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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14F-1
INFORMATION STATEMENT
PURSUANT TO SECTION 14(F) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
CENTENNIAL HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
GEORGIA 58-1839701
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
</TABLE>
<TABLE>
<S> <C>
400 PERIMETER CENTER TERRACE, SUITE 650 30346
ATLANTA, GEORGIA (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (770) 698-9040
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CENTENNIAL HEALTHCARE CORPORATION
400 PERIMETER CENTER TERRACE, SUITE 650
ATLANTA, GEORGIA 30346
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AND RULE 14F-1 THEREUNDER
---------------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND YOU ARE REQUESTED NOT TO
SEND THE COMPANY A PROXY.
---------------------
This Information Statement is being mailed on or about April 6, 2000, by
Centennial Healthcare Corporation (the "Company") to the holders of record of
shares of Common Stock, par value $.01 per share (the "Shares"), of the Company.
You are receiving this Information Statement in connection with the possible
appointment or election of persons designated by Hilltopper Holding Corp.
("Parent"), a wholly owned subsidiary of Warburg, Pincus Equity Partners, L.P.
("WPEP"), to a majority of the seats on the Board of Directors of the Company
(the "Board."). On February 25, 2000, the Company, Parent, and Hilltopper
Acquisition Corp., a wholly owned subsidiary of Parent (the "Purchaser"),
entered into an Agreement and Plan of Merger (the "Merger Agreement"). The
Merger Agreement provides for Purchaser to make an all cash tender offer of
$5.50 a Share (the "Offer") and the subsequent merger of Purchaser with and into
the Company (the "Merger"), with the Company surviving the Merger and becoming a
wholly owned subsidiary of Parent. Purchaser commenced the Offer on March 17,
2000, for all of the outstanding Shares. The Offer is scheduled to expire at
12:00 Midnight, New York City time, on Thursday, April 13, 2000, unless the
Offer is extended. The Merger Agreement provides that, subject to compliance
with applicable laws and promptly following the purchase by Purchaser of Shares
pursuant to the Offer, Parent shall be entitled to designate such number of
directors as will give Parent representation on the Board equal to its
percentage ownership of Shares (the "Parent Designees").
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14f-1 promulgated
thereunder. You are urged to read this Information Statement carefully. You are
not, however, required to take any action at this time.
The information contained in the Information Statement concerning Parent
and Purchaser and the Parent Designees has been furnished to the Company by
Parent and Purchaser, and the Company assumes no responsibility for the accuracy
and completeness of such information.
GENERAL INFORMATION REGARDING THE COMPANY
The Shares are the only class of voting securities of the Company currently
outstanding and each Share has one vote. As of April 4, 2000, there were
11,923,618 Shares outstanding. The Board currently consists of seven directors
in three classes, one class with three members and two classes with two members
each. Each director serves a three year term and until such director's successor
has been duly elected and qualified, or until such director's earlier
resignation or removal. At each annual meeting of shareholders, members are
elected to the class of directors whose terms are due to expire in the year in
which such meeting is held. The officers of the Company serve at the discretion
of the Board.
INFORMATION WITH RESPECT TO PARENT DESIGNEES
Pursuant to the Merger Agreement, promptly upon the purchase and payment
for any Shares by Purchaser pursuant to the Offer, Parent is entitled to
designate that number of Parent Designees equal to the
<PAGE> 3
product (rounded up to the nearest whole number) of the total number of
directors on the Board (after giving effect to the Parent Designees and
including current directors serving as officers of the Company) multiplied by
the percentage that the aggregate number of Shares beneficially owned by Parent
or any affiliate of Parent (including such Shares as are accepted for payment
pursuant to the Offer, but excluding Shares held by the Company or any of its
Subsidiaries) bears to the number of outstanding Shares. At such time, the
Company will also cause (i) each committee of the Board, (ii) if requested by
Parent, the board of directors of each subsidiary and (iii) if requested by
Parent, each committee of such subsidiary board to include persons designated by
Parent constituting the same percentage of such committee or board as Parent's
Designees constitute on the Board. The Company will, upon request by Parent,
increase the size of the Board or exercise its best efforts to secure the
resignations of such number of directors as is necessary to enable Parent's
designees to be appointed or elected to the Board and will cause Parent's
Designees to be appointed or elected.
