<PAGE> 1
SCHEDULE 14C
(RULE 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities
Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary information statement / / Confidential, for use of the commission
only (as permitted by rule 14c-5(d)(2))
/ / Definitive information statement
</TABLE>
FRESENIUS NATIONAL MEDICAL CARE HOLDINGS, INC.
(Name of Registrant as specified in Its Charter)
Payment of filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
FRESENIUS NATIONAL MEDICAL CARE HOLDINGS, INC.
------------------------
1997 ANNUAL MEETING OF SHAREHOLDERS
JUNE 11, 1997
TO THE SHAREHOLDERS:
Notice is hereby given that the 1997 Annual Meeting of Shareholders of
Fresenius National Medical Care Holdings, Inc., a New York corporation (the
"Company"), will be held at the Doubletree Guest Suites Hotel, 550 Winter
Street, Waltham, Massachusetts 02154 on Wednesday, June 11, 1997 at 3:00 p.m.
for the following purposes:
1. To amend the Certificate of Incorporation of the Company to
(i) eliminate classification of the Board of Directors, (ii)
reduce the number of directors to not less than three nor more
than nine and (iii) change the name of the Company to
"Fresenius Medical Care Holdings, Inc.";
2. To elect two directors of the Company, who will be Class II
directors, pending full effectiveness of the proposed
amendment to the Certificate of Incorporation referred to in
Proposal 1, which must be implemented in stages so as not to
shorten the term of any incumbent director; and
3. To transact any and all other business that may properly come
before the meeting.
All shareholders of record at the close of business on April 24, 1997 are
entitled to notice of and to vote at this meeting.
The Company's audited financial statements, together with certain other
information concerning the Company, are included in the Company's Annual Report
on Form 10-K which is enclosed herewith.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
By order of the Board of Directors,
William F. Grieco
General Counsel and Secretary
Lexington, Massachusetts
April 30, 1997
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................................. 1
PROPOSAL 1 -- AMENDMENT TO THE CERTIFICATE OF INCORPORATION ................. 2
PROPOSAL 2 -- ELECTION OF DIRECTORS ......................................... 4
EXECUTIVE COMPENSATION ...................................................... 7
REPORT OF THE BOARD OF DIRECTORS REGARDING EXECUTIVE
COMPENSATION ............................................................... 22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT ................................................................ 23
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ............................. 26
INDEPENDENT PUBLIC ACCOUNTANTS ............................................. 33
OTHER MATTERS .............................................................. 33
APPENDIX A -- CERTIFICATE OF AMENDMENT OF THE CERTIFICATE
OF INCORPORATION OF FRESENIUS NATIONAL MEDICAL CARE
HOLDINGS, INC. UNDER SECTION 805 OF THE BUSINESS
CORPORATION LAW .......................................................... A-1
</TABLE>
<PAGE> 4
INFORMATION STATEMENT
This Information Statement, dated April 30, 1997, is furnished in
connection with the 1997 Annual Meeting of Shareholders of Fresenius National
Medical Care Holdings, Inc. (the "Company") to be held at the Doubletree Guest
Suites Hotel, 550 Winter Street, Waltham, Massachusetts 02154 on Wednesday, June
11, 1997 at 3:00 p.m., and any adjournments thereof (the "Annual Meeting"), for
the purposes set forth in the notice of such meeting.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
It is expected that this Information Statement will be mailed to
shareholders on or about April 30, 1997.
The complete mailing address of the Company's principal executive office
is Two Ledgemont Center, 95 Hayden Avenue, Lexington, Massachusetts 02173
(telephone (617) 402-9000).
Only shareholders of record at the close of business on April 24, 1997 are
entitled to vote at the Annual Meeting and any adjournments thereof. At that
record date, the following voting shares of the Company were outstanding:
<TABLE>
<CAPTION>
CLASS SHARES VOTES PER
OUTSTANDING SHARE
<S> <C> <C>
6% Preferred Stock 36,460 160
Class A Preferred Stock 16,176 16
Class B Preferred Stock 21,483 16
Class D Special Dividend 89,062,316 0.1
Preferred Stock
Common Stock 90,000,000 1
</TABLE>
Holders of all shares will vote together as a single class on all matters
expected to be acted on at the Annual Meeting.
Appraisal rights are not available to shareholders with respect to any
matter expected to be acted upon at the Annual Meeting.
CHANGE OF CONTROL
All of the Company's Common Stock (the "Common Stock") is currently held
by Fresenius Medical Care AG ("Fresenius Medical Care"). On September 30, 1996,
the
1
<PAGE> 5
Company completed a reorganization (the "Reorganization") described in detail in
the Joint Proxy Statement-Prospectus of Fresenius Medical Care, the Company and
Fresenius USA, Inc. ("Fresenius USA") dated August 2, 1996. The Reorganization
was accomplished pursuant to the Agreement and Plan of Reorganization dated as
of February 4, 1996, as amended, among the Company, Fresenius Aktiengesellschaft
("Fresenius AG") and Fresenius USA. Shareholders of the Company approved the
Reorganization on September 16, 1996. On September 27, 1996, pursuant to the
Distribution Agreement, dated February 4, 1996, the Company distributed to its
common shareholders (the "Distribution") 100% of the capital stock of Grace
Holding, Inc., a Delaware corporation and formerly a wholly-owned subsidiary of
the Company ("New Grace"), which holds all of the assets and liabilities
formerly held by the Company, other than those of its wholly-owned subsidiary,
National Medical Care, Inc. ("NMC"). Immediately following the Distribution, (i)
the Company was recapitalized so that each holder of shares of the Company's
Common Stock received one share of Class D Special Dividend Preferred Stock
("Class D Preferred Stock") for each share of the Company's Common Stock held of
record as of the close of business on September 27, 1996 and (ii) the Company's
name was changed to Fresenius National Medical Care Holdings, Inc. Thereafter,
WRG Merger Sub Inc., a New York corporation and a wholly-owned subsidiary of
Fresenius Medical Care, merged with and into the Company with the Company as the
surviving corporation. As a result of the Reorganization, the Company became a
subsidiary of Fresenius Medical Care. Following the Reorganization, Fresenius
Medical Care contributed all of the outstanding common stock of Fresenius USA
("Fresenius USA Common Stock") to the Company.
The Annual Report on Form 10-K of the Company, including the Company's
audited consolidated financial statements for the year ended December 31, 1996,
is being mailed to the Company's shareholders with this Information Statement.
The Annual Report on Form 10-K is not to be regarded as proxy soliciting
material or as a communication by means of which a solicitation of proxies is to
be made.
At the date hereof, management of the Company has no knowledge of any
business other than that described in the notice for the Annual Meeting which
will be presented for consideration at such Annual Meeting.
PROPOSAL 1
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
An amendment to Article First of the Company's Certificate of
Incorporation is being sought to change the name of the Company to "Fresenius
Medical Care Holdings, Inc." On April 16, 1997, the Board of Directors
unanimously adopted resolutions approving a proposal to change the name of the
Company to "Fresenius Medical Care Holdings, Inc." The Board of Directors
believes that the shortened name is preferable, more accurately reflects the
Company's status as a holding company and will eliminate the need to abbreviate
the Company's name in many circumstances. The new name will also emphasize the
identity of the Company's new controlling shareholder and reconstituted
management and serve to distinguish the Company from its predecessor.
2
<PAGE> 6
Article Fifth of the Company's Certificate of Incorporation currently
provides for a Board of Directors of "not less than nine nor more than fifty, as
may be fixed by a majority of the entire Board, except that no such action shall
shorten the term of any incumbent director." On April 16, 1997, the Board of
Directors unanimously adopted resolutions approving a proposal to amend Article
Fifth to reduce the number of directors to "not less than three nor more than
nine, as may be fixed by a majority of the entire Board, except that no such
action shall shorten the term of any incumbent director."
This amendment to Article Fifth is being sought to increase the
flexibility of the Board and decrease its expenses. On a post-Reorganization
basis, and in light of its status as a subsidiary of Fresenius Medical Care,
which holds shares having more than 80% of the voting power of the Company on
most matters, the Company no longer requires a large and cumbersome Board. The
Board currently consists of nine directorships. Six directors are currently in
office, and there are three vacancies. Upon approval of the amendment, the Board
intends to fix the number of directors constituting the entire Board at six (6),
and the three vacant directorships will cease to exist.
An additional amendment to Article Fifth is being proposed to eliminate
the classification of the Board of Directors into three classes with staggered
three-year terms. On April 16, 1997, the Board of Directors adopted resolutions
approving a proposal to eliminate class designations and staggered terms. The
Board of Directors believes that a classified board with staggered terms has the
practical effect of an anti-takeover device. Such protection is unnecessary in
light of Fresenius Medical Care's controlling ownership position in the Company,
and the staggered terms needlessly complicate Board of Directors elections. The
amendment to Article Fifth will institute annual elections for directors as the
terms for which their respective classes have been elected expire. For instance,
the terms of Class II directors expire at the Annual Meeting; accordingly the
shareholders will vote to elect such directors for new one-year terms. At the
1998 annual meeting, the terms of the directors elected in 1997 and the Class
III directors will expire and shareholders will vote to elect four (4) directors
for one-year terms. At the 1999 annual meeting, the terms of the Class I and all
other directors will expire, shareholders will vote on one-year terms for all
directors, and directors will no longer be referred to by class. Until the
termination of Board classification is fully effective, any person elected to
fill a Board vacancy in the Class I directors will be elected to serve until the
next annual meeting and, at that time, a candidate will be elected to serve for
the remaining term of the Class I director.
The full text of the proposed amendments to the Certificate of
Incorporation is attached hereto as Appendix A. The amendments will not affect
the provisions of the Certificate of Incorporation entitling the holders of the
Company's Preferred Stock to elect a specified number of directors upon the
Company's failure to pay specified dividends on the Preferred Stock.
Under the laws of the State of New York (in which the Company is
incorporated), approval of the proposed amendments to the Certificate of
Incorporation require the affirmative vote of the holders of a majority of all
outstanding shares entitled to vote thereon at the Annual Meeting. The holders
of all classes of the Company's Preferred Stock and the Common Stock will vote
as a single class on Proposal 1. Fresenius Medical Care
3
<PAGE> 7
intends to vote in favor of this Proposal. Accordingly, Proposal 1 will be
approved even if all other shares currently outstanding that are not held by
Fresenius Medical Care vote against the proposal.
PROPOSAL 2
ELECTION OF DIRECTORS
As discussed in Proposal 1 above, it is anticipated that two Class II
directors will be elected for a one-year term. The names and biographies of the
nominees are set forth below under "Nominees". The names and biographies of the
continuing directors are set forth below under "Continuing Directors."
Under the laws of the State of New York (in which the Company is
incorporated), the election of directors requires the affirmative vote of a
plurality of the shares represented at the Annual Meeting. The holders of all
classes of the Company's Preferred Stock and the Common Stock will vote as a
single class on Proposal 2. Fresenius Medical Care intends to vote in favor of
this proposal. Accordingly, Proposal 2 will be approved even if all other shares
currently outstanding that are not held by Fresenius Medical Care vote against
the proposal.
NOMINEES
At the Annual Meeting it is intended that two Class II directors be
elected to hold office until the 1998 annual meeting and until their successors
shall have been duly elected and qualified. The nominees listed below have been
designated as such by the Board of Directors, and it is anticipated that all
such nominees will be candidates when the election is held. However, if for any
reason any nominee is not a candidate at that time, a substitute nominee will be
designated by the Company. All of the nominees are currently directors of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Mathias R. Klingler 44 Director and Vice President
Ben J. Lipps 56 Director, President and
Assistant Secretary
</TABLE>
Mathias R. Klingler has been a Director of the Company since 1996, and is
also a Vice President of the Company. Since 1996, Mr. Klingler has been a member
of the Management Board and Chief Executive Officer for Europe, Asia Pacific and
Latin America of Fresenius Medical Care. From April 1993 until September 1996,
Mr. Klingler was President of the Dialysis Systems Division of Fresenius AG.
From 1992 to April 1993 he held the position of Executive Vice President of
Dialysis Systems International at Fresenius AG. From 1987 to 1991 he was General
Manager and Vice President - Sales and Marketing
4
<PAGE> 8
of Pacesetter Systems GmbH, and from 1991 to 1992 he was General Manager of
Siemens AG after it acquired Pacesetter Systems.
Dr. Ben J. Lipps has been President, Assistant Secretary and a director of
the Company and a member of the Management Board and Chief Executive Officer for
North America of Fresenius Medical Care since 1996. He has served as President,
Chief Executive Officer, Chief Operating Officer and a director of Fresenius USA
since October 1989, and in various capacities with Fresenius USA's predecessor
since 1985. Dr. Lipps joined Dow Chemical Company in 1966 and led the research
team that developed the first hollow fiber dialyzer between 1967 and 1969. Prior
to joining Fresenius USA's predecessor, Dr. Lipps was a Vice President of
Research and Development for Cordis Dow Corporation.
