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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
IN HOME HEALTH, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment of Filing Fee (Check the appropriate box):
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<S> <C> <C>
/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:
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(2) Aggregate number of securities to which transaction
applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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PRELIMINARY COPY, SUBJECT TO COMPLETION
[LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
---------------------
Notice is hereby given that a Special Meeting of Shareholders of In Home
Health, Inc. will be held at the Radisson Hotel and Conference Center, 3131
Campus Drive, Plymouth, Minnesota 55441 on August 24, 2000 at 9:30 a.m. Central
Time to act on the following proposals which have been made by Manor Care Health
Services, Inc. ("Manor Care") in its demand dated May 31, 2000 for a special
meeting of shareholders:
1. A proposal to remove from the Board of Directors all persons other than
C. Michael Ford and Eugene Terry (if adopted, this proposal would result
in the removal from the Board of Directors of Stephen M. Jessup, James J.
Lynn and Judith I. Storfjell, or any of their successors, and any other
director appointed prior to the Special Meeting).
2. A proposal to fix at six the number of members of the Board of
Directors; and
3. If Proposal no. 1 above is adopted, to elect Steven M. Cavanaugh, Rodney
A. Hildebrandt, Geoffrey C. Meyers and M. Keith Weikel, all of whom are
officers of Manor Care or one of its affiliates, to the Board of
Directors.
The Board of Directors has fixed the close of business on June, 2000 as the
record date for the determination of shareholders entitled to notice of and to
vote at the meeting. Only shareholders of record at the close of business on
June , 2000 are entitled to notice of and to vote at the Special Meeting.
Whether or not you expect to be present at the meeting, please complete,
sign, and return the enclosed WHITE proxy card as soon as possible. WE ENCOURAGE
ALL SHAREHOLDERS TO ATTEND THE SPECIAL MEETING IN PERSON AND TO VOTE AGAINST THE
MANOR CARE PROPOSALS.
By Order of the Board of Directors
/s/ Robert J. Hoffman, Jr.
Robert J. Hoffman, Jr.
SECRETARY
Minnetonka, Minnesota
June 30, 2000
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PROXY STATEMENT
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INTRODUCTION
This Proxy Statement is furnished to the shareholders of In Home
Health, Inc. (the "Company") in connection with the Board of Directors'
solicitation of proxies to be voted at the Special Meeting of Shareholders to be
held on August 24, 2000, or any adjournment thereof (the "Special Meeting"). The
mailing of this Proxy Statement to shareholders commenced on or about June ,
2000.
The Board of Directors has scheduled the Special Meeting because of a
written demand dated May 31, 2000 by Manor Care Health Services, Inc. ("Manor
Care") under the Company's Bylaws and Minnesota Statutes 302A.433. Notice of the
Special Meeting must be given within 30 days of May 31, 2000, and the Special
Meeting must be held within 90 days of May 31, 2000, unless such deadlines are
waived by Manor Care.
At the Special Meeting action is to be taken on the following items proposed
by Manor Care: (i) a proposal to remove from the Board of Directors all persons
other than C. Michael Ford and Eugene Terry (if adopted, this proposal would
result in the removal from the Board of Directors of Stephen M. Jessup, James J.
Lynn, and Judith I. Storfjell and any of their successors); (ii) fixing at six
members the size of the Company's Board of Directors; and (iii) if the first
proposal is remove directors is adopted, electing four named Manor Care
executives to serve on the Board of Directors.
Your Board of Directors solicits the enclosed proxy. Such solicitation is
being made by mail, and may also be made by directors, officers, and regular
employees of In Home Health personally or by telephone. We have also engaged
[Name of PROXY SOLICITOR] to assist us as is discussed later in this Proxy
Statement. Any proxy given pursuant to such solicitation may be revoked by the
shareholder at any time prior to the voting thereof by so notifying In Home
Health in writing at the above address, attention: Robert J. Hoffman Jr, Vice
President and Chief Financial Officer, or by appearing in person at the Special
Meeting. Shares represented by proxies will be voted as specified in such
proxies, and if no choice is specified, will be voted:
- AGAINST removal from the Board of Directors of any director (this is
Proposal No.1 on your white proxy card) and the related proposal to elect
in their place the four officers of Manor Care or its affiliates who have
been nominated by Manor Care (Proposal No. 3 on your white proxy card);
and
- AGAINST the proposal by Manor Care to fix the Board size at six members
(this is Proposal No. 2 on your white proxy card).
Your Board of Directors believes that defeat of Manor Care's proposals will
inhibit Manor Care from taking control of the Company.
Only shareholders of record at the close of business on June , 2000 will
be entitled to notice of and to vote at the Special Meeting. As of such date,
the Company had outstanding shares of common stock, par value $.03
per share (the "Common Stock") and 200,000 shares of Series A Preferred Stock,
par value $1.00 per share (the "Preferred Stock"). Each share of Common Stock is
entitled to one vote on each of the matters brought before the Meeting. The
Preferred Stock has no voting rights with respect to the proposals being
considered at the Special Meeting.
Each share of Preferred Stock is entitled to vote (unless it is converted to
Common Stock) only with respect to a proposal to (i) wind up, dissolve or
liquidate the Company or revoke or forfeit its charter, (ii) amend the Company's
articles of incorporation, (iii) merge or consolidate or enter into an
<PAGE>
exchange agreement with another corporation, or (iv) sell, lease, transfer or
otherwise dispose of all or substantially all of the Company's assets not in the
usual and regular course of business. The current conversion price for
conversion of Preferred Stock to Common Stock is $6.00 per share of Common
Stock.
The Company's Articles of Incorporation exclude cumulative voting. Manor
Care holds approximately 41% of the voting power of the Company's Common Stock
for all matters brought before the Special Meeting. Manor Care acquired all
2,250,000 shares of Common Stock and the 200,000 shares of Preferred Stock and
on October 24, 1995 pursuant to a Securities Purchase and Sale Agreement between
the Company and Manor Care, dated as of May 2, 1995, as amended (the "Purchase
Agreement").
The presence, in person or by proxy, of the holders of a majority of the
voting power of all shares of the Company entitled to vote at the Special
Meeting will constitute a quorum for the transaction of business. Votes cast by
proxy or in person at the Special Meeting will determine whether or not a quorum
is present. Abstentions will be treated as shares that are present and entitled
to vote for purposes of determining the presence of a quorum, but as unvoted for
purposes of determining the approval of each matter submitted to the
shareholders. Therefore, abstentions are effectively a vote against the
proposal. If a broker indicates on the proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares will
not be considered as present and entitled to vote with respect to that matter.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THE MANOR CARE
PROPOSALS.
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BACKGROUND TO THE PROXY CONTEST
On February 16, 2000, shortly before the Company's annual meeting of
shareholders on February 23, the Company's Chairman and Interim CEO, C. Michael
Ford telephoned Paul Ormond, Manor Care, Inc.'s Chief Executive Officer, (unless
the context indicates otherwise Manor Care and Manor Care Health Services, Inc.
are collectively referred to as "Manor Care") to inform Manor Care of
Mr. Ford's recent appointment as Chairman of the Board and Interim CEO, and to
discuss the Board's plans for In Home Health for the next 100 days. The purpose
of the call was to initiate a positive environment and to provide assurances
that the Board was actively managing the Company during the period it was
looking for a new CEO.
On February 21, 2000, just prior to the Company's annual meeting of
shareholders, Mr. Ford contacted Mr. Ormond to request that Manor Care vote
their shares at the annual meeting because there was not sufficient shares
voting for a quorum at the annual meeting. Subsequently, Manor Care submitted
its proxy. On March 22, 2000, Mr. Ford met in person with Mr. Ormond and
discussed the Company's plan for the next 100 days. Between March and
June 2000, Mr. Ford communicated regularly with Mr. Ormond to update Mr. Ormond
on the Company and its operations.
On May 22, 2000 the Company's Board of Directors received a letter from
Mr. Ormond, expressing Manor Care's desire to work more closely with the
Company, and to enter into discussions to achieve what Mr. Ormond called common
goals for the Company and Manor Care. Mr. Ormond wanted to discuss exchanging
ideas, including a stated desire to increase significantly Manor Care's
shareholdings in the Company in order to remove any questions of Manor Care's
commitment to the Company. He also added that Manor Care's preliminary analysis
indicated that it should be able to offer shareholders a meaningful premium to
the current trading price of the Company's common stock and provide them with an
alternative to holding those shares in anticipation of a higher valuation in the
distant future. He expressed happiness with the leadership and constructive
attitude that the Company's acting Chief Executive Officer, C. Michael Ford, has
brought to the Company. Mr. Ormond requested that Mr. Ford remain in his current
positions until Manor Care and the Company completed strategic discussions about
increasing Manor Care's role and ownership. Mr. Ormond also warned that a change
in the leadership could inhibit the shareholders from receiving a premium
valuation alternative and could require Manor Care to consider other strategies
to protect its interests.
