<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Genesis Health Ventures
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
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LOGO Genesis Health Ventures(SM)
148 West State Street
Kennett Square, PA 19348
Tel 610 444 6350
Fax 610 444 3365
January 21, 1997
Dear Shareholder:
You are cordially invited to attend the 1997 Annual Meeting of
Shareholders of Genesis Health Ventures, Inc. which will be held
on Thursday, March 6, 1997 at 10:00 A.M., at 209 Dalmatian Street,
Kennett Square, Pennsylvania 19348. The official notice of the
meeting together with a proxy statement and form of proxy are
enclosed. Please give this information your careful attention.
Shareholders of the Company are being asked to elect two
directors of the Company to serve for three-year terms until
the 2000 Annual Meeting of Shareholders and to approve an
amendment to the Company's Employee Stock Option Plan.
Whether or not you expect to attend the meeting in person, it
is important that your shares be voted at the meeting. I urge
you to specify your choices by marking the enclosed proxy and
returning it promptly.
Sincerely,
/s/ Michael R. Walker
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MICHAEL R. WALKER
Chairman and
Chief Executive Officer
<PAGE>
GENESIS HEALTH VENTURES, INC.
148 WEST STATE STREET
KENNETT SQUARE, PA 19348-3021
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MARCH 6, 1997
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To Our Shareholders:
The 1997 Annual Meeting of Shareholders of Genesis Health
Ventures, Inc. (the "Company") will be held at 209 Dalmatian
Street, Kennett Square, Pennsylvania 19348, on Thursday, March 6,
1997 at 10:00 A.M., for the following purposes as more fully
described in the annexed Proxy Statement:
1. To elect two directors for terms of three years each;
2. To consider and act on an amendment to the Company's
Employee Stock Option Plan which increases the number of
shares issuable under the Plan from 3,750,000 to 4,500,000;
and
3. To transact such other business as may properly come before
the meeting or any postponement or adjournment thereof.
The Board of Directors has fixed December 20, 1996, as the
record date for the determination of shareholders entitled to vote
at the meeting. Only shareholders of record at the close of
business on that date will be entitled to notice of, and to vote
at, the meeting.
You are cordially invited to attend the meeting in person.
Whether or not you expect to attend the meeting in person,
you are urged to sign and date the enclosed proxy and return
it promptly in the envelope provided for that purpose.
By the Order of the Board of Directors
/s/ Ira C. Gubernick
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IRA C. GUBERNICK
Corporate Secretary
January 21, 1997
<PAGE>
GENESIS HEALTH VENTURES, INC.
148 West State Street
Kennett Square, PA 19348-3021
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PROXY STATEMENT
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This proxy statement, which together with the accompanying proxy card is
first being mailed to shareholders on or about January 21, 1997, is furnished
to the shareholders of the Company in connection with the solicitation of
proxies by the Board of Directors on behalf of the Company for use in voting
at the 1997 Annual Meeting of Shareholders, including any adjournment or
postponement thereof.
Proxies in the form enclosed, if properly executed and received in time
for voting, and not revoked, will be voted as directed in accordance with the
instructions thereon. Any proxy not so directing to the contrary will be
voted FOR the Company's nominees as directors and FOR approval of the
amendment to the Employee Stock Option Plan. Sending in a signed proxy will
not affect a shareholder's right to attend the meeting and vote in person
since the proxy is revocable. Any shareholder giving a proxy may revoke it at
any time before it is voted at the meeting by delivering a later dated proxy
or by giving written notice to the Secretary of the Company.
The cost of this solicitation will be borne by the Company. In addition to
solicitation by mail, proxies may be solicited in person or by telephone,
telegraph or facsimile by directors, officers or employees of the Company and
its subsidiaries without additional compensation. In addition, Corporate
Investors Communications, Inc. will provide solicitation services to the
Company for a fee of approximately $4,000 plus out-of-pocket expenses. The
Company will, on request, reimburse shareholders of record who are brokers,
dealers, banks or voting trustees, or their nominees, for their reasonable
expenses in sending proxy materials and annual reports to the beneficial
owners of the shares they hold of record.
VOTING SECURITIES
At the close of business on December 20, 1996, the record date for the
determination of shareholders entitled to receive notice of and to vote at
the meeting, the Company's outstanding voting securities consisted of
34,900,863 shares of Common Stock. Holders of Common Stock are entitled to
one vote per share.
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PRINCIPAL SHAREHOLDERS
The following table sets forth at November 30, 1996, certain information
with respect to the beneficial ownership of Common Stock (i) by each person
who is known by the Company to be the beneficial owner of more than five
percent of the Common Stock, (ii) by each director and nominee for director,
(iii) by each of the Company's five most highly compensated executive
officers and (iv) by all directors and executive officers as a group.
<TABLE>
<CAPTION>
Shares of
Common Stock Percent of
Beneficially Common Stock
Owned (1) Owned
-------------- --------------
<S> <C> <C>
Putnam Investments, Inc. (2)
One Post Office Square
Boston, Massachusetts 02109 ............................................ 2,969,041 8.51%
AIM Management Group Inc. (3)
11 Greenway Plaza
Houston, Texas 77046 ................................................... 2,339,781 6.70%
Fred F. Nazem (4) ........................................................ 1,623,704 4.65%
Allen R. Freedman(5) ..................................................... 4,500 *
Richard R. Howard (6) .................................................... 258,202 *
Samuel H. Howard (7) ..................................................... 26,250 *
Roger C. Lipitz (8) ...................................................... 19,000 *
Stephen E. Luongo (9) .................................................... 41,018 *
Alan B. Miller (10) ...................................................... 17,000 *
Michael R. Walker (11) ................................................... 767,876 2.20%
David C. Barr (12) ....................................................... 179,875 *
George V. Hager, Jr. (13) ................................................ 93,599 *
Edward B. Romanov, Jr.(14) ............................................... 98,947 *
All executive officers and directors as a group (16 persons) ............. 3,254,232 9.32%
</TABLE>
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* Less than one percent.
(1) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in
the regulations of the Securities and Exchange Commission (the
"Commission") and accordingly, may include securities owned by or for,
among others, the spouse, children or certain other relatives of such
person as well as other securities as to which the person has or shares
voting or investment power or has the right to acquire within 60 days
after November 30, 1996. The same shares may be beneficially owned by
more than one person. Beneficial ownership may be disclaimed as to
certain of the securities.
(2) Based upon a Schedule 13G, dated January 15, 1996. Consists of 2,505,019
shares beneficially owned by Putnam Investment Management, Inc. and
464,022 shares beneficially owned by The Putnam Advisory Company, Inc.
which are registered investment advisors, are wholly-owned by Putnam
Investments, Inc. Putnam Investments, Inc. is a wholly-owned subsidiary
of Marsh & McLennon Companies, Inc.
(3) Based upon a Schedule 13G, dated November 9, 1995.
(4) Consists of 966,724 shares of Common Stock held by Nazem & Company, II,
L.P., 630,480 shares of Common Stock held by Nazem & Company, III, L.P
and 22,500 shares of Common Stock which may be acquired upon the
exercise of stock options.
(5) Consists of 4,500 shares which may be acquired upon the exercise of
stock options.