CONTINUING DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Class III Directors
Dr. Gerd Krick 58 Chairman of the Board
Udo Werle 52 Director and Treasurer
Class I Directors
Geoffrey W. Swett 47 Director and Vice President
William F. Grieco 43 Director, General Counsel and
Secretary
</TABLE>
Class III Directors -- Term Expiring in 1998
Dr. Gerd Krick has been Chairman of the Board of Directors of the Company
since 1996, Chairman of the Fresenius Medical Care Management Board and Chief
Executive Officer of Fresenius Medical Care since 1996 and Chairman of the
Fresenius AG Management Board since 1992. Prior to 1992, he was a director of
the Medical Systems Division of Fresenius AG and Deputy Chairman of the
Fresenius AG Management Board. Since 1987 he has been a director and, since 1989
the Chairman of the Board, of Fresenius USA. Dr. Krick is also a director of
Gull Laboratories, Inc., a publicly-held manufacturer and distributor of
diagnostic test products.
Udo Werle has been the Treasurer and a director of the Company since 1996,
a member of the Management Board and Chief Financial Officer of Fresenius
Medical Care since 1996 and a member of the Management Board and Chief Financial
Officer and Labor Relations Director of Fresenius AG since January 1994. Mr.
Werle was previously a member of the Management Board of ABB Kraftwerke AG,
Mannheim. In his last position as President of ABB Power Ventures Ltd.,
Zurich/Mannheim, he was responsible for all cooperation and joint ventures of
the Power Generation segment. Mr. Werle joined ABB Power Ventures Ltd. in 1970.
5
<PAGE> 9
Class I Directors -- Term Expiring in 1999
Geoffrey S. Swett has been a director of the Company since 1996. He is
also a Vice President of the Company. Mr. Swett has spent over 16 years with NMC
and is currently President of the Dialysis Services Division ("DSD"). Prior to
his current position, he was a Senior Vice President in DSD. Before joining NMC,
Mr. Swett worked in various administration positions within various hospitals.
Mr. Swett received his undergraduate degree from Harvard University.
William F. Grieco has been a director of the Company since 1996. He is
also the General Counsel and Secretary of the Company. Mr. Grieco joined NMC in
October 1995 as Senior Vice President and General Counsel. Mr. Grieco is also a
director of PHC, Inc., a provider of inpatient and outpatient alcohol, drug and
psychiatric treatment. Prior to October 1995, Mr. Grieco was a partner in the
law firm of Choate, Hall & Stewart, where he maintained a diversified health
care practice. Mr. Grieco received his undergraduate degree and his law degree
from Boston College, and a graduate degree in health policy and management from
Harvard University.
THE BOARD OF DIRECTORS
The Company's Board of Directors is responsible for the affairs of the
Company.
During 1996, the Board held nine meetings. All of the current members of
the Board were elected in connection with the closing of the Reorganization on
September 30, 1996. No meetings of the Board were held from September 30, 1996
to December 31, 1996, but the Board took action six times by unanimous written
consent during that period. The Company has no standing Compensation Committee,
Audit Committee or Nominating Committee.
EXECUTIVE OFFICERS
The following officers of the Company were appointed in connection with
the September 30, 1996 Reorganization:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Dr. Gerd Krick 58 Chairman of the Board
Dr. Ben J. Lipps 56 President, Assistant Secretary
and Director
Mathias Klingler 44 Vice President and Director
Geoffrey W. Swett 47 Vice President and Director
William F. Grieco 43 General Counsel, Secretary and
Director
</TABLE>
6
<PAGE> 10
<TABLE>
<S> <C> <C>
Udo Werle 52 Treasurer and Director
Robert W. Armstrong, III 47 Principal Accounting Officer
</TABLE>
Each officer has been elected to hold office until he resigns or is
removed by the Board of Directors.
For biographies of Mr. Klingler and Dr. Lipps, see "Nominees" above. For
biographies of Dr. Krick, Mr. Werle, Mr. Swett and Mr. Grieco, see "Continuing
Directors" above.
Robert W. Armstrong, III is the Principal Accounting Officer of the
Company. He has spent over 16 years with NMC and is currently the Vice President
of Finance, Treasurer and Controller of NMC. Prior to his current appointment,
Mr. Armstrong served as NMC's Vice President and Controller, Audit Manager and
the Director, Financial Reporting & Budgeting. Prior to joining NMC, Mr.
Armstrong worked as an Audit Supervisor with Deloitte & Touche and as a
Materials Manager with ATI, Inc. Mr. Armstrong received his undergraduate degree
from Bowdoin College and his MBA degree from the University of Pennsylvania.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The Company is sometimes referred to as "Grace" below when discussing
compensation plans and policies in existence prior to the Reorganization, in
order to distinguish such plans and policies from those currently in effect.
Certain compensation information provided below with respect to Grace has been
obtained from the 1997 Proxy Statement of New Grace filed with the Securities
and Exchange Commission ("SEC") on April 7, 1997. The following table summarizes
the total compensation paid or to be paid by the Company and its subsidiaries
for services rendered during 1994, 1995 and 1996 to the Chief Executive Officer
of the Company, the former Chief Executive Officer of the Company, Geoffrey W.
Swett, William F. Grieco and Robert W. Armstrong, III, the only other executive
officers of the Company who are compensated for their services by the Company or
its subsidiaries and Constantine L. Hampers and D.H. Kohnken, who are no longer
serving as executive officers of the Company (the "Specified Executives"):
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<PAGE> 11
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
==========================================================================================================================
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------ ----------------------------
AWARDS PAYOUTS
----------- ---------
OTHER SECURITIES
ANNUAL UNDER- ALL OTHER
COMPEN- LYING LTIP COMPENSA-
NAME AND PRINCIPAL SALARY BONUS SATION OPTIONS PAYOUTS TION
POSITION YEAR ($) ($) ($) (#) ($) (1) ($) (2)
---- ------- ------- ------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ben J. Lipps (3) 1996 225,000 200,000
President, Assistant 1995 225,000 200,000 450,000(4)
Secretary and Director 1994 202,500 200,000
(CEO)
---- ------- ------- ------- ------- --------- -------
Albert J. Costello (5) 1996 900,000 582,075 12,872 77,625(6) 799,116 27,250
Former Chairman, 1995 600,000 900,000 106,599 465,750(6)
President and Chief
Executive Officer
---- ------- ------- ------- ------- --------- -------
Geoffrey W. Swett 1996 192,480 268,305(7) 336,420 93
Vice President and 1995 157,134 108,577 174,119 341
Director 1994 137,711 81,508
---- ------- ------- ------- ------- --------- -------
William F. Grieco 1996 225,000 260,000(7) 659
General Counsel, 1995 32,885 25,000
Secretary and Director
---- ------- ------- ------- ------- --------- -------
Robert W. Armstrong, 1996 154,538 252,215(7) 134,544 863
III 1995 133,355 94,395 2,000 170,000 696
Principal Accounting 1994 121,792 83,633 2,000 696
Officer
---- ------- ------- ------- ------- --------- -------
D. H. Kohnken(8) 1996 295,425 148,000 66,496 1,783,688 523,842
Former Executive Vice 1995 371,725 394,000 9,576 93,150(6) 153,716 55,657
President 1994 357,000 410,000 86 77,625(6) 36,200
---- ------- ------- ------- ------- --------- -------
Constantine L 1996 875,270 316,157(10) 2,425,992 6,590,981
Hampers(9) 1995 821,068 422,755 210,915 108,675(6) 105,564
Former Executive Vice 1994 786,250 720,000 85,425 108,675(6) 89,278
President
========================================================================================================================
</TABLE>
(1) The amounts in this column for 1996 represent awards earned under Grace's
Long-Term Incentive Program ("LTIP") for the 1993-1995 Performance Period. The
amounts in this column for 1995 represent the third and final installment of
awards earned under the LTIP for the 1990-1992 Performance Period; Dr. Hampers
did not participate in the LTIP for the 1990-1992 Performance Period. No
payments were made under the LTIP in 1994.
8
<PAGE> 12
(2) The amounts in this column for 1996 consist of the following: (1) the
actually determined value of Grace-paid premiums on "split-dollar" life
insurance, as follows: Dr. Hampers -- $52,849; and Mr. Kohnken -- $9,626; (2)
life insurance premiums of $9,250 for Mr. Costello (who did not participate in
the split-dollar life insurance program); (3) payments made to persons whose
personal and/or Grace contributions to Grace's Salaried Employees Savings and
Investment Plan ("Savings Plan") would be subject to limitations under federal
income tax law, as follows: Mr. Costello -- $13,500; Dr. Hampers -- $38,941; and
Mr. Kohnken -- $16,183; (4) Company contributions to the Savings Plan of $4,500
for each of Messrs. Costello and Kohnken; (5) a severance payment of $493,533
made to Mr. Kohnken; and (6) group life insurance premiums for Messrs. Swett,
Grieco and Armstrong.
(3) During 1994, 1995 and 1996, Dr. Lipps' compensation was paid by Fresenius
USA and by Seratronics, Inc. ("Seratronics"), which was managed by Fresenius
USA. In each year listed above, Seratronics paid $66,500 of salary and $0 of
bonus to Dr. Lipps.
(4) Represents options granted to Dr. Lipps by Fresenius USA. In 1996, Dr.
Lipps exercised such options and resold the shares, as well as other shares of
Fresenius USA Common Stock, to Fresenius USA. See "Certain Relationships and
Related Transactions -- Relationships and Transactions with Directors and
Executive Officers -- Securities Repurchases."
(5) Information with respect to Mr. Costello represents compensation paid to
him by Grace and its subsidiaries during 1995 and for the first nine months of
1996 and by New Grace for the last three months of 1996, as described in the
1997 Proxy Statement of New Grace. Allocation between pre-Reorganization and
post-Reorganization compensation was not practicable. Mr. Costello joined Grace
in May 1995. Mr. Costello ceased serving as an officer and director of the
Company upon consummation of the Reorganization, effective September 30, 1996.
(6) The share amounts shown in this column reflect adjustments made in
connection with the Reorganization, and represent options held by Mr. Costello
to purchase shares of New Grace.
(7) Constitutes payments made in accordance with the Retention Bonus Program
adopted by the Grace Board of Directors on February 4, 1996. See "-- Retention
Bonus Program" and "Report of the Board of Directors Regarding Executive
Compensation -- Retention Bonus Program."
(8) Information with respect to Mr. Kohnken represents compensation paid to him
by Grace and its subsidiaries during 1994, 1995 and the first nine months of
1996. Mr. Kohnken ceased serving as an officer and director on September 30,
1996. See "-- Resignations of Executive Officers" below.
(9) Information with respect to Dr. Hampers represents compensation paid to him
by Grace and its subsidiaries during 1994, 1995 and 1996 and by New Grace
from September 30, 1996, until December 31, 1996, as it was not practicable to
allocate such amounts. The amounts provided are those in the 1997 Proxy
Statement of New Grace plus a one-time "success fee" of $6,000,000, consulting
fees of $104,167, rent, utilities and salaries of $16,502 and travel expenses of
$378,522, which amounts were paid to Dr. Hampers by the Company in the last
three months of 1996. Dr. Hampers ceased serving as an officer and director in
June 1996 and pursuant to his termination agreement, received his salary and
certain benefits from New Grace through December 31, 1996. See "--Resignations
of Executive Officers" below.
(10) This amount includes the value of personal benefits received by Dr. Hampers
during 1996, including $57,750 attributable to his personal use of corporate
aircraft and $26,769 attributable to his personal use of a chauffeur paid by the
Company.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
During 1996, the (then-existing) Compensation Committee of the Board of
Directors of Grace granted options to Albert J. Costello prior to the
Reorganization, together with other employees of Grace. No options were granted
to any of the Specified Executives by Fresenius USA in 1996. The Company does
not currently have a stock option plan. However, executive officers and certain
employees of the Company and its subsidiaries are eligible to participate in the
Fresenius Medical Care 1996 Stock Incentive Plan (the "FMC Plan"). See "Certain
Relationships and Related Transactions -- Relationships and Transactions with
Executive Officers -- Loans to Officers under FMC Plan." No options
were granted under the FMC Plan during 1996. Options were granted in January
1997 under the FMC Plan to certain executive officers and employees of the
Company, including Messrs. Swett, Grieco and Armstrong, subject to receipt of a
favorable ruling with respect to the FMC Plan from the Internal Revenue Service.
