SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-21263
INTEGRATED LIVING COMMUNITIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 52-1967027
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
24850 Old 41 Road Suite 10
Bonita Springs, FL 34135
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 941-947-7200
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
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 [ ]
Indicate by check mark if the disclosure of delinquent filer pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
Aggregate market value of Registrant's Common Stock held by non-affiliates at
April 25, 1997 (based on the closing sale price for such shares as reported by
Nasdaq: $30,975,000.
Common Shares outstanding as of April 25, 1997: 6,697,900 shares
Documents Incorporated by Reference:
Portions of the Registrant's Definitive Proxy Statement for its 1997 annual
meeting of stockholders are
incorporated by reference into Part III of this report
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors at April 30, 1997 were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------- ----- -----------------------------------------------------
<S> <C> <C>
Robert N. Elkins, M.D. 54 Chairman of the Board of Directors
Edward J. Komp........ 42 President, Chief Executive Officer and Director
Kayda A. Johnson...... 49 Senior Vice President -- Chief Operating Officer
John B. Poole......... 45 Senior Vice President -- Chief Financial Officer and Treasurer
Dan Hirschfeld .... 39 Senior Vice President -- Acquisitions and Development
Lawrence P. Cirka .... 45 Director
Charles A. Laverty ... 51 Director
Lisa K. Merritt....... 36 Director
- ---------------
</TABLE>
Robert N. Elkins, M.D. became the Chairman of the Board of the Company in June
1996. Dr. Elkins has been the Chairman of the Board and Chief Executive Officer
of IHS, the sole stockholder of the Company prior to October, 1996, since March
1986 and he served as President of IHS from March 1986 to July 1994. From 1980
until co-founding IHS in 1985, Dr. Elkins was a co-founder and Vice President of
Continental Care Centers, Inc., an owner and operator of long-term healthcare
facilities. From 1976 through 1980, Dr. Elkins was a practicing physician. Dr.
Elkins is a graduate of the University of Pennsylvania, received his M.D. degree
from the Upstate Medical Center, State University of New York, and completed his
residency at Harvard University Medical Center. Dr. Elkins is a director of
Capstone Capital Corporation, Community Care of America, Inc. and UroHealth
Systems, Inc.
Edward J. Komp has served as President and Chief Executive Officer of the
Company since March 1996 and as a director of the Company since June 1996. Prior
to joining the Company, he served as Executive Vice President--Corporate
Operations of IHS from November 1995 to March 1996 and as Senior Vice
President--Managed Operations of IHS from October 1993 to November 1995, where
he had operational responsibility for over 100 assisted living and long-term
care facilities with approximately 13,000 beds nationwide. From 1979 until he
joined IHS, Mr. Komp served in various senior operational and financial
capacities with National Medical Enterprises, Inc., now Tenet Healthcare Corp.
Kayda A. Johnson has served as Senior Vice President--Chief Operating Officer
and Secretary of the Company since March 1996. Prior to joining the Company, she
served as Senior Vice President for Operations of IHS' Retirement Management
Services division from March 1991. Prior to joining IHS, she was Director of
Operations for Forum Group from 1990, and from 1982 to 1990 she was regional
Vice President of Operations for Retirement Corporation of America. Ms. Johnson
is a licensed Nursing Home Administrator and Registered Nurse. She is also a
licensed Preceptor for Nursing Home Administrators and a Certified Residential
Care Administrator. She has served on the faculty of the University of Redlands
for the past 15 years, teaching business and management courses to MBA and BBA
students. She is a member of the Board of Directors of the National Association
for the Senior Living Industries ("NASLI") and serves as NASLI's Commissioner
for Health Care as well as on the Executive Committee. She is a member of the
Board of Directors of the Assisted Living Facilities Association of America
("ALFAA"); serves on the Residential Services Committee for the California
Association of Homes and Services for the Aged ("CAHSA"); and is a member of the
advisory committee of the American Seniors Housing Association. She also serves
on the Assisted Living Advisory Board of the American Health Care Association
("AHCA"), the Assisted Living Advisory Board -- Contemporary Long Term Care, and
the Advisory Group for the NIC.
John B. Poole has served as Chief Financial Officer of the Company since March
1996. From November 1995 until he joined the Company, he was as an independent
consultant to the long-term care industry. From July 1994 through October 1995
he served as Chief Financial Officer of American Care Communities, Inc., an
owner and operator of assisted living residences. From March 1993 through June
1994 he served as Chief Financial Officer of Medifit of America, Inc., an owner
and operator of outpatient physical therapy centers and corporate fitness
centers. From October 1990 to February 1993 he served as Chief Financial Officer
of Frankwood Holdings, Ltd., an owner and operator of a third-party
administrator of health claims. From 1979 to August 1990 he served in various
positions at Beverly Enterprises, Inc., an owner and operator of long-term
health care facilities, including Senior Vice President
<PAGE>
and Chief Accounting Officer, where he had responsibility for all accounting and
data processing for the entire company.