On May 23, 2000, Manor Care filed an amended Schedule 13D. Under the heading
"Purposes of the Transaction", Manor Care stated:
The Filing Persons are reviewing their investment and their position with
respect to such matters and will continue to do so on an ongoing basis. Such
review may result in the Filing Persons acquiring additional shares of
capital stock of IHHI or selling all or a portion of their shares, in the
open market or in privately negotiated transactions with IHHI or third
parties, or maintaining their holdings at current levels. Such review also
may result in the Filing Persons formulating or making plans or proposals
that relate to, or could result in, any of the matters referred to in
paragraphs (a) through (j) of Item 4 of Schedule 13D.
Any decision by the Filing Persons to hold, acquire or dispose of shares of
capital stock of IHHI or take such other actions with respect to their
investment will depend on market, economic and other factors and conditions,
including an ongoing evaluation of IHHI's financial condition, operations
and prospects, the actions of IHHI's management and Board of Directors and
other future developments, regulatory requirements (including compliance
with applicable provisions of
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the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and
the relative attractiveness of alternative business and investment
opportunities. Such transactions or actions, if any, would be made at such
times and in such manner as the Filing Persons, in their discretion, deem
advisable.
The Filing Persons reserve the right to formulate or make any plans or
proposals, and take such actions with respect to their investment, including
any or all of the items set forth in paragraphs (a) through (j) of Item 4 of
Schedule 13D, as they may determine. However, no assurance can be given as
to whether or not the Filing Persons will formulate or make any such plans
or proposals or as to the terms and conditions thereof.
On May 31, 2000, Mr. Ford received a demand letter from Manor Care
requesting that the Company call a special meeting of shareholders for the
purpose of: (i) removing all directors of the Company other than Mr. Ford and
Eugene Terry, including without limitation, removing Wolfgang von Maack,
Steven M. Jessup, James J. Lynn and Judith I. Storfjell (or any of their
successors), and any other directors now or hereafter appointed prior to the
Special Meeting; (ii) fixing the number of directors which shall constitute the
whole Board of Directors of the Company at six; and (iii) electing four new
directors to fill the vacancies created by such removal. Manor Care requested
that in accordance with Article II, Section 3 of the Company's Restated By-laws,
within thirty (30) days after the receipt of this demand the Board of Directors
of the Company shall call a Special Meeting, and hold the Special Meeting no
later than ninety (90) days after the May 31(st) letter.
Manor Care also requested that the Company delay noticing the meeting until
the and of the 30-day period so that Manor Care and the Company could engage in
discussions concerning actions which Manor Care believes would be in the best
interests of all shareholders. Manor Care requested that the Special Meeting be
held as promptly as possible after the notice was sent and within 30 days from
the sending of the notice. Manor Care also requested that the Board of Directors
refrain from entering into or modifying any compensation arrangements with any
of the officers or directors of the Company prior to the Special Meeting or
otherwise taking any action which may serve to limit or restrict the Board of
Directors' ability to maximize shareholder value following the Special Meeting.
The May 31(st) letter also provided five year employment information on the
Manor Care director nominees, and included consents from these nominees to serve
on the Board.
On June 1, 2000, the Company issued a press release announcing its receipt
of the May 31(st) letter from Manor Care. The June 1(st) press release also
disclosed that the Company retained the investment banking firm of Houlihan,
Lokey, Howard & Zulkin to advise and assist the Board in evaluating and
responding to Manor Care and exploring other alternatives to enhance shareholder
value. The Company also disclosed that Mr. von Maack resigned from the Board on
May 31, 2000.
On June 5, 2000, the Company filed a Form 8-K with the Securities and
Exchange Commission ("SEC") which included as exhibits the May 22(nd) and
May 31(st) letters from Manor Care, and the June 1(st) press release.
On June 14, 2000, Mr. Ormond addressed the Company's Board of Directors on
Manor Care's behalf via a telephone conference call. Mr. Ormond requested that
three independent directors voluntarily resign and that the Company fill these
vacancies with Manor Care representatives. He also requested that the Company
provide financial and other information to Manor Care, and that the Company
should consult with Manor Care regarding hiring a new CEO. Mr. Ormond asserted
that
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Manor Care's objective was to re-assert control over the Company, and offer
managerial and financial assistance. He also expressed an interest in entering
into a management services agreement with the Company.
On June 15, 2000, Eugene Terry, a member of the Company's Board, had a
telephone conversation with Mr. Ormond. Mr. Ormond reiterated the Manor Care
requests that Mr. Ormond communicated to the entire Board on June 14(th). Also
on June 15, 2000, the entire Board telephoned Mr. Ormond to discuss the Manor
Care proposals. The Company offered to give Manor Care representation on the
Company's Board. The Company also offered to seek Manor Care's input on hiring a
CEO candidate, and discussed the possibility of restructuring certain features
of Company's Preferred Stock held by Manor Care. Mr. Ormond did not respond to
the Company's proposals.
On June 16, 2000, the Company sent Manor Care a letter offering to engage in
a constructive dialogue regarding Manor Care's proposals and the Company's
response on June 15, if Manor agreed to postpone its demand for the Special
Meeting. Manor Care rejected the Company's offer. Consequently, on June 16, the
Company filed its preliminary proxy materials for the Special Meeting.
ITEMS OF BUSINESS AT THE SPECIAL MEETING
The following is a description of the Manor Care proposals to be taken up at
the Special Meeting. Each Item of business is separately identified. Following
the list of items is the Company's discussion and recommendation to shareholders
regarding these proposals.
PROPOSAL NO. 1: REMOVAL OF DIRECTORS
Article III, Section 7 of the Company's Restated Bylaws provides that any
director or directors may be removed from office, with or without cause, at any
special meeting of the shareholders, "by a vote of the shareholders holding a
majority of the shares entitled to vote at an election of directors." Thus the
removal of directors requires the affirmative vote of a majority of the
Company's outstanding shares of Common Stock, or shares of Common Stock.
Thus shares that are not present at the Special Meeting, either in person or by
proxy, or which are present but do not vote with respect to the removal
proposal, will have the same effect as if they were present and voted against
the removal proposal.
If removal occurs, the shareholders may fill the vacancy or vacancies
created by the removal by the vote of a majority of the voting power of the
shares present, in person or represented by proxy, and entitled to vote. Thus
the vote required to fill the vacancies created by removal is somewhat less than
the vote required to effect the removal which creates the vacancies.
In a letter dated May 31, 2000, Manor Care notified the Company that it will
propose the removal from the Board of Directors all persons other than C.
Michael Ford and Eugene Terry. If adopted, this proposal would result in the
removal from the Board of Directors of Stephen M. Jessup, James J. Lynn and
Judith I. Storfjell, or any of their successors, and any other director
appointed prior to the Special Meeting. At the present time Manor Care has not
commenced a proxy solicitation for such shareholder action.
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The name, age, occupation and other information of the current members of
the Board of Directors is listed below based upon information furnished to the
Company by the directors.
<TABLE>
<CAPTION>
NAME AND AGE OCCUPATION DIRECTOR SINCE
------------ ----------------------------------------- --------------
<S> <C> <C>
James J. Lynn, Ed.D.(58)..................... President of Lynn & Associates 1987
Clyde Michael Ford(61)....................... Owner and Chairman of the Board of 1998
Montpelier Corporation
Judith Irene Storfjell, Ph.D.(56)............ President of Lloyd's Consultants LLC 1998
Eugene Terry(61)............................. Principal of TC Solutions 1999
Stephen M. Jessup(53)........................ Principal Director of Jessup Group, P.C., 2000
Certified Public Accountants and
Consultants
</TABLE>
BUSINESS EXPERIENCE; DIRECTORSHIPS OF CURRENT DIRECTORS
Dr. Lynn has been a director of the Company since 1987 and served as Vice
President of Management Development of the Company from October 1995 to
October 1998. Since 1981, Dr. Lynn has been a principal of Lynn & Associates, a
management consulting company of which Dr. Lynn is the founder and President.
Mr. Ford has been a director of the Company since November 1998. He has been
the owner and Chairman of the Board of Montpelier Corporation since
October 1990. He has been a director of Krug International Corporation since
October 1999. He served as Vice President, Development of Columbia/ HCA
Healthcare Corporation from September 1994 to September 1997. He was Vice
President of Marketing for Meditrust from October 1993 to September 1994.
Dr. Storfjell has been a director of the Company since November 1998. She
has served as President of Lloyd Consulting, LLC since 1986 and Assistance
Professor, Department of Public Health Nursing Graduate Faculty, University of
Illinois at Chicago since 1988.