(6) Includes 46,877 shares of Common Stock held of record by the Retirement
Plan as to which Mr. Howard shares voting power and 152,375 shares which
may be acquired upon the exercise of stock options.
(7) Consists of 22,500 shares which may be acquired upon the exercise of
stock options.
(8) Consists of 9,000 shares which may be acquired upon the exercise of
stock options.
(9) Includes 27,000 shares which may be acquired upon the exercise of stock
options.
(10) Consists of 13,500 shares which may be acquired upon the exercise of
stock options.
(11) Includes 46,877 shares of Common Stock held of record by the Retirement
Plan as to which Mr. Walker shares voting power and 334,500 shares of
Common Stock which may be acquired upon the exercise of stock options.
(12) Includes 176,825 shares which may be acquired upon the exercise of stock
options.
(13) Includes 93,000 shares which may be acquired upon the exercise of stock
options.
(14) Includes 38,499 shares which may be acquired upon the exercise of stock
options.
2
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PROPOSAL 1
ELECTION OF DIRECTORS
INFORMATION CONCERNING NOMINEES
Two directors are to be elected at the Annual Meeting to serve three-year
terms until the 2000 Annual Meeting of Shareholders and until their
respective successors are elected and qualified.
The Board of Directors has designated the persons listed below to be
nominees for election as directors:
<TABLE>
<CAPTION>
Name Age Position with the Company
---------------------------- ----- -----------------------------------
<S> <C> <C>
Stephen E. Luongo (1) ...... 49 Director
Michael R. Walker (2) ...... 48 Chairman and Chief Executive Officer
</TABLE>
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(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Executive Committee of the Board of Directors.
Stephen E. Luongo has served as a director of the Company since June 1985.
He is a partner in the law firm of Blank Rome Comisky & McCauley. Blank Rome
Comisky & McCauley serves as outside legal counsel for the Company.
Michael R. Walker, founder of the Company, has served as Chairman and
Chief Executive Officer of the Company since its inception. In 1981, Mr.
Walker co-founded Health Group Care Centers ("HGCC"). At HGCC, he served as
Chief Financial Officer and, later, as President and Chief Operating Officer.
Prior to its sale in 1985, HGCC operated nursing homes with 4,500 nursing
beds in 12 states. From 1978 to 1981, Mr. Walker was the Vice President and
Treasurer of AID Healthcare Centers, Inc. ("AID"). AID, which owned and
operated 20 nursing centers, was co-founded in 1977 by Mr. Walker as the
nursing home division of Hospital Affiliates, Inc. ("HAI"). Mr. Walker is a
member of the Board of Directors of Renal Treatment Centers, Inc. and the
Board of Trustees of Universal Health Realty Income Trust.
Stephen E. Luongo and Michael R. Walker are currently serving as directors
of the Company and have consented to being named in this Proxy Statement and
to serve if elected. The Company has no reason to believe that any of the
nominees will be unavailable for election. Should any nominee become
unavailable for any reason, the Board of Directors may designate a substitute
nominee.
Unless authority has been withheld, the proxy agents intend to vote FOR
the election of all of the Company's nominees. The election of a director
requires the affirmative vote of a majority of the votes cast by all
shareholders represented and entitled to vote thereon. An abstention,
withholding of authority to vote or broker non-vote, therefore, will not have
the same legal effect as an "against" vote and will not be counted in
determining whether the nominee has received the required shareholder vote.
The Board of Directors unanimously recommends that you vote "For" the
election of all nominees.
INFORMATION CONCERNING CONTINUING DIRECTORS
The following tables set forth certain information concerning those
directors whose terms will expire at the 1998 and 1999 Annual Meetings of
Shareholders:
<TABLE>
<CAPTION>
Name Age Position with the Company
-------------------------------------------------------- ----- -----------------------------------------------
<S> <C> <C>
The terms of the following directors will expire in
1998:
Roger C. Lipitz (1) .................................... 54 Director
Alan B. Miller (2) ..................................... 58 Director
Fred F. Nazem (3) ...................................... 56 Director
The terms of the following directors will expire in
1999:
Richard R. Howard (3) .................................. 47 President, Chief Operating Officer and Director
Samuel H. Howard (1), (2) .............................. 57 Director
Allen R. Freedman (1) .................................. 56 Director
</TABLE>
3
<PAGE>
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(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee and Stock Option Subcommittee of the
Board of Directors.
(3) Member of the Executive Committee of the Board of Directors.
Roger C. Lipitz has served as a director of the Company since March, 1994.
From 1969 until its acquisition by the Company in 1993, Mr. Lipitz served as
Chairman of the Board of Meridian Healthcare, Inc., a Maryland based long
term care company which operated over 5,000 beds and related businesses. Mr.
Lipitz is a past president of the American Health Care Association, Health
Facilities Association of Maryland and the National Council of Health Care
Services. Mr. Lipitz is a member of the Board of Directors of Blue Cross and
Blue Shield of Maryland.
Alan B. Miller has served as a director of the Company since October,
1993. Since 1978, he has been Chairman of the Board, President and Chief
Executive Officer of Universal Health Services, Inc., a Pennsylvania based
health services company. Prior thereto, Mr. Miller was Chairman of the Board,
President and Chief Executive Officer of American Medicorp, Inc. Mr. Miller
is a member of the Board of Trustees of Universal Health Realty Income Trust
and the Board of Directors of GMIS, Inc.
Fred F. Nazem has served as a director of the Company since January 1989.
He is the founder and Managing Partner of Nazem & Company, a New York-based
venture capital organization which manages a number of private partnerships
funded by major American and international institutions. Prior to forming the
partnerships, Mr. Nazem founded and managed two venture capital partnerships
and an investment advisory firm, the GeoCapital Corporation. Before that, he
had various investment management positions at the Irving Trust Company,
including Vice President in charge of venture capital. Mr. Nazem is a member
of the Board of Directors of Consep, Inc., Tegal Corporation, Oxford Health
Plans, Inc. and Spatial Technology, Inc.
Richard R. Howard has served as a director of the Company since its
inception and as Chief Operating Officer since June, 1986. He joined the
Company in September 1985 as Vice President of Development. Mr. Howard's
background in healthcare includes two years as the Chief Financial Officer
HGCC. Mr. Howard's experience also includes over ten years with Fidelity
Bank, Philadelphia, Pennsylvania and one year with Equibank, Pittsburgh,
Pennsylvania.
Samuel H. Howard has served as a director of the Company since March,
1988. He is the founder and Chairman of Phoenix Healthcare Corporation
("Phoenix Healthcare") and the founder and President of Phoenix
Communications Group, Inc. ("Phoenix Group") and Phoenix Holdings, Inc. all
of which are based in Nashville, Tennessee. Formed in 1993, Phoenix
Healthcare provides management services for managed care organizations,
including health maintenance organizations serving Tennessee's Medicaid
population through the innovative TennCare program which offers a managed
care approach to meeting the healthcare needs of Tennessee's Medicaid and
uninsured populations. Mr. Howard's past corporate and operations experience
in the healthcare industry include having served as the Senior Vice President
of Public Affairs for Hospital Corporation of America from August 1981 to
January 1990, Vice President and Treasurer for HAI, and Vice President of
Finance and Business for Meharry Medical College. In addition, Mr. Howard was
a financial analyst for General Electric and a White House Fellow with U.S.