Daniel A. Hirschfeld has served as Senior Vice President - Acquisitions and
Development of the Company since February 1997. From January 1995 through
February 1997, he held the position of Vice President - Health Care Acquisitions
for Manor Care Inc., a New York Stock Exchange listed company involved in
ownership, operation and development of assisted living, long term care and
hospitality facilities. From April 1994 through January 1995, Mr. Hirschfeld was
employed as President and Chief Operating Officer - Essential Services Division
for Mariner Health Care, Inc., a NASDAQ traded company engaged in providing post
acute services for long term care residents. Mr. Hirschfeld was responsible for
the operation of all non-facility based services including home health,
pharmacy, therapies and medical supplies. From 1985 through 1994, Mr. Hirschfeld
was employed by Meridian Health Care, Inc., (which was acquired by Genesis
Health Ventures, Inc., a New York Stock Exchange listed company, in October
1994), an owner and operator of long term care facilities. Mr. Hirschfeld served
in various positions including Vice President - Development and Planning, Vice
President - Pharmacy Services and Chief Operating Officer for Staff Replacement
Services. From 1979 until 1985, he was employed by Crown Central Petroleum, Inc.
and Constellation Services, Inc., a subsidiary of Baltimore Gas and Electric,
Inc. (both companies are listed on the New York Stock Exchange). His
responsibilities including treasury functions, strategic planning, financial
analysis, acquisitions, and accounting.
Lawrence P. Cirka became a director of the Company in June 1996. He has been
President and Chief Operating Officer of IHS and a director of IHS since July
1994. He was Senior Vice President and Chief Operating Officer of IHS from
October 1987 to July 1994. Prior to joining IHS, Mr. Cirka served in various
operational capacities with Unicare Healthcare Corporation, a long-term health
care company, for 15 years, most recently as Vice President-Western Division.
Charles A. Laverty became a director of the Company in June 1996. Mr. Laverty,
Chairman and Chief Executive Officer of UroHealth Systems, Inc. ("UroHealth"),
became President and Chief Executive Officer in September 1994, and Chairman of
the Board of Directors of UroHealth in December 1994. Prior to joining
UroHealth, Mr. Laverty was employed as Senior Executive Vice President and was a
director of Coram Healthcare Corporation, a home infusion therapy company which
was formed in 1994 by the merger of Curaflex Health Services, Inc.,
HealthInfusion, Inc., Medisys, Inc., and T2 Medical, Inc. Mr. Laverty served as
the Chairman of the Board, President and Chief Executive Officer of Curaflex
Health Services from February 1989 to August 1994. Prior to his association with
Curaflex, Mr. Laverty served as President and Chief Executive Officer of
InfusionCare, Inc., a home infusion services company, from October 1988 to
February 1989. In addition, he has held several positions, including Chief
Operating Officer, with Foster Medical Corporation, a durable medical equipment
supply company, and worked in both sales and management for C.R. Bard, a medical
device company.
Lisa K. Merritt became a director of the Company in June 1996. She has been a
Vice President of The Chase Manhattan Private Bank since May 1996. From January
1989 to May 1996, Ms. Merritt served as Vice President/District Manager of Chase
Manhattan Personal Financial Services and from July 1987 to January 1989 served
in various capacities, including commercial real estate, residential real
estate, and consumer lending at Chase Manhattan Bank, N.A. Prior to joining
Chase Manhattan Bank, Ms. Merritt was Divisional Vice President at Pioneer
Savings Bank from 1986 to 1987. From 1983 to 1986, she served as Assistant Vice
President at Presidential Bank. Ms. Merritt is a past Director of the Mortgage
Bankers Association of Southwest Florida.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table shows all of the cash
compensation paid or to be paid by the Company or its subsidiaries as well as
certain other compensation paid or accrued during the fiscal year indicated to
the Chief Executive Officer of the Company and each of the two other most highly
compensated executive officers of the Company for such period in all capacities
in which they served. No other executive officers of the Company received more
then $100,000 in compensation during 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) LONG - TERM ALL OTHER
COMPENSATION COMPENSATION(2)
SECURITIES
UNDERLYING OPTIONS
/ SARS
--------------------------------------- ----------- ---------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Edward J. Komp 1996 244,858 (3) 142,500 157,000 145,300
President and
Chief Executive Officer
John B. Poole 1996 127,944 (4) 45,000 78,000 81,000
Senior Vice President and
Chief Financial Officer
Kayda Johnson 1996 159,706 (5) 58,500 78,000 102,500
Senior Vice President and
Chief Operating Officer
</TABLE>
(1) These amounts represent the 1996 bonuses actually paid in 1997 and were
required by the terms of employment agreements because the company met or
exceeded performance goals established by the Board of Directors. See "
Employment Agreements. "
(2) These amounts represent $9,600 for each of the executives annual car
allowance and $135,700, $71,400, and $92,900 in contributions to the
Company's Supplemental Employee Retirement Plan for Mr. Komp, Mr. Poole,
and Ms. Johnson respectively.
