<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
=======================
CENTENNIAL HEALTHCARE CORPORATION
(Name of Registrant as Specified In Its Charter)
--------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
CENTENNIAL HEALTHCARE CORPORATION
400 PERIMETER CENTER TERRACE, SUITE 650
ATLANTA, GEORGIA 30346
July 14, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of Centennial HealthCare Corporation (the "Company") to be held on Wednesday,
August 11, 1999 at The South Terraces Conference Center Classroom, 115 Perimeter
Center Place, Atlanta, Georgia 30346. The meeting will begin promptly at 10:00
a.m., local time, and we hope that it will be possible for you to attend.
The items for business to be addressed at the Annual Meeting are listed
in the attached Notice of Annual Meeting of Shareholders and are more fully
described in the Proxy Statement provided with this letter. In addition to these
matters, members of management will report on the Company's operations, followed
by a period for questions and discussion.
Management hopes that you will be able to attend the Annual Meeting.
However, whether or not you plan to attend the Annual Meeting, please date,
sign, and return your proxy card in the enclosed envelope as soon as possible to
assure that your shares will be represented and voted at the Annual Meeting. If
you do attend the Annual Meeting, you may vote your shares in person even though
you have previously signed and returned your proxy card.
On behalf of your Board of Directors, thank you for your continued
support and interest in Centennial HealthCare Corporation.
Sincerely,
J. Stephen Eaton
Chairman, President and Chief
Executive Officer
<PAGE> 3
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY AUGUST 11, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Centennial HealthCare Corporation (the "Company") will be held at The South
Terraces Conference Center Classroom, 115 Perimeter Center Place, Atlanta,
Georgia 30346 on Wednesday, August 11, 1999 at 10:00 a.m., local time, for the
following purposes as more fully described in the Proxy Statement provided with
this Notice:
(i) To elect three directors to serve until the 2002 Annual
Meeting of Shareholders:
(ii) To consider and act upon a proposal to amend the Company's
Amended and Restated 1997 Stock Plan (a) to increase the
number of shares of Common Stock authorized to be issued
pursuant to grants under the 1997 Stock Plan from 800,000
shares to 1,390,000 shares and (b) to allow the Compensation
Committee of the Board of Directors to determine the specifics
of option grants to non-employee directors, such as the number
of options and vesting periods;
(iii) To ratify the appointment of Arthur Andersen LLP as the
Company's independent auditors; and
(iv) To transact such other business as may properly come before
the meeting or any adjournment thereof.
Only the holders of record of Common Stock of the Company at the close
of business on July 9, 1999 are entitled to notice of and to vote at the Annual
Meeting of Shareholders and any adjournment thereof. A list of shareholders as
of the close of business on July 9, 1999 will be available at the Annual Meeting
of Shareholders for examination by any shareholder, his agent, or his attorney.
By order of the Board of Directors,
Atlanta, Georgia Alan C. Dahl
July 14, 1999 Executive Vice President, Chief
Financial Officer and Treasurer
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN,
AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED STAMPED
AND ADDRESSED ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY REVOKE THE PROXY AND
VOTE YOUR SHARES IN PERSON.
<PAGE> 4
CENTENNIAL HEALTHCARE CORPORATION
400 PERIMETER CENTER TERRACE, SUITE 650
ATLANTA, GEORGIA 30346
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY AUGUST 11, 1999
The 1999 Annual Meeting of Shareholders (the "Annual Meeting") of
Centennial HealthCare Corporation (the "Company") will be held on Wednesday,
August 11, 1999, for the purposes set forth in the Notice of Annual Meeting of
Shareholders attached hereto and as described herein. The enclosed form of proxy
is solicited by the Board of Directors of the Company (the "Board" or the "Board
of Directors") and the cost of solicitation will be borne by the Company. When a
proxy is properly executed and returned, the shares of the Company's common
stock, $.01 par value per share (the "Common Stock"), represented thereby will
be voted as directed at the Annual Meeting or any adjournment thereof or, if no
direction is indicated, such shares of Common Stock will be voted in favor of
the proposals set forth in the Notice of Annual Meeting of Shareholders attached
hereto (collectively, the "Proposals") and any other matter that may properly
come before the Annual Meeting. Any shareholder giving a proxy has the power to
revoke it at any time before it is voted. All proxies delivered pursuant to this
solicitation are revocable at any time at the option of the persons executing
them by giving written notice to the Secretary of the Company before the Annual
Meeting, by delivering a later-dated proxy to the Company at or before the
Annual Meeting or by voting in person at the Annual Meeting.
Only holders of Common Stock of record as of the close of business on
July 9, 1999 (the "Record Date") will be entitled to vote at the Annual Meeting.
As of the Record Date, the Company had outstanding 11,923,618 shares of Common
Stock. Holders of Common Stock ("Shareholders") of record as of the close of
business on the Record Date are entitled to cast one vote for each share of
Common Stock held. No cumulative voting rights are authorized and dissenters'
rights for Shareholders are not applicable to the matters being proposed. It is
anticipated that this Proxy Statement and the accompanying proxy will first be
mailed to holders of Common Stock on or about July 22, 1999.
The presence in person or by proxy of holders of a majority of the
shares of Common Stock outstanding on the Record Date will constitute a quorum
for the transaction of business at the Annual Meeting or any adjournment
thereof. The affirmative vote of a plurality of the shares of Common Stock
present in person or by proxy and entitled to vote is required to elect
directors. With respect to other Proposals and any other matter that may
properly come before the Annual Meeting, the approval of such Proposals or such
other matters requires the affirmative vote of a majority of the shares of
Common Stock present in person or by proxy and entitled to vote thereon. Brokers
who hold shares of Common Stock in street name for beneficial owners may be
entitled to exercise discretionary voting power with respect to the Proposals,
including the election of directors, if voting instructions have not been
received from the beneficial owners within ten (10) days before the
<PAGE> 5
Annual Meeting. Abstentions with respect to a Proposal are counted for purposes
of establishing a quorum. If a quorum is present, abstentions have no effect on
the outcome of any vote, including the election of directors.
PROPOSAL 1:
ELECTION OF DIRECTORS
The Company's Third Amended and Restated Articles of Incorporation (the
"Articles") and Amended and Restated Bylaws (the "Bylaws") provide for the Board
of Directors to determine the number of directors on the Board by resolution up
to a maximum of nine. The Articles divide the Board into three classes, with
directors in each class serving a three year term. There are currently eight
directors serving on the Board, the Board having been expanded from six to eight
members in October 1998. At that time, the Board appointed W. Scott Miller and
Charles D. Nash to serve as directors to fill the vacancies created by the
increase in the number of directors. The Board has determined that the number of
directors should be reduced to seven members at the time of the Annual Meeting.
Messrs. Miller and Nash were appointed to serve until the Annual Meeting, at
which time their terms expire. In addition, the terms of James B. Hoover and
Bertil D. Nordin, the Class II members, expire at the Annual Meeting. Messrs.
Hoover, Nordin and Nash have been nominated to stand for re-election as
directors at the Annual Meeting to serve until the 2002 Annual Meeting of
Shareholders or until their successors are duly elected and qualified.
Except as otherwise provided herein, the proxy solicited hereby cannot
be voted for the election of a person to fill a directorship for which no
nominee is named in this Proxy Statement. The Board has no reason to believe
that any director nominee will be unavailable to serve as a director, if
elected. However, if at the time of the Annual Meeting any nominee should be
unable to serve or, for good cause, will not serve, the persons named proxies
will vote as recommended by the Board to elect a substitute nominee recommended
by the Board. In no event, however, will a proxy be voted to elect more than
three directors.
Set forth below is information concerning the incumbent directors and
nominees for reelection to the Board to serve until the 2002 Annual Meeting of
Shareholders or until their successors are duly elected and qualified. Such
information includes for the nominees, and for each of the incumbent directors,
certain biographical information, a brief description of each such individual's
principal occupation and business experience during the past five years, and
directorships of companies (other than the Company) presently held, which
information has been provided by the respective individuals.