Ambassador Arthur Goldberg. Mr. Howard is a member of the Board of Directors
of O'Charley's, Inc.
Richard R. Howard and Samuel H. Howard are not related.
Allen R. Freedman has served as a director of the Company since February,
1996. Since 1990, Mr. Freedman has served on the executive board of Fortis, a
multinational financial services organization, which is the operating entity
of Fortis AG, based in Belgium, and Fortis AMEV, based in the Netherlands.
Since 1990, he has been Chairman and Chief Executive Officer of Fortis, Inc.
and Chairman of the Board of its principal insurance and investment
affiliates in the United States. These affiliates include American Security
Group; Fortis Benefits Insurance Company; Time Insurance Company; and United
Family Life Insurance Company. Mr. Freedman served as President of Fortis,
Inc. from 1979 to 1990. Mr. Freedman is also a director of Fortis Advisors,
Inc. and Systems and Computer Technology Corporation.
BOARD MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors held four regular meetings and six special meetings
during the fiscal year ended September 30, 1996.
4
<PAGE>
The Executive Committee held four meetings during the fiscal year ended
September 30, 1996. The Executive Committee has the authority of the Board of
Directors in the management of the business of the Company between the dates
of regular meetings of the Board of Directors.
The Compensation Committee held two meetings during the fiscal year ended
September 30, 1996. The Compensation Committee reviews the compensation of
executive officers, makes recommendations to the Board regarding executive
compensation and, through its Stock Option Subcommittee, administers the
Company's Employee Stock Option Plan and Incentive Compensation Program.
The Audit Committee held two meetings during the fiscal year ended
September 30, 1996. The Audit Committee is responsible for reviewing the
Company's accounting and financial practices and policies and the scope and
results of the Company's audit. The Audit Committee is also responsible for
recommending the selection of the Company's independent public accountants.
The Company does not have a standing nominating committee.
Each director attended more than 75% of the meetings of the Board and
committees of which they were members during the fiscal year ended September
30, 1996, except that Alan R. Freedman attended 57% of the meetings of the
Board and committee to which he is a member.
Directors who are not employees of the Company receive an annual retainer
of $6,000 plus $2,500 for each regularly scheduled Board meeting which they
attend and annually receive options to purchase 4,500 shares of Common Stock
at an option price equal to the share's fair market value on the date of the
grant. See "Executive Compensation and Certain Transactions -- Stock Option
Plans -- Director Plan."
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE COMPANY'S EMPLOYEE
STOCK OPTION PLAN
On, November 13, 1996 the Board of Directors approved an amendment to the
Company's 1985 Amended and Restated Employee Stock Option Plan (the "Employee
Plan") that increased the maximum number of shares issuable under the
Employee Plan by 750,000 shares to a total of 4,500,000 shares, subject to
approval by the shareholders of the Company.
In fiscal 1996, the Company revised its incentive compensation program,
which provided for cash bonuses and stock options, with its new incentive
compensation program. Under the revised incentive compensation program, stock
options issued under the Employee Plan are the sole form of incentive
compensation to most eligible employees. Assuming approval of the amendment
to increase the number of shares issuable under the Employee Plan by 750,000,
options for a total of 3,760,700 shares are issued under the Employee Plan,
corresponding to 10.7% of the total shares outstanding as of December 20,
1996. See "Executive Compensation and Certain Transactions -- Incentive
Compensation Program."
INCREASE IN AUTHORIZED SHARES
Currently, options for a total of 3,750,000 shares may be issued under the
Employee Plan. Of these shares, no shares remain currently available for
future options, assuming approval of the proposed amendment. The amendment
increases the maximum number of shares issuable under the Employee Plan by
750,000 to a total of 4,500,000 shares. Of these shares, a determination has
been made that all of the proposed additional 750,000 options will be
allocated among eligible participants in the Employee Plan. If the
shareholders do not approve the increase, then the maximum number of shares
issuable under the Employee Plan will remain at 3,750,000.
The purpose of the proposed increase is to provide sufficient shares for
future option grants to officers, key employees, consultants and advisors of
the Company. The Board of Directors believes that the Company should have
shares available under the Employee Plan to provide options to certain of its
officers, key employees, consultants and advisors. The Board of Directors
believes that the Company and its shareholders significantly benefit from
having the Company's key management employees receive options to purchase the
Company's Common Stock, and that the opportunity thus afforded these
employees to acquire Common Stock is an essential element of an effective
management incentive program. The Board of Directors also believes that stock
options, particularly incentive stock options, are very valuable in
attracting and retaining highly qualified management personnel and in
providing additional motivation to management to use their best efforts on
behalf of the Company and its shareholders.
Set forth below is a summary of certain significant provisions of the
Employee Plan.
5
<PAGE>
GENERAL
Pursuant to the Employee Plan, stock options may be granted which are
intended to qualify as incentive stock options ("Incentive Options") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as
well as stock options not intended to so qualify ("Non-Qualified Options").
The primary purpose of the Employee Plan is to provide additional incentive
to key employees and officers of the Company by encouraging them to invest in
the Company's Common Stock and thereby acquire a proprietary interest in the
Company and an increased personal interest in the Company's continued success
and progress.
ELIGIBILITY AND ADMINISTRATION
All officers and key employees of, and consultants and advisors to, the
Company or any current or future subsidiary ("Subsidiary") (currently in
excess of 750 people) are eligible to receive options under the Employee
Plan. The Employee Plan is administered by the Stock Option Subcommittee of
the Compensation Committee ("the Stock Option Subcommittee"). Subject to the
provisions of the Employee Plan, the Stock Option Subcommittee determines,
among other things, which officers, directors, key employees, consultants and
advisors of the Company and any subsidiary will be granted options under the
Employee Plan, whether options granted will be Incentive Options or
Non-Qualified Options, the number of shares subject to an option, the time at
which an option is granted, the rate of option exercisability, the duration
of an option and the exercise price of an option. The Stock Option
Subcommittee has the exclusive right to adopt or rescind rules for the
administration of the Employee Plan, correct defects and omissions in,
reconcile inconsistencies in, and construe the Employee Plan. The Stock
Option Subcommittee also has the right to modify, suspend or terminate the
Employee Plan, subject to certain conditions.
NUMBER OF SHARES ADJUSTMENT
The aggregate number of shares which may be issued upon the exercise of
options granted under the Employee Plan will be increased as a result of the
proposed amendment from 3,750,000 to 4,500,000 shares of the Company's Common
Stock. The aggregate number and kind of shares issuable under the Employee
Plan is subject to appropriate adjustment to reflect changes in the
capitalization of the Company, such as by stock dividend, stock split or
other circumstances deemed by the Stock Option Subcommittee to be similar.
Any shares of Common Stock subject to options that terminate unexercised will
be available for future options granted under the Employee Plan.
EXERCISE PRICE AND TERMS
The exercise price for Incentive Options granted under the Employee Plan
must be equal to at least 100% of the fair market value of the Company's
Common Stock as of the date of the grant of the option, except that the
option exercise price of Incentive Options granted to an individual owning
shares of the Company possessing more than 10% of the total combined voting
power of all classes of stock of the Company must not be less than 110% of
the fair market value as of the date of the grant of the option. The option
price for Non-Qualified Options must equal at least 85% of the fair market
value of the Common Stock on the date of the grant.