Following the appointment or election of Parent's Designees and prior to
the effective time of the Merger contemplated by the Merger Agreement, the
affirmative vote of a majority of the directors who are not Parent Designees (of
which there must be at least two) will be required for the Company to take
action to amend or terminate the Merger Agreement, exercise or waive the rights
or remedies of the Company under the Merger Agreement or extend the time
allotted for Parent or Purchaser to perform their obligations under the Merger
Agreement or take any other action in connection with the Merger Agreement
required to be taken by the Board.
Parent has informed the Company that it will choose the Parent Designees
from the persons listed below and that each of the persons listed below has
consented to act as a director, if so designated. Biographical information
concerning each of the potential Parent Designees is presented below. All
persons listed below are citizens of the United States of America.
<TABLE>
<CAPTION>
POSITION WITH PARENT; PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AGE AND MATERIAL POSITIONS HELD DURING PAST FIVE YEARS
---- --- ----------------------------------------------------------------
<S> <C> <C>
David Wenstrup....................... 35 Vice President, Secretary and Director of Parent; Vice
President, Secretary and Director of Purchaser; Vice President
of E.M. Warburg, Pincus & Co., LLC ("Warburg Pincus") since
1997. Prior to 1997, Mr. Wenstrup was with the Boston Consulting
Group.
Jonathan S. Leff..................... 31 Member and Managing Director of Warburg Pincus and Partner of
Warburg, Pincus & Co. ("Warburg") since 1996. Prior to 1996, Mr.
Leff was a consultant at Oliver, Wyman & Co.
Joel Ackerman........................ 33 Member and Managing Director of Warburg Pincus; Partner of
Warburg; President, Treasurer and Director of Parent; President,
Treasurer and Director of Purchaser.
Deborah L. Devedjian................. 37 Vice President of Warburg Pincus. Prior to January, 2000, Ms.
Devedjian was employed by Roundtable Partners, a consulting
firm.
Robert A. Yedid...................... 41 Vice President of Warburg Pincus. Prior to January, 2000, Mr.
Yedid was employed by Bear Stearns.
Geoffrey S. Raker.................... 31 Vice President of Warburg Pincus. Prior to February 2000, Mr.
Raker was employed by Morgan Stanley Dean Witter. Prior to 1996,
Mr. Raker served as a management consultant for Bain & Company.
</TABLE>
Parent has also advised the Company that, to the best of Parent's
knowledge, none of the potential Parent Designees (i) is currently a director
of, or holds any position with, the Company, (ii) beneficially owns any
securities (or rights to acquire any securities) of the Company (except for
2,500 Shares owned by Mr. Wenstrup that Mr. Wenstrup intends to tender in the
Offer), or (iii) has been involved in any transaction with the Company or any of
its directors, executive officers or affiliates which is required to be
disclosed
2
<PAGE> 4
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC"), except as may be disclosed herein or in the Schedule 14D-9 or the
Offer to Purchase relating to the Offer.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of April 4, 2000 are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
J. Stephen Eaton 49 Chairman, President, and Chief Executive
Officer
Kent C. Fosha, Sr. 59 Executive Vice President of Operations
Alan C. Dahl 39 Executive Vice President, Chief Financial
Officer, Treasurer and Director
Lawrence W. Lepley, Jr. 55 President of Paragon Rehabilitation, Inc.
Wayne H. Mayo 56 Senior Vice President of
Operations -- Eastern Division
Clay F. Crosson 43 Senior Vice President of
Operations -- Western Division
James B. Hoover 45 Director
Bertil D. Nortin 66 Director
Charles D. Nash 57 Director
Andrew M. Paul 44 Director
Bob L. Wood 55 Director
</TABLE>
J. Stephen Eaton 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 1988, Mr. Eaton served in various executive positions (including
Vice President in 1988) at Consolidated Resources Corporation of America and its
successors ("CRCA"). 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-profit corporation
based in Atlanta, Georgia which provides mobile health services to the homeless
and other underserved populations, and of Saint Joseph's Health System, a major
tertiary care hospital and health system in Atlanta, Georgia.