Mr. Terry has been a director of the Company in September 1999. He has been
a principal of TC Solutions, a consulting venture capital firm, since 1997. He
has served as a director of Windsor Capital since 1998, Vice Chairman and
director of Proxymed, a publicly-traded healthcare e-commerce firm, since 1994
and director of Ivonyx, an infusion company, since 1989.
Mr. Jessup was appointed as a director of the Company in May 2000. He has
been principal and director of management and consulting services at Jessup
Group, P.C., Certified Public Accountants and Consultants since 1975. Since
1983, he has been an officer and director of GLMI, Inc., formerly known as Great
Lakes Microsystems. GLMI develops and implements computer programs for home
health care companies.
PROPOSAL NO. 2: PROPOSAL TO FIX THE SIZE OF THE BOARD OF DIRECTORS AT SIX
MEMBERS
Under Article III, Section 2 of the Company's Restated Bylaws, the number of
directors that constitutes the whole Board of Directors is fixed from time to
time by resolution of the Company's shareholders, subject to increase by
resolution of the Board of Directors. The current resolution provides that the
Company's Board consists of five members. In a letter dated May 31, 2000, Manor
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Care notified the Company that it intends to seek shareholder approval for a
resolution fixing the size of the Board of Directors at six members.
In order for the shareholders of the Company to increase the size of the
board, a shareholder resolution must be approved by the affirmative vote of the
holders of a majority of the voting power of the shares present, in person or
represented by proxy, and entitled to vote. At the present time, Manor Care has
not commenced a proxy solicitation for such shareholder action.
PROPOSAL NO. 3: ELECTION OF DIRECTORS TO REPLACE REMOVED DIRECTORS
If the directors other than Mr. Ford and Mr. Terry are removed, and the size
of the Board is fixed at six, four vacancies will be created which Manor Care is
seeking to fill by election at the Special Meeting. In its demand dated May 31,
2000 that a special meeting be held, Manor Care nominated the four persons named
below. The information below as to the names, ages and principal occupation of
each nominee has been provided by Manor Care.
<TABLE>
<CAPTION>
PRIMARY OCCUPATION
NAME AND AGE AND OTHER DIRECTORSHIPS
------------ ------------------------------------------------------------
<S> <C>
M. Keith Weikel(62)........... Senior Executive Vice President of Manor Care, Inc. since
1991, and director of Manor Care, Inc.
Geoffrey G. Myers(56)......... Executive Vice President of Manor Care, Inc., Chief
Financial Officer and Treasurer since 1991.
Rodney A. Hildebrandt(44)..... President of HCR Home Health Care and Hospice, Inc. and
Heartland Home Care, Inc. since 1994.
Steven M. Cavanaugh(30)....... Vice President of Manor Care, Inc. since February 2000.
Mr. Cavanaugh was Assistance Vice President of Health Care
and Retirement Corporation of America from 1999 to 2000, and
Manager of Corporate Development of Health Care and
Retirement Corporation from 1994 to 1998.
</TABLE>
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MANAGEMENT'S ANALYSIS OF THE MANOR CARE PROPOSALS
The Company's Board of Directors unanimously recommends that shareholders
reject Manor Care's proposals because the current majority independent Board
serves all shareholders, rather than the Company's largest shareholder. The
Manor Care nominees are long-standing Manor Care executives whose loyalty may
not be to all shareholders. Management also believes that electing the Manor
Care nominees and fixing Manor Care's control of the Board could prevent the
Company from complying with new Nasdaq listing rules, and thereby significantly
reduce the liquidity of the Company's shares. Finally, the Company's Board of
Directors objects to Manor Care's back door takeover attempt without offering
shareholders any financial return.
1. MANOR CARE'S PROPOSALS MAY RESULT IN A BOARD THAT WILL SERVE MANOR CARE AND
NOT ALL SHAREHOLDERS
The Company is concerned that Manor Care's proposal to replace three
independent directors with loyal Manor Care executives will result in a board
that is beholden to Manor Care, and not to all of the shareholders of In Home
Health. The Manor Care proposals to increase the size of the board and fix the
board size at six, combined with the election of four Manor Care nominees, will
assure Manor Care's control of the Company.
As the biographical information listed above describes, there can be little
dispute that the Manor Care nominees are well-established loyal officers with
years of service to Manor Care and its affiliates. These executives probably
serve Manor Care extremely well. However, this undisputed service to Manor Care
is precisely the reason why these nominees should not be asked to serve all of
the shareholders of In Home Health. Manor Care is the Company's largest
shareholder, and its voice or its representative deserves to be heard on the
Company's Board. The Company does not believe that Manor Care should be the
controlling voice on the Company's Board. The directors must represent all
shareholders, not simply the largest.
2. THE MANOR CARE PROPOSALS VIOLATE WELL-SETTLED PRINCIPLES OF GOOD CORPORATE
GOVERNANCE AND COULD HARM THE COMPANY'S NASDAQ LISTING.
Manor Care asks that the shareholders remove three independent directors,
and replace them with four Manor Care executives. The directors that Manor Care
seeks to remove are Mr. Jessup, Dr. Lynn and Dr. Storfjell. Each of these
independent directors brings diverse, unique and significant experiences to the
Company.
Mr. Jessup is a Certified Public Accountant, who has 25 years of accounting
and financial experience with both public and private companies. Mr. Jessup
co-authored and edited Standards of Excellence for Home Health Organizations and
Standards of Excellence for Community Health Organizations. These are
widely-recognized authorities for quality for accreditation of home health
agencies. Mr. Jessup also offers valuable expertise in information technology as
an officer, director and co-founder of GMLI. GMLI provides information
technology services to home health companies.
Dr. Lynn runs his own management consulting firm and has served as a
director of the Company since 1987. His experience as a management consultant,
and his knowledge of the Company's operations and history, are irreplaceable
assets to the Company.
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Dr. Storfjell also brings a diverse and rich background to the Company's
Board. She also is president of a consulting company, Lloyd Consulting, and is
an assistant professor of public health nursing at the University of Illinois,
Chicago. Dr. Storfjell is a nationally known author, lecturer and consultant.
She has lectured and published extensively on productivity, efficiency,
complexity of care, and activity-based costing and management for home health,
case management, and integrated delivery systems. She is co-author of the
Community Health Accreditation Program (National League for Nursing) standards
for home care and community health organizations, as well as co-author of the
Easley-Storfjell Instruments for Caseload/Workload Analysis including a
well-used complexity classification system for home care and community health
clients. Her experience in the health services delivery arena is a significant
asset to a Company whose primary business is home health services delivery.
The incumbent directors' diverse, relevant and independent backgrounds
present a strong and clear contrast with the Manor Care executives whose loyalty
will likely be to their employer, Manor Care. The Manor Care nominees'
backgrounds suggest one immutable truth--years of service and loyalty to Manor
Care. It is beyond dispute that good corporate governance for public companies
is a majority independent board of directors. Manor Care's proposals to remove
independent directors, replace them with its own nominees, and cement that
majority by fixing the board size at six members violates this most basic
principle of corporate governance.
New rules for listing under the Nasdaq Stock Market's National Market System
for issuers such as the Company, will require by June 2001 that the Company have
at least three independent board members. If the four Manor Care executives are
elected, and the Board is fixed at six members, the Company will not be able to
satisfy the new Nasdaq listing rules that mandate an independent audit
committee, and at least three independent directors.
Under the new Nasdaq rules, an independent director is a person other than
an officer or employee of the Company or any other individual having a
relationship which, in the opinion of the Company's board, would interfere with
the exercise of independent judgment in carrying out the responsibilities of
being a director. A director is also not independent if the director receives
more than $60,000 from an affiliate of the issuer in the past fiscal year. The
Manor Care nominees fail both of these tests for independence.
The Company's Board believes that because Manor Care is the Company's
largest shareholder, and potentially largest creditor if Manor Care seeks to
redeem its Preferred Stock, and because the nominees are all senior level
executives with Manor Care, these director nominees have a relationship that
would be likely to interfere with their duty to exercise independent judgment.
Another basis for questioning the Manor Care nominees' independence is the
fact that Manor Care is an affiliate of the Company, based upon Manor Care's
ownership of 2,250,000 shares of common stock (approximately 41% of the shares
outstanding) and 200,000 shares of the Company's Preferred Stock, which are
convertible into 3,333,334 shares of common stock (63% on fully diluted basis).
The Company assumes that the Manor Care nominees all received at least $60,000
in compensation from Manor Care or its affiliates. Consequently, these nominees'
receipt of at least $60,000 in the last fiscal year creates a substantial risk
that they are not independent under the Nasdaq listing rules.