Unless terminated earlier by the option's terms, Non-Qualified Options and
Incentive Options granted under the Employee Plan will expire ten years after
the date they are granted, except that if Incentive Options are granted to an
individual owning shares of the Company possessing more than 10% of the total
combined voting power of all classes of stock of the Company on the date of
the grant, such options will expire five years after the date they are
granted.
Payment of the option price on exercise of Incentive Options and
Non-Qualified Options may be made in cash, shares of Common Stock of the
Company or a combination of both. Under the terms of the Employee Plan, the
Stock Option Subcommittee could interpret the provision of the plan which
allows payment of the option price in shares of Common Stock of the Company
to permit the "pyramiding" of shares in successive, simultaneous exercises.
As a result, an optionee could initially exercise an option in part,
acquiring a small number of shares of Common Stock and immediately thereafter
effect further exercises of the option, using the shares of Common Stock
acquired upon earlier exercises to pay for an increasingly greater number of
6
<PAGE>
shares received on each successive exercise. This procedure could permit an
optionee to pay the option price by using a single share of Common Stock or a
small number of shares of Common Stock and to acquire a number of shares of
Common Stock having an aggregate fair market value equal to the excess of (a)
the fair market value of all shares to which the option relates over (b) the
aggregate exercise price under the option.
TERMINATION OF SERVICE, DEATH AND DISABILITY
All unexercised options will terminate three months following the date an
optionee ceases to be employed by the Company or any Subsidiary, other than
by reason of disability or death (but in no event later than the expiration
date). An optionee who ceases to be an employee because of a disability must
exercise the option within one year after he ceases to be an employee (but in
no event later than the expiration date). The heirs or personal
representative of a deceased optionee who could have exercised an option
while alive may exercise such option within one year following the optionee's
death (but in no event later than the expiration date). No option granted
under the Employee Plan is transferable except by the laws of descent and
distribution in the event of death.
FEDERAL INCOME TAX CONSEQUENCES
Non-Qualified Options. Generally, there will be no federal income tax
consequences to either the optionee or the Company on the grant of a
Non-Qualified Option. On the exercise of a Non-Qualified Option, the optionee
(except as described below) has taxable ordinary income equal to the excess
of the fair market value of the shares acquired on the exercise date over the
option price of the shares. The Company will be entitled to a federal income
tax deduction in an amount equal to such excess, provided that the Company
(i) complies with applicable withholding rules and (ii) either the deduction
limitation imposed by Section 162(m) of the Internal Revenue Code of 1986, as
amended ("Code") is not exceeded or the Non-Qualified Options are excepted
from the limitation imposed by Section 162(m) by reason of qualifying under
the performance based compensation exception contained in Section 162(m). See
"Section 162(m)" below.
Upon the sale of stock acquired by exercise of a Non-Qualified Option,
optionees will realize long-term or short-term capital gain or loss depending
upon their holding period for such stock. Under current law, net capital gain
(net long term capital gain less net short term capital loss) is subject to a
maximum tax rate of 28%. Capital losses are deductible only to the extent of
capital gains for the year plus $3,000 for individuals.
An optionee who surrenders shares in payment of the exercise price of a
Non-Qualified Option will not recognize gain or loss with respect to the
shares so delivered unless such shares were acquired pursuant to the exercise
of an Incentive Stock Option and the delivery of such shares is a
disqualifying disposition. See "Incentive Stock Options" below. The optionee
will recognize ordinary income on the exercise of the Non-Qualified Option as
described above. Of the shares received in such an exchange, that number of
shares equal to the number of shares surrendered will have the same tax basis
and capital gains holding period as the shares surrendered. The balance of
the shares received will have a tax basis equal to their fair market value on
the date of exercise and the capital gains holding period will begin on the
date of exercise.
Incentive Stock Options. Generally, under the Code, an optionee will not
realize taxable income by reason of the grant or the exercise of an Incentive
Option (see, however, the discussion of alternative minimum tax below). If an
optionee exercises an Incentive Option and does not dispose of the shares
until the later of (i) two years from the date the option was granted and
(ii) one year from the date of exercise, the entire gain, if any, realized
upon disposition of such shares will be taxable to the optionee as long-term
capital gain, and the Company will not be entitled to any deduction. If an
optionee disposes of the shares within the period of two years from the date
of grant or one year from the date of exercise (a "disqualifying
disposition"), the optionee generally will realize ordinary income in the
year of disposition and the Company will receive a corresponding deduction,
in an amount equal to the excess of (1) the lesser of (a) the amount, if any,
realized on the disposition and (b) the fair market value of the shares on
the date the option was exercised over (2) the option price, provided that
the deduction limit of Section 162(m) is not exceeded or the Incentive Option
qualifies for the performance-based compensation exception provided for in
Section 162(m). See "Section 162(m)" below. Any additional gain realized on
the disposition will be long-term or short-term capital gain and any loss
will be long-term or short-term capital loss. The optionee will be considered
to have disposed of
7
<PAGE>
a share if he sells, exchanges, makes a gift of or transfers legal title to
the share (except transfers, among others, by pledge, on death or to
spouses). If the disposition is by sale or exchange, the optionee's tax basis
will equal the amount paid for the share plus any ordinary income realized as
a result of the disqualifying disposition.
The exercise of an Incentive Option may subject the optionee to the
alternative minimum tax. The amount by which the fair market value of the
shares purchased at the time of the exercise exceeds the option exercise
price is an adjustment for purposes of computing the so-called alternative
minimum tax. In the event of a disqualifying disposition of the shares in the
same taxable year as exercise of the Incentive Option, no adjustment is then
required for purposes of the alternative minimum tax, but regular income tax,
as described above, may result from such disqualifying disposition.
An optionee who surrenders shares as payment of the exercise price of his
Incentive Option generally will not recognize gain or loss on his surrender
of such shares. The surrender of shares previously acquired upon exercise of
an Incentive Option in payment of the exercise price of another Incentive
Option, is, however, a "disposition" of such shares. If the incentive stock
option holding period requirements described above have not been satisfied
with respect to such shares, such disposition will be a disqualifying
disposition that may cause the optionee to recognize ordinary income as
discussed above.
Under the Code, all of the shares received by an optionee upon exercise of
an Incentive Option by surrendering shares will be subject to the incentive
stock option holding period requirements. Of those shares, a number of shares
(the "Exchange Shares") equal to the number of shares surrendered by the
optionee will have the same tax basis for capital gains purposes (increased
by an ordinary income recognized as a result of any disqualifying disposition
of the surrendered shares if they were incentive stock option shares) and the
same capital gains holding period as the shares surrendered. For purposes of
determining ordinary income upon a subsequent disqualifying disposition of
the Exchange Shares, the amount paid for such shares will be deemed to be the
fair market value of the shares surrendered. The balance of the shares
received by the optionee will have a tax basis (and a deemed purchase price)
of zero and a capital gains holding period beginning on the date of exercise.
The Incentive Stock Option holding period for all shares will be the same as
if the option had been exercised for cash.
