SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
[Amendment No. _________]
Filed by the Registrant _X_
Filed by a Party other than the Registrant ___
Check the appropriate box:
_X_ Preliminary Proxy Statement
___ Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
___ Definitive Proxy Statement
___ Definitive Additional Materials
___ Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
PERENNIAL HEALTH SYSTEMS, INC.
(Name of Registrant as Specified in Its Charter)
PERENNIAL HEALTH SYSTEMS, INC.
(Name of Person(s) Filing Proxy Statement)
<PAGE>
PRELIMINARY COPY
PERENNIAL HEALTH SYSTEMS, INC.
325 WEST MAIN STREET, SUITE 1400B
LOUISVILLE, KENTUCKY 40202
(502) 568-8923
NOTICE OF MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 15, 2000
TO THE SHAREHOLDERS OF PERENNIAL HEALTH SYSTEMS, INC.:
NOTICE HEREBY IS GIVEN that the Annual Meeting of Shareholders of
Perennial Health Systems, Inc., a Colorado corporation, will be held at the
Company's headquarters on Tuesday, February 15, 2000, at 10:00 a.m., Eastern
Standard Time, and at any and all adjournments thereof, for the purpose of
considering and acting upon the following matters:
1. The election of four (4) Directors of the Company to serve until the
next Annual Meeting of Shareholders and until their successors have been duly
elected and qualified.
2. The ratification of the appointment of Strothman & Company PSC as the
Company's independent auditors.
3. The approval of an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of the Company's
Common Stock, no par value, to 40,000,000.
4. The transaction of such other business as may properly come before
the meeting or any adjournment thereof.
Only holders of the Common Stock, no par value, of the Company of record
at the close of business on January 12, 2000; will be entitled to notice of
and to vote at the Meeting or at any adjournment or adjournments thereof. The
proxies are being solicited by the Board of Directors of the Corporation.
All shareholders, whether or not they expect to attend the Annual Meeting
of Shareholders in person, are urged to sign and date the enclosed Proxy and
return it promptly in the enclosed postage-paid envelope which requires no
additional postage if mailed in the United States. The giving of a proxy will
not affect your right to vote in person if you attend the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
DAVID V. HALL, PRESIDENT
Louisville, Kentucky
January 12, 2000
<PAGE>
PERENNIAL HEALTH SYSTEMS, INC.
325 WEST MAIN STREET, SUITE 1400B
LOUISVILLE, KENTUCKY 40202
(502) 568-8923
_______________________________________
PROXY STATEMENT
_______________________________________
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 15, 2000
GENERAL INFORMATION
The enclosed Proxy is solicited by and on behalf of the Board of
Directors of Perennial Health Systems, Inc., a Colorado corporation (the
"Company"), for use at the Company's Annual Meeting of Shareholders to be held
at the Company's headquarters, Louisville, Kentucky, on Tuesday, February 15,
2000, at 10:00 a.m., Eastern Time, and at any adjournment thereof. It is
anticipated that this Proxy Statement and the accompanying Proxy will be
mailed to the Company's shareholders on or about January 14, 2000.
Any person signing and returning the enclosed Proxy may revoke it at any
time before it is voted by giving written notice of such revocation to the
Company, or by voting in person at the Meeting. The expense of soliciting
proxies, including the cost of preparing, assembling and mailing this proxy
material to shareholders will be borne by the Company. It is anticipated that
solicitations of proxies for the Meeting will be made only by use of the
mails; however, the Company may use the services of its Directors, Officers
and employees to solicit proxies personally or by telephone, without
additional salary or compensation to them. Brokerage houses, custodians,
nominees and fiduciaries will be requested to forward the proxy soliciting
materials to the beneficial owners of the Company's shares held of record by
such persons, and the Company will reimburse such persons for their reasonable
out-of-pocket expenses incurred by them in that connection.
All shares represented by valid proxies will be voted in accordance
therewith at the Meeting.
The Company's Annual Report, which consists of the Annual Report on Form
10-KSB for the fiscal year ended May 31, 1999, is being simultaneously mailed
to the Company's shareholders, but does not constitute part of these proxy
soliciting materials.
SHARES OUTSTANDING AND VOTING RIGHTS
All voting rights are vested exclusively in the holders of the Company's
no par value Common Stock. Each share of Common Stock entitles the holder to
one (1) vote. Only shareholders of record at the close of business on January
12, 2000 are entitled to notice of and to vote at the Meeting or any
adjournment thereof. On January 12, 2000, the Company had 13,395,072 shares
of its no par value Common Stock outstanding. Cumulative voting in the
election of Directors is not permitted.
A majority of the Company's outstanding Common Stock represented in
person or by proxy shall constitute a quorum at the Meeting.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 12, 2000, each person known
by the Company to be the beneficial owner of five percent or more of the
Company's Common Stock, all Directors and Executive Officers individually and
all Directors and Executive Officers of the Company as a group. Except as
noted, each person has sole voting and investment power with respect to the
shares shown. Information as to beneficial ownership is based upon statements
furnished to the Company by such persons.
Name and Address of Amount of Beneficial
Beneficial Owner Ownership Percent of Class
- ------------------- -------------------- ----------------
David V. Hall
Suite 1400B
325 West Main Street
Louisville, Kentucky 40202 3,148,225(1) 23.5%
David W. Lester
Suite 1400B
325 West Main Street
Louisville, Kentucky 40202 154,000(2) 1.1%
Timothy M. Graven
168 Totem Road
Louisville, Kentucky 40207 2,500(3) --
Bert L. Blieden
3900 Glen Bluff Road
Louisville, Kentucky 40222 363,000(4) 2.6%
Rebecca H. Kreuger
Suite 1400B
325 West Main Street
Louisville, Kentucky 40202 64,000(5) .5%
Retirement Care Associates
101 Sun Avenue
Albuquerque, New Mexico 87109 3,661,000(6) 27.3%
Daiwa Healthco-3LLC
Financial Square
32 Old Slip
New York, New York 10005 3,820,223(7) 22.2%
All Executive Officers and
Directors as a Group (5
persons) 3,731,725 26.8%
________________
(1) Includes 3,138,225 shares held directly by Mr. Hall and 10,000 shares
held by his wife as custodian for two minor children.