NOMINEES FOR ELECTION - CURRENT TERM EXPIRING 1999
JAMES B. HOOVER (age 44) has served as a Director of the Company since
January 1996. Mr. Hoover is the founder and managing member of Dauphin Capital
Partners, a private venture
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capital firm, since June 1998. He served as a general partner of the sole
general partner of Welsh, Carson Anderson & Stowe, VI, L.P. ("WCAS VI"), a
private equity investment firm, from November 1992 through May 1998. From 1984
to 1992, Mr. Hoover served as a general partner of Robertson, Stephens & Co.
("RS&Co."), an investment banking firm specializing in the financing of emerging
growth companies, with particular emphasis in the health care industry. Prior to
joining RS&Co., Mr. Hoover was vice president of the Investment Management Group
of Citibank, N.A., from 1977 to 1984. Mr. Hoover serves as a director of New
American Healthcare, a hospital management company, and as a director and a
member of the compensation committee of U.S. Physical Therapy, a rehabilitation
services company, as well as several private companies. Additionally, Mr. Hoover
is a member of the Special Projects Committee of Memorial Sloan-Kettering Cancer
Center which raises funds and evaluates funding proposals from physicians
interested in pursuing cancer research projects.
BERTIL D. NORDIN (age 65) has served as a Director of the Company since
March 1997. Mr. Nordin is currently an investor and advisor. From 1990 to 1994,
Mr. Nordin served as chairman of the board of Digital Communications Associates,
Inc. ("DCA"), a telecommunications company. Mr. Nordin was also president and
chief executive officer of DCA from 1981 to 1990. Mr. Nordin serves as a
director for TechForce Corporation, a computer network company, IVI Checkmate
Corp., a point-of-sale credit card and check reader manufacturer, and the
Atlanta Symphony Orchestra.
CHARLES D. NASH (age 56) has served as a Director of the Company since
October 1998. Mr. Nash has served as managing director of Nash Equity Capital,
Inc., a capital markets and strategic corporate advisor company, since 1997.
From 1991 to 1997, Mr. Nash was managing director and corporate finance
executive for Interstate/Johnson Lane, an investment banking company.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR JAMES B. HOOVER, BERTIL D.
NORDIN AND CHARLES D. NASH TO HOLD OFFICE UNTIL THE 2002 ANNUAL MEETING OF
SHAREHOLDERS OR UNTIL THEIR SUCCESSORS ARE ELECTED AND QUALIFIED.
INCUMBENT DIRECTORS - TERM EXPIRING 2000
ALAN C. DAHL (age 38) has served as Executive Vice President, Chief
Financial Officer, Treasurer and Director of the Company since January 1996.
From February 1991 to December 1995, he served as senior vice president. Mr.
Dahl has been involved in health care finance for the past 13 years. Mr. Dahl
was senior vice president of Southmark Public Syndications, Inc., a subsidiary
of Southmark Corporation, a real estate based investment company, from 1986 to
1991. Mr. Dahl, a certified public accountant, also served in the tax department
at Arthur Young & Company.
ROBERT A. ORTENZIO (age 40) has served as a Director of the Company
since January 1996. Mr. Ortenzio has served as president and director of Select
Medical Corporation, a private
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healthcare company based in Mechanicsburg, Pennsylvania, since February 1997.
From August 1996 to February 1997, Mr. Ortenzio was a private investor. From
1986 to August 1996, Mr. Ortenzio was employed by Continental Medical Systems,
Inc., a nationwide provider of rehabilitation services, as its president and
chief operating officer. Mr. Ortenzio also serves as a director of US Oncology,
Inc., a physicians practice management company, and Concentra Managed Care,
Inc., a provider of managed care and workers' compensation services.
INCUMBENT DIRECTORS - TERM EXPIRING 2001
J. STEPHEN EATON (age 48) is Chairman of the Board of the Company and
has served as its President and Chief Executive Officer since founding the
Company in 1989. From 1982 to 1989, Mr. Eaton served in various executive
positions (including vice president in 1988) at Consolidated Resources
Corporation of America and its successors ("CRCA"), a real estate based
investment company. When the Company acquired CRCA in 1990, CRCA served as the
general partner of private and public limited partnerships that owned in excess
of 31 long-term care and assisted living facilities. Mr. Eaton also serves as a
director of Saint Joseph's Mercy Care Corporation, a non-public healthcare
corporation based in Atlanta, Georgia that provides mobile health services to
the homeless and other underserved populations, and of Saint Joseph's Health
System, a major tertiary care hospital system in Atlanta, Georgia.
ANDREW M. PAUL (age 43) has served as Director of the Company since
January 1996. Mr. Paul serves as a general partner of the sole general partner
of WCAS VI, a private equity investment fund. Prior to joining WCAS VI in 1984,
Mr. Paul was an associate in Hambrecht & Quist's venture capital group. From
1978 to 1981, he was a systems engineer and later a marketing representative for
International Business Machines Corporation. Mr. Paul serves as a director of
Accredo Health Inc., a provider of specialized contract pharmacy and related
services to patients with chronic diseases.
With the exception of Messrs. Eaton and Dahl, none of the directors
are, or have been, employed by any parent, subsidiary or other affiliate of the
Company. There are no family relationships between any directors or executive
officers.
MEETINGS OF THE BOARD OF DIRECTORS
During 1998, the Board met six times (including regularly scheduled and
special meetings). All of the directors attended at least 75% of the aggregate
of all meetings of the Board and all meetings of committees on which they served
(held during the period that the directors were members of the Board).
COMMITTEES OF THE BOARD
AUDIT COMMITTEE. The Board has established an Audit Committee that
consists of Messrs. Hoover and Ortenzio. Mr. Hoover is chairman and Mr. Eaton is
an ex-officio, non-voting member of the Audit Committee. The Audit Committee is
responsible for (a) recommending to the Board the firm to be employed as
independent auditors of the Company, and (b) meeting with the
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Company's independent auditors at least annually to review (i) the scope of
audit and non-audit assignments and related fees, (ii) accounting principles
used by the Company in financial reporting, and (iii) the adequacy of the
Company's internal control procedures. During 1998, the Audit Committee held two
meetings.
COMPENSATION COMMITTEE. The Board has established a Compensation
Committee that consists of Messrs. Eaton, Paul and Ortenzio. Mr. Paul is
chairman of the Compensation Committee. The Compensation Committee is
responsible for (a) reviewing, approving, recommending and reporting to the
Chief Executive Officer and the Board of Directors matters regarding the
compensation of the Company's executive officers and other key employees and
compensation levels or plans affecting the compensation of the Company's other
employees and (b) in the case of the non-employee director members,
administrating the Company's 1994 Stock Option Plan, 1996 Executive Stock Plan,
1996 Employee Stock Option Plan and 1997 Stock Plan (collectively, the "Stock
Plans"). During 1998, the Compensation Committee held one meeting and acted by
unanimous consent in lieu of a meeting on one occasion.