9
<PAGE> 13
In the Reorganization, outstanding options to purchase Grace Common Stock
held by employees of NMC and outstanding options to purchase Fresenius USA
Common Stock were exchanged for equivalent options with respect to Fresenius
Medical Care Ordinary Shares ("rollover options"). In the case of options to
purchase Fresenius USA Common Stock and options to purchase Grace Common Stock
held by employees of Fresenius USA or NMC, respectively, Fresenius Medical Care
Ordinary Shares could not, under German corporate law, be reserved by Fresenius
Medical Care and issued upon the exercise of the options, as is done by U.S.
corporations. Instead, the Fresenius Medical Care Ordinary Shares issuable upon
exercise of the rollover options were deposited with the depositary for
Fresenius Medical Care Ordinary ADSs upon the closing of the Reorganization,
which will hold the shares for the account of Fresenius AG pending exercise of
the options. Fresenius AG has agreed that it will not exercise voting power, and
will return any dividends paid, with respect to the Fresenius Medical Care
Ordinary Shares underlying rollover options formerly related to Grace Common
Stock. Upon exercise of any rollover options, the option exercise price will be
paid to Fresenius Medical Care and Fresenius Medical Care Ordinary ADSs will be
transferred to the option holder. Upon cancellation or expiration without
exercise of rollover options formerly relating to Grace Common Stock, the
underlying Fresenius Medical Care Ordinary Shares held by Fresenius AG will be
transferred to the Company at no cost to it. Upon cancellation or expiration
without exercise of rollover options formerly relating to Fresenius USA Common
Stock, the underlying Fresenius Medical Care Ordinary Shares will revert to
Fresenius AG.
Options to purchase Grace Common Stock held by people who became officers,
directors or employees of New Grace or its subsidiaries at the time of the
Reorganization were converted into options to purchase New Grace Common Stock at
such time.
The following table sets forth information concerning stock options
granted in 1996, including the potential realizable value of each grant assuming
that the market value of the Company's Common Stock appreciates from the date of
grant to the expiration of the option at annualized rates of (a) 5% and (b) 10%,
in each case compounded annually over the term of the option. These assumed
rates of appreciation have been specified by the SEC for illustrative purposes
only and are not intended to predict future prices of the Company's Common
Stock, which will depend upon various factors, including market conditions and
the Company's future performance and prospects. Options became exercisable at
the time or times determined by the (then-existing) Compensation Committee; the
options shown below became exercisable in three approximately equal annual
installments beginning one year after the date of grant or upon the earlier
occurrence of a "change in control" of Grace (see "Employment Agreements"). All
of the options shown below have purchase prices equal to the fair market value
of the Grace Common Stock at the date of grant.
10
<PAGE> 14
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
1996 GRANTS FOR OPTION TERM
------------------------------------------------------ -----------------------------
% OF TOTAL
NO. OF OPTIONS
SHARES GRANTED
UNDERLYING TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED IN 1996 ($/SHARE) DATE 5% 10%
- ---- ------- ------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Ben J. Lipps -0- -- -- -- -- --
Albert J. Costello (1) 77,625 7.7% 51.4493 3/5/06 $2,511,650 $6,365,009
Geoffrey W. Swett -0- -- -- -- -- --
William F. Grieco -0- -- -- -- -- --
Robert W. Armstrong -0- -- -- -- -- --
D. H. Kohnken -0- -- -- -- -- --
Constantine L. Hampers -0- -- -- -- -- --
</TABLE>
(1) The number of shares covered by each option and the purchase price of each
option reflect adjustments made in connection with the Reorganization, and
represent options to purchase shares of New Grace.
STOCK OPTIONS EXERCISED IN LAST FISCAL YEAR
The following table sets forth information concerning stock options
exercised in 1996, including the "value realized" upon exercise (the
difference between the total exercise price of the options exercised and
the market value, at the date of exercise, of the shares acquired), and
the value of unexercised "in-the-money" options held at December 31, 1996
(the difference between the aggregate exercise price of all such options
held and the market value of the shares covered by such options at
December 31, 1996).
11
<PAGE> 15
<TABLE>
<CAPTION>
OPTION EXERCISES IN 1996 AND OPTION VALUES AT 12/31/96
------------------------------------------------------------------------------
NUMBER OF
SHARES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NO. OF SHARES 12/31/96 12/31/96
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- -------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Ben J. Lipps 245,000(1) 3,144,375(1) 0/0 0/0
Albert J. Costello (2) -0- -0- 155,250/388,125 $2,796,690/5,616,720
Geoffrey W. Swett (3) 5,000 163,126 5,418/16,254 89,329/239,272
William F. Grieco -0- -0- 0/0 0/0
Robert W. Armstrong, III (3) 4,168 104,953 0/6,503 0/95,730
D. H. Kohnken(2) 45,375 1,869,507 458,411/0 11,872,282/0
Constantine L. Hampers(2) 450,226 10,199,375 0/0 0/0
</TABLE>
(1) In June 1996, Dr. Lipps exercised options to purchase 120,000 shares of
Fresenius USA Common Stock at $3.125 per share, and options to purchase 125,000
shares of Fresenius USA Common Stock at $7.125 per share and sold such shares
and 80,000 additional shares of Fresenius USA Common Stock held by him to
Fresenius USA at $18.00 per share. Because Dr. Lipps had agreed to sell the
shares at that price, "Value Realized" has been computed using $18.00 as the
market value. Actual market value at the time of Dr. Lipps' exercise of such
options was greater than $18.00. In September 1996, Dr. Lipps sold options to
purchase 450,000 shares of Fresenius USA Common Stock to Fresenius USA at a
price of $5.25 per option ($2,362,500 in the aggregate). Such 450,000 options,
together with the 245,000 options exercised by him prior to his sale of the
underlying shares to Fresenius USA, represented all of the options to purchase
Fresenius USA Common Stock held by him.
(2) The number of shares covered by each option and the purchase price of each
option reflect adjustments made in connection with the Reorganization, and
represent options to purchase shares of New Grace.
(3) Amounts in the "No. of Shares Acquired on Exercise" and the "Value
Realized" columns represent the combined effects of exercise of options to
purchase Grace Common Stock prior to the Reorganization and exercise of
rollover options to purchase Fresenius Medical Care Ordinary ADSs after the
Reorganization. Amounts at December 31, 1996 represent numbers and values of
rollover options to acquire Fresenius Medical Care Ordinary ADSs.
LONG TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
Under Grace's Long Term Incentive Plan ("LTIP") as in effect until the
Reorganization in September 1996, executive officers and other senior managers
could be granted contingent "Performance Units" under which awards could be
earned based on (1) value contribution performance (based on cash flow
attributable to net operating profit after taxes of the product line or the
Company, less a charge based on average annual gross assets), and/or (2)
shareholder value performance (measured by appreciation in the price of Grace's
Common Stock and dividends paid) as compared to that of the companies in the
Standard & Poor's Industrials Index, during a three-year "Performance Period."
Historically, a new three-year Performance Period commenced each year and
contingent Performance
12
<PAGE> 16
Units were granted for each such Performance Period (however, the terms of such
contingent Performance Units granted subsequent to 1996 differed from those
granted in 1996 and prior years). Performance Units granted in 1996 to employees
of product lines were weighted 67% on the value contribution performance of
their respective product lines or other units, and 33% on shareholder value
performance, during the Performance Period; Performance Units granted to
corporate employees were weighted 50% on the basis of Grace's value contribution
performance and 50% on the basis of shareholder value performance during the
Performance Period. The number of Performance Units earned under the LTIP could
be decreased by up to 20%, at the discretion of the (then-existing) Compensation
Committee, based upon individual performance.
Amounts, if any, earned under Performance Units were paid following the
end of each Performance Period. Any such payments could be made up to 100% in
shares of Grace's Common Stock issued under Grace's stock incentive plans;
however, the Compensation Committee had authority to reduce the portion of
earned Performance Units payable in Grace Common Stock or to pay such Units
entirely in cash. A participant could elect to defer receipt of the cash and/or
Grace Common Stock otherwise payable in respect of earned Performance Units.
Cash amounts could be deferred under the Grace's deferred compensation program,
earning interest equivalents computed at the prime rate, compounded
semiannually. Deferred Grace Common Stock was held in a trust established by
Grace; dividends paid on the deferred Grace Common Stock held in the trust were
reinvested in Grace Common Stock, and participants had the right to vote the
Grace Common Stock held in the trust. Deferred amounts were generally payable to
the participant following termination of employment.
The following table shows the Performance Units granted during 1996 to Mr.
Costello and Mr. Kohnken, the only Specified Executives to receive such
Performance Units. All of such Performance Units relate to the 1996-1998
Performance Period. The Performance Units are all weighted 50%/50%.
<TABLE>
<CAPTION>
1996 AWARDS OF CONTINGENT PERFORMANCE UNITS UNDER LTIP (1)
---------------------------------------------------------------------------
MAXIMUM
NUMBER NUMBER OF
NAME OF UNITS THRESHOLD (2)(3) TARGET (3)(4) UNITS (5)
- ---- -------- ---------------- ------------- ---------
<S> <C> <C> <C> <C>
Albert J. Costello 18,630 $0 or $242,190 $1,210,950 46,575
D. H. Kohnken 6,210 $0 or $ 20,215 403,650 15,525
</TABLE>
- -----------------------------------
(1) The numbers of Performance Units reflect adjustments made in connection with
the Reorganization.
(2) Refers to the minimum amount payable under the LTIP with respect to the
1996-1998 Performance Period. No payment would be made unless the minimum
targeted level of value contribution or shareholder value performance was
achieved by the Company.
(3) The threshold and target payments shown in the table have been calculated on
the basis of a market price of $65 per share of Grace Common Stock at the end of
the 1996-1998 Performance Period. The threshold amount for Mr. Kohnken has been
adjusted on a pro rata basis to reflect his resignation.
13
<PAGE> 17
(4) Refers to the amount payable with respect to the 1996-1998 Performance
Period if the targeted levels of both value contribution and shareholder value
performance were achieved.
(5) Refers to the maximum number of Performance Units that could be earned with
respect to the 1996-1998 Performance Period under the LTIP.
Employees to whom Performance Units were granted under the Grace LTIP also
received grants of stock options based on the number of Performance Units
granted. Information concerning options granted to the Specified Executives in
1996 appears under "Stock Options" above. The Company does not currently
maintain an LTIP.
PENSION ARRANGEMENTS
Most of the Company's employees who work 900 hours or more per year are
covered by the NMC Retirement Plan, effective as of the first day of the month
following their date of hire. Under this basic retirement plan, pension
benefits are based upon (1) the number of years of the covered employee's
credited service (subject to a maximum of 30), (2) the covered employee's final
average earnings for the 60 consecutive months in which his or her
compensation on any July 1 was highest during the last 120 months of
continuous participation, and (3) the social security covered compensation (the
average social security tax base for the 35 years prior to the covered
employee's 65th birthday).
The annual retirement benefit under the NMC Retirement Plan consists of
the sum of (1) 0.85% of the covered employee's final average earnings
multiplied by his or her years of benefit service, and (2) 0.65% of the covered
employee's final average earnings greater than his or her social security
covered compensation base multiplied by his or her years of benefit service.
The following table shows the annual pensions payable under the NMC
Retirement Plan for different levels of compensation and years of credited
service. The amounts shown have been computed on the assumption that the
covered employee retired at age 65 on January 1, 1997, with benefits payable on
a straight life annuity basis.
YEARS OF CREDITED SERVICE
<TABLE>
<CAPTION>
10 15 20 25 30
YEARS YEARS YEARS YEARS YEARS
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
$ 100,000...... $ 13,095 $ 19,643 $ 26,190 $ 32,738 $ 39,286
200,000...... 28,095 42,143 56,190 70,238 84,286
300,000...... 43,095 64,643 88,190 107,738 129,286
400,000...... 58,095 87,143 116,190 145,238 174,286
500,000...... 73,095 109,643 146,190 182,738 219,286
600,000...... 88,095 132,143 176,190 220,238 264,286
700,000...... 103,095 154,643 206,190 257,738 309,286
800,000...... 118,095 177,143 236,190 295,238 354,286
900,000...... 133,095 199,643 266,190 332,738 399,286
1,000,000...... 148,095 222,143 296,190 370,238 444,286
1,100,000...... 163,095 244,643 326,190 407,738 489,286
1,200,000...... 178,095 267,143 356,190 445,238 534,286
1,300,000...... 193,095 289,643 386,190 482,738 579,286
1,400,000...... 208,095 312,143 416,190 520,238 624,286
1,500,000...... 223,095 334,643 446,190 328,310 669,286
</TABLE>
Messrs. Grieco, Swett and Armstrong had 1.2, 16.9 and 16.2 years of
credited service, respectively, under the NMC Retirement Plan at year-end 1996.
For purposes of that plan, the average compensation of the highest consecutive
five years of the last ten years of credited service was $188,378 for Mr. Swett
and $174,743 for Mr. Armstrong. No such average compensation can be computed
for Mr. Grieco since he has less than five years of credited service. Dr. Lipps
is not presently covered by the NMC Retirement Plan.