(2) Includes 2,000 shares held directly by Mr. Lester, 2,000 shares held by
two children, over which he exercises control, and 150,000 shares underlying
currently exercisable stock options held by him.
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(3) Represents 2,500 shares underlying currently exercisable stock options
held by Mr. Graven.
(4) Includes 30,000 shares held directly by Mr. Blieden, 13,000 shares held
by his wife and 320,000 shares underlying currently exercisable warrants held
by Mr. Blieden.
(5) Includes 4,000 shares held directly by Mrs. Krueger and 60,000 shares
underlying currently exercisable stock options held by her.
(6) Retirement Care Associates, Inc. is a wholly owned subsidiary of Sun
Healthcare Group, Inc., a publicly-held company.
(7) Daiwa Healthco-3LLC is the Company's primary lender. Represents
currently exercisable warrants held by Daiwa.
ELECTION OF DIRECTORS
The bylaws currently provide for a Board of Directors of four (4)
members. The Board of Directors recommends the election as Directors of the
four (4) nominees listed below, to hold office until the next Annual Meeting
of Shareholders and until their successors are elected and qualified or until
their earlier death, resignation or removal. Each member of the present Board
of Directors has been nominated for reelection. The persons named as
"Proxies" in the enclosed form of Proxy will vote the shares represented by
all valid returned proxies in accordance with the specifications of the
shareholders returning such proxies. If at the time of the Meeting any of the
nominees named below should be unable to serve, which event is not expected to
occur, the discretionary authority provided in the Proxy will be exercised to
vote for such substitute nominee or nominees, if any, as shall be designated
by the Board of Directors.
The following table sets forth the name and age of each nominee for
Director, indicating all positions and offices with the Company presently
held, and the period during which each person has served as a Director:
Position and Offices
Name Age Held and Term as a Director
---- --- ---------------------------
David V. Hall 57 Chairman, Chief Executive Officer,
President and a Director since
September 1995
David W. Lester 46 Chief Financial Officer, Treasurer,
Secretary and a Director since July
1999
Timothy M. Graven 49 Director since August 1997
Bert L. Blieden 65 Director since July 1998
There is no family relationship between any Director or Executive Officer
of the Company.
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<PAGE>
Effective in August 1997, the Company established a compensation
committee, which did not hold any meetings during the fiscal year ended May
31, 1999, and an audit committee, which held two (2) meetings during the
fiscal year ended May 31, 1999. The members of both of these committees are
Timothy M. Graven and Bert L. Blieden. The Company has no nominating
committee.
Set forth below are the names of all Directors and Executive Officers of
the Company, all positions and offices with the Company held by each such
person, the period during which he has served as such, and the principal
occupations and employment of such persons during at least the last five
years:
David V. Hall - Chairman, Chief Executive Officer, President and
Director. Mr. Hall has been President and Director of the Company since
September 1995, and has held these same positions with In-House Rehab, Inc.
("IHR"), the Company's principal subsidiary, since September 1994. From 1986
to 1993, he was President of The Cardinal Group, a nursing home operator that
he founded, which grew to 26 nursing homes. Mr. Hall sold this company in
1993, and he was actively involved in winding up this sale until the summer of
1994. During this period of time and until September 1994, he also worked on
plans for starting In-House Rehab, Inc. Since 1994, Mr. Hall has also served
as Chairman of the Board of Hallmark Communications, a company engaged in
selling long distance telephone service, primarily to businesses. From 1980
to 1985, he was President, founder and sole owner of Cardinal Medical
Corporation which operated six full service nursing homes in Kentucky, which
were sold to Hillhaven Corp. in 1985 due to a change in Kentucky's Medicaid
reimbursement regulations. From 1977 to 1980, he was President, founder and
sole owner of Clinical Management Associates, a contract respiratory and
cardiopulmonary company which provided professionals and equipment to acute
care hospitals. At the time that Mr. Hall sold this company, it provided
services to 22 hospitals in five states, had annual revenues of $6 million and
had approximately 220 employees. He received a B.A. Degree from the
University of Louisville in 1964.
David W. Lester - Chief Financial Officer, Treasurer, Secretary and
Director. Mr. Lester, a certified public accountant, joined the Company and
has been Chief Financial Officer since June 1999. He has been Treasurer,
Secretary and a Director since July 1999. From March 1998 to May 1999, Mr.
Lester was Chief Financial Officer of Micro Computer Solutions, Inc., a
regional information technology services firm. He served as Chief Operating
Officer and Chief Financial Officer for Kentucky Medical Insurance Company, a
publicly-traded provider of medical professional liability insurance formed by
the Kentucky Medical Association to help combat the medical malpractice crisis
during the late 1970s, from 1985 to 1996. Mr. Lester serviced as Chief
Financial Officer of Stratton-Cheeseman Management Company, a management
company that manages Louisville-based Kentucky Medical Insurance Company and
insurance company operations in several other states, from 1996 to 1997. Mr.
Lester began his career with KPMG Peat Marwick, where he worked in the firm's
Louisville and New York offices from 1975 to 1985. He received a B.S. Degree
in Accounting from Western Kentucky University in 1975.
Timothy M. Graven - Director. Mr. Graven has been a Director of the
Company since August 1997, and is the Managing Partner and co-founder of Triad
Investment Company, LLC, a private investment firm founded in 1995. Mr.
Graven previously served as President and Chief Operating Officer of Steel
Technologies, Inc., of Louisville, Kentucky, a steel processing company, from
March 1990 to November 1994, as Chief Financial Officer from May 1985 to March
1990, and as Director from 1982 to 1994. Mr. Graven is currently also a
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<PAGE>
Director of Performance Food Group Company, a publicly held company listed on
the NASDAQ Stock Market. Mr. Graven received a B.S. Degree in Accounting from
Murray State University in 1973.