Nominations for directors are made by the Board. The Bylaws require an
advance notice procedure for the nomination, other than by or at the direction
of the Board or a committee thereof, of candidates for election as directors
(the "Nomination Procedure"), as well as for other shareholder proposals to be
considered at the annual shareholders' meeting. Notice to the Company from a
Shareholder who proposes to nominate a person at a meeting for election as a
director generally must be given not less than 120 nor more than 150 days prior
to the anniversary of the date that notice of the annual meeting of shareholders
was given in the preceding year and must contain: (i) the name and record
address of the Shareholder who intends to make the nomination; (ii) the name,
age and residence address of the nominee; (iii) the principal occupation or
employment of the nominee; (iv) the class, series and number of shares of the
Company's stock which are held of record, beneficially and by proxy, by the
Shareholder and the nominee as of the record date of such meeting (if such
record date is publicly available) and as of the date of such notice; and (v)
such other information relating to the nominee proposed by such shareholder as
is required to be included if the Company is then subject to Regulation 14A of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including
the written consent of each nominee to be named in the proxy statement and to
serve as a director of the Company if so elected. The presiding officer of the
meeting may refuse to acknowledge the nomination of any person not made in
compliance with the Nomination Procedure. Similar advance notice must be given
of any other business that a Shareholder proposes to bring before an annual
meeting of shareholders. Such notice must contain (i) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting; (ii) the name and record address of the
Shareholder proposing such business; (iii) the class, series and number of
shares of the Company's stock which are held of record, beneficially and by
proxy by the Shareholder as of the record date of such meeting (if such record
date is publicly available) and of the date of such notice; (iv) a description
of all arrangements or understandings between the Shareholder and any other
person or persons (naming such person or persons) in connection with the
proposing of such business by the Shareholder; and (v) any material interest of
the Shareholder in such business. The purpose of requiring advance notice is to
afford the Board an opportunity to consider the qualifications of the proposed
nominees or the merits of other shareholder proposals and, to the extent deemed
necessary
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or desirable by the Board, to inform Shareholders about those matters. Although
the advance notice provisions do not give the Board any power to approve or
disapprove shareholder nominations or proposals for action by the Company, they
may have the effect of precluding a contest for the election of directors or the
consideration of shareholder proposals if the procedures established by the
Bylaws are not followed and have the effect of discouraging or deterring a third
party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
the Company and its shareholders.
COMPENSATION OF DIRECTORS
All members of the Board are reimbursed for their reasonable
out-of-pocket expenses incurred in connection with attendance at Board and
committee meetings. Non-Employee Directors (defined pursuant to Rule 16b-3 under
the Exchange Act receive $8,000 annually (paid in four quarterly installments)
and $1,000 for each meeting of the Board or any committee of the Board (except
for telephonic meetings and committee meetings held on the same day as a full
Board meeting) that they attend, for their services as Non-Employee Directors.
Pursuant to the Company's Amended and Restated 1997 Stock Plan, Non-Employee
Directors currently receive automatic grants of options to purchase 10,345
shares of Common Stock upon their election or appointment to the Board and
Non-Employee Directors who are serving as such on July 1 of each year receive
automatic grants of options to purchase 2,069 shares of Common Stock. Currently,
options issued to Non-Employee Directors under this Plan become exercisable on
the first anniversary after the date of the grant. All options granted to
Non-Employee Directors are non-qualified stock options and are exercisable for
ten years from the date of each grant. The exercise price is equal to the
average closing bid price for the 20 trading days before the date of appointment
or, if elected, before the date of the Company's annual meeting of shareholders
preceding the grant date. If the Proposal to amend the 1997 Stock Plan is
approved by the Shareholders at the Annual Meeting, the Compensation Committee
will determine the grants of options to Non-Employee Directors instead of the
automatic grants described above.
EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive officers and key employees are as follows:
<TABLE>
<CAPTION>
Officers Age Position
- -------- --- --------
<S> <C> <C>
J. Stephen Eaton 48 Chairman of the Board, President and
Chief Executive Officer
Kent C. Fosha, Sr. 58 Executive Vice President of Operations
Alan C. Dahl 38 Executive Vice President, Chief
Financial Officer, Treasurer and
Director
</TABLE>
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<TABLE>
<S> <C> <C>
Lawrence W. Lepley, Jr. 54 President of Paragon Rehabilitation, Inc.
</TABLE>
<TABLE>
<CAPTION>
Key Employees
- -------------
<S> <C> <C>
Wayne H. Mayo 55 Senior Vice President of Operations -
Eastern Division
Clay F. Crosson 42 Senior Vice President of Operations -
Western Division
</TABLE>
Kent C. Fosha, Sr. has served as Executive Vice President of Operations
since January 1996 and also serves as President of Centennial HealthCare
Management Corporation. He joined the Company in 1990 and served as the
Company's senior vice president of operations until January 1996. Mr. Fosha has
over 24 years experience in all aspects of nursing home management, including
the supervision of multi-state operations for National Heritage, Inc. and
Beverly Enterprises. Mr. Fosha, a licensed nursing home administrator, has
served as president of the Georgia Healthcare Association and has served on
several long-term care related committees.
Lawrence W. Lepley, Jr., has served as President of Paragon
Rehabilitation Inc., a subsidiary of the Company ("Paragon"), since its
inception in 1989. Mr. Lepley has 33 years of experience in the health care
industry, having previously served as vice president of development and general
counsel for a corporation specializing in head injury rehabilitation. Mr. Lepley
has also served as vice president, corporate attorney and lobbyist for the
Tennessee Hospital Association. Mr. Lepley began his health care career as a
pharmacist in both hospital and retail settings, and he maintains licenses in
pharmacy and law in the state of Tennessee.
Wayne H. Mayo has served as Eastern Division Senior Vice President of
the Company since January 1997. Mr. Mayo served as Regional Vice President of
the Company from 1991 to 1996, and was responsible for the Company's eastern
region facilities. Mr. Mayo previously served as regional vice president of
operations for Vantage Healthcare Corporation and also served as regional vice
president of operations for Medco Centers, Inc. for seven years. Mr. Mayo is a
member of the American College of Health Care Administrators ("ACHCA").
Clay F. Crosson has served as Western Division Senior Vice President of
the Company since February 1997. Prior to joining the Company in 1997, Mr.
Crosson was vice president of operations and a member of the Board of Directors
for CareMore, Inc. for five years. Mr. Crosson served 11 years at National
HealthCorp, L.P. in various capacities. Mr. Crosson has 19 years of experience
in long-term care, subacute care, home health care, managed care and assisted
living. Mr. Crosson is a Fellow of the ACHCA and holds certifications in
SubAcute Administration and Nursing Home Administration. He presently serves as
National Chairman of ACHCA and is a board member of the Nursing Home
Administrators Licensure Board of the State of Georgia.
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Biographical information for Messrs. Eaton and Dahl is set forth above
in the discussion of incumbent directors.
PROPOSAL 2:
AMENDMENTS TO THE 1997 STOCK PLAN
The primary purpose of the Amended and Restated 1997 Stock Plan (the
"Plan"), which was previously approved by the Board of Directors and the
Shareholders, is to advance the interests of the Company, its subsidiaries and
its shareholders by affording Non-Employee Directors and certain officers and
employees of, and key consultants and advisors to, the Company and its
subsidiaries an opportunity to acquire or increase their proprietary interests
in the Company. The Board has adopted and recommends that the Shareholders
approve amendments to the Plan to (i) increase the number of shares of Common
Stock which may be issued subject to options granted under the Plan from 800,000
shares to 1,390,000 shares, subject to certain anti-dilution provisions set
forth in the Plan and (ii) give the Compensation Committee (consisting solely of
Non-Employee Directors for this purpose) the authority and discretion to
administer the grants of options to Non-Employee Directors rather than providing
for automatic formula grants (together, the "Amendments"). All other provisions
of the Plan will remain unchanged.
The material features of the Plan are described below.
ADMINISTRATION
Prior to amendment, except for self-governing for automatic grants of
options to Non-Employee Directors, the Plan was administered by the Compensation
Committee (consisting solely of Non-Employee Directors for this purpose). As
amended, all grants under the Plan will be administered by the Compensation
Committee (consisting solely of Non-Employee Directors for this purpose).
Subject to the provisions of and in accordance with the Plan, the Compensation
Committee has the power to (i) grant options; (ii) determine those persons to
whom options will be granted, (iii) interpret the Plan; (iv) promulgate rules
and regulations relating to the Plan; and (v) make all other determinations and
take all other actions necessary or desirable for the administration of the
Plan. Decisions of the Compensation Committee regarding the interpretation and
administration of the Plan are binding upon all interested persons.
TERMS
The Plan provided for (i) automatic grants of options
("Non-Discretionary Options") to Non-Employee Directors and (ii) grants of
options to officers and employees of, and key consultants and advisors to, the
Company at the discretion of the Compensation Committee ("Discretionary
Options").