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, also
served as president of the Georgia Healthcare Association and has served on
several long-term care committees.
Alan C. Dahl 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 12 years. Mr. Dahl was previously
senior vice president of Southmark Public Syndications, Inc., a subsidiary of
Southmark Corporation. Mr. Dahl, a certified public accountant, also worked in
the tax department at Arthur Young & Company.
Lawrence W. Lepley, Jr. has served as President of Paragon Rehabilitations,
Inc., a subsidiary of the Company, since its inception in 1989. Mr. Lepley has
33 years experience in the health care industry, having previously served as
vice president of development and general counsel for a corporation specializing
in head
3
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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 law and pharmacy 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 for CareMore, Inc.
for five years. Mr. Crosson served 11 years at National HealthCorp, L.P. in
various capacities. Mr. Crosson has 19 years 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.
James B. Hoover has served as a Director of the Company since January 1996.
Mr. Hoover has served as a general partner of the sole general partner of WCAS
VI since 1992. 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 for Housecall Medical Resources, Inc. and U.S. Physical
Therapy, as well as five 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 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 public company, and the Atlanta Symphony Orchestra.
Charles D. Nash 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.
Bob L. Wood has served as a Director of the Company since January 2000. Mr.
Wood served as president and chief executive officer of Nations Health, Inc., a
home-health company, from 1995 to 1999. From 1993 to 1995, Mr. Wood was an
independent healthcare consultant, working with troubled healthcare companies in
all aspects of operational and financial management.
Andrew M. Paul has served as a Director of the Company since January 1996.
Mr. Paul serves as a general partner of the sole general partner of Welsh,
Carson, Anderson & Stowe, VI, L.P. ("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.
4
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MEETINGS AND COMMITTEES
During 1999, the Board met six times (including regularly scheduled and
special meetings). All of the directors attended at least 75% of all meetings of
the Board and the committees on which they served in 1999.
Audit Committee. The Board has established an Audit Committee that
consists of Messrs. Nash and Nordin. Mr. Nordin 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 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 1999, the Audit Committee held two meetings.
Compensation Committee. The Board has established a Compensation Committee
that consists of Messrs. Eaton and Paul and, until his resignation from the
Board in September 1999, Mr. Robert 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 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) administering 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 1999,
the Compensation Committee acted by unanimous written consent in lieu of a
meeting on one occasion and did not grant any stock options.
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"). 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 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 under 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.
Although the advance notice provisions do not give the Board any power to
approve or disapprove shareholder nominations by the Company, they may have the
effect of precluding a contest for the election of directors if the procedures
established by the Bylaws are not followed and the effect of discouraging or
deterring a third party from conducting a solicitation of proxies to elect its
own slate of directors, without regard to whether consideration of such nominees
might be harmful or beneficial to the Company and its shareholders.
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 beneficially own more than ten percent of the
Company's 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 Company's equity securities.
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.