Bert L. Blieden - Director. Mr. Blieden has been a Director of the
Company since July 1998. He is President of the Kaden Companies, a position
he has held since that company was formed in 1983. The Kaden Companies are
engaged in commercial real estate development with projects primarily in the
Midwest. Prior to the formation of the Kaden Companies, Mr. Blieden owned and
developed commercial and residential real estate for over twenty years through
his company, Bert L. Blieden Company Realtors. Mr. Blieden attended the
University of Louisville and the University of Louisville School of Law.
Rebecca H. Krueger - Chief Operating Officer. Mrs. Krueger became
employed by the Company in June 1996, and became Chief Operating Officer in
September 1996. From September 1990 to December 1995, she was employed by
Transitional Health Services ("THS") which was acquired by WelCare
International Management Corporation, Atlanta, Georgia ("WelCare") in December
1995, and continued to be employed by WelCare until June 1996. THS and
WelCare operate and manage a large number of nursing home facilities.
Initially, Mrs. Krueger was Director of Nursing of a facility owned by THS
where she supervised a nursing staff of approximately 160 persons, and
directed a rehabilitation program. Beginning in May 1992, she became a
Regional Nurse Consultant/Quality Assurance Specialist for THS, and was
responsible for eight facilities in evaluating staff performance and
compliance with federal and state regulations. In January 1994, Mrs. Krueger
became a Regional Director of Operations for THS where she was responsible for
the total operations of three to six long-term care facilities in Indiana,
Kentucky and Arkansas. Finally, from March 1996 to June 1996, she was
National Director of Subacute Services for WelCare, where she was responsible
for the development of all subacute and postacute programs for up to 78
facilities. Mrs. Krueger graduated from the University of the State of New
York in 1989 with an Associate Science and Nursing Degree.
The Company's Board of Directors held four (4) meetings during the fiscal
year ended May 31, 1999. Each Director attended at least 75% of the aggregate
number of meetings held by the Board of Directors and its committees during
the time each such Director was a member of the Board or any committee.
The Company's executive officers hold office until the next annual
meeting of directors of the Company, which currently is scheduled for February
15, 2000. There are no known arrangements or understandings between any
director or executive officer and any other person pursuant to which any of
the above-named executive officers or directors was selected as an officer or
director of the Company.
SECTION 16(a) BENEFICIAL REPORTING COMPLIANCE
Based solely on a review of the Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year and certain written representations, no persons who were either a
director, officer or beneficial owner of more than 10% of the Company's common
stock, failed to file on a timely basis reports required by Section 16(a) of
the Exchange Act during the most recent fiscal year, except that David V. Hall
filed one Form 4 reporting one transaction late and Bert L. Blieden filed one
Form 4 reporting two transactions late.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information regarding the executive
compensation for the Company's President and each other Executive Officer who
received total salary and bonus in excess of $100,000 for the fiscal years
ended May 31, 1999, 1998 and 1997:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------- ----------------- ------------------
SECURI-
TIES
UNDERLY-
OTHER RE- ING ALL
ANNUAL STRICTED OPTIONS/ OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER) (NUMBER) PAYOUTS SATION
- ------------------ ---- ------ ----- ------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
David V. Hall 1999 $248,066 $ - $15,350(1) - 0 - - 0 - - 0 - - 0 - $ 8,377(2)
President(2) 1998 $206,538 $4,783 $15,617(3) - 0 - - 0 - 100,000 - 0 - $10,320(2)
1997 $192,308 $28,803 $11,271(4) - 0 - - 0 - 200,000 - 0 - $12,215(2)
Robert J. Babine 1999 $122,834 $ - $15,456(6) - 0 - - 0 - - 0 - - 0 - $ 1,419(7)
Chief Financial 1998 $123,923 $ - $14,062(8) - 0 - - 0 - - 0 - - 0 - $ 1,774(7)
Officer(5) 1997 $110,000 $15,568 $ 8,347(9) - 0 - - 0 - - 0 - - 0 - $ 1,515(7)
Rebecca H. Kreuger 1999 $128,142 $ - $7,300(10) - 0 - - 0 - - 0 - - 0 - $ -
Chief Operating 1998 $108,533 $12,500 $7,300(10) - 0 - - 0 - - 0 - - 0 - $ -
Officer
Michael J. Kitchen 1999 $104,892 $ - $7,800(12) - 0 - - 0 - - 0 - - 0 - $ -
Vice President,
Secretary and
General Counsel(11)
_______________
(1) Represents $5,532 paid for medical insurance benefits above those provided to other full-time
employees of the Company and $9,818 paid for expenses of an automobile provided for Mr. Hall's use.
(2) Represents the premium paid for a term life insurance policy provided for Mr. Hall's benefit.
(3) Represents $5,383 paid for medical insurance benefits above those provided to other full-time
employees of the Company and $10,234 paid for expenses of an automobile provided for Mr. Hall's use.
(4) Represents $11,271 paid for expenses of an automobile provided for Mr. Hall's use.
(5) Mr. Babine resigned effective January 21, 1999.
(6) Represents $11,700 paid to Mr. Babine for the use of an automobile and $3,756 paid for medical
insurance benefits above those provided and other full time employees of the Company.
(7) Represents the premium paid for a term life insurance policy provided for Mr. Babine's benefit.
(8) Represents $10,600 paid to Mr. Babine for the use of an automobile and $3,462 paid for medical
insurance benefits above those provided and other full time employees of the Company.
(9) Represents compensation paid to Mr. Babine for the use of an automobile.
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(10) Represents an automobile allowance paid to Ms. Krueger.
(11) Mr. Kitchen's employment was terminated effective June 22, 1999.
(12) Represents an automobile allowance paid to Mr. Kitchen.