Non-Discretionary Options to purchase 10,345 shares of Common Stock
were granted to each Non-Employee Director on the date such person was initially
elected or appointed to the Board as a Non-Employee Director. As long as Common
Stock was available for grants of Non-
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Discretionary Options, an annual grant of a Non-Discretionary Option to purchase
2,069 shares of Common Stock was made on July 1 to each person who was a
Non-Employee Director on such date. The exercise price of each Non-Discretionary
Option was the average closing bid price on the Nasdaq National Market (or other
exchange) for the Common Stock for the twenty (20) trading days immediately
preceding the date of the grant. All Non-Discretionary Options previously
granted under the Plan vested and become exercisable on the first anniversary of
the grant date and expire and cease to be exercisable after the expiration of
ten (10) years from such grant date. As amended, the Plan provides that the
Compensation Committee may grant options to acquire shares of Common Stock to
Non-Employee Directors in the amounts and with the vesting schedules as such
committee determines in its discretion and at an exercise price equal to the
fair market value of a share of Common Stock on the date of grant. All options
granted to Non-Employee Directors will be NSOs (as defined below).
Under the Plan, the Compensation Committee may grant Discretionary
Options intended to qualify as incentive stock options ("ISOs") under the
Internal Revenue Code (as defined below) or options that do not qualify as ISOs
("NSOs"). ISOs involve certain tax implications under the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code"). The Compensation Committee
establishes the exercise period for each Discretionary Option; provided,
however, that the exercise period for Discretionary Options intended to be ISOs
may not exceed ten years.
The Plan provides that the exercise price for each share of Common
Stock subject to an ISO shall be no less than the fair market value of a share
of Common Stock on the date the ISO is granted or, if the ISO is granted to a
key employee who is a ten percent holder of Common Stock, the exercise price for
each share of Common Stock subject to such ISO shall be no less than one hundred
and ten percent (110%) of the fair market value of a share of Common Stock on
the date the ISO is granted. In addition, the exercise price for each share of
Common Stock subject to a NSO shall be no less than the fair market value of a
share of Common Stock on the date the NSO is granted.
An option granted under the Plan is not transferable other than by will
or by the laws of descent and distribution.
TERMINATION AND AMENDMENT
The Plan may be terminated or amended at any time and from time to time
by the Board. The Board may not, however, amend the Plan without the approval or
ratification of the Shareholders of the Company if such amendment would (i)
increase the total number of shares of Common Stock issuable pursuant to ISOs
under the Plan or materially increase the number of shares of Common Stock
subject to the Plan; (ii) change the class of employees eligible to receive ISOs
that may participate in the Plan or materially change the class of persons that
may participate in the Plan; or (iii) otherwise materially increase the benefits
accruing to participants in the Plan.
9
<PAGE> 13
ELIGIBILITY
The class of persons eligible to participate in the Plan consists of
all Non-Employee Directors and all persons whose participation in the Plan the
Compensation Committee determines to be in the best interests of the Company,
including, without limitation, all officers and employees of the Company or any
subsidiary, as well as key consultants and advisors to the Company or any
subsidiary; provided, however, that currently Non-Employee Directors are only
eligible to receive Non-Discretionary Options. As of June 30, 1999, 49
individuals held or will hold options to purchase 502,708 shares of Common Stock
under the Plan.
STOCK SUBJECT TO THE PLAN
As of June 30, 1999, an aggregate of 502,708 shares of Common Stock was
reserved for issuance upon exercise of options previously granted under the Plan
and an aggregate of 292,440 shares of Common Stock remained available for the
grant of future options to purchase such shares under the Plan. An option for
4,852 shares of Common Stock was exercised with shares issued. Options to
acquire 352,708 shares of Common Stock have been granted to employees and
officers, not including executive officers. Messrs. Dahl, Fosha and Lepley have
each received options to acquire 50,000 shares, representing approximately 30%
of the options granted pursuant to the Plan. The executive officers as a group
have received options to acquire 220,397 shares of Common Stock pursuant to the
Plan. Messrs. Nordin, Miller and Nash each received options to acquire 10,375
shares of Common Stock pursuant to the Plan upon their appointment or election
to the Board and, as of June 30, 1998, Non-Employee Directors (Messrs. Hoover,
Miller, Nash, Nordin, Ortenzio and Paul), as a group, have received options to
acquire 39,311 shares of Common Stock. Of the 800,000 shares of Common Stock
available for the grant of options, up to 93,100 shares were reserved for
issuance pursuant to exercise of Non-Discretionary Options and up to 706,900
shares were reserved for issuance pursuant to the exercise of Discretionary
Options. If the Amendments are approved, 882,440 shares of Common Stock will be
available for the future grants of options under the Plan (exclusive of the
grants for 502,708 shares and the exercise for 4,852 shares described above).
FEDERAL INCOME TAX CONSEQUENCES
NSOs. An individual receiving a NSO under the Plan does not recognize
taxable income on the date of grant of the option, assuming that the option does
not have a readily ascertainable fair market value at the time it is granted.
However, the individual must generally recognize ordinary income at the time of
exercise of the NSO in the amount of the difference between the option exercise
price and the fair market value of the Common Stock on the date of exercise. The
amount of ordinary income recognized by an individual is deductible by the
Company in the year that the income is recognized by the individual. The
Company's deduction, however, is subject to a $1 million limitation on the
deduction of certain employee renumeration under Section 162(m) of the Internal
Revenue Code, unless an exemption for performance-based compensation under such
section applies. Depending upon the period that the shares of stock were held
after exercise, the sale or other taxable disposition of shares acquired through
the exercise of an option generally will
10
<PAGE> 14
result in a short-term or long-term capital gain or loss equal to the difference
between the amount realized on such disposition and the fair market value of the
shares when the option was exercised.
ISOs. An individual who is granted an ISO under the Plan does not
recognize taxable income either on the date of grant or on the date of its
timely exercise. However, the excess of the fair market value of the Common
Stock received upon the exercise of the ISO over the option exercise price is
includable in such individual's alternative minimum taxable income and may be
subject to the alternative minimum tax ("AMT"). For AMT purposes only, the basis
of stock acquired by the exercise of an ISO is increased by the amount of such
excess.
Upon the disposition of the Common Stock acquired upon exercise of an
ISO, long-term capital gain or loss will be recognized in an amount equal to the
difference between the sales price and the option exercise price (except that
for AMT purposes, the gain or loss would be the difference between the sale
price and the individual's basis increased as described in the preceding
paragraph), provided that such individual has not disposed of the Common Stock
within the later of two years after the date of grant or one year from the date
of exercise. If an individual disposes of the Common Stock without satisfying
the holding period requirements (a "Disqualifying Disposition"), the individual
will generally recognize ordinary income at the time of such Disqualifying
Disposition to the extent of the lesser of (i) the difference between the
exercise price and the fair market value of the Common Stock on the date the ISO
is exercised; or (ii) the difference between the exercise price and the amount
realized on such Disqualifying Disposition. Any remaining gain or any net loss
is treated as a short-term or long-term gain or loss, depending upon the length
of time that the Common Stock is held. Unlike the case in which a NSO is
exercised, the Company is not entitled to a tax deduction upon either the
exercise of an ISO or upon disposition of the Common Stock acquired pursuant to
such exercise, except to the extent that the individual recognizes ordinary
income in a Disqualifying Disposition.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE AMENDMENTS.
11
<PAGE> 15
PROPOSAL 3:
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP ("PWC") audited the accounts of the Company and
its subsidiaries for fiscal year 1998. On July 13, 1999, the Company informed
PWC that it would no longer be engaged as the principal accountant to audit the
Company's financial statements for the fiscal year ending December 31, 1999 and
terminated the relationship. On July 13, 1999, the Company engaged Arthur
Andersen LLP ("Arthur Andersen") as its new independent accountants, effective
July 13, 1999.