5
<PAGE> 7
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the
compensation paid to the Company's Chief Executive Officer and the Chief
Executive Officer and each of the four most highly compensated executive
officers of the Company (collectively the "Named Executive Officers") whose
salary and bonus compensation for the year ended December 31, 1999 exceeded
$100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------- ------------------------------
OTHER SECURITIES
SALARY BONUS ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) COMPENSATION ($) OPTIONS (#) COMPENSATION ($)
- --------------------------- ---- ------- ------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
J. Stephen Eaton............. 1999 367,500 13,998(3) -- --
President and Chief 1998 350,000 120,000 11,846(3) -- --
Executive Officer 1997 309,000 -- 6,931(3) 34,485 --
Kent C. Fosha, Sr............ 1999 228,979 -- 6,818(3) -- --
Executive Vice President 1998 211,985 72,000 5,309(3) 50,000 --
1997 180,250 -- 3,059(3) 17,242 --
Alan C. Dahl................. 1999 233,016 -- 7,496(3) -- --
Executive Vice President 1998 211,985 75,000 7,903(3) 50,000 --
and Chief Financial Officer 1997 180,250 10,118(3) 17,242 --
Laurence W. Lepley, Jr....... 1999 199,800 53,400 8,181(4) -- --
President of Paragon 1998 182,685 69,000 7,202(4) 50,000 --
Rehabilitation, Inc. 1997 158,295 116,000 9,392(4) 4,028 --
</TABLE>
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(1) Represents annual salary, including compensation deferred by the Named
Executive Officers pursuant to the Company's 401(k) Plan.
(2) Represents annual bonuses earned by the executive officers for the period
indicated.
(3) 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.
(4) Includes $677, $1,202 and $1,211 as matching 401(k) contribution and
automobile allowance of $8,715, $6,000 and $6,970 for 1997, 1998 and 1999
respectively.
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 total $300,000, $175,000, and $175,000,
respectively. These base salaries are reviewed at least once annually on May 1
by the Compensation Committee of the Board 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 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 continue 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 such 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
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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 of the terms of the Employment Agreements. A Change of
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
such 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 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 Laurence W. Lepley, Jr., who serves as president of Paragon (the
"Lepley Agreement"). The Lepley Agreement provides 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 Company's Board of Directors in favor of termination. Mr. Lepley may
terminate his employment for Good Reason (as defined below) within a 90-day
period beginning on the 30th day after a Change in Control of the Company (as
defined above) or within a 90-day period beginning on the one-year anniversary
of a Change in Control of the Company. If Paragon terminates the Lepley
Agreement for reasons other than for cause, or 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. For the purposes of the Lepley Agreement,
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 of the
terms of the Lepley Agreement.
After the consummation of the Merger, new employment agreements will be
effective with Messrs. Eaton, Dahl, Fosha and Lepley that provide for an annual
base salary, an annual target bonus of 25% of base salary, severance payments
following termination without "Cause" or with "Good Reason" (as such terms are
defined in the new agreements) and, in the case of Mr. Eaton, a stock repurchase
requirement.
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<PAGE> 9
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 (as defined pursuant to Rule 16b-3 under the Exchange
Act) receive $8,000 annually (paid in four quarterly installments) and $1,000
for each meeting of the Board or any committee of the Board (except for
telephonic meetings and committee meetings held on the same day as a Board
meeting) for their services as Non-Employee Directors. Pursuant to the Company's
1997 Stock Plan, directors are eligible for grants of non-qualified stock
options at the discretion of the Compensation Committee.
OPTION GRANTS IN LAST FISCAL YEAR
No options or stock appreciation rights were granted to the Chief Executive
Officer or any of the Named Executive Officers in 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
The following table sets forth certain information concerning option
holdings for the fiscal year ended December 31, 1999, with respect to the Chief
Executive and each of the Named Executive Officers of the Company. No options or
stock appreciation rights ("SARs") were exercised during such year and no SARs
were outstanding at the end of such year.
<TABLE>
<CAPTION>
SECURITIES UNDERLYING VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FY-END (#) AT FY-END ($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
J. Stephen Eaton................................. 149,433 0 0 0
Kent C. Fosha, Sr................................ 117,053 0 0 0
Alan C. Dahl..................................... 105,558 0 0 0
Laurence W. Lepley, Jr........................... 60,344 0 0 0
</TABLE>
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(1) Based on a closing price of $3.00 per share of Common Stock on December 31,
1999.
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 is Chairman, President and
Chief Executive Officer of the Company. Mr. Eaton receives no economic benefit
from his ownership of CEMC.
Ashton Woods Rehabilitation Center, 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 entity. Mr. Dahl is Executive
Vice President, Chief Financial Officer, Treasurer and director of the Company.
