<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, INC.
- -----------------------------------------------------------------------------
(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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*
*** GENESIS Health Ventures
*
148 West State Street
Kennett Square, PA 19348
Tel 610 444 6350
Fax 610 444 3365
January 23, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of Shareholders
of Genesis Health Ventures, Inc. which will be held on Tuesday, February 24,
1998 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 2001 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
-------------------------------------
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
February 24, 1998
-----------------------------
To Our Shareholders:
The 1998 Annual Meeting of Shareholders of Genesis Health Ventures, Inc.
(the "Company") will be held at 209 Dalmatian Street, Kennett Square,
Pennsylvania 19348, on Tuesday, February 24, 1998 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
4,500,000 to 6,250,000; 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 19, 1997, 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
-----------------------------------
IRA C. GUBERNICK
General Counsel -- Corporate
and Corporate Secretary
January 23, 1998
<PAGE>
GENESIS HEALTH VENTURES, INC.
148 West State Street
Kennett Square, PA 19348-3021
----------------
PROXY STATEMENT
----------------
This proxy statement, which together with the accompanying proxy card is
first being mailed to shareholders on or about January 23, 1998, 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 1998 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, ChaseMellon
Shareholder Services, L.L.C. will provide solicitation services to the Company
for a fee of approximately $4,000.00 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 19, 1997, 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 35,086,869
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, 1997, 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, (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 ........................................ 3,590,100 9.0%
Denver Investment Advisors, LLC (3)
1225 17th Street
26th Floor
Denver, Colorado 80202 ............................................. 2,117,050 5.3%
Allen R. Freedman (4) ................................................ 9,000 *
Richard R. Howard (5) ................................................ 271,450 *
Samuel H. Howard (6) ................................................. 13,500 *
Roger C. Lipitz (7) .................................................. 23,500 *
Stephen E. Luongo (8) ................................................ 45,018 *
Alan B. Miller (9) ................................................... 23,500 *
Fred F. Nazem (10) ................................................... 666,060 1.7%
Michael R. Walker (11) ............................................... 761,400 1.9%
David C. Barr (12) ................................................... 213,270 *
George V. Hager, Jr. (13) ............................................ 111,253 *
Michael G. Bronfein (14) ............................................. 184,171 *
All executive officers and directors as a group (21 persons) ......... 2,490,405 6.3%
</TABLE>
- ------------
* 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, 1997. 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 27, 1997. Consists of 2,984,152
shares beneficially owned by Putnam Investment Management, Inc. and 605,948
shares beneficially owned by The Putnam Advisory Company, Inc. which are
registered investment advisors, and 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 February 10, 1997.
(4) Consists of 9,000 shares of Common Stock which may be acquired upon the
exercise of stock options.
(5) Includes 203,750 shares of Common Stock which may be acquired upon the
exercise of stock options.
(6) Consists of 13,500 shares of Common Stock which may be acquired upon the
exercise of stock options.
(7) Includes 13,500 shares of Common Stock which may be acquired upon the
exercise of stock options.
(8) Includes 27,000 shares of Common Stock which may be acquired upon the
exercise of stock options.
(9) Includes 18,000 shares of Common Stock which may be acquired upon the
exercise of stock options.
(10) Includes 630,480 shares of Common Stock held by Nazem & Company, III, L.P.
and 27,000 shares of Common Stock which may be acquired upon the exercise
of stock options.
(11) Includes 367,500 shares of Common Stock which may be acquired upon the
exercise of stock options.
(12) Consists of 213,270 shares of Common Stock which may be acquired upon the
exercise of stock options.
(13) Includes 108,500 shares of Common Stock which may be acquired upon the
exercise of stock options.
(14) Includes 25,000 shares of Common Stock which may be acquired upon the
exercise of stock options.
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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 2001 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:
Name Age Position with the Company
- ------------------------------ ----- --------------------------
Roger C. Lipitz (1) .......... 55 Director
Alan B. Miller (2) ........... 60 Director
- ------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee and Stock Option 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 Penn Mutual Life Insurance Co. and CDI, Inc.