Salaried employees of designated units of Grace who were 21 or older
and who had one or more years of service were eligible to participate in Grace's
Retirement Plan for Salaried Employees until September 1996. Under this basic
retirement plan, pension benefits were based upon (1) the employee's average
annual compensation for the 60 consecutive months in which his or her
compensation was highest during the last 180 months of continuous participation
and (2) the number of years of the employee's credited service. For purposes of
this basic retirement plan, compensation generally included nondeferred base
salary and nondeferred annual incentive compensation (bonus) awards; however,
for 1996, federal income tax law limited to $150,000 the annual compensation on
which benefits under this plan could be based.
Prior to September 1996, Grace also had a Supplemental Executive
Retirement Plan under which a covered employee received the full pension to
which he or she would be entitled in the absence of the above and other
limitations imposed under federal income tax law. In addition, this supplemental
plan recognized deferred base salary, deferred annual incentive compensation
awards and, in some cases, periods of employment with Grace during which an
employee was ineligible to participate in the basic retirement plan. An employee
would generally have been eligible to participate in the supplemental plan if he
or she had an annual base salary of at least $75,000 and was earning credited
service under the basic retirement plan.
The following table shows the annual pensions that were payable under
Grace's basic and supplemental plans for different levels of compensation and
years of credited service. The amounts shown have been computed on the
assumption that the employee retired at age 65 on January 1, 1997, with benefits
payable on a straight life annuity basis. Such amounts were subject to (but do
not reflect) an offset of 1.25% of the employee's primary Social Security
benefit at retirement age for each year of credited service under the basic and
supplemental plans.
14
<PAGE> 18
HIGHEST
AVERAGE
ANNUAL
COMPENSATION
YEARS OF CREDITED SERVICE
<TABLE>
<CAPTION>
10 15 20 25 30 35
YEARS YEARS YEARS YEARS YEARS YEARS
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
$ 100,000...... $ 15,000 $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 52,500
200,000...... 30,000 45,000 60,000 75,000 90,000 105,000
300,000...... 45,000 67,500 90,000 112,500 135,000 157,000
400,000...... 60,000 90,000 120,000 150,000 180,000 210,000
500,000...... 75,000 112,500 150,000 187,500 225,000 262,500
600,000...... 90,000 135,000 180,000 225,000 270,000 315,000
700,000...... 105,000 157,500 210,000 262,500 315,000 367,500
800,000...... 120,000 180,000 240,000 300,000 360,000 420,000
900,000...... 135,000 202,500 270,000 337,500 405,000 472,500
1,000,000...... 150,000 225,000 300,000 375,000 450,000 525,000
1,100,000...... 165,000 247,500 330,000 412,500 495,000 577,500
1,200,000...... 180,000 270,000 360,000 450,000 540,000 630,000
1,300,000...... 195,000 292,500 390,000 487,500 585,000 682,500
1,400,000...... 210,000 315,000 420,000 525,000 630,000 735,000
1,500,000...... 225,000 337,500 450,000 562,500 675,000 787,500
1,600,000 ..... 240,000 360,000 480,000 590,000 720,000 840,000
1,700,000 ..... 255,000 382,500 510,000 617,500 765,000 892,500
1,800,000 ..... 270,000 405,000 540,000 645,000 810,000 945,000
1,900,000 ..... 285,000 427,500 570,000 672,500 855,000 997,500
2,000,000 ..... 300,000 450,000 600,000 700,000 900,000 1,050,000
2,100,000 ..... 315,000 472,500 630,000 727,500 945,000 1,102,500
2,200,000 ..... 330,000 495,000 660,000 755,000 990,000 1,155,000
</TABLE>
Messrs. Costello and Kohnken had 1 and 27 years of credited service,
respectively, under the basic and supplemental retirement plans of Grace at
year-end 1996 (September 30, 1996 in the case of Mr. Kohnken). For purposes of
those plans, the 1996 compensation of such executive officers was as follows:
Mr. Costello -- $1,800,000; and Mr. Kohnken -- $689,425. Dr. Hampers was not
covered by the basic or supplemental plan of Grace. At year-end 1996, the
accrued annual benefit payable to Dr. Hampers at age 65 under the NMC Retirement
Plan (in which Dr. Hampers was an inactive participant), was approximately
$120,000. Grace previously agreed to provide certain pension benefits to Dr.
Hampers (see "Employment Agreements" and "Resignations of Executive Officers").
DIRECTORS' COMPENSATION AND CONSULTING ARRANGEMENTS
There are currently no nonemployee directors of the Company. The directors
of the Company are not compensated for their services as such. For information
with respect to
15
<PAGE> 19
compensation paid by the Company and its subsidiaries to Dr. Lipps and Messrs.
Grieco and Swett, see the Summary Compensation Table above. Information with
respect to compensation paid by Fresenius USA to its directors is provided
below. Except as disclosed with respect to compensation by Fresenius USA below,
Dr. Krick and Messrs. Klingler and Werle did not receive compensation from the
Company and its subsidiaries in 1996. Except as described below regarding
compensation paid to directors of Fresenius USA, Dr. Krick and Messrs. Klingler
and Werle received all of their 1996 compensation from Fresenius AG, Fresenius
Medical Care, and subsidiaries of Fresenius Medical Care other than the Company
and its subsidiaries.
Prior to the Reorganization, the non-employee directors of Fresenius USA
(Dr. Ulrich Wagner, Dr. James F. Marten, Mr. Robert S. Ehrlich, Mr. Francis E.
Baker and Mr. Mathias R. Klingler) each received a directors fee of $25,000 per
annum. In 1996, non-employee members of the Executive, Audit and Compensation
Committees of the Fresenius USA Board each received $1,875 per meeting for each
such committee meeting attended. Dr. Krick received $75,000 annually for serving
as Chairman of the Fresenius USA Board. In June 1994, the shareholders of
Fresenius USA approved the Non-Employee Directors Stock Option Plan, pursuant to
which each current non-employee director of Fresenius USA
16
<PAGE> 20
received a grant of options for 30,000 shares of Fresenius USA Common Stock
vesting at a rate of 10,000 options per year in each of 1994, 1995 and 1996. In
June 1995, the shareholders of Fresenius USA approved an amendment to the
Non-Employee Directors Stock Option Plan permitting participating directors to
receive all directors' fees in the form of options to purchase shares of
Fresenius USA Common Stock rather than cash. Only Dr. Marten made an election to
receive fees in the form of options in 1995 and 1996. On July 3, 1996 the
Fresenius USA Compensation Committee determined that the provisions of that plan
under which Dr. Marten made his election did not contemplate an extraordinary
transaction such as the Reorganization and that his election was not applicable
to his compensation subsequent to January 25, 1996 (the date on which the
Fresenius USA Board was informed of the Reorganization), which included his
compensation as a member of the Independent Committee of the Fresenius USA Board
of Directors (the "Independent Committee") that reviewed the Reorganization on
behalf of the minority shareholders of Fresenius USA. Dr. Krick and Mr. Klingler
declined to accept any options under the Non-Employee Directors Stock Option
Plan. In January 1996, in connection with the Reorganization, the Fresenius USA
Board elected Messrs. Ehrlich and Baker and Dr. Marten to serve on the
Independent Committee. As compensation for their services as members of the
Independent Committee, Messrs. Ehrlich and Baker and Dr. Marten each received a
retainer fee of $25,000 and an additional per diem fee of $1,500 for each
meeting attended or each substantial expenditure of time on Independent
Committee business, which fees to each member ranged between $50,000 and
$75,000, and were reimbursed for out-of-pocket expenses incurred in connection
with Independent Committee business or related matters.
In June 1996, Dr. Constantine L. Hampers, formerly the Chairman of the
Board of Directors and Chief Executive Officer of NMC, entered into a consulting
agreement with Fresenius Medical Care. The consulting agreement provides for the
employment of Dr. Hampers as a consultant for a term of two years from the date
of the Reorganization. The agreement further provides that in consideration of
consulting services rendered, Dr. Hampers shall be paid an annual consulting fee
of $500,000 (payable in semi-monthly installments), as well as a one-time
"success fee" of $6,000,000 upon the closing of the Reorganization, which
success fee has been paid. Fresenius Medical Care also agreed to reimburse Dr.
Hampers for any expenses incurred by him in connection with his consulting
duties, including travel costs. Dr. Hampers agreed not to compete with any
business in the health care industry then being conducted or planned by
Fresenius Medical Care, its subsidiaries or affiliates during the term of the
consulting agreement and for a period of three years after the termination of
his consulting relationship. Dr. Hampers also agreed to certain confidentiality
provisions.
Under Grace's compensation program for nonemployee directors in effect
prior to September 1996, (1) each nonemployee director received an annual
retainer of $24,000, payable in Grace Common Stock; (2) the Chairs of the Audit
and Compensation Committees received annual cash retainers of $12,000, and the
Chairs of the Nominating Committee and the Committee on Corporate Responsibility
received annual cash retainers of $2,000; and (3) each nonemployee director
received $2,000 in cash for each Board meeting and $1,000 in cash for each
committee meeting attended (except that committee chairs received $1,200 per
committee meeting). In addition, the Company had a retirement plan under which a
person retiring after more than four years of service as a nonemployee director
received annual payments of $24,000 for a period equal to the length of service
as a nonemployee director (but not more than 15 years). In the event of a
director's death, payments were made to the director's surviving spouse. The
retirement plan was assumed by W.R. Grace & Co. - Conn. in connection with the
Reorganization.
Nonemployee directors of Grace were reimbursed for expenses they incurred
in attending Board and committee meetings, and Grace maintained business travel
accident insurance coverage for them. In addition, nonemployee directors
received a fee of $1,000 per day for work performed at Grace's request.
A nonemployee director of Grace could defer payment of all or part of the
fees received for attending Board and committee meetings and/or the cash
retainers (or cash portions of the retainers) referred to above. The deferred
cash (plus an interest equivalent) were payable to the director or his or her
heirs or beneficiaries in a lump sum or in quarterly installments over two to 20
years following a date specified by the director (but in no event earlier then
the director's termination from service). The interest equivalent on deferred
cash was computed at the higher of (1) the prime rate plus two percentage points
or (2) 120% of the prime rate, in either case compounded semiannually. This
program provided for the payment of additional survivors' benefits in certain
circumstances.
Grace had a consulting agreement with Kamsky Associates, Inc. (of which
Ms. Virginia Kamsky, a former director of Grace, is president and co-chief
executive officer) relating to Grace's interests in the People's Republic of
China. The agreement was assumed by W. R. Grace & Co.-Conn. in connection
with the Reorganization. The agreement provided for monthly fees of $25,000,
plus additional payments based on the extent to which Grace established certain
business relationships in The People's Republic of China. In 1996, Grace paid
fees totaling $300,000 under this agreement. NMC has a consulting agreement with
another company of which Ms. Kamsky is a principal relating to
17
<PAGE> 21
business opportunities in nine other countries in the Asia Pacific region. The
agreement expires on May 31, 1997 and provides for monthly fees of $10,000, plus
additional payments based on the extent to which NMC establishes certain
business relationships in the relevant countries. From January 1996 through
September 1996, NMC paid Ms. Kamsky's company consulting fees totaling $136,359
under its agreement. The foregoing description does not purport to be complete
and is qualified in its entirety by reference to the agreements referred to
above, which have been filed with the SEC as exhibits to Grace's Annual Reports
on Form 10-K for the years ended December 31, 1992 and 1994 and Grace's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
EMPLOYMENT AGREEMENTS
Pursuant to an employment agreement between Fresenius USA and Dr. Lipps,
which became effective as of January 1, 1992, Dr. Lipps was required to devote
substantially all of his business efforts and time to serving as the President
of Fresenius USA, subject to his also serving as the President and Chief
Executive Officer of Seratronics. Dr. Lipps receives from Fresenius USA an
annual base salary of $225,000, together with bonuses up to a maximum of
$200,000 based on the attainment of certain sales and profits targets set
annually by management and reviewed by the Company's Board of Directors.
Fresenius USA and Dr. Lipps agreed that Fresenius USA's obligations in respect
of such salary and bonus are decreased by amounts payable to Dr. Lipps by
Seratronics. Seratronics is wholly-owned by Anderson Group, Inc. Mr. Francis E.
Baker, a member of the Fresenius USA Board until consummation of the
Reorganization, is the President of Andersen Group, Inc. In connection with the
Reorganization, Dr. Lipps became President, Assistant Secretary and a director
of the Company, and now performs services for the Company and its other
subsidiaries. Dr. Lipps also was granted stock options with respect to 120,000
shares of Fresenius USA Common Stock at an exercise price of $3.125 per share,
which were fully vested as of December 31, 1995. Dr. Lipps' employment agreement
is terminable upon 30 days' advance notice by Fresenius USA, in which event Dr.