On June 22, 1999, Messrs. Eaton and Dahl acquired 100% of the capital stock
of EBT Healthcare, Inc., general partner of EBI Healthcare, Ltd. ("EBT"), as
well as all limited partnership interests in EBT. The Company currently leases
twelve facilities from EBT pursuant to leases entered into prior to the
acquisition of EBT by Messrs. Eaton and Dahl.
On December 1, 1999, the Company sold three skilled nursing facilities
owned by it to entities owned by Five Star Healthcare LLC ("Five Star"). The
Company also terminated a lease, which was then purchased by an entity owned by
Five Star. Five Star is wholly-owned by entities wholly-owned by Messrs. Easton
and Dahl and their respective spouses. The Company continues to manage these
facilities pursuant to management
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agreements. Under these management agreements, the Company has agreed to
indemnify the owners against certain of the Company's acts or omissions.
The Company and each of the Five Star entities entered into Indemnity
Agreements whereby the Company agreed to indemnify and hold these entities
harmless from any loss or liability asserted against amounts due such entities
for services provided to Medicare or Medicaid patients on or after December 1,
1999 as a result of the pending investigation of the Company by the Department
of Health and Human Services, Office of Inspector General.
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<PAGE> 11
COMMON STOCK OWNERSHIP BY MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of shares of Common
Stock as of December 31, 1999 for (i) directors of the Company, (ii) the Chief
Executive Officer and 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>
NUMBER OF SHARES OF PERCENT OF COMMON
COMMON STOCK STOCK BENEFICIALLY
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNED
- ------------------------ --------------------- ------------------
<S> <C> <C>
Welsh, Carson, Anderson & Stowe VI, L.P................... 2,520,193(2) 21.1%
WCAS Capital Partners II, L.P............................. 246,896(3) 2.1
WCAS Healthcare Partners L.P.............................. 81,384(4) *
J. Stephen Eaton.......................................... 1,264,804(5) 10.6
Goldman Sachs Asset Management............................ 1,473,000(6) 12.4
South Atlantic Venture Fund II, Limited Partnership....... 798,963(7) 6.7
Laurence W. Lepley, Jr.................................... 196,569(8) 1.6
Alan C. Dahl.............................................. 178,350(9) 1.4
Kent C. Fosha, Sr......................................... 126,023(10) 1.0
James B. Hoover........................................... 17,602(11) *
Andrew M. Paul............................................ 16,845(12) *
Bertil D. Nordin.......................................... 21,983(13) *
Charles D. Nash........................................... 12,414(14) *
Bob L. Wood............................................... 0(15) *
All directors and executive officers as a group (9
persons)................................................ 1,835,540 15.4
</TABLE>
- ---------------
* Less than 1.0%.
(1) Based on an aggregate of 11,923,618 shares of Common Stock issued and
outstanding as of April 4, 2000. Does not include 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. Information obtained from Form 4 filed with the Securities
and Exchange Commission ("SEC") for February, 1998.
(3) The shareholder's address is 320 Park Avenue, Suite 2500, New York, New
York 10022-6815. Information obtained from Form 4 filed with the SEC for
February, 1998.
(4) The shareholder's address is 320 Park Avenue, Suite 2500, New York, New
York 10022-6815. Information obtained from Schedule 13G filed on February
13, 1998 by WCAS VI, for itself and WCAS Capital and WCAS Healthcare.
(5) Includes 149,433 shares purchasable upon exercise of stock options that are
currently exercisable or will become exercisable within 60 days. The
shareholder's address is 400 Perimeter Center Terrace, Suite 650, Atlanta,
Georgia 30346.
(6) Based on Schedule 13G/A of shareholder filed on February 9, 2000. The
shareholder's address is 85 Broad Street, New York, New York 10004.
(7) The shareholder's address is 614 West Bay Street, Suite 200, Tampa, Florida
33606-2704.
(8) Includes 60,344 shares purchasable upon exercise of stock options that are
currently exercisable or will become exercisable within 60 days, and 26,500
shares beneficially owned by Mr. Lepley's wife, of which shares Mr. Lepley
disclaims beneficial ownership. The shareholder's address is 400 Perimeter
Center Terrace, Suite 650, Atlanta, Georgia 30346.