PWC's reports on the financial statements for fiscal years 1997 and 1998
did not contain any adverse opinions or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with its audits for the fiscal year ended December 31, 1998 and
during the subsequent interim period, there were no disagreements with PWC,
except as described below, on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure. In connection
with Item 304(a)(1)(iv) of Regulation S-K promulgated under the Exchange Act,
there were no disagreements with PWC during its audits for the years ended
December 31, 1998 and 1997, and during the interim period subsequent to 1998,
except as described below. During the process of PWC's audit of the December 31,
1998 fiscal year, PWC and the Company had a disagreement regarding the level of
reserves required for certain amounts which the Company disputed with its fiscal
intermediary. The Company disputed the fiscal intermediary's conclusions and has
filed an administrative appeal to these conclusions. PWC held the position that
the Company should record a $2.5 million reserve against the approximately $4
million in dispute. The Company believed that no additional reserve was
required. This matter resulted in several prolonged discussions between PWC and
senior management of the Company, with the Company ultimately recording a
reserve for $2 million. In connection with Item 304(a)(1)(v) of Regulation S-K,
during 1998 and 1997, PWC advised the Company that it believed significant
deficiencies existed in the design and operation of the Company's internal
control structure that could adversely affect the Company's ability to record,
process, summarize and report financial information on an accurate and timely
basis.
At the Company's request, PWC furnished a letter addressed to the
Securities and Exchange Commission stating it agreed with the statements made by
the Company in response to Item 304 of Regulation S-K in the Company's Form 8-K
dated July 13, 1999. PWC's letter is incorporated by reference as an exhibit to
this document.
The decision to change accountants was recommended by the Company's
management and approved by the Board. During fiscal year 1998 and through July
13, 1999, the Company had not consulted with Arthur Andersen concerning its
financial statements, including the following items: an audit of the Company's
financial statements as the principal accountant, an audit of a significant
subsidiary as an independent accountant, the application of accounting
principles to a specified transaction or the type of audit opinion that might be
rendered on the Company's financial statements or any matter which concerned a
disagreement or "reportable event" with the previous independent accountants.
12
<PAGE> 16
Arthur Andersen has been appointed by the Audit Committee to act as its
independent public accountants for the Company's fiscal year ending December 31,
1999, subject to ratification by the Shareholders at the Annual Meeting. Should
this firm be unable to perform the requested services for any reason or not be
ratified by the Shareholders, the Audit Committee will appoint other independent
auditors to serve for the remainder of the year. A representative of Arthur
Andersen will be present at the Annual Meeting, will have the opportunity to
make a statement and will be available to respond to appropriate questions.
THE BOARD UNANIMOUSLY RECOMMENDS THAT A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN AS THE COMPANY'S INDEPENDENT AUDITORS.
13
<PAGE> 17
COMMON STOCK OWNERSHIP BY MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of shares of
Common Stock as of July 9, 1999 for (i) directors of the Company, (ii) the Chief
Executive Officer and each of the three most highly compensated executive
officers of the Company (collectively, the "Named Executive Officers"), (iii)
the directors and executive officers of the Company as a group and (iv) each
person who is a shareholder of the Company holding more than a five percent
interest in the Company.
<TABLE>
<CAPTION>
Name of Beneficial Owner Number of Shares of
- ------------------------ Common Stock Percent of Common Stock
Beneficially Owned (1) Beneficially Owned
---------------------- ------------------
<S> <C> <C>
Welsh, Carson, Anderson & Stowe VI, L.P. (2) 2,520,193 21.1
WCAS Capital Partners II, L.P. (3) 246,896 2.1
WCAS Healthcare Partners, L.P. (4) 81,384 *
J. Stephen Eaton (5) 1,213,077 10.1
The Goldman Sachs Group, L.P. (6) 609,400 5.1
Dresdner RCM Global Investors LLC (7) 1,198,920 10.0
South Atlantic Venture Fund II, Limited 798,963
Partnership (8) 6.7
Lawrence W. Lepley, Jr. (9) 118,726 1.0
Alan C. Dahl (10) 107,276 *
Kent C. Fosha, Sr. (11) 54,949 *
Andrew M. Paul (12) 14,776 *
Bertil D. Nordin (13) 19,914 *
James B. Hoover (14) 15,533 *
Robert A. Ortenzio (15) 3,368 *
W. Scott Miller (16) 0 *
Charles D. Nash (17) 0 *
All other executive officers and directors as a
group (10 persons) 1,547,619 13.0
</TABLE>
- ------------------
* Less than 1.0%
(1) Based on an aggregate of 11,923,618 shares of Common Stock issued and
outstanding as of July 9, 1999. Includes shares of Common Stock that
may be acquired upon the exercise of stock options exercisable within
60 days. Each person named above has sole voting and dispositive power
with respect to all shares listed opposite such person's name, except
as otherwise noted.
(2) The shareholder's address is 320 Park Avenue, Suite 2500, New York,
New York 10022-6815.
(3) The shareholder's address is 320 Park Avenue, Suite 2500, New York,
New York 10022-6815.
(4) The shareholder's address is 320 Park Avenue, Suite 2500, New York,
New York 10022-6815.
(5) Includes 97,706 shares purchasable upon exercise of stock options that
are currently exercisable or will be come exercisable within 60 days.
Does not include options to acquire 51,727 shares that are not
exercisable within 60 days. The shareholder's address is 400 Perimeter
Center Terrace, Suite 650, Atlanta, Georgia 30346.
(6) Based on Schedule 13G of shareholder filed on February 12, 1999. The
shareholder's address is 85 Broad Street, New York, New York 10004.
(7) Based on Schedule 13G/A of shareholder filed on February 12, 1999. The
shareholder's address is Four Embarcadero Center, San Francisco,
California 94111.
(8) The shareholder's address is 614 West Bay Street, Suite 200, Tampa,
Florida 33606-2704.
14
<PAGE> 18
(9) Includes 9,001 shares purchasable upon exercise of stock options that
are currently exercisable, and 26,500 shares beneficially owned by Mr.
Lepley's wife, of which shares Mr. Lepley disclaims beneficial
ownership. Does not include options to acquire 51, 343 shares that are
not exercisable within 60 days. The shareholder's address is 400
Perimeter Center Terrace, Suite 650, Atlanta, Georgia 30346.
(10) Includes 4,484 shares purchasable upon exercise of stock options that
are currently exercisable or will become exercisable within 60 days and
2,000 shares beneficially owned by Mr. Dahl's sons. Does not include
options to acquire 71,074 shares that are not exercisable within 60
days. The shareholder's address is 400 Perimeter Center Terrace, Suite
650, Atlanta, Georgia 30346.
(11) Includes 45,979 shares purchasable upon exercise of stock options that
are currently exercisable or will become exercisable within 60 days.
Does not include options to acquire 71,074 shares that are not
exercisable within 60 days. The shareholder's address is 400 Perimeter
Center Terrace, Suite 650, Atlanta, Georgia 30346.
(12) Includes 2,069 shares purchasable upon exercise of stock options that
are currently exercisable. Excludes 2,520,193 shares of Common Stock
owned by Welsh, Carson, Anderson & Stowe VI, L.P. ("WCAS VI"), 246,896
shares of Common Stock owned by WCAS Capital Partners II, L.P. ("WCAS
CP II") and 81,384 shares of Common Stock owned by WCAS Healthcare
Partners, L.P. ("Healthcare Partners"). Mr. Paul, as a general partner
of the respective sole general partners of each of WCAS VI, WCAS CP II
and Healthcare Partners may be deemed to beneficially own the shares
owned by WCAS VI, WCAS CP II and Healthcare Partners. Mr. Paul
disclaims beneficial ownership of such shares. Does not include options
to acquire 2,069 shares that are not exercisable within 60 days.
(13) Includes options to acquire 12,414 shares that are currently
exercisable. Does not include options to acquire 2,069 shares that are
not exercisable within 60 days. Does not include 206,214 shares held by
South Atlantic Venture Fund III, Limited Partnership ("South Atlantic")
of which Mr. Nordin is a special limited partner. Mr. Nordin disclaims
beneficial ownership of the shares owned by South Atlantic. The
shareholder's address is 400 Perimeter Center Terrace, Suite 650,
Atlanta, Georgia 30346.
