------------------------------------------------------------------------------------------------
Damian Dell'Anno(1) 50,000 10.8 11.75 June 14, 2006 $267,000
- -------------------------------------------------------------------------------------------------------------------
Bruce Beardsley(2) 40,000 8.6 8.15 February 1, 2006 $ 73,600
- -------------------------------------------------------------------------------------------------------------------
William Stephan(2) 40,000 8.6 8.15 February 1, 2006 $ 73,600
- -------------------------------------------------------------------------------------------------------------------
Kenneth Montgomery(1) 10,000 2.2 11.75 June 14, 2006 $ 53,400
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Messrs. Guillard, Dell'Anno and Montgomery received options to purchase
shares of the Company's Common Stock at the initial public offering price on the
date of the initial public offering. One third of these options become
exercisable on the first, second and third anniversary of their date of grant
and terminate (with certain exceptions) on the tenth anniversary of their date
of grant.
(2)In February, 1996, one of the Company's predecessors granted options to
purchase a limited partnership interest in that entity to Messrs. Stephan and
Beardsley. The exercise price under each option represented the fair market
value of the partnership interest at the date of grant based upon an independent
appraisal of the partnership. Upon the completion of the Company's initial
public offering, these option grants were converted on a pro-rata basis to
options to purchase shares of the Company's Common Stock. One third of these
options become exercisable on the first, second and third anniversary of their
date of grant and terminate (with certain exceptions) on the tenth anniversary
of their date of grant.
(3)The fair value of each stock option is estimated on the date of grant using
the Black-Scholes pricing model with the following weighted-average assumptions:
an expected life of five years, expected volatility of 40%, no dividend yield
and a risk-free interest rate of 6.5%.
15
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Number of Value of
Securities Unexercised in-
Underlying the Money
Unexercised Options/SARs at
Shares Value Options/SARs Fiscal Year End
Name Acquired on Realized at Fiscal Year- ($)
Exercise ($) End Exercisable/
(#) (#) Unexercisable
Exercisable/
Unexercisable
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stephen Guillard 0 0 0/80,000 0/10,000
- ---------------------------------------------------------------------------------------------
Damian Dell'Anno 0 0 0/50,000 0/6,250
- ---------------------------------------------------------------------------------------------
Bruce Beardsley 0 0 0/40,000 0/149,000
- ---------------------------------------------------------------------------------------------
William Stephan 0 0 0/40,000 0/149,000
- ---------------------------------------------------------------------------------------------
Kenneth Montgomery 0 0 0/10,000 0/1,250
- ---------------------------------------------------------------------------------------------
</TABLE>
Independent Directors of the Company are compensated at the rate of
$15,000 per year for their services plus $1,000 for each meeting of the Board of
Directors or committee of the Board of Directors that they attend and receive
reimbursement for their travel expenses. In addition each Independent Director
initially received an option to purchase 15,000 shares of common stock, and
commencing on January 1, 1997, each Independent Director as of each January 1
receives an option to purchase an additional 3,500 shares of common stock.
During 1996 each of Messrs. Barnum, Benson and Bretholtz, and Ms. Crawford
received grants under this plan. Each option grant vests after one year, has a
ten year term, and permits the holder to purchase shares at their fair market
value on the date of grant ($11.75 in the case of options granted in 1996).
Directors are eligible to participate in the Company's Directors Retainer Fee
Plan, pursuant to which Independent Directors may elect to receive their
retainer and meeting fees currently in cash or Company stock, or may elect to
defer receipt of some or all of their fees in Company stock. Messrs. Barnum and
Benson are currently participating in this plan.
Compensation Committee Interlocks and Insider Participation
Messrs. Barnum, Benson and Gerber and Ms. Crawford comprise the
Compensation Committee and Messrs. Barnum and Benson and Ms. Crawford comprise
the Stock Plan Committee. None of these directors is or has been an officer or
employee of the Company.
The Berkshire Companies Limited Partnership ("BCLP"), is beneficially
owned by, among others, Douglas Krupp, a Director of the Company, his brother
George Krupp and Laurence Gerber, a Director of the Company. BCLP has
historically had and expects to maintain certain relationships with
16
<PAGE>
the Company. All such transactions with George or Douglas Krupp or their
affiliates, including BCLP, are and in the future will be approved by
disinterested directors.
Effective October 1, 1994, the Company entered into an agreement to
lease its Brevard facility from Rockledge T. Limited Partnership ("RTLP"), which
is beneficially owned by Douglas Krupp and George Krupp. The Brevard lease
agreement is for a period of ten years, plus up to two five-year renewals. Rent
was $551,250 for the initial twelve-month period and increases by 2.0% each year
thereafter. At the end of the initial lease term, the Company has the option to
exercise two consecutive five-year lease renewals. The Company also has the
right after the fifth anniversary of the commencement of the lease to purchase
the facility at its fair market value. RTLP is required to make capital
expenditures totaling $500,000 during the first three years of the lease. As of
December 31, 1996, approximately $338,000 of such capital expenditures had been
made.
The Company's Boston headquarters occupy office space leased from BCLP.
The Company has historically been allocated certain expenses for this office
space and for various services provided by BCLP, including legal, tax, data
processing and other administrative services. The allocations of expenses for
1996 was $700,000. In June, 1996 the Company and BCLP entered into an
administrative services agreement pursuant to which BCLP will continue to
provide the same services and office space to the Company as described above, as
well as certain investor relation services, at an initial price of approximately
$735,000 per year. The initial term of the administrative services agreement
ended on December 31, 1996, and is automatically renewable annually thereafter.
The Company or BCLP may terminate the agreement upon 120 days' prior written
notice. Management believes that the terms of the administrative services
agreement are as favorable to the Company as could be obtained from independent
third parties.