(9) Includes 75,558 shares purchasable upon the exercise of stock options that
are currently exercisable or will become exercisable within 60 days. The
shareholder's address is 400 Perimeter Center Terrace, Suite 650, Atlanta,
Georgia 30346.
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(10) Includes 117,053 shares purchasable upon exercise of stock options that are
currently exercisable or will become exercisable within 60 days. The
shareholder's address is 400 Perimeter Center Terrace, Suite 650, Atlanta,
Georgia 30346.
(11) Includes 4,138 shares purchasable upon exercise of stock options that are
currently exercisable or will become exercisable within 60 days and shares
held by Mr. Hoover or by the James Hoover IRA. The shareholder's address is
Dauphin Capital Partners, 108 Forest Avenue, Locust Valley, New York 11560.
(12) Includes 4,138 shares purchasable upon exercise of options that are
currently exercisable or will become exercisable within 60 days. Does not
include 2,520,193 shares held by WCAS VI, WCAS Capital, or WCAS Healthcare,
of which entities Mr. Paul serves as a general partner of the general
partner or is an affiliate. Mr. Paul disclaims beneficial ownership of
these shares. The shareholder's address is 320 Park Avenue, Suite 2500, New
York, New York 10022-6815.
(13) Includes options to acquire 14,483 shares that are currently exercisable or
will become exercisable within 60 days. Does not include 206,214 shares
held by South Atlantic Venture Fund II, 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 options to acquire 12,414 shares that are currently exercisable or
will become exercisable within 60 days. The shareholder's address is 400
Perimeter Center Terrace, Suite 650, Atlanta, GA 30346.
(15) Mr. Wood's address is 400 Perimeter Center Terrace, Suite 650, Atlanta, GA
30346.
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 option grants to such executive officers under the
Company's Stock Plans. The Compensation Committee's report for 1999 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.
- 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
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<PAGE> 13
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 Stock Plans. 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 Company's shareholders, thereby
aligning the financial interests of such executives with those of the Company's
shareholders.
CHIEF EXECUTIVE OFFICER COMPENSATION
Based on its assessment of the performance of the Company and Mr. Eaton's
performance during 1999, the Compensation Committee (composed of Mr. Paul for
this purpose) increased Mr. Eaton's base salary from $350,000 to $367,500. The
Compensation Committee considered the same factors described above in
determining Mr. Eaton's base salary for 1999.
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
such 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
J. Stephen Eaton
THE FOREGOING REPORT SHOULD NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY
GENERAL STATEMENT INCORPORATING BY REFERENCE THIS INFORMATION STATEMENT INTO ANY
FILING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE EXCHANGE ACT
(TOGETHER, THE "ACTS"), EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY
INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED
FILED UNDER SUCH ACTS.
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<PAGE> 14
STOCK PRICE PERFORMANCE GRAPH
The following line graph compares the yearly percentage change in
cumulative shareholder return on the Common Stock with (a) the performance of a
broad equity market indicator, 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 Enterprises, Inc.,
Genesis Health Ventures Inc., Integrated Health Services, Inc., Mariner Post
Acute Network, 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 major publicly traded long-term care organizations. 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, 1999 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.
<TABLE>
<CAPTION>
CENTENNIAL NASDAQ PEER GROUP
---------- ------ ----------
<S> <C> <C> <C>
7/2/97 100 100 100
1997 142.19 109.63 100.38
1998 96.87 154.11 49.78
1999 18.75 278.75 28.04
</TABLE>
THE STOCK PRICE PERFORMANCE GRAPH SHALL NOT BE DEEMED INCORPORATED BY
REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS INFORMATION
STATEMENT INTO ANY FILING UNDER THE ACTS EXCEPT TO THE EXTENT THAT THE COMPANY
SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE
BE DEEMED FILED UNDER SUCH ACT.
13