(3) Mr. Komp joined the Company in March 1996. Prior thereto, he was Executive
Vice president-Corporate Operations of IHS, the sole stockholder of the
Company prior to its initial public offering in October, 1996. Mr. Komp
received $50,939 in salary and $32,500 in all other compensation from IHS
in 1996.
(4) Mr. Poole joined the Company in March 1996.
(5) Ms. Johnson joined the Company in March 1996. Prior thereto, she was Senior
Vice president of Operations for IHS' retirement services division. IHS was
the sole stockholder of the Company prior to its initial public offering in
October, 1996. Ms. Johnson received $32,545 in salary and $ 15,000 in all
other compensation from IHS in 1996.
The Company was organized in November 1995. During fiscal 1995, Mr. Komp and Ms.
Johnson served as executive officers of IHS. For the year ended December 31,
1995, Mr. Komp received from IHS a salary of $261,000, a cash bonus of $32,500,
a bonus consisting of 2,614 shares of IHS common stock (having a value of
$57,508 based on the $22.00 price of the IHS common stock on the date of
issuance), a car allowance of $6,000 and a $67,720 contribution by IHS to a
Supplemental Deferred Compensation Plan. For the year ended December 31, 1995,
Ms. Johnson received from IHS a salary of $162,665, a cash bonus of $15,000, and
a bonus consisting of 682 shares of IHS common stock (having a value of $15,004
based on the $22.00 price of the IHS common stock on the date of issuance). Mr.
Poole was not employed by IHS or the Company during 1995.
EMPLOYMENT AGREEMENTS. The Company is a party to Employment Agreements
(the "Employment Agreements") with each of Edward J. Komp, Kayda A. Johnson, and
John B. Poole to serve as President and
<PAGE>
Chief Executive Officer, Senior Vice President -- Chief Operating Officer, and
Senior Vice President -- Chief Financial Officer, respectively. Subject to
earlier termination, as discussed below, each Employment Agreement is for a
three-year term commencing as of May 1, 1996; however, the Employment Agreements
of Mr. Komp and Ms. Johnson provide for automatic one-year extensions on each
anniversary thereof unless 120 days' notice of nonrenewal is given by either
party prior to such anniversary date. As a result, Mr. Komp's and Ms. Johnson's
employment agreements now expire April 30, 2000. The current annual base salary
("Base Salary") for each executive is: $285,000 for Mr. Komp; $195,000 for Ms.
Johnson; and $185,000 for Mr. Poole. Each Employment Agreement provides that the
executive's Base Salary is to be increased annually by a percentage equal to the
percentage increase in the Consumer Price Index ("CPI") and, with respect to
each executive other than Mr. Komp, by such additional amounts as may be
determined in the discretion of the Company's President or Chief Executive
Officer. The Base Salary of Mr. Komp may be increased in the discretion of the
Board of Directors. Each executive may also receive annual cash bonuses in an
amount determined in the discretion of the Board of Directors; provided,
however, if the Company meets or exceeds performance goals specified by the
Board of Directors, each executive will receive a bonus of not less than 30% of
Base Salary (50% in the case of Mr. Komp).
Pursuant to the Employment Agreements, each executive is entitled to (a)
comprehensive individual and dependent health insurance, (b) Company paid life
insurance coverage in the amount of $500,000 ($1,000,000 in the case of Mr.
Komp) and accidental death and dismemberment insurance, (c) disability insurance
coverage in a monthly benefit amount equal to the sum of the executive's Base
Salary plus a "Bonus Amount" (as defined in the Employment Agreements), (d) an
annual automobile allowance of $9,600, subject to increase based on the CPI, (e)
a Company paid personal umbrella (excess) insurance policy in the amount of
$2,000,000 ($5,000,000 in the case of Mr. Komp), and (f) participate in any
executive retirement program established and maintained by the Company
(collectively, the "Executive Benefits"). In addition, each executive is
entitled to receive equity-based compensation in the discretion of the
Compensation Committee of the Board of Directors. The Company has also agreed to
reimburse each executive (other than Ms. Johnson) for certain expenses incurred
as a result of their relocation to Florida.
The Employment Agreement with Mr. Komp may be terminated by either party on 90
days' notice. Upon termination of Mr. Komp's employment without Cause, the
expiration of, or the Company's failure to renew, the Employment Agreement, or
the resignation of Mr. Komp for Good Reason, Mr. Komp will be entitled to the
sum of (1) the remaining Base Salary due under his Employment Agreement
(generally three years unless prior notice of nonrenewal has been given) and (2)
the higher of his bonus in the year of termination or in the previous year. In
addition, Mr. Komp will continue to receive his existing level of Executive
Benefits or the level of Executive Benefits received during the preceding year,
whichever is greater, throughout the severance period (generally three years)
and all stock options, other equity-based rights and rights under the Company's
Supplemental Deferred Compensation Plan ("SERP") then held by Mr. Komp will
become fully vested. The Employment Agreements with Ms. Johnson and Mr. Poole
may each be terminated by either party on 90 days' notice. Upon termination
without Cause, the expiration of the Employment Agreement, or the resignation of
the executive for Good Reason, or, in the case of Ms. Johnson, the failure to
renew the Employment Agreement, the executive will be entitled to a payment of
one and one-half times the sum of (1) the greater of his or her salary in the
year of termination or in the previous year and (2) the higher of his or her
bonus in the year of termination or in the previous year. In addition, for a
period of 18 months following such termination, each of Ms. Johnson and Mr.