Roger C. Lipitz and Alan B. Miller 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 either of the
nominees will be unavailable for election. Should either 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.
Following the meeting, the Board of Directors will amend the bylaws of the
Company to reduce the minimum number of directors of the Company from eight to
seven. Proxies cannot be voted for more than two nominees. The Board of
Directors unanimously recommends that you vote "For" the election of both
nominees.
3
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Information Concerning Continuing Directors
The following tables set forth certain information concerning those
directors whose terms will expire at the 1999 and 2000 Annual Meetings of
Shareholders:
<TABLE>
<CAPTION>
Name Age Position with the Company
---- ----- -------------------------
<S> <C> <C>
The terms of the following directors
will expire in 1999:
Richard R. Howard (1) .................. 48 President and Director
Samuel H. Howard (2), (3), (4) ......... 58 Director
Allen R. Freedman (2) .................. 57 Director
The terms of the following directors
will expire in 2000:
Stephen E. Luongo (3) .................. 50 Director
Michael R. Walker (1) .................. 49 Chairman and Chief Executive Officer
</TABLE>
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(1) Member of the Executive Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
(3) Member of the Compensation Committee of the Board of Directors.
(4) Member of the Stock Option Committee of the Board of Directors.
Richard R. Howard has served as a director of the Company since its
inception. He joined the Company in September 1985 as Vice President of
Development. Mr. Howard's background in health care includes two years as the
Chief Financial Officer of Health Group Care Centers ("HGCC"). Mr. Howard's
experience also includes over ten years with Fidelity Bank, Philadelphia,
Pennsylvania and one year with Equibank, Pittsburgh, Pennsylvania. Mr. Howard
is a member of the Board of Directors of Doctors Health, Inc.
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 health
care needs of Tennessee's Medicaid and uninsured populations. Mr. Howard's past
corporate and operations experience in the health care 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
Hospital Affiliates, Inc. ("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 also 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.
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 LLP. Blank
Rome Comisky & McCauley LLP 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 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
4
<PAGE>
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 HAI. Mr. Walker is a member of the Board
of Directors of Renal Treatment Centers, Inc. and Phoenix Healthcare and the
Board of Trustees of Universal Health Realty Income Trust.
Board Meetings and Committees of the Board
The Board of Directors held four regular meetings and four special
meetings during the fiscal year ended September 30, 1997.
The Executive Committee held three meetings during the fiscal year ended
September 30, 1997. 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 three meetings during the fiscal year
ended September 30, 1997. The Compensation Committee reviews the compensation
of executive officers and makes recommendations to the Board regarding
executive and incentive compensation.
The Stock Option Committee held two meetings during the fiscal year ended
September 30, 1997. The Stock Option Committee administers the Company's
Employee Stock Option Plan.
The Audit Committee held two meetings during the fiscal year ended
September 30, 1997. 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, 1997, except that Alan R. Freedman attended 50% of the meetings of the
committee of which he was 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 December 29, 1997 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 1,750,000 shares to a total of 6,250,000 shares, subject to approval by
the shareholders of the Company. Under the Company's incentive compensation
program, which was revised in fiscal 1996, stock options issued under the
Employee Plan are the sole form of incentive compensation to most eligible
employees.
Increase in Authorized Shares
Currently, options for a total of 4,500,000 shares may be issued under the
Employee Plan. Of these shares, 142,931 shares remain currently available for
future options. The amendment increases the maximum number of shares issuable
under the Employee Plan by 1,750,000 to a total of 6,250,000 shares. If the
shareholders do not approve the increase, then the maximum number of shares
issuable under the Employee Plan will remain at 4,500,000.
5
<PAGE>
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. In March, 1997, the Stock Option Committee of the Board of
Directors (the "Stock Option Committee") approved the issuance of 300,000
options to Michael R. Walker, the Company's Chairman and Chief Executive
Officer, which option grants are subject to approval by the shareholders of
this proposal to increase the number of shares issuable under the Employee
Plan.