Lipps is owed one year's base salary payable over the year following such
termination plus $100,000 payable upon such termination. The agreement may also
be terminated by Dr. Lipps upon one year's notice, as well as by Fresenius USA
upon termination for cause and under certain other circumstances. Upon any such
termination, Fresenius USA may require that Dr. Lipps refrain, for up to two
years, from carrying on a business in competition with Fresenius USA's business,
in which event Fresenius USA must pay an additional annual amount to Dr. Lipps
equal to his annual salary (or, if greater, the aggregate premiums on certain
life and disability policies carried by Dr. Lipps). The foregoing description of
Dr. Lipps' employment agreement does not purport to be complete and is qualified
in its entirety by reference to such agreement, which was filed with the SEC as
an exhibit to Fresenius USA's Annual Report on Form 10-K for the year ended
December 31, 1992. During 1993, Dr. Lipps was granted options for an additional
125,000 shares at $7.125 per share, vesting over five years, and, in 1995, Dr.
Lipps was granted options for an additional 450,000 shares at $12.75 per share,
subject to satisfaction of certain vesting criteria, which have been satisfied
and subject to shareholder approval, which approval was received in 1996. In
June 1996, Dr. Lipps exercised the 245,000 options exercisable at $3.125 and
$7.125 per share and
18
<PAGE> 22
immediately sold those shares to Fresenius USA. See "Certain Relationships and
Related Transactions -- Relationships and Transactions with Directors and
Executive Officers -- Securities Repurchases."
Dr. Hampers and the Company were parties to an employment agreement that
provided for his employment as an Executive Vice President of Grace and head of
its health care business through March 1996, at which time he would have the
right to become a consultant to Grace for a five-year period for an annual
consulting fee equal to 50% of his annual base salary, subject to cost-of-living
adjustments. In March 1996, Grace and Dr. Hampers agreed to extend his
employment until the first to occur of (1) December 31, 1996 or (2) completion
of the Reorganization. The agreement, as extended, provided that Dr. Hampers
would resign from the Board upon termination of his employment, as described
above. Under the agreement, Dr. Hampers was initially entitled to an annual base
salary of at least $675,000, subject to increases of at least 9% every 18
months, and to participate in Grace's annual incentive compensation (bonus)
program. The agreement also provided for benefits generally available to senior
executives of Grace, as well as the use of a corporate aircraft (and an option
to purchase the aircraft at its fair market value). Further, the agreement
entitled Dr. Hampers to a supplementary annual pension benefit equal to the
amount by which (1) the lesser of (a) $300,000 and (b) three times his actual
annual pension benefit exceeded (2) such actual pension benefit, subject to
certain cost-of-living adjustments. The agreement prohibited Dr. Hampers from
engaging in certain competitive activities during its term and for three years
thereafter and provided for the continuation of compensation for the term of the
agreement in the event his employment terminated other than for cause. The
foregoing description of Dr. Hampers' employment agreement does not purport to
be complete and is qualified in its entirety by reference to such agreement,
which was filed with the SEC as an exhibit to Grace's Annual Report on Form 10-K
for the year ended December 31, 1991, and by reference to related agreements,
which were filed with the SEC as exhibits to Grace's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996 and is Registration Statement on Form
S-1 filed on August 5, 1996. For a discussion of the consulting agreement
currently in effect between Dr. Hampers and Fresenius Medical Care, see
"Directors Compensation and Consulting Arrangements" above. See "Resignations of
Executive Officers" for information concerning the resignation of Dr. Hampers.
See "Certain Relationships and Related Transactions--Relationships and
Transactions with Directors and Executive Officers" for information concerning
Dr. Hampers' purchase of a corporate aircraft from Grace and litigation by him
against Grace and others arising out of his employment agreement.
Prior to the Reorganization, the Company had an employment agreement with
Mr. Costello providing for his service as Grace's chairman, president and chief
executive officer through April 1998, subject to (1) earlier termination in
certain circumstances and (2) automatic one-year extensions unless either party
gave notice that the agreement was not to be extended. The agreement also
provided that Mr. Costello would stand for election as a director during its
term. Under the agreement, Mr. Costello was entitled to an annual base salary of
at least $900,000; an annual incentive compensation award (bonus) of at least
$900,000 for 1995 and awards thereafter based on the performance of Grace, in
accordance with its annual incentive compensation program; participation in the
LTIP on the same basis as other senior executives; grants of stock options; and
participation in all other compensation and benefit plans and programs generally
available to senior executives of
19
<PAGE> 23
Grace. The agreement also provided for payments in the case of Mr. Costello's
disability or death, or the termination of his employment with or without cause,
including termination following a "change in control" and termination by Mr.
Costello for "good reason." For purposes of the agreement, "change in control"
meant the acquisition of 20% or more of the Grace Common Stock, the failure of
Grace-nominated directors to constitute a majority of any class of the Board of
Directors, the occurrence of a transaction in which Grace's shareholders
immediately preceding such transaction did not own more than 60% of the combined
voting power of the corporation resulting from such transaction, or the
liquidation or dissolution of Grace. In the event of the termination of Mr.
Costello's employment following a change in control, he would receive a multiple
of the sum of his annual base salary plus bonus, pro rata bonus and LTIP awards,
earned but unpaid compensation, and the balance of the LTIP awards for all
Performance Periods during which the change in control took place. Mr.
Costello's employment agreement was assumed by W.R. Grace & Co.-Conn. in
connection with the Reorganization. The foregoing description of Mr. Costello's
employment agreement does not purport to be complete and is qualified in its
entirety by reference to such agreement, which has been filed with the SEC as an
exhibit to Grace's Quarterly Report on Form 10-Q for the quarter ended June 30,
1995, and by reference to an amendment to such agreement, which has been filed
with the SEC as an exhibit to New Grace's Current Report on Form 8-K filed on
October 10, 1996.
RETENTION BONUS PROGRAM
On February 4, 1996, the Grace Board of Directors adopted a Retention
Bonus Program to encourage certain key employees to stay with the Company
through the closing date of a possible spinoff, merger or sale. There were
guaranteed award and contingent award components to the Retention Bonus Program.
For executive officers, guaranteed awards were set at 75% to 150% of their
respective annual salaries and were subject to the executive officer remaining
with the Company through the above-described closing date. Contingent awards
were based on the achievement of certain cash flow targets and the allocation of
the contingent award pool was based on the relative contribution of the various
businesses and departments to the consolidated results. For 1996, the cash bonus
awards paid to Messrs. Swett, Grieco and Armstrong consisted solely of payments
under the Retention Bonus Program. No further amounts are due or payable
pursuant to the Retention Bonus Program.
SEVERANCE AGREEMENTS
Certain key employees of the Company, including Messrs. Swett, Grieco and
Armstrong, are covered by a Special Severance and Retention Program which was
adopted on January 4, 1996. In the event their positions are eliminated before
September 30, 1997, covered employees will be entitled to: (i) 52 weeks of
salary; (ii) accelerated vesting of stock options held; (iii) pro rata vesting
of any earned Performance Units in the Grace LTIP; (iv) a pro-rated annual
incentive award, provided that their employment does not end in the first
quarter of the year and that their performance merits such an award; (v)
continuation of life insurance, medical, and dental coverage during the
severance period if the affected employees continued their required
contributions; (vi) a lump sum payment for any accrued but unused vacation; and
(vii) individual outplacement assistance. The plan does not apply in certain
limited circumstances, such as voluntary resignation or termination for
misconduct.
EXECUTIVE SALARY PROTECTION PLAN
Prior to the Reorganization, the Company had an Executive Salary
Protection Plan ("ESPP") for many years which was assumed by W.R. Grace & Co. -
Conn in connection with the Reorganization. All executive and other officers of
Grace participated in the ESPP, which provided that, in the event of a
participant's death or disability prior to age 70, Grace would continue to pay
all or a portion of base salary to the participant or a beneficiary for a period
based on the participant's age at the time of death or disability. Payments
under the ESPP could not exceed 100% of base salary for the first year and 50%
thereafter in the case of death (60% in the case of disability). This
description of the ESPP
20
<PAGE> 24
does not purport to be complete and is qualified in its entirety by reference to
the text of the ESPP, as amended, which has been filed as an exhibit to the
Grace's Annual Report on Form 10-K for the year ended December 31, 1996.
RESIGNATIONS OF EXECUTIVE OFFICERS
Dr. Hampers entered into an agreement with Grace in June 1996 providing
for the termination of his employment agreement and his severance agreement (see
"Employment Agreements" above). His termination agreement also provided that (1)
he would continue to receive salary and certain benefits, as specified in his
employment agreement, through December 31, 1996 (including the use of a
corporate aircraft and an option to purchase the aircraft at its fair market
value); (2) effective January 1, 1997, he would be eligible to commence
receiving the pension benefit contemplated by his employment agreement; (3) he
would be entitled to participate in Grace's annual incentive compensation
program for 1996 (however, no award was paid to him under such program for
1996); and (4) he would remain a participant in the LTIP for the 1994-1996
Performance Period and, on a pro rata basis, the 1995-1997 Performance Period.
In connection with Mr. Kohnken's resignation as an executive officer of
Grace on September 30, 1996, he entered into an agreement with Grace providing
that (1) he would receive the severance payment included in "All Other
Compensation" in the Summary Compensation Table above; (2) he would be
considered for an annual incentive compensation award for 1996; (3) he would
remain a participant in the LTIP, on a pro rata basis, for the 1994-1996,
1995-1997 and 1996-1998 Performance Periods; (4) certain restrictions on shares
and stock options granted to him in 1991 would be removed, and any unvested
options he held would become exercisable in full; and (5) his participation in
Grace's split-dollar life insurance program would be terminated, although he
could elect to purchase the policy by reimbursing Grace for the premiums paid on
his behalf (approximately $323,000). The agreement also provided that he would
receive amounts due him under other Grace plans and programs in accordance with
their terms.
The foregoing descriptions of the agreements with Dr. Hampers and Mr.
Kohnken do not purport to be complete and are qualified in their entirety by
reference to such agreements, which have been filed with the SEC as exhibits to
Grace's Registration Statement on Form S-1 filed on August 5, 1996 (in the case
of Dr. Hampers), and New Grace's Current Report on Form 8-K filed on October 10,
1996 (in the case of Mr. Kohnken).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to May 10, 1996, the Compensation Committee of Grace consisted of
Messrs. Harold A. Eckmann, Thomas A. Holmes and Joe E. Phipps, as well as Edward
W. Duffy (who retired from the Board on that date) and Peter S. Lynch (who
resigned from the Board on that date). In addition, Thomas L. Gossage, then
chairman and chief executive officer of Hercules, Incorporated ("Hercules"), was
a member of the Compensation Committee until
21
<PAGE> 25
his resignation from the Board in March 1996. On May 10, 1996, the Compensation
Committee was reconstituted to consist of Messrs. Eckmann, Holmes, Phipps and
Thomas A. Vanderslice. As noted above, Mr. Holmes served as acting president and
chief executive officer of Grace for a two-month period in 1995. During 1996,
the Company purchased approximately $428,000 of products from, and sold
approximately $36,000 of products to, Hercules.
Dr. Krick, Dr. Lipps, Mr. Klinger and Mr. Werle are each executive
officers and directors of the Company and, as such, participate in the
deliberations of the Company's Board of Directors concerning executive officer
compensation. Each of such individuals is also a member of the Management Board
of Fresenius Medical Care, and Dr. Krick and Mr. Werle are members of the
Management Board of Fresenius AG. For information regarding certain
transactions between the Company or its subsidiaries on the one hand and
Fresenius Medical Care or Fresenius AG on the other, see "Certain Relationships
and Related Transactions."
REPORT OF THE BOARD OF DIRECTORS
REGARDING EXECUTIVE COMPENSATION
Except for information relating to the compensation of Dr. Ben J. Lipps,
this report relates only to the compensation of the executives of the Company
since September 30, 1996, when the undersigned persons were elected to the Board
of Directors of the Company in connection with the Reorganization.
OVERALL PHILOSOPHY
The Company's overall executive compensation philosophy is based on the
premise that compensation should be aligned with and support the Company's
business strategy and long-term goals, and that it should give employees
incentives to enhance stockholder value. The key elements of executive
compensation are base salary, annual cash incentive (bonus) awards and stock
options for non-voting preference shares of Fresenius Medical Care, the
Company's parent corporation. Base salary is intended primarily to reward past
performance; annual cash bonus incentives are intended primarily to reward
achievement of specific performance goals during the year; and stock options are
designed primarily to foster an identity of interest between the employee and
Fresenius Medical Care.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Dr. Lipps' compensation currently consists of a base salary and cash
incentive (bonus) awards. Dr. Lipps' base salary was set under the terms of his
employment agreement with Fresenius USA, Inc., which became a wholly-owned
subsidiary of the Company in connection with the Reorganization. Dr. Lipps' base
compensation under that agreement was based on competitive pay practices, his
individual experience and breadth of knowledge and other subjective factors.