Poole will continue to receive their existing level of Executive Benefits or the
level of Executive Benefits received during the preceding year, whichever is
greater, and all stock options, other equity-based rights and SERP rights then
held by Ms. Johnson and Mr. Poole, respectively, will become fully vested.
For purposes of each of the Employment Agreements, "Cause" is defined as (i)
material failure to perform duties, (ii) material breach of confidentiality or
noncompete provisions, (iii) conviction of a felony, or (iv) theft, larceny, or
embezzlement of Company property. "Good Reason" is defined as (i) a material
breach of the agreement by the Company or (ii) resignation of the executive
within one year after a change in control. A "change of control" of the Company
is deemed to occur under the Employment Agreements, in general: (i) when a
person, other than the executive or a group controlled by the executive, becomes
the "beneficial owner" of 20% or more of the Company's Common Stock, (ii) in the
event of certain mergers or consolidations in which the Company is not the
surviving entity, (iii) in the event of the sale, lease or transfer of
substantially all of the Company's assets or the liquidation of the Company or
(iv) if, within any 24-month period, the persons who were members of the Board
of Directors at the beginning of such period cease to constitute a majority of
the Board of Directors of the Company or any successor entity.
Each Employment Agreement contains covenants by the executive to, among other
things, maintain the confidentiality of trade secrets of the Company during the
term of their Employment Agreements and thereafter, as well as covenants not to
solicit employees or customers of the Company and not to be employed or have
certain other relationships
<PAGE>
with entities which are directly in the business of owning, operating or
managing facilities which compete with any such facility then operated by the
Company or any of its subsidiaries during the term of their Employment Agreement
and for a 12 month period thereafter.
OPTION GRANTS. The following table sets forth certain summary
information concerning individual grants of stock options made during the year
ended December 31, 1996 to each of the Company's executive officers named in the
Summary Compensation Table who received options during the year. No options were
exercised during 1996.
<TABLE>
<CAPTION>
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1996
INDIVIDULA GRANTS
------------------------------------------ POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED ANNUAL
SECURITIES TOTAL OPTIONS RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES IN PRICE EXPIRATION OPTION TERM (4)
NAME GRANTED(1) 1996(2) ($/SHARE)(3) DATE 5%($) 10%($)
- ---- ------------ -------------- ------------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Edward J. Komp 157,000 34.9% $8.00 6/10/2006 $789,710 $2,001,750
Kayda Johnson 78,000 17.3% $8.00 6/10/2006 $392,340 $ 994,500
John B. Poole 78,000 17.3% $8.00 6/10/2006 $392,340 $ 994,500
</TABLE>
(1) These options become exercisable as to 20% on June 10, 1997 and as to an
additional 20% on each successive June 10.
(2) Based on options to purchase 450,000 shares granted to all employees during
1996.
(3) Equal to the initial public offering price of the Company's Common Stock.
(4) These amounts represent assumed rates of appreciation in the price of the
Company's Common Stock during the terms of the options in accordance with
rates specified in applicable federal securities regulations. Actual gains,
if any, on stock option exercises will depend on the future price of the
Company's Common Stock and overall market conditions. The 5% and 10% rates
of appreciation over the 10-year term of the option of the $8.00 exercise
price would result in stock prices of $13.03 and $20.75 respectively. There
is no representation that the rates of appreciation reflected in this table
will be achieved.
<TABLE>
<CAPTION>
AGGREGATE YEAR - END OPTION VALUES
NUMBER OF SHARES SUBJECT VALUE OF UNEXERCISED IN THE
TO UNEXPIRED OPTIONS AT YEAR END MONEY OPTIONS AT YEAR END (1)
------------------------------------------ ------------------------------------------
NAME EXERCISABLE NON-EXERCISABLE EXERCISABLE NON-EXERCISABLE
- ---------------------- -------------------- --------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Edward J Komp 0 157,000 0 0
Kayda Johnson 0 78,000 0 0
John B Poole 0 78,000 0 0
</TABLE>
(1) The Company's Common Stock was trading below the option price at year end.