(14) Includes 2,069 shares purchasable upon exercise of stock options that
are currently exercisable and shares held by Mr. Hoover or by the James
B. Hoover IRA. Does not include options to acquire 2,069 shares that
are not exercisable within 60 days. The shareholder's address is
Dauphin Capital Partners, 108 Forest Avenue, Locast Valley, New York
11560.
(15) Does not include 39,719 shares held by Horizon Investment Associates
II, of which Mr. Ortenzio's father is an affiliate; 3,551 shares
acquired pursuant to a distribution by WCAS VI to its limited partners,
in one of which Mr. Ortenzio holds a remainderman interest in a life
estate of which his father is the life tenant; or 77 shares acquired
pursuant to a distribution by WCAS CP II to Camp Hill Associates, L.P.,
a limited partner of WCAS CP II, in which Mr. Ortenzio has a 10%
ownership interest. Mr. Ortenzio disclaims beneficial ownership of all
such shares. Does not include options to acquire 2,069 shares that are
not exercisable within 60 days. The shareholder's address is 4718 Old
Gettysburg Road, Mechanicsburg, Pennsylvania 17055.
(16) Does not include options to acquire 12,414 shares that are not
exercisable within 60 days. Does not include 798,963 shares held by
South Atlantic Venture Fund II, Limited Partnership, of which Mr.
Miller is a limited partner. Mr. Miller disclaims beneficial ownership
of these shares.
(17) Does not include options to acquire 12,414 shares that are not
exercisable within 60 days.
15
<PAGE> 19
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the
compensation paid to the Company's Chief Executive Officer and each of the Named
Executive Officers whose salary and bonus compensation for the year ended
December 31, 1998 exceeded $100,000.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Securities
Annual Bonus Underlying All Other
Name and Principal Position Year Salary($)(1) ($)(2) Compensation ($) Options (#) Compensation ($)
- --------------------------- ---- ------------ ------------ ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
J. Stephen Eaton President 1998 $ 350,000 120,000 11,846(4) - $ -
and Chief Executive 1997 309,000 - 6,931(4) 34,485
Officer 1996 224,631 50,000 324,359(3)(4) -
Kent C. Fosha, Sr. 1998 211,985 72,000 5,309(4) 50,000 -
Executive Vice President 1997 180,250 - 3,059(4) 17,242
1996 175,000 25,000 163,041(3)(4) -
Alan C. Dahl 1998 211,985 75,000 7,903(4) 50,000 -
Executive Vice 1997 180,250 - 10,118(4) 17,242
President and Chief 1996 175,000 35,000 158,498(3)(4) -
Financial Officer
Lawrence W. Lepley, Jr. 1998 182,685 69,000 7,202(5) 50,000 -
President of Paragon 1997 158,295 116,000 9,392(5) 4,028
Rehabilitation, Inc. 1996 132,341 65,575 6,794(5) 6,316
</TABLE>
- ------------------
(1) Represents annual salary, including compensation deferred pursuant to
the Company's 401(k) Plan.
(2) Represents annual bonuses earned for the period indicated.
(3) Represents the difference between the exercise price for stock options
exercised and the fair market value of the shares received.
(4) Includes insurance for Messrs. Eaton, Fosha and Dahl which provides for
reimbursement for health and dental costs in excess of the amount
payable under the Company's group health and dental plan.
(5) Includes $794, $677 and $1,202 as matching 401(k) contribution and an
automobile allowance of $6,000,
$8,715 and $6,000 for 1996, 1997 and 1998 respectively.
OPTIONS GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock option
grants for the year ended December 31, 1998 to the Chief Executive Officer and
each of the Named Executive Officers. No stock appreciation rights were granted
during such year.
16
<PAGE> 20
<TABLE>
<CAPTION>
Individual Grants for Option Term
- -----------------------------------------------------------------------------------------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise or Base Expiration
Granted Fiscal 1998 Price Per Share Date 5% ($) 10% ($)
------- ----------- ---------------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
J. Stephen Eaton -- -- -- -- -- --
Kent C. Fosha, Sr. 50,000 9.4% $20.625 2/1/08 $648,548 1,643,547
Alan C. Dahl 50,000 9.4% 20.625 2/1/08 648,548 1,643,547
Lawrence W. Lepley, Jr. 50,000 9.4% 20.625 2/1/08 648,548 1,643,547
</TABLE>
- ------------------
(1) The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the SEC. There can be no
assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the
term will be at the assumed 5% and 10% levels or at any other defined
level. Unless the market price of the Common Stock appreciates over the
option term, no value will be realized from the option grants made to
the Chief Executive Officer or the Named Executive Officers.
(2) Based on a closing price of $15.50 per share of Common Stock on
December 31, 1998.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
The following table sets forth certain information concerning option
holdings for the fiscal year ended December 31, 1998 with respect to the Chief
Executive Officer and each of the Named Executive Officers of the Company. No
options or stock appreciation rights were exercised during such year and no
stock appreciation rights were outstanding at the end of such year.
<TABLE>
<CAPTION>
Securities Underlying Number of Value of Unexercised In-the-Money
Unexercised Options at FY-End (#) Options at FY-End ($)(1)
--------------------------------- ------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
J. Stephen Eaton 97,706 51,727 126,730 42,243
Kent C. Fosha, Sr. 45,979 71,074 130,410 14,081
Alan C. Dahl 34,484 71,074 42,243 14,081
Lawrence W. Lepley, Jr. 9,001 51,343 42,696 --
</TABLE>
- ------------------
(1) Based on a closing price of $15.50 per share of Common Stock on
December 31, 1998.
17
<PAGE> 21
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
On December 31, 1995, the Company entered into employment agreements
with Messrs. Eaton, Dahl and Fosha (the "Employment Agreements"). The Employment
Agreements provide for a base salary, an annual bonus, and an amount for fees
incurred for legal, accounting or other professional advice. The base salaries
for Messrs. Eaton, Dahl and Fosha initially totaled $300,000, $175,000 and
$175,000 respectively. The base salaries are reviewed at least once annually on
May 1 by the Compensation Committee of the Board of Directors to determine
whatever increase may be merited, with the minimum annual increase equal to the
increase in the Consumer Price Index as published by the U.S. Department of
Labor, Bureau of Labor Statistics, for the period since the last annual review
("Consumer Price Index"). In addition, each of these employees is eligible to
participate in the 1996 Executive Stock Plan, management incentive programs,
retirement, welfare and other benefit plans or programs of the Company,
including, at the Company's sole expense, health, dental and hospitalization
insurance coverage. Unless earlier terminated as provided therein, the
Employment Agreements initially continued until December 31, 1998 (or 1999 for
Mr. Eaton), and extend automatically each day for an additional day so that the
remaining term continues to be two years for Mr. Eaton and one year for Messrs.
Dahl and Fosha.
The Company can terminate the agreements upon the death or disability
of an employee or for cause as defined therein. Each employee may terminate his
employment for any reason within a 90-day period beginning on the 30th day after
a Change in Control of the Company (as defined below) or within a 90-day period
beginning on the one-year anniversary of a Change in Control. If the Company
terminates an Employment Agreement, or if an employee terminates his employment
for Good Reason (as defined below) upon a Change in Control, then the Company
must pay the employee (or, in the case of death, the employee's estate) for 12
consecutive months thereafter (24 months in the case of Mr. Eaton) the greater
of one-twelfth of his salary at the rate in effect on his termination date or at
the highest rate in effect at any time during the 90-day period prior to a
Change in Control, as well as all amounts of his base salary that are deferred
under the Company's qualified and non-qualified employee benefit plans or any
other agreement or arrangement. In addition, the restrictions on the employee's
outstanding incentive awards, including stock options, would lapse and such
incentive awards would immediately vest. Under each of the Employment
Agreements, the employee agrees to maintain the confidentiality of the Company's
trade secrets and agrees, for a period of one year following termination, not to
compete with or solicit employees or customers of the Company. For the purposes
of the Employment Agreements, Good Reason includes an occurrence after a Change
in Control such as an adverse change in the employee's status, title, position
or responsibilities; reduction in base salary or other compensation or benefits;
or a material breach by the Company of the terms of the Employment Agreements. A
Change in Control includes an acquisition of the Company's voting securities of
40% or more; a merger, consolidation or reorganization involving the Company
unless at least two-thirds of the combined voting power of the corporation
resulting from the merger, consolidation or reorganization is owned in
substantially the same proportion as before such merger, consolidation or
reorganization and the persons serving as directors before such merger,
consolidation or reorganization constitute at least two-thirds of the directors
of the
18
<PAGE> 22
surviving corporation; a complete liquidation or dissolution of the Company; or
an agreement for the sale or disposition of all or substantially all of the
Company's assets.