Future increases to his base salary are expected to be determined primarily on
the basis of his individual performance and contribution and involve the
application of both quantifiable and subjective criteria. Dr. Lipps does not
presently hold options under the FMC Plan but is eligible to receive awards
under the FMC Plan. Dr. Lipps' annual cash incentive award for 1996 was paid
based on the attainment of certain financial and individual performance targets
which were set during 1996. Dr. Lipps abstained from all Board discussions and
actions relating to his compensation.
COMPENSATION OF OTHER EXECUTIVE OFFICERS
Dr. Lipps makes recommendations to the Board of Directors concerning the
base salaries, annual cash incentive awards and stock option awards for the
executive officers of
22
<PAGE> 26
the Company other than himself. Annual cash incentive awards are granted based
on the achievement of financial targets and individual performance. The number
of stock options to be granted to any particular executive is based primarily on
that person's perceived ability to help the Company achieve its goals as well as
that person's base salary and potential bonus.
RETENTION BONUS PROGRAM
For 1996, the cash bonus awards paid to Messrs. Swett, Grieco and
Armstrong consisted solely of payments under the Retention Bonus Program adopted
by the Grace Broad of Directors on February 4, 1996. Such program was adopted to
encourage certain key employees to stay with the Company through the closing
date of a possible spinoff, merger or sale. No further amounts are due or
payable pursuant to the Retention Bonus Program.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code prohibits the Company
from deducting annual compensation in excess of $1 million paid to executive
officers named in the Summary Compensation Table of the Information Statement,
unless such compensation is performance-based and satisfies certain other
conditions. The Company intends to the extent practicable to qualify all
payments of compensation under Section 162(m).
William F. Grieco
Ben J. Lipps
Mathias R. Klingler
Gerd Krick
Geoffrey W. Swett
Udo Werle
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 24, 1997 certain information
with respect to each person who is known by the Company to own beneficially more
than 5% of each class of the voting securities of the Company, each director of
the Company, each nominee for director of the Company, certain executive
officers and all directors and officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES
NAME AND ADDRESS OF BENEFICIAL BENEFICIALLY PERCENTAGE
OWNERS OWNED OF CLASS
- ----------------------------------------------------------------
<S> <C> <C>
COMMON STOCK:
Fresenius Medical Care AG (1)
Borkenberg 14
61440 Oberursel
Germany 90,000,000 100.0%
---------- -----
All directors and executive
officers as a group 0 0
---------- -----
</TABLE>
23
<PAGE> 27
<TABLE>
<CAPTION>
SHARES
NAME AND ADDRESS OF BENEFICIAL BENEFICIALLY PERCENTAGE
OWNERS OWNED OF CLASS
- ----------------------------------------------------------------
<S> <C> <C>
6% PREFERRED STOCK:
Grace Institute (2)
c/o Marine Midland Bank
P.O. Box 1329
Buffalo, New York 14240 18,231 50.0%
---------- -----
Various former executive officers
and others, with respect to the
W.R. Grace & Co. Retirement
Plan for Salaried Employees (3) 9,648(T)(S) 26.5%
---------- -----
Lillius Gilchrest Grace Institute
(2) c/o Marine Midland Bank
P.O. Box 1329
Buffalo, New York 14240 3,406 9.3%
---------- -----
All directors and executive
officers as a group 0 0
---------- -----
CLASS A PREFERRED STOCK:
Namanco & Co.
P.O. Box 426
Exchange Place Station
69 Montgomery Street
Jersey City, New Jersey 07303 2,722 16.7%
---------- -----
All directors and executive
officers as a group 0 0
---------- -----
CLASS B PREFERRED STOCK:
Namanco & Co.
P.O. Box 426
Exchange Place Station
69 Montgomery Street
Jersey City, New Jersey 07303 4,951 22.9%
---------- -----
Various former executive officers
and others, with respect to the
W.R. Grace & Co. Retirement
Plan for Salaried Employees (3) 959(T)(S) 4.4%
---------- -----
</TABLE>
24
<PAGE> 28
<TABLE>
<CAPTION>
SHARES
NAME AND ADDRESS OF BENEFICIAL BENEFICIALLY PERCENTAGE
OWNERS OWNED OF CLASS
- ----------------------------------------------------------------
<S> <C> <C>
All directors and executive
officers as a group. 0 0
---------- -------
CLASS D PREFERRED STOCK:
---------- -------
Ben J. Lipps 100 (4)
---------- -------
Robert W. Armstrong, III 180 (4)
---------- -------
All directors and executive 280 (4)
officers as a group
</TABLE>
(1) Fresenius AG owns 50.3% of the outstanding Fresenius Medical Care Ordinary
Shares and none of the Fresenius Medical Care Preference Shares. The share
capital of Fresenius AG consists of Fresenius AG Ordinary Shares and non-voting
preference shares, nominal value DM 5 per share ("Fresenius AG Preference
Shares"), both of which are issued only in bearer from. Accordingly, Fresenius
AG has no way of determining who its shareholders are or how many shares any
particular shareholder owns. However, under the German Stock Corporation and
Securities Law, holders of voting securities of a German company listed on a
stock exchange within the European Union are obligated to notify the company of
certain levels of holdings.
Fresenius AG has been informed that the Else Kroner-Fresenius-Stiftung
(the "Foundation") owns 55.96% of the Fresenius AG Ordinary Shares. The
Foundation serves to promote medical science, primarily in the fields of
research and treatment of illnesses, including the development of apparatuses
and preparations. The Foundation may promote only those research projects the
results of which will be generally accessible to the public. The Foundation
further serves to promote the education of physicians or of others concerned
with the treatment and care of sick persons, primarily those working in the
field of dialysis, as well as to promote the education of particularly gifted
pupils and students. Effective March 1, 1997, the administrative board of the
Foundation consists of Mr. Hans Kroner (Chairman), Mr. Hans Goring (Vice
Chairman), Frankfurt/Main and Professor Dr. Volker Lang, Gauting. Until May 1,
1996, Mr. Kroner was a member of the Supervisory Board of Fresenius AG (the
"Fresenius AG Supervisory Board"). Pursuant to the terms of the will of the late
Mrs. Else Kroner, under which the Foundation acquired most of its shares, Mrs.
Kroner's executors exercise voting and dispositive power over the shares held by
the Foundation. The executors under Mrs. Kroner's will are Mr. Kroner, Dr.
Alfred Stiefenhofer and Dr. Karl Schneider. Mr. Kroner's address is Dipl.
Volkswirt Hans Kroner, Postfach 1852, 61288 Bad Homburg v.d.H., Germany. Dr.
Stiefenhofer's address is Norr, Stiefenhofer & Lutz, Brienner Strasse 28, 80333
Munich, Germany. Dr. Stiefenhofer is
25
<PAGE> 29
Chairman of the Fresenius AG Supervisory Board. Dr. Schneider's address is Dr.
Schneider, Werderstrasse 42, 68165 Mannheim, Germany. Dr. Schneider is a member
of the Fresenius AG Supervisory Board. Fresenius AG has been informed that
AW-Beteiligungs-GmbH ("AW") owns 9% of the Fresenius AG Ordinary Shares and
11.25% of the Fresenius AG Preference Shares, and that H.O.F.-Beteiligungs-GmbH
("HOF") owns 22.4% of the Fresenius AG Ordinary Shares. According to published
reports, HOF is 50%-owned by Dresdner Bank AG and 50%-owned by the Foundation.
Pursuant to a pooling agreement relating to the shares held by AW and HOF, the
Foundation has voting power over the shares held by AW and HOF. Accordingly,
through (i) their dispositive power over the shares of Fresenius AG held by the
Foundation and (ii) their power to direct the vote of the shares held by the
Foundation (including the shares subject to the pooling agreement), Mr. Kroner,
Dr. Stiefenhofer and Dr. Schneider may be deemed to beneficially own (under the
rules of the Commission, as distinguished from the German concept of beneficial
ownership), 87.36% of the voting shares of Fresenius AG.
(2) This entity is not affiliated with the Company.
(3) W. R. Grace & Co.-Conn. assumed sponsorship of the W. R. Grace & Co.
Retirement Plan for Salaried Employees in connection with the Reorganization.
(4) Less than 1%.
(T) Shares owned by trust and other entities as to which the person has the
power to direct voting and/or investment.
(S) Shares as to which the person shares voting and/or investment power with
others.
OWNERSHIP AND TRANSACTIONS REPORTS
Under Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company's directors, certain of its officers, and
beneficial owners of more than 10% of the outstanding shares of a class of the
Company's equity securities registered under the Exchange Act are required to
file reports with the SEC and the New York Stock Exchange concerning their
ownership of and transactions in the shares of such class; such persons are also
required to furnish the Company with copies of such reports. Based solely upon
the reports and related information furnished to the Company, the Company
believes that all such filing requirements were complied with in a timely manner
during and with respect to 1996. The Company's current directors and executive
officers were not subject to such reporting requirements during 1996, but became
subject to such requirements in connection with the registration of the
Company's Class D Preferred Stock under the Securities Exchange Act of 1934.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described above, Fresenius Medical Care acquired all of the Common
Stock of the Company in connection with the closing of the Reorganization on
September 30, 1996.
26
<PAGE> 30
Accordingly, the Company has entered into certain relationships and related
transactions with Fresenius Medical Care and Fresenius AG.
INVESTMENTS BY FRESENIUS MEDICAL CARE
Fresenius Medical Care is the beneficial owner of all 90,000,000
outstanding shares of the Company's Common Stock. Fresenius Medical Care owns no
shares of the Company's Preferred Stock.
The practical effect of its ownership of all outstanding shares of the
Company's Common Stock is to give Fresenius Medical Care an absolute majority of
the voting power attributable to the Company's voting securities with respect to
all matters in which the classes vote together. Accordingly, Fresenius Medical
Care possesses the ability, through its voting power and its power to elect a
majority of the Company's directors, to approve any actions requiring the vote
of the Company's shareholders, other than matters which materially affect the
rights of the holders of a particular class.
GUARANTEES OF THE COMPANY
The Company has executed a Subsidiary Guarantee in connection with a
Senior Subordinated Indenture dated as of November 27, 1996 (the "Indenture"),
under which Fresenius Medical Care was the Issuer. The Indenture was executed in
connection with the offering of 9% Trust Preferred Securities of Fresenius
Medical Care Capital Trust, a statutory business trust formed under the laws of
the State of Delaware. The proceeds of the offering of the 9% Trust Preferred
Securities were used to purchase 9% Subordinated Notes of Fresenius Medical
Care, and thereafter to repay indebtedness under a Credit Agreement entered into
by NMC and a syndicate of banks in connection with the Reorganization.
MATERIAL CONTRACTS BETWEEN FRESENIUS AG AND FRESENIUS USA AND BETWEEN FRESENIUS
MEDICAL CARE AND FRESENIUS USA
Prior to the Reorganization, Fresenius AG and Fresenius USA were parties
to numerous contracts and transactions with each other, both in the ordinary
course of business and otherwise. Fresenius Medical Care acquired all of
Fresenius AG's rights under such contracts and transactions. The following
summarizes such contracts and transactions during the three years ended December
31, 1996.
Technology. Pursuant to a technology license and know-how agreement, dated
April 22, 1994, Fresenius AG granted Fresenius USA an exclusive North American
license for the technology, processes and know-how for the manufacture of
polysulfone dialyzers, and Fresenius USA agreed to pay Fresenius AG royalties of
4.5% on Fresenius USA's net sales of dialyzers produced by it for a 10-year
period beginning January 1, 1996. Fresenius USA also obtained the contractual
right to Fresenius AG's know-how relating to certain
27
<PAGE> 31
peritoneal dialysis products incorporating the Safe-Lock(R) technology in the
U.S., Canada and Mexico. This license was acquired by Fresenius Medical Care in
connection with the Reorganization.
Products. During 1996, 1995 and 1994 Fresenius USA purchased $41.3
million, $90.6 million and $63.5 million, respectively, of hemodialysis
equipment and supplies from Fresenius AG prior to the Reorganization and from
Fresenius Medical Care following the Reorganization. Such products were
initially purchased pursuant to a distribution agreement entered into in 1991
and under which Fresenius USA acted as sole North American distributor for
Fresenius AG products for treatment of ESRD by hemodialysis. Prices charged
under that agreement were negotiated each year by the parties based on Fresenius
AG's estimated costs and desired profit margins, taking into account the
competitive environment in the U.S. market, and did not exceed the average of
the prices charged to Fresenius AG's other affiliated distributors. By its
terms, this distribution agreement terminates on the earlier of December 31,
2011 or the date Fresenius AG loses the power to elect 51% of the Fresenius USA
Board. Fresenius AG assigned this distribution agreement to Fresenius Medical
Care in connection with the Reorganization. In 1994, Fresenius USA and Fresenius
AG entered into a distribution agreement for certain of Fresenius AG's intensive
care and diagnostic products, including the Fresenius AS 104 Cell Separator.