<PAGE>
STOCK OPTIONS
Stock Incentive Plan. The Company adopted the Stock Incentive Plan to enable the
Company and its stockholders to secure the benefits of Common Stock ownership by
key personnel of the Company and its subsidiaries. The Stock Incentive Plan
permits the issuance of restricted stock and the granting of options to purchase
an aggregate of 470,040 shares of the Company's Common Stock to key employees of
and consultants to the Company or any of its subsidiaries. Directors who perform
services for the Company solely in their capacities as directors are not
eligible to receive shares of restricted stock or options under the Stock
Incentive Plan. The number of shares which may be issued under the Stock
Incentive Plan is subject to adjustment in proportion to any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
dividend, split-up, consolidation or any similar capital adjustment. Options
granted under the Stock Incentive Plan may be either incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended ("ISOs"), or options which do not qualify as ISOs ("non-ISOs").
The Stock Incentive Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee"). No member of the Committee may receive an
option or a restricted stock award under the Stock Incentive Plan within one
year prior to his or her becoming a member of the Committee or at any time while
he or she is serving as a member of the Committee. Subject to the provisions of
the Stock Incentive Plan, the Committee has the authority to determine the
individuals to whom shares of restricted stock or stock options will be granted,
the number of shares to be issued or covered by each restricted stock or option
grant, the purchase or option price, the type of option, the option period, the
vesting restrictions or repurchase restrictions, if any, with respect to the
restricted stock or exercise of the option, the terms for the payment of the
restricted stock or the option price and other terms and conditions. Payment for
shares under a restricted stock award or pursuant to the exercise of an option
may be made (as determined by the Committee) in cash or by shares of Common
Stock.
The exercise price for shares covered by an ISO may not be less than 100% of the
fair market value of the Common Stock on the date of grant (110% in the case of
a grant to an employee who owns stock possessing more than 10% of the combined
voting power of all classes of stock of the Company or any subsidiary entitled
to vote (a "10% Stockholder")). The purchase price for shares of restricted
stock and the exercise price for shares covered by a non-ISO may not be less
than the par value of the Common Stock at the date of grant. All options must
expire no later than ten years (five years in the case of an ISO granted to a
10% Stockholder) from the date of grant. The Stock Incentive Plan also provides
that the options will become exercisable and restricted stock awards will become
fully vested upon a change in control of the Company or if, at any time within
two years following the date any person (as such term is used in Section 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934 as amended (the "Exchange
Act") shall become the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act) of 30% or more of the Company's outstanding Common Stock other
than pursuant to a plan or arrangement entered into by such person and the
Company, either the Company terminates the optionee's employment (other than for
Cause (as defined in the Stock Incentive Plan)), or the optionee leaves the
employ of the Company for Good Reason (as defined in the Stock Incentive Plan).
A "change in control of the Company" is deemed to occur if (i) there shall be
consummated (x) any consolidation or merger of the Company in which the Company
is not the continuing or surviving entity or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (y) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company, or (ii) the stockholders of the Company shall
approve any plan or proposal for liquidation or dissolution of the Company, or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the entire Board of Directors shall cease
for any reason to constitute a majority thereof unless the election, or the
nomination for election by the Company's stockholders, of each new director was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who were directors at the beginning of the period. In general, no option
may be exercised more than three months after the termination of the optionee's
service with the Company and its subsidiaries. However, the three-month period
is extended to twelve months if the optionee's service is terminated by reason
of disability or death and the Committee may in its discretion extend the period
of exercise following termination of employment. No individual may be granted
ISOs that become exercisable for the first time in any calendar year for Common
Stock having a fair market value at the time of grant in excess of $100,000. In
addition, the maximum option grant which may be made to an employee of the
Company in a calendar year shall not cover more than 350,000 shares.
Options may not be transferred during the lifetime of an optionee. Subject to
certain limitations set forth in the Stock Incentive Plan and applicable law,
the Board of Directors may amend or terminate the Stock Incentive Plan. In any
<PAGE>
event, no restricted stock awards or stock options may be granted under the
Stock Incentive Plan after May 24, 2006.
On June 10, 1996, each of Ms. Johnson and Messrs. Komp and Poole was granted an
option to purchase 78,000 shares, 157,000 shares, and 78,000 shares
respectively, of Common Stock at an exercise price per share equal to the
initial public offering price of $8 per share. The options become exercisable in
five equal annual installments commencing June 10, 1997. The options expire on
the earlier of June 10, 2006 or three months after the optionee ceases to be an
employee of the Company (one year if by reason of death or disability).
NON-PLAN DIRECTOR OPTIONS. On June 10, 1996, each of Ms. Merritt, Dr. Elkins and
Messrs. Bared, Cirka and Laverty was granted an option to purchase 16,000
shares, 235,000 shares, 28,000 shares, 98,000 shares and 28,000 shares,
respectively, of Common Stock at an exercise price per share equal to the
initial public offering of $8.00 per share. These options become exercisable in
three equal annual installments, commencing June 10, 1997, although they will
become immediately exercisable upon (i) a change in control of the Company (as
defined below under "Non-Employee Director Stock Option Plan"), (ii) the removal
(other than for justifiable cause (as defined in the option agreement)) of the
optionee as, or the Company's failure to renominate (other than for justifiable
cause) the optionee for election as, a director of the Company at any time
within two years following the date any person (as such term is used in Section
13(d) and 14(d)(2) of the Exchange Act) shall become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of 30% or more of the
Company's outstanding Common Stock other than pursuant to a plan or arrangement
entered into by such person and the Company, or (iii) the death or disability of
the optionee. The options expire on the earlier to occur of June 10, 2006 or six
months after the optionee ceases to be a director (one year if by reason of
death or disability).