Set forth below is a summary of certain significant provisions of the
Employee Plan.
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 840 people) are eligible to receive options under the Employee Plan. In
addition, it is anticipated that approximately 350 people currently employed by
the Multicare Companies, Inc. ("Multicare") will become employees eligible to
receive options under the Employee Plan in the first calendar quarter of 1998.
Multicare is a 44% owned Subsidiary of the Company. The Employee Plan is
administered by the Stock Option Committee. Subject to the provisions of the
Employee Plan, the Stock Option Committee determines, among other things, which
officers, 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 Committee 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 Committee 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 4,500,000 to 6,250,000 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 Committee 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. In March, 1997, the Stock Option
Committee approved the issuance of 300,000 options to Michael R. Walker, the
Company's Chairman and Chief Executive Officer, which option grants are subject
to approval by the shareholders of this proposal to increase the number of
shares issuable under the Employee Plan. Except for the proposed grant to Mr.
Walker, no determination has been made as to how the proposed additional
1,750,000 option shares will be allocated among any particular eligible
participants in the Employee Plan.
6
<PAGE>
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 Committee 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 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, mid-term or short-term capital gain or loss
depending upon their holding period for such stock. Under current law, capital
gain is subject to a maximum tax rate of 20% if the holding period is more than
eighteen months. Capital losses are deductible only to the extent of capital
gains for the year plus $3,000 for individuals.
7
<PAGE>
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. The reduced rate
of tax on certain capital gains added to the Code by the Taxpayer Relief Act of
1997 requires a holding period of more than eighteen months. 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 (or such later date, if applicable, as described above in
"Non-Qualified Options" if the optionee is a 16(b) Person who has not made an
83(b) Election) 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, mid-term or short-term capital gain and any loss will be long-term,
mid-term or short-term capital loss. The optionee will be considered to have
disposed of 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
any 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.
8
<PAGE>
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.
Option Grants
At December 17, 1997, options to purchase a total of 3,380,268 shares of
Common Stock were outstanding under the Employee Plan at an average exercise
share price of $20.37.
In March, 1997, the Stock Option Committee approved the issuance of
300,000 options to Michael R. Walker, the Company's Chairman and Chief
Executive Officer, which option grants are subject to approval by the
shareholders of this proposal to increase the number of shares issuable under
the Employee Plan. Except for the proposed grant to Mr. Walker, no
determination has been made as to how the proposed additional 1,750,000 option
shares will be allocated among any particular eligible participants in the
Employee Plan.
9
<PAGE>
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
Chairman and Chief Executive Officer ............................. 718,126(1) $ 21.28
Richard R. Howard
President and Director ........................................... 348,750 $ 16.77
David C. Barr
Executive Vice President and Chief Operating Officer ............. 314,500 $ 17.75
George V. Hager, Jr.
Senior Vice President and Chief Financial Officer ................ 202,500 $ 19.77
Michael G. Bronfein
President and Chief Executive Officer,
NeighborCareSM ................................................... 75,000 $ 31.88
All Executive Officers as a Group (15 persons) .................... 2,159,476 $ 21.46
All Directors who are not Executive Officers as a Group (6 persons) 129,750 $ 21.48
All Employees, other than Executive Officers and
Directors, as a Group ............................................ 2,975,854 $ 18.52
</TABLE>
- ---------------------
(1) Includes 300,000 options which will be issued at an exercise price of
$35.25 per share, subject to shareholder approval increasing the number of
shares issuable under the Employee Plan.
On January 16, 1998, the last sale price of the Company's Common Stock as
reported on the New York Stock Exchange was $26.81.
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.
EXECUTIVE COMPENSATION AND CERTAIN TRANSACTIONS
Compensation Committee and Stock Option Committee Report
The Compensation Committee of the Board of Directors is comprised of
Stephen E. Luongo, Alan B. Miller and Samuel H. Howard, who were not officers
or employees of the Company during the fiscal year. The Committee reviews the
compensation of executive officers and makes recommendations to the Board of
Directors regarding executive compensation. The Stock Option Committee of the
Board of Directors is comprised of Alan B. Miller and Samuel H. Howard. The
Committee administers the Company's Employee Plan.