Effective January 1, 1998, Paragon Rehabilitation, Inc., a subsidiary
of the Company ("Paragon"), entered into an Amended and Restated Employment
Agreement with Lawrence W. Lepley, Jr., who serves as president of Paragon (the
"Lepley Agreement"). The Lepley Agreement initially provided for an annual base
salary of $184,000, reviewable annually on January 1 and subject to annual
increases (as described above with respect to the Employment Agreements) and
annual bonus. The Lepley Agreement allows participation in the Company's stock
option plans and provides health, dental and short and long-term disability
insurance and an automobile allowance. The initial term ends on December 31,
2000, but beginning on the second anniversary of the effective date extends
automatically each day for an additional day so that the remaining term
continues to be two years.
Paragon may terminate the Lepley Agreement upon the death or disability
of Mr. Lepley or for cause as defined therein, or after the vote of a majority
of the Board of Directors in favor of termination. Mr. Lepley may terminate his
employment for Good Reason within a 90-day period beginning on the 30th day
after a Change in Control or within a 90-day period beginning on the one-year
anniversary of a Change in Control. If Paragon terminates the Lepley Agreement
for reasons other than for cause, of if Mr. Lepley terminates his employment for
Good Reason, then Paragon must pay Mr. Lepley (or, in the case of death, his
estate) for 12 consecutive months thereafter one-twelfth of his salary at the
rate in effect on his termination date. If the Lepley Agreement is terminated
due to death or disability, or by Mr. Lepley for Good Reason, then the
restrictions on any outstanding incentive awards, including stock options, would
lapse and such incentive awards would immediately vest. Mr. Lepley agrees to
maintain the confidentiality of Paragon's trade secrets and agrees, for a period
of one year following termination, not to compete with or solicit employees or
customers of Paragon.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
The members of the Compensation Committee of the Board of Directors are
J. Stephen Eaton, Andrew M. Paul and Robert A. Ortenzio. For the purposes of
administering the Company's stock option plans, Messrs. Paul and Ortenzio
comprise the Compensation Committee. Neither Mr. Paul nor Mr. Ortenzio is or has
been an officer or employee of the Company or any of its subsidiaries. Mr. Eaton
is the Chairman of the Board, President and Chief Executive Officer of the
Company.
Transactions with Mr. Paul and Affiliates. Mr. Paul, an affiliate of
Welsh, Carson, Anderson & Stowe VIII, L.P. ("WCAS VIII"), Welsh, Carson,
Anderson & Stowe Capital Partners III, L.P. ("WCAS CP III"), WCAS Healthcare
Partners, L.P. ("Healthcare Partners"), WCAS VI and Welsh, Carson, Anderson &
Stowe Capital Partners II, L.P., is a director of the Company and the chairman
of the Compensation Committee.
19
<PAGE> 23
On October 22, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Centennial HealthCare Holdings Corporation,
a Delaware corporation ("Holdings"), whereby the Company would merge with Cougar
Acquisition Corporation ("Acquisition"), with the Company being the surviving
corporation. Acquisition is wholly owned by Holdings. Holdings is wholly owned
by WCAS VIII, an affiliate of WCAS VI (the beneficial owner of approximately 21%
of the Common Stock). If the transaction contemplated by the Merger Agreement
had been completed, the Company would have been wholly owned by Holdings and
Holdings would have been owned by WCAS VIII and other affiliated limited
partnerships, Mr. Paul and other individuals, including Messrs. Eaton, Dahl,
Fosha and Lepley. On April 2, 1999 Holdings notified the Company that it was
terminating the Merger Agreement.
Transactions with Mr. Eaton and Affiliates. As described above, if the
merger had occurred between the Company and Acquisition pursuant to the terms of
the Merger Agreement, Mr. Eaton would have owned common stock of Holdings, which
would have owned all of the shares of Common Stock of the Company. Other
transactions involving Mr. Eaton and his affiliates are described in the
following section entitled "Certain Transactions."
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for ensuring that a proper
system of short and long-term compensation is in place to provide
performance-oriented incentives to management.
The Compensation Committee administers the Company's executive
compensation program, including determination of salary and bonus compensation
for the Chief Executive Officer and the Named Executive Officers and
determination of the nature, time and amounts of options grants to such
executive officers under the Company's Stock Plans. The Compensation Committee's
report for 1998 is as follows:
COMPENSATION POLICY
Generally, the Company's executive compensation is designed to be
competitive with compensation offered by other companies against which the
Company competes for executive resources. The executive compensation plans are
designed to attract and retain highly qualified executives critical to the
Company's long-term success. The Compensation Committee intends for the
executive compensation program to satisfy the following guidelines:
- Recognize and reward high performance and extraordinary
results.
- Have a portion of total compensation bear a direct
relationship to the Company's operating performance and
achievement of short-term and long-term goals.
20
<PAGE> 24
- Provide opportunity to acquire additional direct ownership in
the Company and provide motivation to build shareholder value
by aligning executives' interests with shareholder interests.
Executive compensation is composed of base salary, bonus awards and
long-term incentive compensation.
BASE SALARY
In the case of Messrs. Eaton, Dahl and Fosha, base salary is paid
pursuant to the Employment Agreements, or the Lepley Agreement in the case of
Mr. Lepley; in the case of all other executive officers, base salary is
determined and fixed by management based on the policies of the Compensation
Committee. The Employment Agreements require the Compensation Committee to
review base salaries of the executives who are parties thereto on May 1 (or
January 1 with respect to Mr. Lepley) of each year and provide for an annual
increase as determined by the Compensation Committee, but not less than the
increase in the Consumer Price Index. The Compensation Committee reviews the
individual contributions and performance of each such executive officer and
takes into account various qualitative and quantitative factors in determining
the increases in base salaries. In particular, the Compensation Committee
considers several financial performance measures, including business
development, earnings growth and stock price, as well as the individual's work
experience, level of responsibility and contribution to the Company's long-term
success. The Compensation Committee does not, however, apply any specific
quantitative formula in making compensation decisions with respect to base
salary, annual bonus awards or long-term incentive compensation.
BONUS AWARDS
Bonus payments are awarded to the Company's executives at the
discretion of the Compensation Committee, which considers the achievement of
certain performance targets and new business development.
LONG-TERM INCENTIVE COMPENSATION
The Company's long-term incentive compensation strategy is focused on
the grant or award of (i) options to purchase shares of Common Stock, (ii) stock
appreciation rights, (iii) reload options and (iv) restricted stock pursuant to
the Company's stock plans. Except for grants to Non-Employee Directors pursuant
to the Plan, the Compensation Committee determines who receives grants or
awards, the grant or award date, the number of shares subject to the grant or
award, the exercise price (based on the closing price of the Common Stock on the
date of grant or award), the vesting schedule and other matters as specified in
the stock plans. The Compensation Committee believes that these grants or awards
reward executive officers for their efforts in improving long-term performance
of the Common Stock and creating value for the Shareholders, thereby aligning
the financial interests of such executives with those of the Shareholders.
21
<PAGE> 25
CHIEF EXECUTIVE OFFICER COMPENSATION
Based on its assessment of the performance of the Company and Mr.
Eaton's performance during 1998, the Compensation Committee (composed of Messrs.
Paul and Ortenzio for this purpose) increased Mr. Eaton's base salary from
$309,000 to $350,000.