If the Manor Care nominees are not independent, and the Manor Care proposal
to fix the board at six members passes, for as long as Manor Care is an
affiliate of the Company, the Board will never
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have three independent directors. The Company will not be able to establish an
audit committee meeting the new listing requirements of the Nasdaq. This
deficiency could result in the Company being de-listed from Nasdaq. De-listing
could reduce the Company's stock price and significantly reduce common share
liquidity.
3. MANOR CARE SEEKS CONTROL WITHOUT OFFERING PAYMENT TO ALL SHAREHOLDERS.
Management believes that shareholders should oppose Manor Care's takeover of
the Company's Board because Manor Care is not offering anything of value to the
shareholders in exchange for control of the Company. In the typical takeover
situation, public shareholders receive some consideration, often a premium over
the public trading price, in a change in control transaction. In fact, Manor
Care's letter to the Company on May 22(nd) suggested that shareholders could
receive "a meaningful premium to the current trading price of the Company common
stock and...an alternative to holding [the Company's] shares in anticipation of
a higher valuation in the distant future." Despite the statements in this
letter, Manor Care has apparently decided to forgo that strategy and simply seek
control without paying any consideration to the shareholders. Management
believes that the Company's current process of engaging an investment banking
firm to help the Company explore alternatives to enhance shareholder value is in
the interest of all shareholders and is the proper course.
4. REMOVING INDEPENDENT DIRECTORS JESSUP, LYNN AND STORFJELL AND REPLACING THEM
WITH FOUR MANOR CARE NOMINEES IS UNWARRANTED INTERFERENCE WITH THE
MANAGEMENT OF THE COMPANY.
As the shareholders know, the Company has had a long good relationship with
Manor Care. As described previously in this Proxy Statement, in 1995, Manor Care
purchased 2,250,000 shares of common stock and 200,000 shares of the Company's
Preferred Stock. The Company has paid Manor Care cash dividends of $2,400,000 in
each of fiscal 1999, 1998 and 1997, and the Company has never missed a dividend
payment. The Preferred Stock issued to Manor Care includes 130,000 shares that
may be redeemed at the option of Manor Care or the Company at $13,000,000 face
value on or after October 24, 2000, and 70,000 shares with a face value of
$7,000,000 that may only be redeemed at the option of the Company. As the
Company has disclosed in its public SEC filings, management has performed
preliminary evaluations on a number of financing alternatives in the event Manor
Care elects to redeem the $13,000,000 of Preferred Stock. Management believes
that cash provided from operations along with existing cash balances, currently
in excess of $20,000,000, will be sufficient to finance the Company's operations
through October 24, 2000, and long-term financing alternatives will be available
to meet the Company's future needs, however there are no assurances such
long-term financing will ultimately be obtained.
Despite this long-standing relationship between the Company and Manor Care,
Manor has unilaterally determined to forcefully upset that relationship by
usurping the incumbent independent board with a slate of Manor Care executives
who would have conflicting loyalties. This interference in the affairs of the
Company is not warranted. The Company has not defaulted on any obligation to
Manor Care. There has been no event in the Company's financial operations or its
business that requires that the Company's largest shareholder and potentially
largest creditor to assume control of the Company. Mr. Jessup, Dr. Lynn, and
Dr. Storfjell have done nothing against Manor Care and have not acted contrary
to the best interests of any shareholder. There is no justification to remove
these individuals from the Board, other than to give Manor Care control.
11
<PAGE>
Manor Care's strategy has also caused the Company to incur additional
expenses because the Company must pay investment banking fees, additional
counsel fees and costs of the Special Meeting in order to protect the public
shareholders. These costs could range between and . The turbulence
at the Board level also has demoralized and distracted the Company's employees,
which directly affects the Company's operations. Manor Care's actions thus far
have not sent a positive signal to the Company's employees. At the last annual
meeting of shareholders, Manor Care voted against a proposal to increase the
number of shares available for option grants to employees. Manor Care's vote
practically assured the proposal's defeat, and consequently the Company has been
severely handicapped in offering incentive compensation to attract and retain
top employees. The Company's management believes that Manor Care's strategy is
not proper, and shareholders should reject Manor Care's intrusion into the
Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "AGAINST" REMOVAL
OF THE COMPANY'S INDEPENDENT DIRECTORS, "AGAINST" THE MANOR CARE NOMINEES AND
"AGAINST" THE MANOR CARE PROPOSALS REGARDING THE SIZE OF THE BOARD.
12
<PAGE>
PROXY SOLICITATION
All expenses in connection with solicitation of proxies will be borne by the
Company. The Company will pay brokers, nominees, fiduciaries, or other
custodians their reasonable expenses for sending proxy material to, and
obtaining instructions from, persons for whom they hold stock of the Company.
The Company expects to solicit proxies by mail, but directors, officers, and
other employees of the Company may also solicit in person, by telephone, by
telegraph or by mail. The Company's principal office is located at 601 Carlson
Parkway, Suite 500, Minnetonka, Minnesota 55305 and its telephone number is
(612) 449-7500.
The Company has retained PROXY SOLICITOR to solicit proxies on the Company's
behalf in connection with the Special Meeting. PROXY SOLICITOR will receive a
fee of approximately $ , together with reimbursement of its reasonable
out-of-pocket expenses, and will be indemnified against certain liabilities and
expenses, including certain liabilities under the federal securities laws. The
estimated fee for PROXY SOLICITOR is $ to $ , depending on the
complexities of the solicitation.
PROXY SOLICITOR will solicit proxies from individuals, brokers, banks, bank
nominees, and other institutional holders. We have requested banks, brokerage
houses, and other custodians, nominees, and fiduciaries to forward all
solicitation materials to the beneficial owners of the shares they hold of
record. We will reimburse these record holders for their reasonable out-of-
pocket expenses in so doing. It is anticipated that PROXY SOLICITOR will employ
approximately persons to solicit the Company's shareholders for the Special
Meeting. For any questions you may have on proxy voting, please call PROXY
SOLICITOR at (800) .
The entire expense of soliciting proxies against the Manor Care nominees
listed in this Proxy Statement will be borne by the Company. Costs of this
solicitation of proxies are currently estimated to be approximately
$ .
Any proxy may be revoked at any time before it is voted by written notice,
mailed or delivered to the Secretary of the Company, or by revocation in person
at the Special Meeting; but if not so revoked, the shares represented by such
proxy will be voted in the manner directed by the Shareholder. If no direction
is made, proxies received from Shareholders will be voted "against" the
proposals set forth in the Notice of Special Meeting.
The presence, in person or by proxy, of the holders of a majority of the
voting power of all shares of the Company entitled to vote at the Special
Meeting will constitute a quorum for the transaction of business. Votes cast by
proxy or in person at the Special Meeting will determine whether or not a quorum
is present. Abstentions will be treated as shares that are present and entitled
to vote for purposes of determining the presence of a quorum, but as unvoted for
purposes of determining the approval of the matter submitted to the
shareholders. Therefore, abstentions are effectively a vote against the
proposal. If a broker indicates on the proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares will
not be considered as present and entitled to vote with respect to that matter.
13
<PAGE>
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. These
insiders are required by Securities and Exchange Commission regulations to
furnish the Company with copies of all Section 16(a) forms they file, including
Forms 3, 4 and 5.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended September 30, 1999, all
Section 16(a) filing requirements applicable to its insiders were complied with,
except Robert Hoffman reported in October 1999 a grant of 50,000 stock options
in June 1999, and Wolfgang von Maack reported in October 1999 a grant of 180,000
stock options in June 1999.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information provided to the Company as to the
beneficial ownership of Common Stock as of June 16, 2000 by persons known to the
Company to hold 5% or more of such stock and by all current directors, nominees,
the Named Executive Officers from the table on page 18 and all directors and
executive officers as a group. All shares represent sole voting and investment
power, unless indicated to the contrary.
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT OF CLASS
------------------------------------ --------- --------
<S> <C> <C>
Manor Care Health Services, Inc. ........................... 2,250,000(1) 40.8%
333 N. Summit Street
Toledo, Ohio 43699-0866
Heartland Advisers, Inc. ................................... 470,101 8.5%
789 North Water Street
Milwaukee, Wisconsin 53202
RS Investment Management Co., LLC .......................... 461,734 8.4%
388 Market Street, Suite 200
San Francisco, California 94111
C. Michael Ford, Chairman and Interim CEO .................. 16,671 *
601 Carlson Parkway, Suite 500
Minnetonka Minnesota 55305
James J. Lynn, Ed. D. Director ............................. 6,000 *
5435 Wedgewood Drive
Shorewood, Minnesota 55331
Robert J. Hoffman, Jr., Officer ............................ 10,500 *
601 Carlson Parkway, Suite 500
Minnetonka Minnesota 55305
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT OF CLASS
------------------------------------ --------- --------
<S> <C> <C>
Judith Irene Storfjell, Director ........................... 1,816 *
601 Carlson Parkway, Suite 500
Minnetonka Minnesota 55305
Eugene Terry, Director ..................................... 0
17759 Lake Estates Drive
Boca Raton, Florida 33496
Steven M. Jessup, Director ................................. 0
25 W. Michigan Avenue, Suite 1609
Battle Creek, Michigan 49017
All Current Officers and Directors as a Group 34,987(3) *
(8 persons) ..............................................