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 health care
industry.
The Company has executive employment agreements with Michael R. Walker as
Chairman and Chief Executive Officer, Richard R. Howard as President, David C.
Barr as Executive Vice President and Chief Operating Officer, and Michael G
Bronfein as President, ASCO Healthcare, Inc., a wholly owned subsidiary of the
Company, which were effective as of April 1, 1997 for Mr. Walker, as of April
1, 1991 for Messrs.
10
<PAGE>
Howard and Barr, and as of June 5, 1996 for Mr. Bronfein. The Company has
consolidated its pharmacy, medical supply and infusion business under the brand
name "NeighborCare," and Mr. Bronfein is the president of all subsidiaries of
the Company which do business as NeighborCare. Mr. Walker's agreement currently
expires on March 31, 2000 and automatically extends for a one-year term unless
notice of non-renewal is given at least one year prior to the end of the then
current term. Messrs. Howard and Barr's agreements were modified in April, 1994
and currently expire on September 30, 1999 and are automatically extended for a
one year term unless notice of non-renewal is given by either party at least
one year prior to the end of the then current term. Neither the Company nor
Messrs. Howard or Barr have provided notice of non-renewal and, therefore the
term of each of their employment agreements have automatically renewed for an
additional one year. The agreement with Mr. Bronfein currently expires on June
5, 1998.
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. Under the Company's incentive compensation
program, which was revised in fiscal 1996, 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".
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 Stock Option
Committee to award stock options to officers and key employees. Stock option
grants in fiscal 1997 were determined by the Stock Option Committee based upon
recommendations of senior management.
Compensation of the named executive officers for fiscal 1997 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, except that Mr. Bronfein's base salary is
reviewed annually and set by the Board of Directors of ASCO Healthcare, Inc.
which is comprised of Messrs. Walker and Howard.
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.
Messrs. Walker, Howard, Barr and Bronfein's compensation for fiscal 1997
is commensurate with the Company's performance and their contributions thereto.
As with the Company's other executive officers, Messrs. Walker, Howard, Barr
and Bronfein's total compensation involve certain subjective judgment and are
not based solely upon specific objective criteria.
In April, 1997, the Company entered into a new employment agreement with
Mr. Walker, extending the term of the prior agreement to March 31, 2000 and
increasing Mr. Walker's annual base salary to $600,000 per year. The Stock
Option Committee approved the issuance of 300,000 options to Mr. Walker, which
option grants are subject to approval by the shareholders of this proposal to
increase the number of shares issuable under the Employee Plan. These options
vest over three years assuming the Company achieves certain budgeted earnings
during those three years. In determining the provisions of the new employment
agreement and approving the issuance of the stock options to Mr. Walker, the
Compensation Committee and Stock Option Committee primarily considered the
compensation packages offered to chief executive officers of similar sized
companies in the health care industry and Mr. Walker's contributions to the
significant acquisitions and growth of the Company and the increase in the
Company's earnings.
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.
In December, 1997, the Compensation Committee approved a Senior Executive
Officer Stock Ownership Program. Under this program, by December, 2000, Messrs.
Walker, Howard, Barr and George V. Hager, Jr., Senior Vice President and Chief
Financial officer, must own Common Stock in the Company with a market value
equal to five times, four times, three times and three times their current
salary, respectively. The
11
<PAGE>
Company is authorized to make full recourse loans to its senior executive
employees under this program. The Compensation Committee believes that stock
ownership by its senior executive employees creates a direct link between
executive compensation and shareholder return, and serves to enable executives
to maintain a significant long-term equity interest in the Company.
Samuel H. Howard Stephen E. Luongo Alan B. Miller
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 1997, fiscal 1996 and fiscal 1995.