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. The Company has adopted the
Non-Employee Director Stock Option Plan (the "Non-Employee Director Plan") to
promote the Company's interests by attracting and retaining highly skilled,
experienced and knowledgeable non-employee directors. Pursuant to the
Non-Employee Director Plan, each non-employee director of the Company will
automatically receive on the date of each annual meeting of stockholders of the
Company (the "Grant Date"), beginning with the 1997 Annual Meeting of
Stockholders, as long as such person remains a director following such meeting,
an option to purchase 7,500 shares of the Company's Common Stock (the "Option")
at a per share exercise price equal to the fair market value of the Common Stock
on the Grant Date. A total of 75,000 shares are reserved for issuance under the
Non-Employee Director Plan. The number of shares which may be issued under the
Non-Employee Director Plan is subject to adjustment to reflect any increase or
decrease in the number of shares of Common Stock resulting from a stock split,
stock dividend, consolidation or other similar capital adjustment.
Except as set forth below, Options become exercisable in three equal annual
installments commencing on the first anniversary of the Grant Date. In the event
that a director ceases to be a director of the Company, such person may exercise
the Option if it is exercisable by him at the time he ceases to be a director of
the Company, within six months after the date he ceases to be a director of the
Company (one year if he ceases to be a director by reason of death or
disability). Notwithstanding the foregoing, in the event a "Change of Control of
the Company" shall occur, or the optionee is removed (other than for justifiable
cause (as defined in the Non-Employee Director Plan)) as, or is not renominated
(other than for justifiable cause) for election as, a director of the Company at
any time within two years following the date any person (as such term is used in
Section 13(d) and 14(d)(2) of the Exchange Act) shall become the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange Act) of 30% or more
of the Company's outstanding Common Stock other than pursuant to a plan or
arrangement entered into by such person and the Company, then all options
granted under the Non-Employee Director Plan which are then outstanding shall
immediately become exercisable. A "Change in Control of the Company" shall be
deemed to occur if (i) there shall be consummated (x) any consolidation or
merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's Common Stock would be
converted into cash, securities or other property, other than a merger of the
Company in which the holders of the Company's Common Stock immediately prior to
the merger have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, or (y) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company, or
(ii) the stockholders of the Company shall approve any plan or proposal for
liquidation or dissolution of the Company, or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the entire Board of Directors shall cease for any reason to constitute a
majority thereof unless the election, or the nomination for election by the
Company's stockholders, of each director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of the period. Options granted under the Non-Employee Director Plan
shall have a term of ten years from the Grant Date and shall not be "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended.
<PAGE>
The Non-Employee Director Plan will be administered by the Board of Directors of
the Company. However, the Non-Employee Director Plan prescribes the individuals
who would be awarded Options, the number of shares subject to the Options, and
the terms and conditions of each award. The Board of Directors may at any time
terminate the Non-Employee Director Plan and may from time to time alter or
amend the Non-Employee Director Plan or any part thereof, provided that the
rights of a director with respect to an option granted prior to such
termination, alteration or amendment may not be impaired.
SUPPLEMENTAL DEFERRED COMPENSATION PLAN
The Company's Supplemental Deferred Compensation Plan (the "SERP") is an
unfunded deferred compensation plan which offers certain executive and other
highly compensated employees an opportunity to defer compensation until the
termination of their employment with the Company. Contributions to the SERP by
the Company, which vest over a period of five years (immediately if a
participant's employment is terminated because of death, disability, without
cause or for any reason within one year following a change in control of the
company), are determined by the Board upon recommendation of the Committee and
are allocated to participants' accounts on a pro rata basis based upon the
compensation of all participants in the SERP in the year such contribution is
made. The SERP also provides that upon a change in control of the Company (as
defined in the SERP), the Company is obligated to contribute to the SERP on
behalf of each participant an amount generally equal to three times the
participant's annual compensation as defined in the plan. In addition, a
participant may elect to defer a portion of his or her compensation and have
that amount added to his or her SERP account. Participants may direct the
investments in their respective SERP accounts. All participant contributions and
the earnings thereon, plus the participant's vested portion of the Company's
contribution account, are payable upon termination of a participant's employment
with the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Charles A. Laverty and Lisa
Merritt. Mr. Laverty and Ms. Merritt have received options to purchase shares of
Common Stock. See "--Stock Options -- Non-Plan Director Options."