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning individual
grants of stock options made to each of the Executive Officers named above
during the fiscal year ended May 31, 1999:
Individual Grants
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Granted (#) Fiscal Year ($/SH) Date
------------ ------------- ------------ -----------
David V. Hall - 0 - - - -
Robert J. Babine - 0 - - - -
Rebecca H. Kreuger - 0 - - - -
Michael J. Kitchen - 0 - - - -
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Value of
Securities Unexercised
Underlying in-the
Shares Unexercised Money/Options/
Acquired Options SARs SARs at FY-
on at FY-End End
Exercise Value Exercisable/ Exercisable/
(Number) Realized Unexercisable Unexercisable
--------- -------- ------------- --------------
David V. Hall - 0 - - 0 - 100,000/0 $0 / 0
Robert J. Babine - 0 - - 0 - 0 /0 $0 / 0
Rebecca H. Kreuger - 0 - - 0 - 147,500 /0 $0 / 0
Michael J. Kitchen - 0 - - 0 - 85,000 /0 $0 / 0
Effective February 1, 1998, the Company entered into a new three-year
employment agreement with David V. Hall, President of the Company. The
agreement is for a term of three years, but is automatically renewed for a
three-year term on a monthly basis. The Employment Agreement provides that
Mr. Hall will devote a substantial portion of his time to the Company, and
will receive a base salary of $220,000 per year. Mr. Hall will also receive
bonuses at the discretion of the Board of Directors and the use of an
automobile at a maximum cost of $12,000 per year. In addition, the employment
agreement provides that the Company will pay for a term life insurance policy
in the amount of $2,000,000. The proceeds of this policy will be payable to
the estate of Mr. Hall.
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In the event that the Company terminates Mr. Hall's employment agreement
without cause, or as a result of a change in control, the Company will be
required to pay the base salary for the remaining initial term of the
agreement, or twelve (12) months, whichever is greater. In addition, the
Company may be required to repurchase up to 50% of the stock held by Mr. Hall
and provide for family medical insurance until the age of 65.
Effective January 21, 1999, the Company announced the resignation of Mr.
Robert J. Babine as Chief Financial Officer, Treasurer and Director of the
Company. Mr. Babine continued receiving compensation at the rate of $122,000
per year, plus health benefits, through December 31, 1999.
Effective February 1, 1998, the Company entered into a new employment
agreement with Rebecca Krueger, who is Chief Operating Officer of the Company,
pursuant to which Ms. Krueger agreed to devote a substantial portion of her
time to the business of the Company. The initial term of the agreement is for
one year, but is automatically renewed for one year on a monthly basis. Ms.
Krueger's base salary is $117,200 per year, and her base salary will be
increased each year by at least the increase in the cost of living index. She
will also receive bonuses at the discretion of the Company and an automobile
allowance of $675 per month. In the event that the Company terminates this
employment agreement without cause or as a result of a change in control, the
Company will be required to pay her base salary for twelve (12) months.
Effective June 22, 1999, Mr. Michael J. Kitchen's employment as Vice
President, Secretary and General Counsel with the Company was terminated. Mr.
Kitchen will receive a total of $135,000 plus interest with $42,000 to be paid
during the initial year following his termination and the balance to be paid
under prescribed options, at Mr. Kitchen's discretion. Mr. Kitchen continues
to serve as outside counsel to the Company.
Effective June 1, 1999, the Company entered into a one-year employment
agreement with David W. Lester to become the Chief Financial Officer of the
Company. The agreement provides that Mr. Lester will devote a substantial
portion of his business time, energy and skill to the affairs of the Company
and will receive a base salary of $175,000 per year and his base salary will
be increased each year by at least the increase in the cost of living index.
Mr. Lester will also receive bonuses of up to 25% of the base salary based on
meeting certain criteria and the Company will provide an automobile allowance
of $650 per month plus insurance on said vehicle. In addition, the employment
agreement provides that the Company will pay for a term life policy in the
amount of $250,000, the proceeds which shall be payable to Mr. Lester's
estate. Further, the agreement provides that non-qualified, non-plan stock
options to purchase 250,000 shares be issued to Mr. Lester, 100,000 shares of
which vest as of the effective date and 50,000 shares of which vest each
successive six month period of employment.
In the event that the Company terminates Mr. Lester's employment
agreement without cause, or as a result of a change in control, the Company
will be required to pay Mr. Lester's base salary for a period of 180 days.
DIRECTOR COMPENSATION
Effective in August 1997, outside Directors of the Company receive a fee
of $500 per month and will receive stock options to purchase 2,500 shares of
Common Stock each year for their services in such capacity. Directors are
also reimbursed for all reasonable and necessary costs and expenses incurred
as a result of being a Director of the Company.
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<PAGE>
STOCK OPTION PLAN
In October 1996, the Company's Board of Directors adopted the Company's
1996 Stock Option Plan (the "1996 Plan"). The 1996 Plan allows the Board to
grant stock options from time to time to employees, officers and directors of
the Company and consultants to the Company. The Board has the power to
determine at the time the option is granted whether the option will be an
Incentive Stock Option (an option which qualifies under Section 422 of the
Internal Revenue Code of 1986) or an option which is not an Incentive Stock
Option. However, Incentive Stock Options will only be granted to persons who
are key employees of the Company. Vesting provisions are determined by the
Board at the time options are granted. As originally adopted, the total number
of shares of Common Stock subject to options under the 1996 Plan was not to
exceed 1,000,000, subject to adjustment in the event of certain
recapitalizations, reorganizations and similar transactions. The option price
cannot be less than the fair market value of a share on the date the option is
granted and it must be satisfied by the payment of cash.
The Board of Directors may amend the 1996 Plan at any time, provided
that the Board may not amend the 1996 Plan to materially increase the number
of shares available under the 1996 Plan, materially increase the benefits
accruing to Participants under the 1996 Plan, or materially change the
eligible class of employees without shareholder approval.