Section 162(m). Generally, Section 162(m), denies a deduction to any
publicly held corporation, such as the Company, for certain compensation
exceeding $1,000,000 paid to the chief executive officer and the other four
highest paid executive officers during any taxable year. Although ordinary
income that is realized upon the exercise of a Non-Qualified Option or the
disqualifying disposition of shares acquired pursuant to the exercise of an
Incentive Option is potentially subject to the limitation imposed under
Section 162(m), Section 162(m) and the regulations thereunder provide that
compensation attributable to the stock options granted under the Employee
Plan may qualify for the performance-based exclusion in Section 162(m). If
the stock options qualify for the performance-based exclusion, the
compensation received upon their exercise would not be subject to the
deduction limit set forth in Section 162(m). The Company believes that,
assuming satisfaction of certain conditions set forth in Section 162(m), the
compensation attributable to the stock options granted under the Employee
Plan will meet the performance-based exclusion under Section 162(m) and
therefore the deduction limitation will be inapplicable to options to be
issued under the Employee Plan.
8
<PAGE>
OPTION GRANTS
At November 30, 1996, assuming approval of the proposed amendment, options
to purchase a total of 3,760,700 shares of Common Stock were outstanding
under the Employee Plan at an average exercise share price of $21.08. On
November 13, 1996, subject to shareholder approval of the proposed amendment,
the Stock Option Subcommittee approved the grant under the Employee Plan of
1,063,913 options among eligible participants at an exercise price of $25.00
per share (the "November Grant"). A determination has been made that all of
the proposed additional 750,000 options will be allocated among eligible
participants in the Employee Plan.
The following table sets forth certain information concerning options
issued to date under the Employee Plan, including options which have been
exercised:
<TABLE>
<CAPTION>
Total
Options Weighted Average
Name and Position with the Company Granted Exercise Price
- ----------------------------------------------------------------------------------- ----------- ----------------
<S> <C> <C>
Michael R. Walker ................................................................. 418,126 $11.25
Chairman and Chief Executive Officer
Richard R. Howard ................................................................. 327,000 $15.82
President, Chief Operating Officer and Director
David C. Barr ..................................................................... 277,500 $15.41
Executive Vice President
George V. Hager, Jr. .............................................................. 172,500 $17.07
Senior Vice President and Chief Financial Officer
Edward Romanov, Jr. ............................................................... 297,500 $13.74
Senior Vice President -- Development
All Executive Officers and Directors as a Group(1) ................................ 1,741,993 $15.20
All Employees, other than Executive Officers and Directors, as a Group(1) ......... 3,219,003 $20.09
</TABLE>
- ------
(1) Includes the November Grant, which is subject to shareholder approval of
the proposed amendment.
On January 15, 1997, the last sale price of the Company's Common Stock was
$28.87.
Unless authority has been withheld, the proxy agents intend to vote FOR
approval of the amendment to the Employee Plan. The approval of the amendment
to the Employee Plan requires the affirmative vote of a majority of the votes
cast by all shareholders represented and entitled to vote thereon. An
abstention, withholding of authority to vote or broker non-vote, therefore,
will not have the same legal effect as an "against" vote and will not be
counted in determining whether the proposal has received the required
shareholder vote. The Board of Directors unanimously recommends that you vote
"FOR" approval of the amendment to the Employee Plan.
9
<PAGE>
EXECUTIVE COMPENSATION AND CERTAIN TRANSACTIONS
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors is comprised of
Stephen E. Luongo, Samuel H. Howard and Alan B. Miller, who were not officers
or employees of the Company during the fiscal year. The Committee reviews the
compensation of executive officers, makes recommendations to the Board of
Directors regarding executive compensation and, through its Stock Option
Subcommittee, administers the Company's Employee Plan and incentive
compensation program.
The Company's compensation policies and practices with respect to
executive officers are designed and implemented to motivate and retain senior
executives. In determining compensation levels the Committee considers
compensation packages offered by similar sized companies within the
healthcare industry.
The Company has employment agreements with Michael R. Walker as Chairman
and Chief Executive Officer, Richard R. Howard as President and Chief
Operating Officer and David C. Barr as Executive Vice President, which were
effective as of April 1, 1994 for Mr. Walker and as of April 1, 1991 for
Messrs. Howard and Barr. Mr. Walker's agreement currently expires on March
31, 1997 and automatically extends for a one-year term unless notice of
non-renewal is given at least one year prior to termination. Messrs. Howard
and Barr's agreements were modified in April, 1994 and currently expire on
September 30, 1997 and are automatically extended for a one year term unless
notice of non-renewal is given at least one year prior to termination.
Messrs. Walker, Howard and Barr have not provided notice of non-renewal and,
therefore the term of each of their employment agreements will automatically
renew for an additional one year.
Total compensation is currently divided into two primary components: base
salary and stock options. The award and vesting of stock options serves as
incentive for superior performance and is based upon both the performance of
the executives and the Company. In fiscal 1996, the Company revised its
incentive compensation program. Under the revised incentive compensation
program, stock options issued under the Employee Plan are the sole form of
incentive compensation to most eligible employees. See "Executive
Compensation and Certain Transactions -- Incentive Compensation Program".
Compensation of the named executive officers for fiscal 1996 was
determined in accordance with the employment agreements as previously
described and/or the Company's compensation policies. Under the employment
agreements base salary is reviewed annually and set by the Board based upon
the recommendation of the Committee.
In the case of executive officers with whom the Company did not have
employment agreements, compensation was set at levels consistent with the
Company's policies and performance. The Company uses the Employee Plan as a
long-term incentive plan for executive officers and key employees. The
objectives of the Employee Plan are to align the long-term interests of
executive officers and shareholders by creating a direct link between
executive compensation and shareholder return, and to enable executives to
develop and maintain a significant long-term equity interest in the Company.
The Employee Plan authorizes the Compensation Committee to award stock
options to officers and key employees. Stock option grants in fiscal 1996
were determined by the stock option subcommittee of the Compensation
Committee based upon recommendations of senior management.
Messrs. Walker, Howard and Barr's compensation for fiscal 1996 is
commensurate with the Company's performance and their contributions thereto.
As with the Company's other executive officers, Messrs. Walker, Howard and
Barr's total compensation involve certain subjective judgment and are not
based solely upon specific objective criteria.
Generally, Section 162(m) denies deduction to any publicly held company
such as the Company for certain compensation exceeding $1,000,000 paid to the
chief executive officer and the four other highest paid executive officers,
excluding among other things certain performance-based compensation. The
Compensation Committee will continually evaluate to what extent Section
162(m) will apply to its other compensation programs.