The administrative services agreement provides that the Company will
indemnify BCLP, including its officers and partners, to the fullest extent
permitted by Delaware law, as if BCLP were an agent of the Company in connection
with the performance of its services under the agreement. BCLP has agreed to
indemnify the Company for losses arising from BCLP's deliberate dishonesty or
gross negligence or willful misconduct.
In connection with the Company's initial public offering, the Company
entered into the Reorganization Agreement with certain individuals, including
Messrs. Krupp, Gerber, Guillard and Dell'Anno (the "Contributors"), pursuant to
which the Contributors received 4,400,000 shares of Common Stock in exchange for
their ownership interests in the Company's predecessors. The reorganization
contemplated by the Reorganization Agreement was completed immediately prior to
completion of the initial public offering.
In connection with the acquisition of the Company's Decatur facility,
a subsidiary of the Company assumed a first mortgage note from the facility's
prior owner. Douglas Krupp personally guaranteed the note which at the time had
a remaining balance of $1,775,000. As of December 31, 1996, the remaining
principal balance on the note is $1,598,000. The Company has agreed to indemnify
Mr. Krupp for liability under such guaranty.
The Company has historically entered into a number of financings and
lease arrangements with Meditrust. David F. Benson, the President of Meditrust,
is a Director. Fourteen of the Company's facilities are currently leased from
Meditrust. Of these, seven facilities were sold to Meditrust by a predecessor of
the Company on December 31, 1995 for $47,000,000 and were subsequently leased to
the
17
<PAGE>
Company. Total minimum rent payments under the Company's leases with Meditrust
are expected to be approximately $7.8 million for 1997 and were $7.6 million in
1996. Four of the Company's owned facilities are subject to mortgages in favor
of Meditrust. The Company used a portion of the proceeds of the initial public
offering in June, 1996 to repay an aggregate of $25 million principal amount of
these mortgages. Meditrust also received a prepayment penalty of $1.5 million.
PERFORMANCE GRAPH
The Performance Graph set forth below compares the cumulative total
stockholder return on the Company's Common Stock from June 11, 1996, the
effective date of the Company's initial public offering, to December 31, 1996,
with the cumulative total return of the Standard & Poor's 500 Composite Stock
Price Index and the Peer Group (which consists of Advocat, Inc., Arbor Health
Care, Beverly Enterprises, Inc., Genesis Health Ventures, Inc., Horizon/CMS
Healthcare Corporation, Integrated Health Services, Inc., Living Centers of
America, Inc., Manor Care, Inc., Mariner Health Group, Inc., Multicare
Companies, National Healthcare, Regency Health Services, Summit Care
Corporation, TheraTx, Inc., Unison Health Care, and Vencor, Inc.) over the
period. The Peer Group companies include the 8 long-term care organizations most
similar to the Company, and most of the other major long-term care organizations
(some of which are significantly larger organizations than the Company is at the
present time). Four long-term care organizations that did not respond to the
Company's consultants' original compensation study were excluded, since they
were not included in executive compensation comparisons. The comparison assumes
$100 was invested on June 11, 1996 in the Company's Common Stock, in the
Standard & Poor's 500 Composite Stock Price Index and in the Peer Group, and
assumes reinvestment of dividends, if any.
The stock price performance shown on the graph is not necessarily
indicative of future price performance. Information used in the graph was
obtained from Zack's Investment Research, a source believed to be reliable, but
the Company is not responsible for errors or omissions in such information.
COMPARISON OF CUMULATIVE RETURN
ASSUMES INITIAL INVESTMENT OF $100 AND REINVESTMENT OF DIVIDEND
- -------------------------------------------------------------------------------
INDEX 100
S & P 500 112.11
HARBORSIDE HEALTHCARE 103.26
PEER GROUP 87.99
6/96 -- 12/96
80 90 100 110 120
NOTE: TOTAL RETURNS BASED ON MARKET CAPITALIZATION
- -------------------------------------------------------------------------------
18
<PAGE>
INDEPENDENT AUDITORS
Coopers & Lybrand L.L.P. has served as independent auditors to the
Company's predecessors and the Company since their respective formation. The
Board of Directors has approved the selection of Coopers & Lybrand L.L.P. as
auditors through the date of the Annual Meeting of the Board of Directors. The
Audit Committee will formally recommend an auditor and the Board of Directors
will formally select an auditor for the next year at such Annual Meeting of the
Board of Directors.
A representative of Coopers & Lybrand L.L.P. is expected to be present
at the Annual Meeting to respond to appropriate questions and to make a
statement should he or she desire to do so.
The Company's By-laws do not require that Stockholders approve the
appointment of independent auditors.
OTHER MATTERS
The Board of Directors is not aware of any other formal matters to be
presented at the meeting. Pursuant to the By-laws, only such business shall be
conducted, and only such proposals shall be acted upon, as shall be properly
brought before the Annual Meeting, either by the Board of Directors, or by any
Stockholder of the Company who timely complies with the notice procedures set
forth in the By-laws of the Company.
By order of the Board
of Directors
/s/ Scott D. Spelfogel
Scott D. Spelfogel
Secretary
STOCKHOLDERS' PROPOSALS
If any Stockholder wishes to submit a proposal to be voted on at the
1998 Annual Meeting of Stockholders, the Stockholder must submit the Proposal to
the Company on or before December 1, 1997.
IMPORTANT
PLEASE FILL IN, DATE AND SIGN THE ACCOMPANYING PROXY, WHICH IS
SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY, AND RETURN IT PROMPTLY IN
THE ENCLOSED POSTAGE PAID ENVELOPE. YOU MAY NEVERTHELESS VOTE IN PERSON IF YOU
ATTEND THE MEETING.
19