COMPENSATION OF DIRECTORS
The Company pays each director who is not an employee $1,000 for attendance in
person at each meeting of the Board of Directors or of any committee thereof
held on a day on which the Board of Directors does not meet. In addition, the
Company will reimburse the directors for travel expenses incurred in connection
with their activities on behalf of the Company.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEEFICIAL OWNERS AND MANAGEMENT
The following table sets for the certain information as of April 15,
1997 (except as otherwise noted, regarding the beneficial ownership (as defined
by the Securities and Exchange Commission (the "SEC") of the Company's Common
Stock by (i) each person known to the Company to be the beneficial owner of more
then five percent of the outstanding shares of Common Stock, (ii) each director
of the Company, (iii) each person named in the Summary Compensation Table (see
"Item 11. Executive Compensation"), and (iv) all directors and executive
officers of the Company as a group. Unless otherwise indicated, the persons
named below have sole voting and investment power with respect to the number of
shares set forth opposite their names, subject to community property laws where
applicable.
NAME OF BENEFICIAL OWNER NUMBER OF PERCENT
------------------------ --------- -------
SHARES OF
------ --
BENEFICIALLY COMMON
------------ ------
OWNED (1) STOCK
--------- -----
Integrated Health Services, Inc. (2) 2,497,900 37.3%
Wellington Management Company (10) 663,100 9.9%
Massachusetts Financial Services (11) 594,900 8.9%
FMR Corp.(12) 414,500 6.2%
Oppenheimer Management Corp.(13) 335,000 5.0%
Robert N. Elkins, M.D. (3) 2,732,900 39.4%
Edward J. Komp (4) 161,100 2.3%
Kayda Johnson (5) 79,000 1.2%
John B. Poole (5) 79,000 1.2%
Lawrence P. Cirka (6) 98,000 1.4%
Charles A. Laverty (7) 28,000 *
Lisa Merritt (8) 16,000 *
All executive officers and directors as a
group (7 persons) (9) 3,194,000 43.2%
* Less then 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, which attribute beneficial ownership to
persons who possess sole or shared voting power and/or investment power
with respect to these securities.
(2) The address of Integrated Health Services is 10065 Red Run Boulevard,
Ownings Mills, Maryland 21117.
(3) Consists of the shares of Common Stock owned by IHS and options to purchase
235,000 shares of Common Stock, only 78,333 of which are exercisable within
60 days of April 15, 1997. Dr. Elkins is Chairman of the Board and Chief
Executive Officer of IHS and, as a result, may be deemed to beneficially
own the shares of Common Stock owned by IHS. Dr. Elkins disclaims
beneficial ownership of such shares. Dr. Elkin's address is c/o IHS, 8889
Pelican Bay Blvd., Naples, Florida 33963.
(4) Includes options to purchase 157,000 shares of Common Stock, only 31,400 of
which are exercisable within 60 days of April 15, 1997.
(5) Includes options to purchase 78,000 shares of Common Stock, only 15,600 of
which are exercisable within 60 days of April 15, 1997.
(6) Consists of options to purchase shares of Common Stock, only 32,666 of
which are exercisable within 60 days of April 15, 1997.
(7) Consists of options to purchase shares of Common Stock, only 9,333 of which
are exercisable within 60 days of April 15, 1997.
(8) Consists of options to purchase shares of Common Stock, only 5,333 of which
are exercisable within 60 days of April 15, 1997.
(9) Includes Common Stock owned by IHS and options to purchase 690,000 shares
of common stock, of which are exercisable within 60 days of April 15, 1997.
(10) The address of Wellington Management Company is 75 State Street, Boston, MA
02109. The number of shares is based off a schedule 13G filed in December
of 1996.
(11) The address of Massachusetts Financial Services is 500 Boston Street, 15th
Floor, Boston, MA 02116. The number of shares is based off a schedule 13G
filed in December of 1996.
<PAGE>
(12) The address of FMR Corp is 82 Devonshire Street, Boston, MA 02109. The
number of shares is based off a schedule 13G filed in December of 1996.
(13) The address of Oppenheimer Management Corp. is Two World Trade Center,
Suite 3400, New York, NY 10048-0203. The number of shares is based off a
schedule 13G filed in December of 1996.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who beneficially own ;more than ten percent
of the Company's Common Stock, to file initial reports of ownership and reports
of changes in ownership with the SEC and the NASDAQ. Executive officers,
directors and greater than ten percent beneficial owners are required by the SEC
to furnish the Company with copies of all Section 16(a) forms they file.
Based upon a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during fiscal 1996 all Section 16(a) filing
requirements applicable to its executive officers, directors and greater than
ten percent beneficial owners were complied with.
<PAGE>
ITEM 13.CERTAIN RELATIONSHIPS AND TRANSACTIONS
The Company was formed in November 1995 as a wholly-owned subsidiary of
IHS to operate the assisted living and other senior housing facilities owned,
leased and managed by IHS. Following the Company's formation, IHS transferred to
the Company as a capital contribution its ownership interest in The Waterside
and The Homestead facilities, sublet to the Company The Shores and Cheyenne
Place facilities, and leased to the Company the assisted living and related
portions of the Treemont and West Palm Beach facilities. IHS also transferred to
the Company all the stock of a company which had agreements to manage nine
facilities (five of which were subsequently canceled in 1996).