Samuel H. Howard Stephen E. Luongo Alan B. Miller
10
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the
compensation paid to the Chief Executive Officer and each of the four other
most highly compensated executive officers of the Company for services
rendered in all capacities for fiscal 1996, fiscal 1995 and fiscal 1994:
<TABLE>
<CAPTION>
Long Term All Other
Annual Compensation Compensation Compensation (1)
---------------------------------- -------------- ----------------
Name and Position Fiscal Option
with the Company Year Salary (2) Bonus (3) Awards (3)
- ------------------------------------- -------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
Michael R. Walker 1996 $450,329 $ 0 0 $ 7,844
Chairman and Chief 1995 418,773 79,000 0 5,400
Executive Officer 1994 367,326 157,000 202,500 8,611
Richard R. Howard 1996 $307,035 $ 0 100,500 $ 6,875
President, Chief Operating 1995 286,728 151,000 0 4,500
Officer and Director 1994 248,649 90,000 88,500 6,128
David C. Barr 1996 $256,095 $ 0 79,500 $ 2,200
Executive Vice President 1995 241,221 121,000 0 2,725
1994 210,073 80,000 70,500 3,425
George V. Hager, Jr. 1996 $224,994 $ 0 67,500 $ 3,247
Senior Vice President 1995 204,583 55,000 15,000 3,679
and Chief Financial Officer 1994 171,294 45,000 15,000 4,011
Edward Romanov, Jr. 1996 $215,788 $ 0 102,500 $ 0
Senior Vice President - 1995 93,039 52,000 15,000 93,100
Development 1994 0 0 0 246,750
</TABLE>
- ------
(1) Represents the Company's matching contribution under the 401(k), Profit
Sharing Plan, Execuflex Plan and executive insurance policies. In
addition, other compensation for Mr. Romanov in fiscal 1995 and 1994
includes amounts paid to American Community Environments Corporation
("ACE") for consulting services. See "Executive Compensation and Certain
Transactions -- Compensation Committee Interlocks and Insider
Transactions".
(2) Includes compensation deferred under the Company's 401(k), Profit Sharing
Plan, Execuflex Plan and other arrangements with the Company; does not
include other payments made by the Company under the Company's 401(k),
Profit Sharing Plan and Execuflex Plan.
(3) In fiscal 1996, the Company revised its former incentive compensation
program. Under the revised incentive compensation program, stock options
issued under the Employee Plan are the sole form of incentive
compensation to most eligible employees, including the Company's
executive officers. See "Executive Compensation and Certain Transactions
-- Incentive Compensation Program".
EMPLOYMENT AGREEMENTS
In April 1994, the Company entered into a new employment agreement with
Michael R. Walker as its Chairman and Chief Executive Officer. In April 1991,
the Company entered into employment agreements with Richard R. Howard as its
President and Chief Operating Officer and David C. Barr as its Executive Vice
President which agreements were modified in April, 1994 (collectively Messrs.
Walker, Howard and Barr are the "Executive Employees"). The agreement with
Mr. Walker currently expires on March 31, 1997 and the agreements with
Messrs. Howard and Barr, as modified, each currently expire on September 30,
1997. Unless notice of non-renewal is given by either party at least one year
prior to the expiration of the then current term, the agreement is
automatically extended each year for an additional one year term. Messrs.
Walker, Howard and Barr have not provided notice on non-renewal and,
therefore, the term of each of their employment agreements automatically
renew for an additional one year. The annual base salaries of Messrs. Walker,
Howard and Barr currently are $462,000, $315,000 and $263,000, respectively,
and are reviewable by the
11
<PAGE>
Company's Board of Directors at least annually. In addition, the Executive
Employees have received stock options to purchase shares of Common Stock. The
agreements may be terminated by the Company at any time for Cause (as
defined), upon the vote of not less than two-thirds of the entire membership
of the Company's Board of Directors. The Executive Employee may terminate his
employment agreement on 30 days' notice upon the occurrence of certain
events, including an election by the Company not to renew the term of the
agreement, as described above. In the event that the Company terminates the
Executive Employee's employment agreement without Cause, or the Executive
Employee terminates his employment agreement as described in the preceding
sentence, the Executive Employee is entitled to severance compensation equal
to two years of his then current base salary for Mr. Walker, and one year for
Messrs. Howard and Barr. Each Executive Employee is entitled to certain
insurance benefits. If an Executive Employee becomes disabled, he will
continue to receive all of his compensation and benefits for six months, less
any amounts received under any disability insurance provided by the Company.
If the disability continues for more than twelve months in any 24 month
period, the Company may terminate the Executive Employee's employment. Each
employment agreement also contains provisions which are intended to limit the
Executive Employee from competing with the Company throughout the term of the
agreement and for a period of two years thereafter.
RETIREMENT PLAN
On January 1, 1989, the Company adopted an employee Retirement Plan which
consists of a 401(k) component and a profit sharing component. The Retirement
Plan, which is intended to be qualified under Section 401(a) and (k) of the
Code, is a cash deferred profit-sharing plan covering all of the employees of
the Company (other than certain employees covered by a collective bargaining
agreement) who have completed at least 1,000 hours of service and twelve
months of employment. Under the 401(k) component, each employee may elect to
contribute a portion of his or her current compensation up to the lesser of
$9,500 (or the maximum then permitted by the Code) or 15% (or for more highly
compensated employees 2%) of such employee's annual compensation. The Company
may make a matching contribution each year as determined by the Board of
Directors. The Board of Directors may establish this contribution at any
level each year, or may omit such contribution entirely.
The Company match since January, 1995 has been based on years of service.
An employee who has completed six years of service prior to the beginning of
the calendar year, is entitled to receive a match of $0.75 per $1.00 of the
employee's contribution, up to 4% of his salary. Therefore, if this employee
contributes 4% or more of his salary, the Company contributes 3% of his
salary. If the employee contributes less than 4%, the Company contributes
$0.75 per $1.00 of contribution.
If an employee has not completed six years of service, he is matched $0.50
per $1.00 of contribution up to 2% of his salary. Therefore, if this employee
contributes 2% or more of his salary, the Company contributes 1% of his
salary. If the employee contributes less than 2%, the Company contributes
$0.50 per $1.00 of contribution
Under the profit sharing provisions of the Retirement Plan, the Company
may make an additional employer contribution as determined by the Board of
Directors each year. The Board of Directors may establish this contribution
at any level each year, or may omit such contribution entirely. It is the
Company's intent that employer contributions under the profit sharing
provisions of the Retirement Plan are to be made 50% in the form of Common
Stock and 50% in cash, and are to be made only if there are sufficient
profits to do so. Profit sharing contributions are allocated among the
accounts of participants in the proportion that their annual compensation
bears to the aggregate annual compensation of all participants. All employee
contributions to the Retirement Plan are 100% vested. Company contributions
are vested in accordance with a schedule that generally provides for vesting
after five years of service with the Company (any non-vested amounts that are
forfeited by participants are used to reduce the following year's
contribution by the Company.) Distribution of benefits normally will commence
upon the participant's reaching age 65 (or, if earlier, upon the
participant's death or disability). Payment of Retirement Plan benefits will
generally be made in a lump sum unless an alternative equivalent form of
benefit is elected. Certain special rules apply to the distribution of
benefits to participants for whom the Retirement Plan has accepted a transfer
of assets from another tax-qualified pension plan.
12
<PAGE>
STOCK OPTION PLANS
Employee Stock Option Plan. See "Approval of Amendment to the Company's
Employee Stock Option Plan" for a description of the Company's Employee Stock
Option Plan.
Director Plan. In March 1992, the Company adopted, and in February 1993,
the shareholders approved, the Company's 1992 Stock Option Plan for
Non-Employee Directors (the "Director Plan"). The purpose of the Director
Plan is to attract and retain non-employee directors and to provide
additional incentive to them by encouraging them to invest in the Common
Stock and acquire an increased personal interest in the Company's business.