OPTIONS UNDER THE PLAN
On December 26, 1996, the Company's Board of Directors granted options to
purchase an aggregate of 112,000 shares of Common Stock at $2.00 per share
under the 1996 Plan. The options are fully vested and expire three years after
the date of grant. Included in these options are non-qualified options to
purchase 100,000 shares granted to Rebecca Krueger, Chief Operating Officer of
the Company.
On March 4, 1997, the Company issued non-qualified options, under the
1996 Plan, to purchase 50,000 shares of Common Stock to an outside consultant
at $2.25 per share, which was equal to the fair market value on the date of
grant. The options are exercisable for three years from the date of grant.
On May 19, 1997, the Company's Board of Directors granted options to
purchase an aggregate of 158,000 shares of Common Stock at $3.00 per share
under the 1996 Plan. The options vest over various periods up to three years
and expire three years after the date of grant. Included in these options are
options granted to the following officers of the Company: Rebecca Krueger to
purchase 10,000 shares of Common Stock; Michael Kitchen to purchase 15,000
shares of Common Stock; and Nicole Perry to purchase 25,000 shares of Common
Stock. Mr. Kitchen's and Ms. Perry's options were canceled effective with the
termination of their employment on June 22, 1999 and January 18, 1999,
respectively.
On June 9, 1997, the Company's Board of Directors granted options to an
employee to purchase 20,000 shares of Common Stock at $3.31 per share under
the 1996 plan. The options are fully vested and expire three years after the
date of grant.
On June 12, 1997, the Company's Board of Directors granted options to an
employee to purchase 8,000 shares of Common Stock at $3.56 per share under the
1996 Plan. The options vest over a period of one year and expire seven years
after the date of grant.
9
<PAGE>
On August 27, 1997, the Company's Board of Directors granted options to
purchase an aggregate of 42,500 shares of Common Stock at $2.875 per share to
four employees. These options vest immediately and expire three years after
the date of grant. Included in these options are options granted to Rebecca
Krueger, an officer, to purchase 12,500 shares of Common Stock.
On November 17, 1997, the Company's Board of Directors granted options to
purchase an aggregate of 100,000 and 20,000 shares of Common Stock at $1.20313
and $1.094 per share, respectively, to five employees under the 1996 Plan.
These options vest immediately and expire three years after the date of grant.
Included in these options are options granted to David V. Hall, an officer, to
purchase 100,000 shares at $1.20313, and to Nicole D. Perry, a former officer,
to purchase 12,500 shares of Common Stock at $1.094 per share. Mr. Hall
voluntarily terminated these options effective July 16, 1999. Ms. Perry's
employment was terminated effective January 18, 1999 and these options expired
on May 30, 1999.
Additionally, on November 17, 1997, the Company's Board of Directors
granted non-qualified options to purchase 2,500 shares of Common Stock at
$1.094 per share to each of Chris Brogdon, Mark Clein and Timothy M. Graven,
Directors of the Company. These options vest immediately and expire three
years after the date of grant.
On December 1, 1997, the Company's Board of Directors granted
non-qualified options to purchase an aggregate of 99,999 shares of Common
Stock at $1.0934 per share, which was equal to the fair market value on the
date of grant, to three consultants under the 1996 Plan. These options vest
immediately and expire three years after the date of grant.
On December 16, 1997, the Company's Board of Directors granted
non-qualified options to purchase an aggregate of 75,000 shares of Common
Stock at $1.3125 per share, which was equal to the fair market value on the
date of grant, to three consultants under the 1996 Plan. These options vest
immediately and expire three years after the date of grant.
On December 22, 1997, the Company's Board of Directors granted options to
an employee to purchase 10,000 shares of Common Stock at $1.3125 per share
under the 1996 Plan. The options vest over a period of six months and expire
three years from the date of grant.
On March 24, 1998, the Company's Board of Directors granted options to
purchase an aggregate of 170,500 shares of Common Stock at $1.21875 to 21
employees under the 1996 Plan. These options vest immediately and expire
three years after the date of grant. Included in these options are options
granted to Rebecca H. Krueger, Michael J. Kitchen and Nicole D. Perry,
officers of the Company, to purchase 25,000, 20,000 and 14,000 shares of
Common Stock, respectively. Mr. Kitchen's options were canceled effective
with the termination of his employment on June 22, 1999. Ms. Perry's options
expired effective May 30, 1999.
On July 1, 1998, the Company's Board of Directors granted non-qualified
options to an employee to purchase 160,000 shares of Common Stock at $2.50 per
share under the 1996 Plan. The options vest over a period of one year and
expire three years from the date of grant.
On July 6, 1998, the Company's Board of Directors granted options to an
employee to purchase 45,000 shares of Common Stock at $2.50 per share under
the 1996 Plan. The options vest at the rate of 15,000 per year and expire
three years from the date of grant.
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On July 13, 1998, the Company's Board of Directors granted options to an
employee to purchase 5,500 shares of Common Stock at $2.39 per share under the
1996 Plan. The options are fully vested and expire three years after the date
of grant.
On January 18, 1999, the Company's Board of Directors granted options to
an employee to purchase 10,000 shares of Common Stock at $1.28 per share under
the 1996 Plan. The options become fully vested six months after the date of
grant and expire three years after the date of grant.
On March 29, 1999, the Company's Board of Directors granted options to an
employee to purchase 8,000 shares of Common Stock at $1.03 per share under the
1996 Plan. The options become fully vested six months after the date of grant
and expire three years after the date of grant.
As of December 31, 1999, 347,999 options were outstanding under the Plan
at exercise prices ranging from $1.03 to $3.00.
OTHER OPTIONS NOT UNDER THE PLAN
On June 1, 1996, the Company granted a non-plan option to an employee to
purchase 50,000 shares of Common Stock at $1.25 per share, which was equal to
the fair market value on the date of grant. The option is exercisable for
three years from the date of grant.