Fresenius USA plans to transfer this business to Fresenius AG. Also during 1996,
1995 and 1994, Fresenius USA sold products to Fresenius AG and certain of its
subsidiaries having aggregate sales prices of approximately $1.3 million, $2.5
million and $4.0 million, respectively.
During 1996, NMC purchased $50.0 million of hemodialysis equipment and
supplies from Fresenius AG (including Fresenius USA) prior to the
Reorganization and from Fresenius Medical Care following the Reorganization.
Financial Support. Prior to the Reorganization, Fresenius AG provided
substantial financial support to Fresenius USA. Fresenius AG provided support
for a letter of credit obtained in connection with Fresenius USA's acquisition
of the renal dialysis business (other than the Calcijex(R) product line and
certain other excluded assets) of Abbott Laboratories ("Abbott") in the U.S.,
Australia and New Zealand (the "Abbott Acquisition"), provided credit support to
assist Fresenius USA in obtaining short-term lines of credit and participated in
and assisted with Fresenius USA's foreign exchange contracts. Fresenius AG also
participated in letters of credit in connection with Fresenius USA's industrial
revenue bonds until these bonds were prepaid in 1994.
As compensation for these services, Fresenius USA paid Fresenius AG an
aggregate fee of $336,000, the final installment of which was paid in 1994. In
addition, in February 1993, as consideration for certain past comfort letters
given in support of certain short-term borrowings and Fresenius AG's commitment
to provide up to $40 million of credit support in connection with the Abbott
Acquisition, Fresenius USA issued Fresenius AG a warrant to purchase 1,700,000
shares of Fresenius USA Common Stock at an exercise price of $8.00 per share,
and granted Fresenius AG a sublicense with respect to Abbott peritoneal dialysis
products for Europe, Central and South America, Australia and New Zealand. This
license is now held by Fresenius Medical Care. In April 1994, in exchange for
its agreement to provide support for a $25 million long-term line of credit for
use in completing and
28
<PAGE> 32
equipping Fresenius USA's dialyzer manufacturing facility in Ogden, Utah,
Fresenius USA issued to Fresenius AG a 10-year warrant for the purchase of
50,000 shares of Fresenius USA Common Stock at an exercise price of $10.57 per
share. If Fresenius USA had actually utilized this line of credit, this warrant
would have become exercisable for an additional 1,012,500 shares of Fresenius
USA Common Stock at the same price per share. This line of credit is no longer
available to Fresenius USA.
In June 1996, Fresenius AG exercised warrants it acquired in connection
with the Abbott Acquisition to purchase 1,515,221 shares of Fresenius USA Common
Stock at $8.00 per share, for an aggregate purchase price of $12,121,768. The
proceeds were used by Fresenius USA to repurchase options to purchase Fresenius
USA Common Stock and shares of Fresenius USA Common Stock from certain employees
and executive officers of Fresenius USA, including Dr. Ben Lipps, President and
Chief Executive Officer of Fresenius USA. See " Relationships and Transactions
with Directors and Executive Officers--Securities Repurchases" below.
Election of Directors. Until June 26, 1996, Fresenius AG was the
beneficial owner of all 200,000 outstanding shares of the Fresenius USA Series F
Preferred Stock. Under the terms of the 1987 agreement under which such stock
was purchased and the Restated Articles of Organization and By-laws of Fresenius
USA, holders of the Fresenius USA Series F Preferred Stock had certain special
rights, including the right to elect a majority of the Fresenius USA Board and
the right reasonably to object to any nominee for director to be elected by the
holders of Fresenius USA Common Stock. Pursuant to the rights granted to the
holders of the Fresenius USA Series F Preferred Stock, a majority of the
directors of Fresenius USA were, from 1989 until consummation of the
Reorganization, elected solely by Fresenius AG. Fresenius AG converted the
Fresenius USA Series F Preferred Stock into 3,129,883 shares of Fresenius USA
Common Stock on June 26, 1996.
RELATIONSHIPS AND TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
The following are descriptions of certain relationships and transactions
between the Company and its directors and executive officers (or members of
their families) and/or, businesses with which they are affiliated. See
"Executive Compensation -- Directors' Compensation and Consulting Arrangements"
for a discussion of certain other relationships and related transactions.
Securities Repurchases. On May 6, 1996, the Fresenius USA Compensation
Committee voted to accelerate the vesting of all outstanding unvested options
under the Fresenius USA 1987 Stock Option Plan held by officers of Fresenius USA
subject to Section 16(b) of the Exchange Act, including Dr. Lipps, resulting in
the acceleration of the vesting of 50,000 options held by Dr. Lipps and 12,000
options held by such officers. In June 1996, Dr. Lipps exercised options to
purchase 120,000 shares of Fresenius USA Common Stock at $3.125 per share, and
options to purchase 125,000 shares of Fresenius USA Common Stock at $7.125 per
share and sold such shares and 80,000 additional shares of Fresenius USA Common
Stock held by him to Fresenius USA at $18.00 per share. In September 1996, Dr.
Lipps sold options to purchase 450,000 shares of
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Fresenius USA Common Stock to Fresenius USA at a price of $5.25 per option
($2,362,500 in the aggregate). Such 450,000 options, together with the 245,000
options exercised by him prior to his sale of the underlying shares to Fresenius
USA, represented all of the options to purchase Fresenius USA Common Stock held
by him.
Fresenius USA in June 1996 also purchased from other Fresenius USA
employees 15,200 shares of Fresenius USA Common Stock at $18.00 per share and a
total of 555,045 options to purchase Fresenius USA Common Stock at a purchase
price equal to the excess of $18.00 over the relevant option exercise price, for
an aggregate purchase price of $6,181,820. Funds for the purchase of such shares
and options were obtained by Fresenius USA from the proceeds of the price paid
by Fresenius AG for the exercise of warrants to purchase Fresenius USA Common
Stock.
Contemporaneously with the closing of the Reorganization, Abbott
surrendered certain warrants (the "Abbott Warrants") to purchase 875,000 shares
of Fresenius USA Common Stock, and Fresenius USA paid Abbott $11,812,500 (equal
to the product of such number of shares and the excess of $21.50 over $8.00, the
exercise price of the Abbott Warrants). The Fresenius Medical Care Ordinary
Shares underlying the Fresenius Medical Care Ordinary ADSs issuable in respect
of the remaining shares of Fresenius USA Common Stock issuable upon exercise of
such Abbott Warrants (comprising approximately 324,342 Fresenius Medical Care
Ordinary Shares) were issued to Fresenius AG in connection with the closing of
the Reorganization. Fresenius AG agreed that upon Abbott's exercise of the
warrants, Fresenius AG will deliver to Abbott the Fresenius Medical Care
Ordinary Shares (or, at Abbott's election, Fresenius AG will deliver such
Fresenius Medical Care Ordinary Shares to the Depositary against issuance of
Fresenius Medical Care Ordinary ADRs evidencing the appropriate number of
Fresenius Medical Care Ordinary ADSs) issuable in accordance with the terms of
such Abbott Warrants. The exercise price payable upon exercise of the Abbott
Warrants will be retained by Fresenius AG and, if the Abbott Warrants expire
unexercised, Fresenius AG will retain the Fresenius Medical Care Ordinary Shares
issued to it in respect of such Abbott Warrants. Fresenius Medical Care assumed
Fresenius USA's obligations under a Registration Rights Agreement between
Fresenius USA and Abbott, as a result of which Abbott is entitled to require
Fresenius Medical Care to register under the Securities Act the Fresenius
Medical Care Ordinary ADSs issued to Abbott upon the exercise of such Abbott
Warrants.
Commercial Transactions. Mr. Costello, former Chairman, President and
Chief Executive Officer of Grace, is a director of Becton, Dickinson and Company
("Becton Dickinson") and FMC Corporation ("FMC"). During 1996, various units of
the Company purchased approximately $3.3 million of materials and/or products
from, and sold approximately $556,000 of materials and/or products to, units of
Becton Dickinson. In addition, during 1996 various units of the Company
purchased approximately $3.1 million of materials and/or products from, and sold
approximately $171,000 of materials and/or products to, FMC.
Thomas L. Gossage was a director of Grace from July 1995 to March 1996,
during which time he was chairman and chief executive officer of Hercules.
During 1996, the
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Company purchased approximately $428,000 of products from, and sold
approximately $36,000 of products to, Hercules.
The foregoing transactions were in the ordinary course of business and
were on terms Grace believed to be similar to those with unaffiliated parties.
Under his employment agreement and the terms of his resignation (see
"Employment Agreements" and "Resignations of Executive Officers" under the
heading "Compensation"), Dr. Hampers was previously granted an option to
purchase, for its fair market value, a Gulfstream IV aircraft owned by Grace. In
August 1996, Dr. Hampers purchased the aircraft for $19 million. This price was
based upon independent parties' estimates of the fair market value of the
aircraft.
Loans to Officers. W. R. Grace & Co.-Conn. previously made a $350,000
interest-free loan to Mr. Lempereur in connection with his relocation to
Florida.
Loans to Officers under FMC Plan. To comply with German corporate law
requirements, award grants under the FMC Plan are in the form of non-assignable
and non-transferable convertible bonds ("Bonds") and a corresponding
nonrecourse employee loan from Fresenius Medical Care ("Employee Loans") secured
solely by the Bonds with respect to which it was made. The Bonds have a
(Deutschemark (DM) denominated) face amount equal to the aggregate nominal
(par) value of the Fresenius Medical Care Preference Shares into which the
Bonds are convertible (in the form of Preference Shares or ADSs) and bear
interest at a rate determined by the Fresenius Medical Care Management Board.
The Employee Loans have a DM denominated principal amount equal to the
related Bonds and bear interest at the same rate. On conversion of a
Bond, the employee (if a U.S. citizen or resident) will pay the fair market
value (determined as of the day following the date of grant) of the underlying
ADSs. A portion of the conversion payment will be used to repay the Employee
Loan, and interest on the Employee Loan will be offset by interest payable on
the Bonds. Because the terms of the Employee Loan and Bond match in all
respects, award recipients pay nothing and receive nothing with respect to the
Bonds and the Employee Loans. A ruling from the Internal Revenue Service has
been requested that these arrangements are the functional equivalent of
nonqualified employee stock options, and Bonds may not be converted until a
satisfactory ruling has been received. In connection with the grant of awards
under the FMC Plan in January 1997, Employee Loans were made to Messrs. Swett,
Grieco and Armstrong of DM 166,666.66, DM 83,333.33 and DM 66,666.66,
respectively.
Legal Proceedings; Indemnification. Grace and former members of the Grace
Board of Directors (as well as J. P. Bolduc, who resigned as president and chief
executive officer and a director of Grace in March 1995), are defendants in a
case entitled Weiser, et al. v. Grace, et al. pending in New York State Supreme
Court, New York County. The consolidated amended complaint in this lawsuit,
which purports to be a derivative action (i.e., an action brought on behalf of
the Company), alleges, among other things, that the individual defendants
breached their fiduciary duties to Grace (1) by providing J. Peter Grace, Jr.
(the chairman and a director of Grace until his death in April 1995) with
certain compensation arrangements upon his voluntary retirement as Grace's chief
executive officer in 1992 and (2) by approving Mr. Bolduc's severance
arrangements, and that Messrs. Grace and Bolduc breached their fiduciary duties
by accepting such benefits and payments. The lawsuit seeks unspecified damages,
the cancellation of all allegedly improper agreements, the cancellation of the
retirement plan for nonemployee directors, the return of all remuneration paid
to the directors who are defendants while they were in breach of their fiduciary
duties to Grace, attorneys' and experts' fees and costs, and such other relief
as the Court deems proper.
In 1995, nine purported class action lawsuits were brought against Grace
and certain of its officers and directors in various federal courts. These
lawsuits have been consolidated in a case entitled Murphy, et al. v. W.R. Grace
& Co., et al. No. 95-CV-9003(JFK) (the "Murphy Action"), which is pending in the
U.S. District Court for the Southern District of New York. The first amended
class action complaint in this lawsuit, which purports to be a class action on
behalf of all persons and entities who purchased publicly traded securities of
Grace during the period from March 13, 1995 through October 17, 1995, generally
alleges that the defendants violated federal securities laws by concealing
information and issuing misleading public statements and reports concerning
NMC's financial position and business prospects, a proposed spin-off of NMC, and
the matters that are the subject of an investigation by the Office of the
Inspection General of the U.S. Department of Health and Human Services and an
investigation by a federal grand jury in the District of New Jersey. The Murphy
Action seeks unspecified damages, attorneys' and experts' fees and costs and
such other relief as the court deems proper.