M. Keith Weikel (Director Nominee) ......................... 0(4)
333 North Summit Street
Toledo, Ohio 43604
Geoffrey C. Myers (Director Nominee) ....................... 0(4)
333 North Summit Street
Toledo, Ohio 43604
Rodney A. Hildebrant (Director Nominee) .................... 0(4)
333 North Summit Street
Toledo, Ohio 43604
Steven M. Cavanaugh (Director Nominee) ..................... 0(4)
333 North Summit Street
Toledo, Ohio 43604
</TABLE>
------------------------
* Less than one percent.
(1) Manor Care holds of record 2,250,000 shares of common stock entitled to be
voted on all matters brought before the Special Meeting. Manor Care also
owns 200,000 shares of Preferred Stock (convertible into 3,333,334 shares of
common stock), which can be voted only on proposals involving (i) the
wind-up, dissolution, liquidation of the Company or revocation or forfeiture
of the Company's charter; (ii) amendments to the Company's article of
incorporation; (iii) mergers, consolidations, or exchange agreements with
other companies; or (iv) sales, leases, transfers, or dispositions of all or
substantially all of the Company's assets not in the usual and ordinary
course of business pursuant to the Second Preferred Stock Modification
Agreement between the Company and Manor Care.
(2) Includes options to purchase shares of common stock which may be acquired
within 60 days of June 16, 2000 in the following amounts: Mr. Hoffman 10,000
shares.
(3) Includes options to purchase 10,000 shares of common stock which may be
acquired within 60 days of June 16, 2000.
(5) Manor Care has not provided the Company with any information regarding the
ownership, if any, of the Manor Care nominees for the Company's board of
directors.
15
<PAGE>
EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ended September 30, 1999,
1998 and 1997, the cash compensation paid by the Company, as well as certain
other compensation paid or accrued for those years, to Wolfgang von Maack, the
Company's Chief Executive Officer, and to the other most highly compensated
executive officers whose cash compensation exceeded $100,000 during fiscal 1999
("Named Executive Officers") in all capacities in which they served. Certain
columns prescribed by the Securities and Exchange Commission proxy regulations
have not been included in this table because the information called for therein
is not applicable to the Company or the named Executive Officers for the periods
indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------- ------------
OTHER ANNUAL STOCK OPTION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) SHARES (#)
--------------------------- -------- ---------- --------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Wolfgang von Maack(1) ................ 1999 246,668(2) 195,000 10,220 180,000
Chief Executive Officer 1998 196,674(3) -- 7,650 50,000
1997 61,500(3) -- 6,336 --
Robert J. Hoffman, Jr.(4) ............ 1999 122,205(5) 41,300 25,947(6) 50,000
Chief Financial Officer, Treasurer 1998 34,035(2) -- -- --
and Corporate Secretary
</TABLE>
------------------------
(1) Wolfgang von Maack was named acting Chief Executive Officer on May 15, 1997.
He was named President and Chief Executive Officer and was elected as a
Director of the Company on June 6, 1997 and was elected Chairman of the
Board on November 17, 1998. Mr. von Maack has resigned the positions of
President and Chief Executive Officer effective February 15, 2000, and
resigned as a Director and Chairman of the Board on May 31, 2000.
(2) Amount reflects 75% ($46,668) of Mr. von Maack's Manor Care salary which was
reimbursed by the Company under the Administrative Services Agreement for
the period from October 1 through December 31, 1998, 75% ($75,000) of
Mr. von Maack's salary from January 1 through April 30, 1999 (25% of this
salary for this period was paid by Manor Care for management services
provided) and 100% ($125,000) of his salary paid by the Company from May 1
through September 30, 1999. See "Certain Transactions."
(3) Amount reflects 75% of Mr. von Maack's salary paid by Manor Care which was
reimbursed by the Company under the Administrative Services Agreement.
(4) Robert J. Hoffman, Jr. was named Corporate Secretary and Acting Chief
Financial Officer on June 22, 1998. He became an employee on January 1, 1999
and was elected Chief Financial Officer on February 24, 1999 and Treasurer
on June 8, 1999.
(5) Consists of $33,705 of Mr. Hoffman's Manor Care salary from October 1
through December 31, 1998, which was reimbursed by the Company and $88,500
of his salary paid by the Company beginning January 1, 1999 when
Mr. Hoffman became an employee of the Company.
(6) Consists of $17,700 of relocation expense reimbursement, $6,968 of medical,
life and disability insurance paid by the Company and $1,329 of 401(k)
matching contribution by the Company.
16
<PAGE>
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's 1995 Stock Option Plan to the Named Executive
Officers during the last fiscal year:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES PRICE EXPIRATION -----------------------
NAME GRANTED IN FISCAL YEAR PER SHARE DATE 5%(2) 10%(3)
---- ---------- -------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Wolfgang von Maack............. 180,000(4) 41.71% 1.75 6/8/09 $198,099 $502,027
Robert J. Hoffman, Jr.......... 50,000 11.59% 1.75 6/8/09 $ 55,027 $139,452
</TABLE>
------------------------
(1) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the Securities and Exchange Commission and therefore
are not intended to forecast future possible appreciation, if any, of the
Company's stock price.
(2) A 5% per year appreciation in stock price from $1.75 per share yields $2.85
on the expiration date.
(3) A 10% per year appreciation in stock price from $1.75 per share yields $4.54
on the expiration date.
(4) 100,000 options were granted subject to shareholder approval at the Meeting
of the amendment to the 1995 Stock Option Plan to increase the number of
shares available under the Plain. As Mr. von Maack has resigned effective
February 15, 2000, all unexercised options were canceled on or about
May 15, 2000, three months after termination.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers, concerning the exercise of options during the last fiscal
year and unexercised options held as of the end of the last fiscal year:
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------------
NAME ON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE(2)
---- --------------- ----------- ----------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Wolfgang von Maack........ 0 0 10,000 220,000 $0 $67,500
Robert J. Hoffman, Jr..... 0 0 0 50,000 $0 $18,750
</TABLE>
--------------------------
(1) Based on the fiscal year ended September 30, 1999 closing price of $2.125
per share.
17
<PAGE>
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with Robert J. Hoffman, Jr.
on December 31, 1998. The term of the agreement is January 1, 1999 through
December 31, 2001. The agreement employs Mr. Hoffman as Chief Financial Officer,
at a base salary of $118,000 per annum. Mr. Hoffman is eligible to earn annual
bonuses up to a maximum of 35% of his base salary and is entitled to participate
in the Company's benefit plans or programs accorded other employees at the
Company's headquarters. The agreement provided that Mr. Hoffman be reimbursed
for up to $17,700 in relocation expenses.
In the event the agreement is terminated without cause, Mr. Hoffman will be
entitled to severance of 12 months base salary, the ratable portion of his
bonus, reasonable moving expenses and an amount equal to 7% of the appraised
value of his residence. In the event of corporate relocation, if Mr. Hoffman is
offered the option to continue employment contingent upon relocation from
Minnesota, he may opt to terminate employment and receive six months base salary
plus the ratable portion of his maximum bonus potential and reasonable moving
expenses. In the event of change of control of the Company, all options granted
Mr. Hoffman would vest immediately and be payable in cash at the time of the
change in control. Mr. Hoffman would be entitled to twelve months base salary,
the ratable portion of his maximum bonus potential, reasonable moving expenses
and an amount equal to 7% of the appraised value of his residence.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1999, Wolfgang von Maack, Clyde Michael Ford, and Judith I.
Storfjell served as members of the Company's Compensation Committee. Mr. von
Maack is the President and Chief Executive Officer of the Company. Mr. von Maack
was an officer of Manor Care, the owner of a majority of the voting power of the
Shareholders of the Company, until January 1, 1999, when he terminated his
relationship with Manor Care and became an employee of the Company.
Mr. von Maack served as committee chairman during fiscal 1999.