From the Company's inception through September, 1996, IHS provided all
required financial, legal, accounting, human resources and information systems
services to the Company, and satisfied all the Company's capital requirements in
excess of internally generated funds. IHS has charged the Company a flat fee of
6% of total revenue for these services. The Company estimates that the cost of
obtaining these services from third parties would have been significantly higher
than the fees charged by IHS.
Effective June 1, 1996, IHS contributed to the capital of the Company
condominium interests in the assisted living portions of the West Palm Beach,
Treemont and Vintage facilities to the Company as a contribution to capital.
These assisted living facilities are immediately adjacent to or are located
within the same building and share common areas with an existing IHS facility.
Prior to the contribution of condominium interests in the assisted living
portion of each of these facilities, a condominium association was created and a
Declaration of Condominium was filed that governs these facilities. The Company
and IHS are the only members of these condominium associations, and share the
cost of maintaining the common areas of such facilities.
In connection with the Company's operation of the West Palm Beach,
Treemont and Vintage assisted living facilities, the Company and an operating
subsidiary of IHS have entered into Services Agreements whereby IHS provides
certain facility services to the Company. Pursuant to the individual Service
Agreements, IHS provides the Company (and its residents) with a combination of
the following services: building maintenance services (West Palm Beach facility
only: $3,200 monthly fee paid to IHS); housekeeping (West Palm Beach facility
only: $2,000 monthly fee paid to IHS); laundry services (all facilities: monthly
fees paid to IHS are $850 (West Palm Beach), $1,500 (Vintage) and $3,300
(Treemont)); emergency call services (all facilities: $100 monthly fee paid to
IHS): and nutrition (resident meals) services (all facilities: fees paid to IHS
equal $8.00 (Vintage) and $10.00 (West Palm Beach and Treemont) per resident/per
day). In addition, pursuant to each Services Agreement, the Company pays IHS a
monthly general building management and landscaping services fee equal to $4,583
(Vintage), $14,166 (West Palm Beach) and $31,083 (Treemont), respectively. In
connection with the administration of the Vintage facility, IHS and the Company
share the services of the executive director and the Company pays IHS an amount
equal to thirty percent (30%) of the total costs and expenses (including all
wages, benefits, payroll taxes, and workers' compensation premiums) of the
executive director of the facility. Other than the general building management
and landscaping services fee, each of the above described fees are subject to an
annual increase equal to the Consumer price Index for All Urban Consumers--All
Cities (not to exceed 4%). Each Service Agreement has a one-year term and will
be automatically renewed for successive one-ear terms unless otherwise
terminated. Each Service Agreement may be terminated by either party upon 180
days' notice or 30 days following the delivery of a notice of material breach if
the breach is not cured to the satisfaction of the non-breaching party.
Pursuant to sublease agreements dated as of June 1, 1996, an operating
subsidiary of the Company subleases The Shores and The Cheyenne Place facilities
from IHS. The subleases provide for the payment of annual rent aggregating $1.7
million, which amount is substantially similar to the amount paid by IHS to the
property owner ($1.4 million in rent plus $321,000 in annual purchase option
deposits representing the facilities' allocable portion of the total annual
purchase option deposit IHS is required to make). In connection with the
execution of each sublease agreement, the Company has executed a guaranty
agreement whereby the Company guarantees the payment of obligations due under
the sublease agreements.
In November 1996, the Company engaged Timothy F. Nicholson, a director
of IHS, to advise the Company with respect to its acquisition and development
activities. Pursuant to this arrangement which was effective November 1, 1996,
Mr. Nicholson receives an annual consulting fee of $250,000, and will receive a
negotiated brokerage commission on each transaction he brings to the Company or
participates in on behalf of the Company. Up to $175,000 of his consulting fee
will be credited against any commissions unless extended. The consulting
arrangement will terminate December 31, 1997.
The Company and IHS were parties to an Administrative Services
Agreement, dated June 1, 1996, pursuant to which IHS provided accounts payable,
accounts receivable, corporate accounting, payroll and payroll tax services,
<PAGE>
human resources support and risk management support services (the "Services") to
the Company. This agreement was terminated on September 30, 1996.
Through the closing of the initial public offering, IHS made available
to the Company a $75 million revolving credit facility. Borrowings under the
facility bore interest at the rate of 14% per annum. All outstanding borrowings,
together with all accrued but unpaid interest aggregating $7.4 million were
repaid to IHS form the proceeds of the Company's initial public offering.
Following the closing of the offering, ILC borrowed $3.4 million from IHS. The
loan bears interest at the rate of 14% per annum and is to be repaid in 24 equal
monthly installments of principal plus interest beginning December 2, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
INTEGRATED LIVING COMMUNITIES, INC.
(Registrant)
By: /s/ JOHN. B. POOLE
---------------------------------
John B. Poole
Senior Vice President -
Chief Financial Officer
(Principal Financial Officer)