On June 21, 1996, the Company granted non-plan options to two
stockbrokers to purchase 20,000 shares of Common Stock at $1.25 per share,
which was equal to the fair market value on the date of grant. The options
are exercisable for three years from the date of grant.
On August 1, 1996, the Company granted non-plan options to ten employees
to purchase an aggregate of 95,000 shares of Common Stock at $1.75 per share,
which was equal to the fair market value on the date of grant. These options
are exercisable for three years from the date of grant.
On October 24, 1996, the Company granted non-plan options to two
employees to purchase 40,000 shares of Common Stock at $2.25 per share, which
was equal to the fair market value on the date of grant. These options are
exercisable for three years from the date of grant.
On December 5, 1996, the Company issued non-plan options to two
shareholders of Daily Rehabilitation Institute, Inc. in connection with the
acquisition of that company. The options are to purchase an aggregate of
30,000 shares of Common Stock at $2.25 per share, which was equal to the fair
market value on the date of grant. Of the 30,000 options, 15,000 options
expire on December 15, 1999 and 15,000 expire on December 31, 2000.
On December 26, 1996, the Company issued non-plan options to purchase
200,000 shares of Common Stock to David V. Hall at $2.00 per share, which was
equal to the fair market value on the date of grant. Mr. Hall then
transferred these options to his two adult children who are also employees of
the Company. The options are exercisable for three years from the date of
grant.
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On December 4, 1998, the Company issued non-plan options to the former
owner of Healthcare of Indiana in connection with the acquisition of that
nursing home facility. The options are to purchase an aggregate of 50,000
shares of Common Stock at $2.00 per share, which was equal to the fair market
value on the date of the grant. The options are exercisable for three years
from the date of grant.
On January 18, 1999, the Company issued non-plan options to purchase
15,000 shares of Common Stock to Nicole D. Perry, the former Vice President of
Finance to the Company, at $1.28 per share, which was equal to the fair market
value on the date of grant. The options are exercisable for three years from
the date of grant.
On May 5, 1999, the Company issued non-plan options to purchase 250,000
shares of Common Stock to David W. Lester, who became the Company's Chief
Financial Officer effective June 1, 1999, at $1.06 per share which was equal
to the fair market value on the date of grant. The options are exercisable
for three years from the date of grant and vest at the rate of 100,000 on June
1, 1999, 50,000 on December 1, 1999, 50,000 on June 1, 2000 and 50,000 on
December 1, 2000.
Effective November 1, 1999, the Company issued non-plan options to
purchase 60,000 shares of Common Stock to Rebecca Krueger, an officer of the
Company, at $0.50 per share, which was equal to the fair market value on the
date of the grant. The options are exercisable for three years from the date
of grant. As of the same date, Plan options to purchase an aggregate of
147,500 shares of Common Stock that had previously been issued to Ms. Krueger
at prices ranging from $1.22 to $3.00 were canceled.
As of December 31, 1999, 394,000 non-plan options are outstanding at
exercise prices ranging from $0.50 to $2.00.
401(k) PLAN
The Company maintains a 401(k) employee retirement and savings program
(the "401(k) Plan") for its employees. Under the 401(k) Plan, an employee may
contribute up to 15% of his or her gross annual earnings, subject to a
statutory maximum, for investment in one or more funds identified under the
Plan. The Company may in the future, with the approval of the Board of
Directors, make matching contributions to participants in the 401(k) Plan. No
contributions were made under the Plan for the year ended May 31, 1999.
During the year ended May 31, 1998, the Company made contributions totaling
$12,144 under the 401(k) Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended May 31, 1998, the Company recorded approximately
$6,411,000 in revenues from billings under therapy agreements with Retirement
Care Associates, Inc. (RCA), a principal shareholder of the Company. The
balance of accounts receivable at May 31, 1998 related to RCA was $1,321,000.
Effective June 30, 1998, the stockholders of RCA and Sun Healthcare Group,
Inc. (Sun) approved a Merger Agreement pursuant to which RCA was merged into a
subsidiary of Sun. During January and February 1998, the Company transitioned
RCA facilities serviced by the Company to Sun. As a result, the company had
no contracts for therapy services with RCA at May 31, 1998. RCA and Sun
continued to make payments on its outstanding balance, and as of August 27,
1998, had paid the accounts receivable balance in full.
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Approximately $1,076,000 and $1,783,000, or 8% and 10%, of all revenue
for the years ended May 31, 1999 and 1998, respectively, and approximately
$990,000, or 19%, of the balance of accounts receivable at May 31, 1998
related to NewCare Health Corporation (NewCare), which was until September
1998 related to the Company by a common Director. In October, 1998, the
Company ceased providing services to this customer at which time the customer
had an accounts receivable balance of approximately $1,873,000. On November
25, 1998, the Company accepted a note receivable from the customer for the
full amount of the accounts receivable balance. The note receivable bears
interest at the rate of 9.5% and is to be repaid at the rate of $50,000 per
month for 24 months with the balance of principal and interest payable at that
time. The Company subsequently sold the note receivable to its primary lender
at a discount. The discount was computed on a basis that would assure the
lender a combined return of 15%. This resulted in a loss on the sale of
approximately $170,000. A provision of the sale agreement stated that if the
customer defaults on monthly payments to the lender, the lender can require
the Company to buy back the note. On May 24, 1999 NewCare announced that it
was restructuring and on June 23, 1999 announced that it had filed for Chapter
11 bankruptcy protection. The Company was notified by its primary lender on
June 30, 1999 that NewCare had failed to make its June 1999 payment and that
the Company would be obligated to repurchase that promissory note. The
Company effectuated the repurchase from its primary lender on July 16, 1999.
The note receivable of $1,600,000 and related obligation to the primary lender
were recorded on the Company's balance sheet as of May 31, 1999 and the note
receivable was written off as a bad debt. The Company continues to pursue all
available means to recover some or all of the balance due under the note.