BOARD COMPENSATION COMMITTEE REPORT
Decisions on compensation of the Company's executives for fiscal 1999 were
made by the Compensation Committee of the Board, which consisted during fiscal
1999 of Mr. von Maack, Dr. Storfjell, and Mr. Ford. All decisions by the
Compensation Committee for fiscal 1999 were reviewed by the full Board. This
report describes the Compensation Committee's policies for fiscal 1999 as they
affected Mr. von Maack and Mr. Hoffman (collectively, the "Senior Executives")
who were the Company's most highly paid officers in fiscal 1999.
CASH COMPENSATION POLICIES FOR SENIOR EXECUTIVES
The Compensation Committee's executive compensation policies are designed to
provide competitive levels of compensation, integrate pay with the Company's
annual and long-term performance goals, reward above-average corporate
performance, recognize individual initiative and achievements, and assist the
Company in attracting and retaining qualified executives. The overall cash
compensation of Senior Executives is intended to be consistent with other
publicly held companies in
18
<PAGE>
the health care industry that were selected as comparable because of comparable
revenue and focus on providing health care services in the home.
Mr. von Maack's compensation is described below. The compensation for
Mr. Hoffman was approved by the Compensation Committee as set forth in the
employment agreement approved June 8, 1999. Mr. Hoffman's employment agreement
specifies a base salary and a maximum bonus opportunity, which equals 35% of
base salary. The bonus that each Senior Executive could earn for the fiscal year
was determined by comparing the Company's actual net income before taxes with
the plan for the fiscal year.
FISCAL 1999 STOCK OPTION GRANTS
For fiscal 1999, the Compensation Committee granted stock options to various
executives. Stock options are intended to focus the Senior Executives on
long-term Company performance to improve Shareholder value and provide a
significant earning potential to the executives. In order to direct the Senior
Executives toward steady growth and to retain their services, incentive stock
options vest over a five-year period. The number of options granted to each
Senior Executive depends on the level and degree of responsibility of the
individual's position.
OTHER COMPENSATION PLANS
The Senior Executives have been permitted to participate in certain
broad-based employee benefit plans adopted by the Company, as well as executive
officer retirement, life and health insurance plans. Other than the Company's
Employee Stock Purchase Plan, which allows the Company's employees to purchase
shares of the Company's Common Stock through payroll deductions at a purchase
price of 85% of the lower of the fair market value of the shares on the first
day or the last day of the applicable period of the Plan, benefits under these
plans are not directly or indirectly tied to Company performance.
CHIEF EXECUTIVE OFFICER'S FISCAL 1999 COMPENSATION
Through December 31, 1998, Mr. von Maack was a Senior Vice President of
Manor Care and his compensation was set by Manor Care. As part of the
Administrative Services Agreement between the Company and Manor Care, the
Company reimbursed Manor Care for 75% of Mr. von Maack's total compensation.
Effective January 1, 1999, Mr. von Maack terminated his relationship with Manor
Care and became an employee of the Company.
Effective January 1, 1999 the Company entered into a Management Services
Agreement with Manor Care. As part of the Agreement, the Company provided
management services to Mesquite Hospital, a wholly owned subsidiary of Manor
Care. Manor Care reimbursed the Company for 25% of Mr. von Maack's salary.
Services were provided until April 30, 1999, when the agreement was terminated.
Mr. von Maack's compensation was evaluated and approved June 8, 1999 by the
compensation committee (excluding Mr. von Maack). It provided for an annual base
salary of $300,000 and an incentive of 65% of base salary to be paid if the
annual budget was achieved. As part of the approved stock option program for the
fiscal year, Mr. von Maack was granted 180,000 options. In establishing the
chief executive officer's compensation, the compensation committee applied the
principles outlined
19
<PAGE>
in the cash compensation policies section above in essentially the same manner
as they were applied to other executives. In addition to those factors, the
Committee considered the important role Mr. von Maack has played in the
Company's turnaround.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS (AS
CONSTITUTED DURING FISCAL 1999):
<TABLE>
<S> <C> <C>
Wolfgang von Maack Clyde Michael Ford Judith I. Storfjell
</TABLE>
20
<PAGE>
PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Company include in
this proxy statement a line-graph presentation comparing cumulative, five-year
Shareholder returns on an indexed basis with the S&P 500 Stock Index and either
a nationally recognized industry standard or an index of peer companies selected
by the Company. The Board of Directors has approved the use of the Dow Jones
Industry Group Index of Health Care Providers as its peer group index. The table
below compares the cumulative total return as of the end of each of the
Company's last five fiscal years on $100 invested in the Common Stock of the
Company, the Dow Jones Industry Group Index of Health Care Providers and the
NASDAQ Market Index, assuming the reinvestment of all dividends:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
IN HOME HEALTH, INC. NASDAQ MARKET INDEX PEER GROUP INDEX
<S> <C> <C> <C>
9/30/94 $100.00 $100.00 $100.00
9/30/95 $133.79 $121.41 $111.25
9/30/96 $94.59 $141.75 $122.96
9/30/97 $78.38 $192.67 $137.36
9/30/98 $25.68 $200.23 $100.96
9/30/99 $30.63 $323.92 $85.17
</TABLE>
<TABLE>
<CAPTION>
9/30/94 9/30/95 9/30/96 9/30/97 9/30/98 9/30/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
IN HOME HEALTH, INC................... $100.00 $133.79 $ 94.59 $ 78.38 $ 25.68 $ 30.63
NASDAQ MARKET INDEX................... $100.00 $121.41 $141.75 $192.67 $200.23 $323.92
PEER GROUP INDEX...................... $100.00 $111.25 $122.96 $137.36 $100.96 $ 85.17
</TABLE>
The performance graph above shall not be deemed incorporated by reference by
any statement incorporating by reference this Proxy Statement into any filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934, and
shall not otherwise be deemed filed under such Acts.
21
<PAGE>
STRUCTURE AND FUNCTIONING OF THE BOARD OF DIRECTORS
MEETINGS; REMUNERATION
The Board of Directors met six times during fiscal 1999. Each director
attended more than 75% of the meetings of the Board of Directors and the
committees on which they served. Stephen Jessup was appointed to the Board of
Directors on May 4, 2000. Outside directors receive annual retainers of $10,000
plus meeting fees of $1,000 per meeting in person, and $500 per telephonic
meeting, plus reimbursement of out-of-pocket expenses incurred in connection
with attending Board meetings. Outside directors who serve as committee
chairpersons receive $1,500 annually. Outside directors who serve as members of
committees receive $1,000 annually. Outside director fees are payable quarterly.
During fiscal 1999, the Company paid $68,000 for director fees.
COMMITTEES
The Board of Directors has an Audit Committee which consisted during fiscal
1999 of Marvin Wilensky, James J. Lynn and Clyde Michael Ford (Chairman). The
Audit Committee, among other things, determines audit policies, reviews external
audit reports and reviews recommendations made by the Company's independent
public accountants. During fiscal 1999 the Audit Committee met two times. As a
result of the resignation of Mr. Wilensky on March 5, 1999, Dr. Lynn was
nominated to serve on the Audit Committee effective July 8, 1999. Effective
February 14, 2000, Mr. Terry and Mr. von Maack were nominated to serve on the
Audit Committee, Mr. Terry replaced Mr. Ford as Chairman of the Audit Committee.
Dr. Lynn resigned from the Audit Committee. Mr. von Maack resigned from the
Audit Committee on May 31, 2000.
The Board of Directors also has a Compensation Committee which consisted
during fiscal 1999 of Judith I. Storfjell, C. Michael Ford, and Wolfgang
von Maack (Chairman). The Compensation Committee evaluates and sets the total
compensation package for key executive positions, and reviews and approves
various employee incentive and benefit plans. During fiscal 1999, the
Compensation Committee met one time. Effective February 14, 2000, Dr. Lynn and
Mr. Terry were nominated to serve on the Compensation Committee, Mr. Ford and
Mr. von Maack resigned from the Compensation Committee, and Dr. Lynn replaced
Mr. von Maack as Chairman of the Compensation Committee.
The Board of Directors also has a Nominating Committee that provides
nominations for the election of the Company's directors. During fiscal 1999, the
Committee consisted of Wolfgang von Maack and James J. Lynn (Chairman). The
Nominating Committee met two times during fiscal 1999. The Nominating Committee
will consider nominations from Shareholders. See "Shareholder Nominations"
below. Effective February 14, 2000, C. Michael Ford joined the Nominating
Committee.
22
<PAGE>
CERTAIN TRANSACTIONS
Through December 31, 1998, Mr. von Maack was an executive officer of Manor
Care which beneficially owns shares constituting approximately 41% of the voting
power of the Company's Shareholders for all matters brought before the Special
Meeting, and 63% for items (i) through (iv) referenced on page two, paragraph
four of this proxy. The Company and Manor Care entered into the Purchase
Agreement as of May 2, 1995 and the transactions contemplated thereby were
consummated on October 24, 1995. The Purchase Agreement contains extensive
representations, warranties, covenants and other agreements between the Company
and Manor Care which extend beyond the consummation of the transactions
contemplated therein. The Purchase Agreement also contemplates that the Company
and Manor Care may enter into agreements or arrangements which they deem prudent
and mutually beneficial for the provision of services between them on terms that
are fair to each party. As of January 1, 1999, Mr. von Maack terminated his
relationship with Manor Care and became an employee of the Company.