Payment of the exercise price for options granted under the Director Plan may
be made in cash, shares of Common Stock or a combination of both. All options
granted pursuant to the Director Plan are immediately exercisable and, except
as indicated below, may not be exercised more than ten years from the date of
grant.
The Director Plan is administered by the Board of Directors of the
Company, including non-employee directors, who may modify, amend, suspend or
terminate the Director Plan, other than the number of shares with respect to
which options are to be granted, the option exercise price, the class of
persons eligible to participate, or options previously granted. Pursuant to
the Director Plan, options may be granted for an aggregate of 225,000 shares
of Common Stock. Options granted under the Director Plan are not incentive
stock options under Section 422 of the Code. The Director Plan terminates ten
years after its approval by shareholders.
At each annual meeting of shareholders, each individual who is elected,
re-elected or continues as a non-employee director automatically is granted
an option to purchase 4,500 shares of Common Stock at the then fair market
value of the Common Stock. On February 28, 1996, each non-employee director
of the Company was granted an option to purchase 4,500 shares of Common Stock
at an exercise price of $29.25 per share.
OPTION GRANTS
The following table sets forth certain information concerning stock
options granted under the Employee Plan during fiscal 1996 to the Chief
Executive Officer and each of the four other most highly compensated
executive officers of the Company:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Values
at Assumed Annual
Rates of Stock Price
Appreciation For
Individual Grants Option Term
-------------------------------------------------------------- ------------------------------
Percent of Total
Options Granted
Options to Employees Exercise Expiration
Name Granted In Fiscal Year Price Date 5% 10%
- ------------------------ --------- ---------------- ---------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Walker ...... 0 0% -- -- -- --
Richard R. Howard ...... 100,500 10% $29.25 2/28/06 $1,828,240 $4,652,414
David C. Barr .......... 79,500 8% 29.25 2/28/06 1,446,220 3,680,267
George V. Hager, Jr. ... 67,500 7% 29.25 2/28/06 1,227,922 3,124,755
Edward Romanov, Jr. .... 102,500 10% 26.90 8/21/06 - 2/28/06 1,841,571 4,565,762
</TABLE>
The following table sets forth certain information concerning the shares
acquired upon exercise of options, the number of unexercised options and the
value of unexercised options at the end of fiscal 1996 held by the Chief
Executive Officer and each of the four other most highly compensated
executive officers of the Company:
13
<PAGE>
AGGREGATED OPTIONS EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Year-End Year-End
Shares Acquired on Exercisable/ Exercisable/
Name Exercise Value Realized Unexercisable Unexercisable
- ------------------------ ------------------ -------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Michael R. Walker ...... 0 $ 0 334,500/33,001 $5,217,295/$516,322
Richard R. Howard ...... 26,250 496,563 152,375/89,125 1,837,262/253,977
David C. Barr .......... 0 0 176,875/70,625 2,678,832/202,320
George V. Hager, Jr. ... 22,500 522,225 93,000/57,000 1,356,279/90,750
Edward Romanov, Jr. .... 83,250 1,868,205 38,499/79,001 93,368/210,380
</TABLE>
INCENTIVE COMPENSATION PROGRAM
In fiscal 1996, the Company revised its incentive compensation program.
Under the revised incentive compensation program, stock options issued under
the Employee Plan are the sole form of incentive compensation granted to most
eligible employees. Stock Options granted under the revised incentive
compensation program will vest 25% in the fiscal year of the option grant and
25% over each of the next three years. The awards are based upon the
Company's performance and achievement of individual management objectives.
Prior to revising the incentive compensation program, all eligible
employees could be awarded both cash bonuses and stock options. Stock options
granted under the former incentive compensation program vested 20% each year
over a five year period beginning one year following the date the stock
option was granted.
The stock option award amounts are determined by management and approved
by the Stock Option Subcommittee. The Stock Option Subcommittee has the
authority to modify option awards, including changing the vesting schedule of
stock option awards. For a description of the Company's Employee Plan see
"Approval of Amendment to the Company's Employee Stock Option Plans".
EXECUFLEX PLAN
In November 1991, the Company adopted the Execuflex Plan. All Genesis
employees who achieve a certain salary grade and all employed physicians are
entitled to participate in the Execuflex Plan. Pursuant to the terms of the
Execuflex Plan, an eligible employee may authorize the Company to reduce his
or her base compensation or bonuses and credit such amounts to a retirement
account, education account or fixed period account. The Company contributes
for each eligible employee an amount equal to 25% of the employee's total
contribution, up to an employee contribution amount equal to four percent of
the employee's base compensation. Benefits derived from employee deferral
contributions are not subject to forfeiture for any reason. Benefits derived
from matching contributions made by the Company are forfeited if a member of
the Execuflex Plan separates from the Company's employ prior to completing
five years of employment with the Company. The five year period is measured
from the later of January l, 1989 or the date of the member's commencement of
employment with the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDE TRANSACTIONS
The Company currently leases real estate from GHV Associates, a
partnership which is owned by among others, Michael R. Walker, an officer and
director of the Company. Payments under these leases, which relate to two
offices in New England, approximate $197,000 per year and the current term
expires on December 31, 2004. The Company believes that the terms of these
leases are at least as favorable to the Company as those it would have
obtained from an unaffiliated party.
The Company is currently involved in certain lease transactions with
Salisbury Medical Office Building General Partnership ("SMOBGP"). This
partnership is owned by among others, Richard R. Howard and Michael R.
Walker, officers and directors of the Company. The Company rents space in
Maryland which is
14
<PAGE>
used as a medical clinic and therapy clinic pursuant to two leases with
SMOBGP. Payments under these leases approximate $169,000 per year. The leases
expire on September 30, 1999. The Company believes that the terms of these
leases are at least as favorable to the Company as those it would have
obtained from an unaffiliated party.
Pursuant to an agreement dated August 19, 1992 by and among ACE, Edward B.
Romanov, Jr. and the Company, ACE, through Edward B. Romanov, Jr., provided
consulting services to the Company (the "ACE Consulting Agreement"). Mr.
Romanov is Senior Vice President - Development, of the Company. The ACE
Consulting Agreement was terminated on April 1, 1995. On that date, Mr.
Romanov entered into an employment arrangement with the Company. For the 1995
fiscal year ACE received $93,100 under the ACE Consulting Agreement. In
addition, Mr. Romanov received a bonus of $52,000 in the 1995 fiscal year.
Stephen E. Luongo, a director and member of the Compensation Committee, is
a partner in the law firm of Blank Rome Comisky & McCauley which serves as
outside legal counsel for the Company.
On November 30, 1993, the Company paid approximately $205,000,000 to
acquire substantially all of the assets and stock of Meridian Healthcare.