As of May 31, 1999 and 1998, David V. Hall, an Officer, Director and
principal shareholder of the Company, owed the Company $56,000 and $83,000,
respectively, for advances made to him. In addition, as of May 31, 1999 and
1998, Hallmark Communications, a company of which Mr. Hall is the majority
owner, owed the Company $8,000 and $3,600, respectively, for advances made to
it by the Company.
On July 9, 1999, the Company entered into promissory notes with five
individual private lenders for $100,000 each. One of these investors is Bert
Blieden, a Director of the Company. The notes, which bear interest at 12% per
annum, are payable in installments of interest only beginning on August 1,
1999 and on the first day of each successive month. A final payment of all
principal and accrued interest is due on December 31, 1999. The five
promissory notes are collectively collateralized by federal, state and local
estimated tax refunds for the year ended May 31, 1999 by the amount by which
such refunds exceed $500,000 up to $1,000,000. The notes may be retired, at
the lenders option, once the Company receives such tax refunds. The Company's
right and interest in a lease on its Beloit, Wisconsin nursing home facility
further collateralize the notes. Additionally, David V. Hall, the Company's
President and Chief Executive Officer, agreed to personally guarantee all
obligations under the above notes and to pledge 100,000 shares of his holdings
of the Company's common stock to each of the private lenders until all
obligations to the lenders have been satisfied.
As further consideration for entering into the above promissory notes,
each of the five lenders, including Mr. Blieden, received: (1) a warrant to
purchase 120,000 shares of the Company's common stock at $.01 per share,
exercisable within one year from the issue date, (2) a warrant to purchase
200,000 shares of the Company's common stock at $.35 per share, exercisable
within two years from the issue date, and (3) an option to convert up to
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$50,000 of each note into shares of the Company's common stock at $.50 per
share, exercisable with notice to the Company within 30 days of the maturity
of the notes or within 10 days of receipt of notice that the Company has
received the aforementioned tax refunds.
In connection with a debt financing, on July 16, 1999, the Company issued
Daiwa Healthco-3 LLC, the Company's primary lender, a warrant to purchase up
to 18% of the Company's common stock at an aggregate price of $1.00 and a
warrant to purchase 300,000 shares of the Company's common stock at a purchase
price of $1.00 per share. Both warrants are exercisable through July 6, 2004.
The percentage of the Company's stock that can be purchased under the first
warrant can be reduced based on the Company's repayment of the debt, but in no
event to less than 10% of the Company's common stock.
In April 1999, David V. Hall, the Company's President and Chief Executive
Officer, advanced the Company $200,00 in cash to be used as working capital.
The advance bears interest at 12% per annum and is payable upon demand, but is
subordinated to the Company's primary lender.
Additionally, Mr. Hall has personally guaranteed all indebtedness of the
Company to the primary lender for up to $1,600,000.
INDEPENDENT ACCOUNTANTS
The independent accounting firm of Strothman & Company PSC audited the
financial statements of the Company for the fiscal years ended May 31, 1997
and 1998, and has been selected in such capacity for the current fiscal year.
At the direction of the Board of Directors, this appointment is being
presented to the shareholders for ratification or rejection at the Annual
Meeting of Shareholders. If the shareholders do not ratify the appoint of
Strothman & Company PSC, the appointment of auditors will be reconsidered by
the Board of Directors.
It is expected that representatives of Strothman & Company PSC will be
present at the meeting and will be given an opportunity to make a statement if
they desire to do so. It is also expected that the representatives will be
available to respond to appropriate questions from shareholders.
On October 1, 1997, Coopers & Lybrand L.L.P. ("C&L"), which served as the
Company's independent accountants for the fiscal years ended May 31, 1995 and
1996, and had been retained for the Company's fiscal year ended May 31, 1997,
resigned as the Company's independent accountants. The reports of C&L on the
Company's financial statements for the fiscal years ended May 31, 1995 and
1996 did not contain an adverse opinion or disclaimer of an opinion nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles or practices. The Company filed a report on Form 8-K dated October
1, 1997 reporting the resignation of C&L.
The Company is not aware of any "disagreement" or "reportable event"
within the meaning of Item 304 of Regulation S-B, with C&L during the fiscal
years ended May 31, 1995 and 1996, and from that date to the date of C&L's
resignation on October 1, 1997, on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure,
except as described below.
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In its audit of the Company's financial statements for the year ended May
31, 1997, C&L had completed most of its audit procedures by the end of July
1997 and had not raised any significant concerns about the Company's financial
statements, other than the following. On Friday, August 1, 1997, prior to the
Company's scheduled fourth quarter earnings release on Monday, August 4, 1997,
C&L advised the Company that it had concerns about the collectibility of
certain accounts receivable from Retirement Care, a major customer of the
Company and a 27.4% shareholder of the Company's outstanding Common Stock.
Retirement Care had historically been a slow paying customer, but even at that
time continued to make payments on the balances due to the Company for
services rendered.
C&L also served as the independent accountants for Retirement Care until
August 14, 1997, when C&L resigned as the independent accountants of
Retirement Care. In a letter filed with the Securities and Exchange
Commission concerning its resignation, C&L stated that it was unable to rely
on representations of Retirement Care's management, and did not intend to be
associated with any filings which may be made by Retirement Care with the
Securities and Exchange Commission.
During August and September 1997, the Company, Retirement Care and Chris
Brogdon, the President of Retirement Care and a Director of the Company, made
proposals to C&L to alleviate its concerns. Such proposals included
Retirement Care paying down the balance of the accounts receivable and
providing collateral which the Company's management believed would more than
adequately secure the payment of the remaining accounts receivable of
Retirement Care. However, C&L took the position that the collateral was
insufficient. C&L noted that even if such proposals were adopted that it
would still render an opinion with a "going concern" qualification based on
what C&L believed was the uncollectability of the Retirement Care accounts
receivables. The Company's management offered another proposal to provide a
letter of credit from an unaffiliated third party which would more than
adequately secure the Retirement Care accounts receivable, but C&L would not
provide a written commitment to the Company that this would be sufficient
collateral.