Mr. von Maack has resigned as President and Chief Executive Officer effective
February 15, 2000, and resigned as a member of the Board of Directors on
May 31, 2000.
Pursuant to the Purchase Agreement, the Company and Manor Care entered into
a Registration Rights Agreement covering the securities purchased by Manor Care
from the Company. Manor Care has the right to require the Company to use its
best efforts to register for sale in an underwritten public offering under the
Securities Act of 1933, at the Company's expense, all or any portion of the
Common Stock acquired by Manor Care and the Common Stock into which the
Preferred Stock held by Manor Care is convertible ("Registerable Securities").
The Company will not be entitled to sell its securities in any such registration
for its own account without the consent of Manor Care. In addition, if the
Company at any time seeks to register under the Securities Act of 1933 for sale
to the public any of its securities, the Company must include, at Manor Care's
request, Manor Care's Registerable Securities in the Registration Statement,
subject to underwriter cutback provisions.
Manor Care and the Company entered into an Administrative Services Agreement
effective as of February 27, 1996, pursuant to which Manor Care provided the
Company certain corporate, administrative and management services. The original
term of the Agreement was retroactive to November 1, 1995 and expired on
June 30, 1996. Thereafter, the term was on a quarter-to-quarter basis until
terminated by either party upon 90 days prior written notice. Effective June 1,
1996, the total fees payable to Manor Care under the Administrative Services
Agreement was reduced to $7,000 per month. A new Administrative Services
Agreement was entered into on November 15, 1997. The original term of the
Agreement was retroactive to June 1997. Under the terms of the Agreement, the
Company paid Manor Care a fee of $24,583 per month. This included $21,667 to pay
for 75% of the Company's President and his staff and $2,916 for services
rendered by Manor Care's legal, risk management, government relations,
purchasing and reimbursement departments. The agreement expired September 30,
1998 and was not renewed. Manor Care continued to provide services on a month to
month basis, consisting of 75% of Mr. von Maack's salary and his staff until
December 31, 1998, for $33,874 per month. On January 1, 1999 Mr. von Maack and
his staff became employees of the Company.
Effective January 1, 1999, the Company entered into a Management Services
Agreement with Manor Care. As part of the Agreement the Company provided
management services to Mesquite Hospital, a wholly owned subsidiary of Manor
Care. Manor Care reimbursed the Company for 25% of the salaries and reimbursable
expenses of Mr. von Maack and his administrative assistant. Manor Care paid fees
of $36,494.14 for services provided from January 1 through April 30, 1999, when
the agreement was terminated.
23
<PAGE>
SHAREHOLDER NOMINATIONS
Under the Company's Bylaws, a shareholder who wishes to make a nomination at
the Special Meeting of one or more persons for election as directors must give
written notice of their intent to make such nominations to the Company's
Secretary within 15 days after the date that the Notice of the Meeting is
mailed. The notice must state: the name and address of record of the shareholder
who intends to make the nomination; a representation that the shareholder is a
holder of record of Company shares entitled to vote at the Special Meeting and
intends to appear in person or by proxy at the Special Meeting to nominate the
person or persons specified in the notice; the name, age, business and residence
address, and principal occupation or employment of each nominee; a description
of all arrangements or understandings between the shareholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by the shareholder; such
other information regarding each nominee proposed by such shareholder as would
be required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission; and the consent of each nominee
to serve as a director of the corporation if so elected. The Company may require
any proposed nominee to furnish such other information as may reasonably be
required by the Company to determine the eligibility of such proposed nominee to
serve as a director of the Company. The presiding officer of the Special Meeting
may, if the facts warrant, determine that a nomination was not made in
accordance with the foregoing procedure and if the presiding officer should so
determine and declare to the Special Meeting, the defective nomination will be
disregarded.
PARTICIPANTS IN THE SOLICITATION
Under applicable SEC regulations, each member of the Company's board of
directors, certain executive officers and other employees of the In Home Health
and certain other persons may be deemed to be a "participant" as defined in
Schedule 14A promulgated under the Securities Exchange Act of 1934, as amended,
in the Company's solicitations of proxies for the special meeting. The principal
occupations and business addresses of each participant are set forth on Annex A.
Information about present ownership of securities of certain executive officers
of In Home Health is provided in this proxy statement and the present ownership
of In Home Health securities by other participants, if any, is listed on Annex
A.
SHAREHOLDER PROPOSALS
Under Minnesota law, the business conducted at a special meeting of
shareholders is limited to the purposes stated in the notice of the meeting.
Thus no other business may be conducted at the Special Meeting, other than as
stated in the Notice of Meeting that accompanies this Proxy Statement.
The proxy rules of the Securities and Exchange Commission permit
shareholders, after timely notice to issuers, to present proposals for
Shareholder action in issuer proxy statements where such proposals are
consistent with applicable law, pertain to matters appropriate for shareholder
action and are not properly omitted by issuer action in accordance with the
proxy rules. The Company's next annual meeting of shareholders (for the fiscal
year ending September 30, 2000) is expected to be held on or about March 1, 2001
and proxy materials in connection with that meeting are expected to be mailed on
or about January 16, 2001. Any shareholder proposals prepared in accordance with
the proxy rules for inclusion in the Company's proxy materials for that meeting
must be received by the Company on or before September 20, 2000. In addition, if
the Company receives notice of a shareholder proposal
24
<PAGE>
after January 26, 2001, such proposal will be considered untimely pursuant to
the Company's Bylaws and the persons named as proxies solicited for the
Company's 2001 Annual Meeting may exercise discretionary voting power with
respect to such proposal.
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and current reports, proxy statements
and other information with the SEC. Certain financial and other information in
the Company's Annual Report and Form 10-K are incorporated herein by reference.
The annual reports include the Company's audited financial statements. Certain
financial and other information in the Company's Annual Report and Form 10-K are
incorporated herein by reference. You may read and copy any reports, statements
or other information that the Company files at the SEC public reference rooms
which are located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.
Washington D.C. 20549, and at the SEC's regional offices located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center 13(th) Floor, New York, New York 10048. Copies of such
materials are also available from the Public Reference Section of the SEC at
450 Fifth Street N.W., Washington D.C. 20549 at prescribed rates. Copies of such
materials may also be accessed through the SEC Internet site at WWW.SEC.GOV. You
may also receive without charge a copy of these documents including financial
statements and schedules thereto by writing to: In Home Health, Inc.,
601 Carlson Parkway, Suite 500, Minnetonka, Minnesota 55305, attention: Investor
Relations, or by calling the Company at (612) 449-7500.
By Order of the Board of Directors
/s/ Robert J. Hoffman, Jr.
Robert J. Hoffman, Jr.,
SECRETARY
25
<PAGE>
ANNEX A
INFORMATION CONCERNING THE DIRECTORS AND CERTAIN EXECUTIVE OFFICERS AND
EMPLOYEES OF IN HOME HEALTH AND OTHER PARTICIPANTS WHO MAY ALSO SOLICIT PROXIES.
In connection with the Company's solicitation of proxies for its annual
meeting of shareholders certain other persons may be deemed to be participants
in the solicitation.
The following table sets forth the name, principal business address and the
present employment or other principal occupation, and the name, principal
business and address of any corporation or other organization in which such
employment is carried on, of the directors and certain executive officers and
employees of In Home Health and other representatives of the Company who may be
deemed to be participants in the solicitation.
DIRECTORS OF IN HOME HEALTH
The principal occupations of In Home Health's directors who are deemed
participants in the solicitation are set forth in the section entitled "Item 1
Removal of Directors", on page 8 of this proxy statement. The principal business
addresses for the directors are listed under the section entitled "Security
Ownership of Certain Beneficial Owners and Management" on page 14 of this proxy
statement.
EXECUTIVE OFFICERS AND CERTAIN EMPLOYEES OF IN HOME HEALTH
The principal occupations of certain executive officers and employees of In
Home Health who are deemed participants in the solicitation are set forth below.