Roger C. Lipitz, a director, is a former stockholder of Meridian Healthcare
and served as Meridian's Chairman. As part of the Meridian Transaction, the
Company entered into agreements to lease and operate, for ten years with a
five year renewal option, at an aggregate cost of $6,000,000 per year, seven
geriatric care facilities owned by seven different partnerships formed by
certain former shareholders of Meridian, including Mr. Lipitz (the "Former
Shareholders"). In March 1996, the Company acquired for total consideration
approximately $31,900,000, including the payment of assumed debt, the
remaining partnership interest owned by the Former Shareholders in five
geriatric care facilities which were jointly owned by the Company and limited
partnerships owned by the Former Shareholders. The Company also pays
approximately $971,000 per year to Towson Building Associates, L.P., a
limited partnership formed by the Former Shareholders, to lease the Company's
regional headquarters located in Towson, Maryland. In addition, the Company
manages a retirement center owned by Brendenwood MRC L.P., a limited
partnership owned by the Former Shareholders. Mr. Lipitz beneficially owns
between 20% to 26.5% of the partnership interests in the referenced
partnerships formed and owned by the Former Shareholders.
On August 24, 1995, the Company loaned $330,000, at an interest rate of
four percent, to George V. Hager, Jr., the Company's Senior Vice President
and Chief Financial Officer. As a result of a $245,000 payment during Fiscal
1996, the remaining balance of the note is $ 85,000. The loan is prepayable
upon the exercise by Mr. Hager of his options to purchase the Company's stock
and upon termination of Mr. Hager's employment with the Company.
15
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph shows a comparison of the cumulative total return for
the Company's Common Stock, the Dow Jones Equity Market Index and the stock
of a selected group of Health Care Provider companies. The graph assumes an
investment of $100 in each on September 30, 1991 and, in the case of the
Indexes, the reinvestment of all dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN
Genesis Health Ventures, Inc., Dow Jones Equity Market Index, Health Care
Providers
450 |-------------------------------------------------------------------------|
| |
| |
400 |-------------------------------------------------------------------------|
| * |
| |
350 |-------------------------------------------------------------------------|
| * |
| |
300 |-------------------------------------------------------------------------|
| |
| * |
250 |-----------------------------------------------------------------------#-|
| |
| |
200 |--------------------------------------------#------------#-------------&-|
| * & |
| |
150 |-------------------------------------------------------------------------|
| &# & |
| & |
100 |*&#-----------#----------------------------------------------------------|
| * |
| |
50 |-------------------------------------------------------------------------|
| |
| |
0 |-------------------------------------------------------------------------|
9/91 9/92 9/93 9/94 9/95 9/96
<TABLE>
<CAPTION>
9/91 9/92 9/93 9/94 9/95 9/96
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Genesis Health Ventures, Inc.(*) 100 89 180 263 332 391
Dow Jones Equity Market Index(&) 100 112 127 131 171 207
Health Car Providers (#) 100 99 128 204 204 247
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class
of the Company's equity securities, to file with the Commission initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, directors and greater than
10% shareholders are required by the Commission regulation to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended September 30, 1996, all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% beneficial owners were complied with, except
that one report, covering one transaction each, was filed late by Michael
Walker and Edward Romanov and the initial report was filed late by Allen
Freedman, John DePodesta, Maryann Timon and Marc Rubinger.
16
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of KPMG Peat Marwick LLP acted as the Company's
independent public accountants for the fiscal year ended September 30, 1996
and has been selected by the Board of Directors to serve as the Company's
independent public accountants for the fiscal year ending September 30, 1997.
A representative of KPMG Peat Marwick LLP is expected to be present at the
shareholders' meeting and to have the opportunity to make a statement, if he
desires to do so, and is expected to be available to respond to appropriate
questions.
OTHER MATTERS
As of the date hereof, the Company knows of no other business that will be
presented for consideration at the Annual Meeting. However, the enclosed
proxy confers discretionary authority to vote with respect to any and all of
the following matters that may come before the meeting: (i) matters that the
Company's Board of Directors does not know, a reasonable time before proxy
solicitation, are to be presented for approval at the meeting; (ii) approval
of the minutes of a prior meeting of shareholders, if such approval does not
constitute ratification of the action at the meeting; (iii) the election of
any person to any office for which a bona fide nominee is unable to serve or
for good cause will not serve; (iv) any proposal omitted from this Proxy
Statement and the form of proxy pursuant to Rule 14a-8 under the Exchange
Act, as amended; and (v) matters incidental to the conduct of the meeting. If
any such matters come before the meeting, the proxy agents named in the
accompanying proxy card will vote in accordance with their judgment.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING OF SHAREHOLDERS
Shareholder proposals intended to be presented at the 1998 Annual Meeting
must be submitted by September 22, 1997 to receive consideration for
inclusion in the Company's 1998 proxy materials.
EACH PERSON SOLICITED HEREUNDER CAN OBTAIN A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1996 AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WITHOUT CHARGE EXCEPT FOR EXHIBITS TO THE
REPORT, BY SENDING A WRITTEN REQUEST TO THE CORPORATE SECRETARY, AT 148 WEST
STATE STREET, KENNETT SQUARE, PENNSYLVANIA 19348.
By Order of the Board of Directors
/s/ Ira C. Gubernick
----------------------------------
IRA C. GUBERNICK
Corporate Secretary
17
<PAGE>
GENESIS HEALTH VENTURES, INC.
1997 ANNUAL MEETING OF SHAREHOLDERS
MARCH 6, 1997
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby appoints Michael R. Walker and Richard R. Howard, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, for and in the name, place and stead of the undersigned, to
represent the undersigned and to vote, as directed on the reverse side, all
shares of Common Stock of Genesis Health Ventures, Inc. (the "Company") held by
the undersigned as of December 20, 1996, at the Company's 1997 Annual Meeting of
Shareholders to be held on March 6, 1997 or at any postponement or adjournment
of the meeting.
(continued on reverse side)
FOLD AND DETACH HERE
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<S> <C>
THIS PROXY WILL BE VOTED AS DIRECTED BELOW. Please mark
UNLESS YOU DIRECT OTHERWISE, THIS PROXY WILL BE VOTED "FOR" ALL PROPOSALS. your votes as X
indictated in
this example
PROPOSAL 1: The election of Stephen E. Luongo and Michael R. Walker as directors
as described in the accompanying Proxy Statement.
FOR To withhold authority To withhold authority to vote for any individual nominee(s),
to vote for all nominees, clearly print his or their names in the space provided below:
Check below:
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</TABLE>
<TABLE>
<CAPTION>
<S> <C>
PROPOSAL 2: The approval of the Amendment to the Company's 1985 Amended and Both proxy agents present and acting in person or
Restated Employee Stock Option Plan as described in the by their substitute (or, if only one is present and
accompanying Proxy Statement. acting, then that one) may exercise all of the
powers conferred by this proxy. DISCRETIONARY
FOR AGAINST ABSTAIN AUTHORITY IS CONFERRED BY THIS PROXY WITH RESPECT
TO CERTAIN MATTERS, AS DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT.
The undersigned hereby acknowledges receipt of the
______ Company's 1996 Annual Report to Shareholders,
| Notice of the Company's 1997 Annual Meeting of
| Shareholders and the Company's Proxy Statement
| dated January 21, 1997.
Date: ____________________________________________
(please date this proxy)
__________________________________________________
__________________________________________________
Signature(s)
Please sign your name exactly as it is printed on
this proxy, indicating any title or other
representative capacity. If more than one name is
printed on this proxy, then all must sign.
PLEASE DATE AND SIGN THIS PROXY AND PROMPTLY
RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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