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In October 1995, a purported derivative lawsuit was filed in the U.S.
District Court for the Southern District of Florida, Northern Division against
Grace, certain of its directors and its former President and Chief Executive
Officer, alleging, inter alia, that such individuals breached their fiduciary
duties by failing to properly supervise the activities of NMC in the conduct of
its business (Bennett v. Bolduc, et al. 95-8638-CIV-MORENO). In December 1995,
the plaintiff in this action filed a new action, based on similar allegations,
in the U.S. District Court for the Southern District of New York (Bennett v.
Bolduc, et al. 95-CV-10737 (AGS)) (the "Bennett Action"). The action in Florida
has been dismissed in favor of the Bennett Action. A second action making
similar allegations was filed in October 1995 in New York State Supreme Court,
New York County (Bauer v. Bolduc, et al. 95-125751). This action has been
stayed in favor of the Bennett Action, which has been consolidated, for
discovery purposes only, with the Murphy Action described above. The complaint
in the Bennett Action seeks unspecified damages, attorneys' and experts' fees
and costs and such other relief as the court deems proper. Pursuant to a case
management order issued by the Court in February 1996, the parties in the
consolidated litigation have begun discovery, including the exchange of
documents. The parties are currently exploring the possibility of settlement
before engaging in further discovery, and mediation has been proposed as a
possible method of dispute resolution. The outcomes of these actions cannot be
predicted, although the Company, NMC and the individual defendants believe that
they have substantial defenses to the claims asserted.
In February 1996, a purported class action was filed in New York State
Supreme Court, New York County, against Grace and certain of its current and
former directors, alleging that the defendants breached their fiduciary duties,
principally by failing to provide internal financial data concerning NMC and by
failing to negotiate with certain other companies that had made proposals for
business combinations involving NMC (Rosman v. W. R. Grace, et al. 96-102347).
The lawsuit seeks injunctive relief ordering defendants to carry out their
fiduciary duties and preventing or rescinding the Reorganization or any related
transactions with Fresenius AG, unspecified monetary damages, an award of
plaintiff's attorneys' and experts' fees and costs, and such other relief as the
court may deem just and proper. The plaintiff has not taken any steps to
prosecute the action since it was filed. The defendants believe this lawsuit is
without merit.
Grace was previously notified that the SEC had issued a formal order of
investigation with respect to Grace's prior disclosures regarding benefits and
retirement arrangements provided to J. Peter Grace, Jr. and certain matters
relating to J. Peter Grace III, a son of J. Peter Grace, Jr. The Company is
cooperating with the investigation. The outcome of this investigation and its
impact, if any, on the Company cannot be predicted at this time.
In April 1996, Grace received a formal order of investigation issued by
the SEC directing an investigation into, among other things, whether Grace
violated the federal securities laws by filing periodic reports with the SEC
that contained false and misleading financial information. Pursuant to this
formal order of investigation, Grace received a subpoena from the Southeast
Regional Office of the SEC requiring Grace to produce documents relating to
reserves (net of applicable taxes) established by Grace and NMC during the
period from January 1, 1990 to the date of the subpoena (the "Covered Period").
The Company believes that all financial statements filed by Grace with the SEC
during the
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Covered Period, including the financial statements of NMC included in the NMC
Form 10 filed with the SEC on September 25, 1995, and the consolidated financial
statements of Grace filed in Grace's Annual Report on Form 10-K for the year
ended December 31, 1995 (all of which financial statements, other than unaudited
quarterly financial statements, were covered by unqualified opinions issued by
Price Waterhouse LLP, independent certified public accountants), have been
fairly stated, in all material respects, in conformity with US GAAP. The Company
and NMC are cooperating with the SEC. The Company has recently received a
subpoena from the SEC requesting the production of certain corporate records and
personnel materials. The outcome of this investigation and its impact, if any,
on the Company or NMC cannot be predicted at this time.
W. R. Grace & Co.-Conn. has indemnified the Company and its affiliates for
any losses related to these lawsuits and investigations.
Dr. Hampers has instituted a lawsuit against the Company, W.R. Grace & Co.
- - Conn. and NMC alleging that he is entitled to certain additional retirement
benefits under his employment agreement and the terms of his resignation (see
"Employment Agreements" and "Resignations of Executive Officers" under
"Compensation" for additional information).
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP have been selected as the Company's independent
public accountants and auditors for 1997. Management of the Company expects that
representatives of KPMG Peat Marwick LLP will be present at the Annual Meeting
with the opportunity to make a statement if they desire to do so and respond to
appropriate questions.
CHANGES IN THE COMPANY'S CERTIFYING ACCOUNTANT
Effective September 30, 1996, and in connection with the
consummation of the Reorganization, the Company dismissed Price Waterhouse LLP
as its independent accountants. The reports of Price Waterhouse LLP on the
financial statements of the Company for the prior two fiscal years contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principle. In connection with its
audits for the fiscal years 1995 and 1994 and through March 31, 1997, there have
been no disagreements with Price Waterhouse LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which disagreements if not resolved to the satisfaction of Price
Waterhouse LLP, would have caused them to make reference thereto in their report
on the financial statements for such years. Subsequent to September 30, 1996,
Price Waterhouse LLP has not performed accounting services for the Company other
than (A) reissuance of its audit report (and issuance of its related consent)
with respect to the Company's consolidated balance sheets as of December 31,
1995 and 1994 and the related consolidated statements of earnings and cash flows
for each of the three years in the period ended December 31, 1995 in connection
with the filing of registration statements under the Securities Act of 1933 by
Fresenius Medical Care, and (B) reissuance of its audit report with respect to
the Company's consolidated balance sheet as of December 31, 1995 and the related
consolidated statements of earnings and cash flows for each of the two years in
the period ended December 31, 1995 in connection with the filing of the
Company's 1996 Annual Report on Form 10-K. During the fiscal years 1995 and 1994
and through September 30, 1996, no events required to be reported under SEC
Regulation S-K Item 304(a)(1)(v) occurred. On March 25, 1997, the Company
requested that Price Waterhouse LLP furnish it with a letter addressed to the
SEC stating whether or not Price Waterhouse LLP agrees with the above
statements. A copy of such letter from Price Waterhouse LLP has been filed as an
exhibit to Form 8-K filed by the Company with the SEC on March 27, 1997 and may
be inspected at the Public Reference Room of the SEC.
Subsequent to the consummation of the Reorganization, pursuant to
which the Company became a subsidiary of Fresenius Medical Care, the Company
engaged KPMG Peat Marwick LLP as its independent accountants. The dismissal of
Price Waterhouse LLP and the engagement of KPMG Peat Marwick LLP were approved
by Fresenius Medical Care and ratified by the Company's Board of Directors
on March 27, 1997, which such change of accountants was effective as of
September 30, 1996. Prior to the Reorganization, KPMG Peat Marwick LLP
were the independent accountants for Fresenius USA and KPMG Deutsche-Treuhand
Gesellschaft ("KPMG D-TG") were the independent accountants for Fresenius AG.
KPMG D-TG are currently the independent accountants for Fresenius Medical Care
and Fresenius AG. In connection with the engagement of KPMG Peat Marwick LLP,
the Company and Fresenius Medical Care consulted with KPMG Peat Marwick LLP and
KPMG D-TG concerning the accounting treatment of the Reorganization. In
accordance with the advice of KPMG Peat Marwick LLP, the Reorganization has been
accounted for as a purchase of the Company by Fresenius Medical Care.
OTHER MATTERS
FORM 10-K
The Company's Annual Report on Form 10-K for the year ended December 31,
1996, filed by the Company with the SEC, is being provided to you with this
Information Statement. ADDITIONAL COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 1996, MAY BE OBTAINED WITHOUT CHARGE BY
CONTACTING THE SECRETARY OF THE COMPANY, TWO LEDGEMONT CENTER, 95 HAYDEN AVENUE,
LEXINGTON, MASSACHUSETTS 02173
(TELEPHONE: (617) 402-9000).
OTHER BUSINESS
The Company does not know of any other business that will be presented for
consideration at the Annual Meeting. However, if any other business should come
before the Annual Meeting, management of the Company will have discretion to act
in accordance with its best judgment.
PROPOSALS FOR 1998 ANNUAL MEETING
Any shareholder wishing to submit a proposal for inclusion in the Proxy
Statement for the 1998 Annual Meeting pursuant to the shareholder proposal rules
of the SEC should submit the proposal in writing to William F. Grieco, General
Counsel and Secretary, Fresenius National Medical Care Holdings, Inc., Two
Ledgemont Center, 95 Hayden Avenue, Lexington, Massachusetts
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02173. The Company must receive a proposal by January 11, 1998 in order to
consider it for inclusion in the 1998 Proxy Statement.
In addition, the Company's By-laws require that shareholders give advance
notice and furnish certain information to the Company in order to bring a matter
of business before an annual meeting or to nominate a person for election as a
director. Any communication relating to those By-law provisions should be
directed to Mr. Grieco at the above address.
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APPENDIX A
CERTIFICATE OF AMENDMENT OF
THE CERTIFICATE OF INCORPORATION
OF FRESENIUS NATIONAL MEDICAL CARE HOLDINGS, INC.
UNDER SECTION 805 OF THE BUSINESS
CORPORATION LAW
The undersigned, being the President and the Secretary, respectively, of
Fresenius National Medical Care Holdings, Inc., hereby certify that:
1. The name of the corporation is FRESENIUS NATIONAL MEDICAL CARE
HOLDINGS, INC. (the "CORPORATION"). The Corporation was formed under the name
W. R. Grace & Co.-New York, subsequently renamed W. R. Grace & Co., and then
renamed Fresenius National Medical Care Holdings, Inc.
2. The Certificate of Incorporation of the Corporation was filed by the
Department of State on the 23rd day of March, 1988.
3. This Certificate of Amendment has been duly authorized, pursuant to
Section 803 of the Business Corporation Law of the State of New York, by a vote
of at least a majority of the members of the Board of Directors of the
Corporation, followed by the vote of the holders of a majority of all
outstanding shares entitled to vote thereon at a meeting of shareholders duly
called for such purpose.
4. (i) The Certificate of Incorporation is amended to change the name of
the Corporation.
5. (i) Article FIRST of the Certificate of Incorporation of the
Corporation is hereby amended to be as follows:
FIRST: The name of the Corporation is
FRESENIUS MEDICAL CARE HOLDINGS, INC.
6. (i) The Certificate of Incorporation is amended to change the number of
directors and eliminate their classification over time.
(ii) Article FIFTH, paragraph (a) of the Certificate of Incorporation
of the Corporation is hereby amended to read as follows:
FIFTH: (a) The number of directors constituting the entire Board of
Directors of the Corporation shall be such number, not less than three nor
more than nine, as
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may be fixed from time to time by a majority of the entire Board, except
that no such action shall shorten the term of any incumbent director.
(iii) Article FIFTH, paragraph (b) of the Certificate of Incorporation
of the Corporation is hereby amended to read as follows:
(b) The Board of Directors shall be divided into three classes,
designated Class I, Class II and Class III until the 1999 annual meeting,
at which time directors will no longer be referred to or designated by
class. Until such time as classification is eliminated, each class shall
consist of approximately one-third of the entire Board. The initial Class
I directors shall hold office until the 1990 annual meeting of
shareholders, the initial Class II directors shall hold office until the
1991 annual meeting of shareholders, and the initial Class III directors
shall hold office until the 1989 annual meeting of shareholders, and in
each case until their respective successors have been elected and have
qualified. At each succeeding annual meeting of shareholders, beginning in
1989, successors to the class of directors whose term expires at that
annual meeting shall be elected for a three-year term. Commencing in 1997,
successors to the class or classes of directors whose term or terms expire
at that annual meeting shall be elected for a term that shall commence at
such annual meeting and shall hold office until the next annual meeting of
shareholders and until their successors have been elected and have
qualified. At each succeeding annual meeting of shareholders, beginning in
1999, all directors shall be elected for a term that shall commence at
such annual meeting and shall hold office until the next annual meeting of
shareholders and until their successors have been elected and have
qualified, and directors shall no longer be referred to or designated by
class.
IN WITNESS WHEREOF, we have signed this Certificate of Amendment on this
____ day of __________, 1997 and we affirm the statements contained therein as
true under penalties of perjury.
FRESENIUS NATIONAL MEDICAL CARE
HOLDINGS, INC.
---------------------------------------
Name: Ben J. Lipps
Title: President
---------------------------------------
Name: William F. Grieco
Title: Secretary
A-2