<TABLE>
<CAPTION>
NAME OCCUPATION
---- -----------------------------------------------
<S> <C>
C. Michael Ford................. Chairman and Interim CEO
Judith Lloyd Storfjell, Ph.D.... Interim President and COO
Robert J. Hoffman, Jr........... Chief Financial Officer Treasurer and Secretary
Lisa Weber...................... Vice President of Operations
Donald Lamoureux................ Vice President, Corporate Controller
Thomas Geary.................... Vice President, Field Operations Controller
Susan Garner.................... Vice President, Administration
Mark Bratland................... Director, Reimbursement
Kristine Teigen................. Director, Product Development
Cathy Nielsen................... Vice President, Clinical Services
</TABLE>
A-1
<PAGE>
INFORMATION REGARDING OWNERSHIP OF IN HOME HEALTH
SECURITIES BY PARTICIPANTS
None of the participants owns any shares of In Home Health of record but not
beneficially. The number of shares of common stock held by directors and certain
executive officers is set forth under the section entitled "Security Ownership
of Certain Beneficial Owners and Management" on page 14 of this proxy statement.
The following table sets forth information regarding beneficial ownership of
In Home Health common stock for all other participants as of June 16, 2000:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
PARTICIPANT BENEFICIALLY OWNED(1)
----------- ---------------------
<S> <C>
Judith Lloyd Storfjell, Ph.D.............................. 1,816
James J. Lynn, Ed.D....................................... 6,000
Stephen M. Jessup......................................... --
C. Michael Ford........................................... 16,671
Eugene Terry.............................................. --
Robert J. Hoffman, Jr..................................... 10,500
Lisa Weber................................................ 32,294
Donald Lamoureux.......................................... 10,080
Thomas Geary.............................................. 6,333
Susan Garner.............................................. 9,365
Mark Bratland............................................. 4,267
Kristine Teigen........................................... 733
Cathy Nielsen............................................. 31,393
-------
Total..................................................... 125,546
</TABLE>
------------------------
(1) Includes 86,307 shares of common stock issuable upon the exercise of options
within 60 days of June 16, 2000.
PROXY SOLICITOR
The Company has retained the services of PROXY SOLICITOR, located at
, New York, N.Y. to represent the Company in the
solicitation of proxies.
A-2
<PAGE>
INFORMATION REGARDING TRANSACTIONS IN IN HOME HEALTH
SECURITIES BY PARTICIPANTS
The following table sets forth purchases and sales of In Home Health
securities by the participants listed below during the past two years. Unless
otherwise indicated all transactions are in the public market.
<TABLE>
<CAPTION>
NUMBER OF SHARES
DIRECTORS TRANSACTION DATE ACQUIRED OR SOLD
--------- ----------------------- ----------------
<S> <C> <C>
Judith Lloyd Storfjell, Ph.D........ January 31, 2000 1,382(1)
James J. Lynn, Ed.D................. August 31, 2000 4,004(2)
James J. Lynn....................... August 13, 1999 6,004(2)
James J. Lynn, Ed.D................. August 12, 2000 2,000(2)
C. Michael Ford..................... May 31, 2000 3,906(3)
C. Michael Ford..................... April 3, 2000 3,906(3)
C. Michael Ford..................... March 31, 2000 3,906(3)
C. Michael Ford..................... February 29, 2000 1,953(3)
C. Michael Ford..................... November 15, 1998 3,000(1)
<CAPTION>
OFFICERS
--------
<S> <C> <C>
Robert J. Hoffman, Jr............... May 14, 1999 500(1)
Donald Lamoureux.................... October 5, 1998 2,905(1)
Donald Lamoureux.................... February 4, 1999 1,500(2)
Donald Lamoureux.................... May 20, 1999 100(1)
Donald Lamoureux.................... October 5, 1998 2,905(1)
Cathy Nielsen....................... October 6, 1999 6,647(1)
Cathy Nielsen....................... December 29, 1999 456(2)
Robert J. Hoffman................... June 8, 1999 50,000(4)
Lisa Weber.......................... June 8, 1999 50,000(4)
Donald Lamoureux.................... June 8, 1999 4,000(4)
Thomas Geary........................ June 8, 1999 4,000(4)
Susan Garner........................ June 8, 1999 4,000(4)
Mark Bratland....................... June 8, 1999 4,000(4)
Kristine Teigen..................... June 8, 1999 3,000(4)
Cathy Nielsen....................... June 8, 1999 4,000(4)
</TABLE>
------------------------
(1) Open market purchase
(2) Open market sale
(3) Restricted Stock Grant pursuant to compensation plan for Mr. Ford's service
as interim Chief Executive Officer.
(4) Option grant
(5) Option exercise
A-3
<PAGE>
MISCELLANEOUS INFORMATION CONCERNING PARTICIPANTS
Except as described in this Annex A or in the In Home Health Proxy Statement
for the Special Meeting of shareholders, none of the persons who may be deemed
"participants" as defined in Schedule 14A promulgated under the Exchange Act nor
any of their respective affiliates or associates (together, the "Participant
Affiliates'), (1) directly or indirectly beneficially owns any shares of In Home
Health common stock or any securities of any subsidiary of In Home Health or
(2) has had any relationship with In Home Health in any capacity other than as a
shareholder, employee, officer or director. Furthermore, except as described in
this Annex A or in the proxy statement for the Special Meeting, no Participant
Affiliate is either a party to any transaction or series of transactions since
June 1, 2000, or has knowledge of any currently proposed transaction or series
of transactions, (1) to which In Home Health or any of its subsidiaries was or
is to be a party, (2) in which the amount involved exceeds $60,000, and (3) in
which any Participant Affiliate had, or will have, a direct or indirect material
interest.
Except for the employment agreement described in this Proxy Statement
described therein or in Annex A, no Participant Affiliate has entered into any
agreement or understanding with any person respecting any future employment by
In Home Health its affiliates or any future transactions to which In Home Health
or any of its affiliates will or may be a party. Except as described in this
Annex A or in the In Home Health Proxy Statement or in Annex A thereto, there
are no contracts, arrangements or understandings by any Participant Affiliate
within the past year with any person with respect to In Home Health's
securities.
In the event that Manor Care is successful in its efforts to control the In
Home Health board, a change in control may be deemed to have occurred under the
terms of In Home Health's agreements with Mr. Hoffman, and this participant in
this solicitation may become eligible for severance benefits in the event he
leaves the employ of the Company following such change in control. See the
section of this amended and restated proxy statement entitled "Employment
Agreements" for a further description of these severance benefits.
A-4
<PAGE>
IN HOME HEALTH, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
AUGUST 24, 2000
The undersigned hereby appoints C. Michael Ford and Robert J. Hoffman, Jr.,
or either one of them, as proxies with full power of substitution to vote all of
the shares of common stock which the undersigned would be entitled to vote if
personally present at the Special Meeting of Shareholders of In Home Health,
Inc. to be held August 24, 2000 at 9:30 a.m. at the Radisson Hotel and
Conference Center, 3131 Campus Drive, Plymouth, Minnesota or at any adjournments
thereof, upon any and all matters which may properly be brought before the
meeting or adjournments thereof, hereby revoking all former proxies.
(1) PROPOSAL TO REMOVE ALL DIRECTORS OTHER THAN FORD AND TERRY (I.E. TO REMOVE
DIRECTORS JESSUP, LYNN AND STORFJELL)
<TABLE>
<S> <C> <C>
/ / AGAINST / / FOR / / ABSTAIN
</TABLE>
(2) TO FIX THE SIZE OF THE BOARD OF DIRECTORS AT SIX PERSONS
<TABLE>
<S> <C> <C>
/ / AGAINST / / FOR / / ABSTAIN
</TABLE>
(3) IF DIRECTORS ARE REMOVED, TO ELECT FOUR NOMINEES OF MANOR CARE AS DIRECTORS
<TABLE>
<S> <C> <C> <C> <C>
/ / AGAINST all nominees listed / / FOR all nominees listed / /
below below (except as indicated
below)
<S> <C>
/ / WITHOUT AUTHORITY to vote
for all nominees listed
below
</TABLE>
(1) M. Keith Weikel, (2) Geoffrey G. Myers, (3) Rodney A. Hildebrant, (4) Steven
M. Cavanaugh
(INSTRUCTIONS: TO WITHHOLD AUTHORITY FOR AN INDIVIDUAL NOMINEE STRIKE A LINE
THROUGH THAT NOMINEE'S NAME IN THE LIST ABOVE.)
<PAGE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED ON PROPOSALS (1), (2) AND
(3) IN ACCORDANCE WITH THE SPECIFICATIONS MADE AND "AGAINST" SUCH PROPOSALS IF
THERE IS NO SPECIFICATION.
Please date and sign exactly as your name(s) appears below indicating, where
proper, the official position or representative capacity in which you are
signing. When signing as executor, administrator, trustee or guardian, give full
title as such; when shares have been issued in names of two or more persons, all
should sign.
<TABLE>
<S> <C>
Dated , 2000 Signature of Shareholder
Signature of Shareholder
(if joint signature is required)
</TABLE>