The Company's management believed that C&L's position with respect to the
Retirement Care accounts receivable was unreasonable and appeared to be a
result of C&L's adverse relationship with Retirement Care. Based on this
concern, the Company asked C&L to evaluate C&L's relationship with the Company
under applicable independence and conflicts of interest rules. In response,
C&L denied that any conflicts of interest or independence rules had been
violated, but stated that it was no longer appropriate for it to serve as the
Company's independent accountants because of a deterioration of the
client-auditor relationship.
The Company's management has fully advised the Audit Committee of the
Board of Directors of all of the above matters, and certain members of the
Board of Directors and the Audit Committee of the Board of Directors discussed
the above matters with C&L. However, neither the full Board of Directors nor
the full Audit Committee has discussed these matters with C&L.
The Company provided a copy of its Report on Form 8-K to C&L and
requested that C&L provide the Company with a letter addressed to the
Commission, as required by Item 304(a)(3) of Regulation S-B.
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On October 14, 1997, C&L provided the Company with its response to the
Form 8-K (the "Response Letter"), wherein it disagreed with certain statements
made by the Company therein. The Company's management continues to stand by
the statements it made in the Form 8-K. The Company did not want a change in
accountants during an audit and continued to work with C&L to satisfy them
with respect to the collectibility of the Retirement Care receivables during
August and September, until C&L's resignation on October 1, 1997.
The Company authorized C&L to respond fully to the inquiries of the
Company's successor independent accountants.
AMENDMENT TO ARTICLES OF INCORPORATION TO INCREASE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK TO 40,000,000
The Board of Directors has approved an amendment to the Articles of
Incorporation to increase the number of authorized shares of the Company's
Common Stock, no par value, to 40,000,000. The Company's Articles of
Incorporation currently authorize the issuance of 20,000,000 shares of Common
Stock. The Company presently has 13,395,072 shares issued and outstanding and
an additional 6,299,356 shares reserved for issuance under outstanding
warrants, convertible debt, options and the Company's 1996 Stock Option Plan.
The Board anticipates that additional authorized shares may be needed in the
future to raise additional capital to fund the Company's growth as it
continues to transition itself into a regional owner, operator and manager of
long-term care facilities, to effect acquisitions and for other corporate
purposes.
Assuming that this proposed amendment is approved, the Company would have
approximately 20,305,572 shares of Common Stock authorized, unissued and
unreserved, which the Board of Directors would be able to authorize for
issuance for any corporate purposes, at any time, without obtaining further
authorization from the holders of the Company's Common Stock, unless such
authorization is required by applicable law, regulation or the rules of any
stock exchange on which shares of the Company's Common Stock may then be
listed. No specific use of the additional shares is presently contemplated.
Holders of shares of Common Stock of the Company have no preemptive rights in
connection with the issuance of additional shares of Common Stock.
An affirmative vote of a majority of the shares outstanding will be
required to approve the proposed amendment to the company's Articles of
Incorporation. The Board of Directors recommends approval of the amendment.
OTHER BUSINESS
As of the date of this Proxy Statement, management of the Company was not
aware of any other matter to be presented at the Meeting other than as set
forth herein. However, if any other matters are properly brought before the
Meeting, the shares represented by valid proxies will be voted with respect to
such matters in accordance with the judgment of the persons voting them. A
majority vote of the shares represented at the meeting is necessary to approve
any such matters.
ANNUAL REPORT
The Company's Annual Report, which consists of an Annual Report on Form
10-KSB for the fiscal year ending May 31, 1999, accompanies this Proxy
Statement. The Annual Report is not incorporated into this Proxy Statement
and is not to be considered part of the solicitation material.
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DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
FOR THE ANNUAL MEETING TO BE HELD IN NOVEMBER 2000
Any proposal by a shareholder intended to be presented at the Company's
Annual Meeting of Shareholders to be held in November 2000 must be received at
the offices of the Company, 325 West Main Street, Suite 1400B, Louisville,
Kentucky 40202, a reasonable amount of time prior to the printing and mailing
of the proxy statement and proxy in order to be included in the Company's
proxy statement and proxy relating to that meeting.
DAVID V. HALL, PRESIDENT
Louisville, Kentucky
January 12, 2000
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PRELIMINARY COPY
PROXY PROXY
PERENNIAL HEALTH SYSTEMS, INC.
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints David V. Hall with the power to appoint
his substitute, and hereby authorizes him to represent and to vote as
designated below, all the shares of common stock of Perennial Health Systems,
Inc. held of record by the undersigned on January 12, 2000, at the Annual
Meeting of Shareholders to be held on February 15, 2000, or any adjournment
thereof.
1. Election of Directors:
___ FOR All nominees listed below
___ FOR all nominees except as crossed out below:
David V. Hall Timothy M. Graven
Bert L. Blieden David W. Lester
[INSTRUCTION: To withhold authority to vote for any individual nominee, cross
out that nominee's name above.]
2. The ratification of the appointment of Strothman & Company PSC as the
Company's independent auditors.
___ For ___ Against ___ Abstain
3. The approval of an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of the Company's
common stock, no par value, to 40,000,000.
___ For ___ Against ___ Abstain
4. The transaction of such other business as may properly come before
the meeting or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING IN
ACCORDANCE WITH THE SHAREHOLDER'S SPECIFICATIONS ABOVE. THIS PROXY CONFERS
DISCRETIONARY AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE
TIME OF THE MAILING OF THE NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS TO THE
UNDERSIGNED.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders, Proxy Statement and Annual Report.
Dated:___________________________
________________________________________
Signature(s) of Shareholder(s)
________________________________________
Signature(s) of Shareholders
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PERENNIAL
HEALTH SYSTEMS, INC. PLEASE SIGN AND RETURN THIS PROXY IN THE ENCLOSED PRE-
ADDRESSED ENVELOPE. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE
IN PERSON IF YOU ATTEND THE MEETING.