SECTION 162(M)
Section 162(m) of the Internal Revenue Code generally disallows tax
deduction by a public company for compensation in excess of $1,000,000 paid to
the company's chief executive officer and four other most highly compensated
executive officers. Qualifying performance-based compensation is not subject to
the deduction limit if certain requirements are met. The Compensation Committee
intends to attempt to structure future compensation of the Company's Chief
Executive Officer and Named Executive Officers so as to preserve the
deductibility of such compensation under Section 162(m).
COMPENSATION COMMITTEE
Andrew M. Paul, Chairman
Robert A. Ortenzio
J. Stephen Eaton
STOCK PERFORMANCE GRAPH
The following line graph compares the yearly percentage in cumulative
shareholders' return on the Common Stock with (a) the performance of a broad
equity market indictor and (b) the performance of a peer group index. The graph
compares the percentage change in the return on the Common Stock since July 2,
1997 with the cumulative total return on the NASDAQ Index and the Peer Group
identified by the Company (which group includes Beverly Health Services, Inc.,
Genesis Health Ventures, Inc., Health Care and Retirement Corp., Integrated
Health Services, Inc., Mariner Post-Acute Network, Inc., Sun Healthcare Group
Inc., Vencor, Inc., Advocat Inc., National Healthcare L.P. and Manor Care Inc.)
over such period. The Peer Group companies include the long-term care
organizations most similar to the Company and most of the other publicly traded
long-term care organizations. The commencement date for this comparison is the
date on which the Common Stock was first publicly traded. The stock price
performance graph assumes an investment of $100 in the Company on July 2, 1997
and an investment of $100 in the two indexes on July 2, 1997 and further assumes
the reinvestment of all dividends. The stock price performance, presented
monthly for the period from July 2, 1997 through December 31, 1998 is not
necessarily indicative of future results. Information used in this graph was
obtained from Zack's Investment Research, a source believed to be reliable, but
the Company is not responsible for errors or omissions in such information.
22
<PAGE> 26
<TABLE>
<CAPTION>
7/2/97 1997 1998
------ ---- ----
<S> <C> <C> <C>
Centennial $100 $142.19 $ 96.87
Nasdaq $100 $109.63 $ 154.11
Peer Group $100 $100.38 $ 49.78
</TABLE>
THE STOCK PERFORMANCE GRAPH SHALL NOT BE DEEMED INCORPORATED BY
REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY
STATEMENT INTO ANY FILING UNDER THE EXCHANGE ACT OR THE SECURITIES ACT OF 1993,
AS AMENDED, EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES THIS
INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER SUCH
ACTS.
23
<PAGE> 27
CERTAIN TRANSACTIONS
Mr. Eaton owns 100% of the common stock of Centennial Employee
Management Corporation ("CEMC"). The Company leases its facility-based employees
at cost from CEMC on a pass through basis. CEMC was set up to take advantage of
reduced workers' compensation and group health insurance rates and passes on
these insurance costs savings to the Company. Mr. Eaton receives no economic
benefit from his ownership of this entity.
Ashton Woods Rehabilitation Center ("AWRC"), which is leased by the
Company, is owned by Ashton Woods Limited Partnership. Mr. Dahl owns all of the
outstanding stock of the corporate general partner of this partnership. Mr. Dahl
receives no economic benefit from his ownership of this entity. Mr. Dahl is
Executive Vice President, Chief Financial Officer, Treasurer and a director of
the Company.
OTHER MATTERS
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires executive officers and
directors of the Company and persons who own more than ten percent of the Common
Stock to file with the Securities and Exchange Commission certain reports, and
to furnish copies thereof to the Company, with respect to each such person's
beneficial ownership of the Common Stock. Based solely upon a review of the
copies of such reports furnished to the Company and certain representations of
such persons, the Company believes that all filings were timely during the
fiscal year ended December 31, 1998.
ANNUAL REPORT TO SHAREHOLDERS
The Annual Report of the Company for the fiscal year ended December 31,
1998, including audited financial statements, accompanies this Proxy Statement.
The Annual Report does not form any part of the material for the solicitation of
proxies.
ANNUAL REPORT ON FORM 10-K
The Company will provide without charge, at the written request of any
record holder of Common Stock as of the close of business on the Record Date, a
copy of the Company's Annual Report on Form 10-K, including the financial
statements and financial statement schedules, as filed with the Securities and
Exchange Commission, except exhibits thereto. The Company will provide copies of
the exhibits, should they be requested by eligible Shareholders, and the Company
may impose a reasonable fee for providing such exhibits. Request for copies of
the Company's Annual Report on Form 10-K should be mailed to:
24
<PAGE> 28
Centennial HealthCare Corporation
400 Perimeter Center Terrace
Suite 650
Atlanta, Georgia 30346
Attention: Shareholder Relations Department
SHAREHOLDER PROPOSALS
Any shareholder proposals intended to be presented at the Company's
2000 Annual Meeting of Shareholders must be received by the Company within a
reasonable time before the Company begins to print and mail its proxy materials
to be eligible for inclusion in the Proxy Statement and form of proxy to be
distributed by the Board in connection with such meeting.
OTHER MATTERS
The Board knows of no other matters to be brought before the Annual
Meeting. However, should any additional matters come before the Annual Meeting,
the enclosed proxy grants discretionary authority to the proxies named therein
with respect to any such matters.
EXPENSES OF SOLICITATION
The cost of solicitation of proxies will be borne by the Company. In an
effort to have as large a representation at the Annual Meeting as possible,
special solicitation of proxies may, in certain instances, be made personally or
by telephone, telegraph or mail by one or more employees of the Company. The
Company also will reimburse brokers, banks, nominees and other fiduciaries for
postage and reasonable clerical expenses of forwarding the proxy material to
their principals who are beneficial owners of the Common Stock.
By Order of the Board of Directors,
Alan C. Dahl
Executive Vice President, Chief Financial Officer
and Treasurer
July 14, 1999
25
<PAGE> 29
CENTENNIAL HEALTHCARE CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
ON AUGUST 11, 1999
The undersigned hereby appoints Alan B. Cosby and Daryl R. Griswold and
each of them, with full power of substitution and resubstitution, as proxies
for and in the name of the undersigned, to vote all shares of Common Stock of
Centennial Healthcare Corporation ("Centennial") which the undersigned would be
entitled to vote if personally present at the Annual Meeting of Stockholders to
be held on Wednesday, August 11, 1999, at 10:00 a.m., local time, at The South
Terraces Conference Center Classroom, 115 Perimeter Center Place, Atlanta,
Georgia 30346, or at any adjournment thereof, upon the matters described in the
accompanying Notice of Annual Meeting of Stockholders and Proxy Statement,
receipt of which is hereby acknowledged, and upon any other business that may
properly come before the meeting or any adjournment thereof. Such proxies are
directed to vote on the matters described in the Notice of Annual Meeting of
Stockholders and Proxy Statement as follows, and otherwise in their discretion
upon such other business as may properly come before the meeting or any
adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS LISTED BELOW.
1. To elect three (3) directors to serve until the 2002 Annual Meeting
of Stockholders:
Bertil D. Nordin Charles D. Nash
James B. Hoover
[ ] FOR the nominees [ ] WITHHOLD AUTHORITY
(except as marked to to vote for the nominees listed
the contrary below)
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE.)
2. To approve the amendments to 1997 Stock Plan as described in the
Proxy Statement:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify appointment of Arthur Andersen as Centennial's independent
public accountants:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS INDICATED, THIS
PROXY WILL BE VOTED FOR THE PROPOSALS.
(CONTINUED, AND TO BE SIGNED ON THE OTHER SIDE)
<PAGE> 30
Date:___________________, 1999
_______________________________
(Signature)
_______________________________
(Signature if held jointly)
________________________________
(Title or authority, if applicable)
Please sign exactly as your name or
names appear hereon. Where more than one
owner is shown above, each should sign.
When signing in a fiduciary or
representative capacity, please give
full title. If this proxy is submitted
by a corporation, it should be executed
in the full corporate name by a duly
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE
INCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING ON
AUGUST 11, 1999. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.