<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 1997 $521,621 $ 0 300,000(4) $ 23,673
Chairman and Chief 1996 450,329 0 0 7,844
Executive Officer 1995 418,773 79,000 0 5,400
Richard R. Howard 1997 $340,710 $ 0 18,000 $ 15,829
President and Director 1996 307,035 0 100,500 6,875
1995 286,728 151,000 88,500 4,500
David C. Barr 1997 $273,333 $ 0 37,000 $ 8,662
Executive Vice President and 1996 256,095 0 79,500 2,200
Chief Operating Officer 1995 241,221 121,000 70,500 2,725
George V. Hager, Jr. 1997 $253,557 $ 5,159 $ 30,000 $ 5,961
Senior Vice President and 1996 224,994 4,143 67,500 3,247
Chief Financial Officer 1995 204,583 55,000 15,000 3,679
Michael G. Bronfein 1997 $250,000 $ 0 0 $ 0
President and Chief 1996 65,032 0 75,000 0
Executive Officer,
NeighborCareSM (5)
</TABLE>
- ------------
(1) Represents the Company's matching contribution under the 401(k), Profit
Sharing Plan, Execuflex Plan and executive insurance policies.
(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) Under the Company's incentive compensation program, which was revised in
fiscal 1996, 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."
(4) Subject to shareholder approval increasing the number of shares issuable
under the Employee Plan.
(5) Mr. Bronfein joined the Company on June 5, 1996.
Employment Agreements
In April 1997, 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 David C. Barr as its Executive Vice President and Chief Operating
Officer which agreements were modified in April, 1994 (collectively Messrs.
Walker, Howard and Barr are the
12
<PAGE>
"Executive Employees"). The agreement with Mr. Walker currently expires on
March 31, 2000 and the agreements with Messrs. Howard and Barr, as modified,
each currently expire on September 30, 1999. 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. Neither the Company nor Messrs. Howard or Barr have
provided notice of non-renewal and, therefore, the term of each of their
employment agreements have automatically renewed for an additional one year.
The annual base salaries of Messrs. Walker, Howard and Barr currently are
$600,000, $350,000 and $290,000, respectively, and are reviewable by the
Company's Board of Directors at least annually. The Executive Employees have
also received stock options to purchase shares of Common Stock. In addition,
under the Senior Executive Employee Stock Ownership Program, the Company may
make loans to the Executive Employees to maintain a predetermined stock
ownership position in the Company. 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.
In June 1996, the Company entered into an employment agreement with
Michael G. Bronfein as President and Chief Executive Officer of ASCO
Healthcare, Inc., a wholly-owned subsidiary of the Company. The Company has
consolidated its pharmacy, medical supply and infusion business under the brand
name "NeighborCare," and Mr. Bronfein is the president of all subsidiaries of
the Company which do business as NeighborCare. The agreement with Mr. Bronfein
currently expires on June 5, 1998. Unless notice of non-renewal is given by
either party at least sixty days prior to the expiration of the then current
term, the agreement is automatically extended each year for an additional one
year term. The annual base salary of Mr. Bronfein currently is $275,000, and is
reviewable by the Board of Directors of ASCO Healthcare, Inc., which currently
consists of Messrs. Walker and Howard, at least annually. Mr. Bronfein has also
received stock options to purchase shares of Common Stock of the Company. The
agreement may be terminated by the Company at any time without cause, upon
thirty days' notice to Mr. Bronfein, or for Cause (as defined). Mr. Bronfein
may terminate his employment agreement on 30 days' notice upon the occurrence
of certain events, including a significant reduction in duties, responsibility
or authority. In the event that the Company terminates Mr. Bronfein's
employment agreement without Cause, or Mr. Bronfein terminates his employment
agreement as described in the preceding sentence, Mr. Bronfein is entitled to
severance compensation equal to one year of his then current base salary. If
Mr. Bronfein 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 Mr.
Bronfein's employment.
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
13
<PAGE>
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.
For an employee who has completed six years of service prior to the beginning
of the calendar year, he receives a match of $0.75 per $1.00 of 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 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.
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 March 5, 1997, each non-employee director of the
Company was granted an option to purchase 4,500 shares of Common Stock at an
exercise price of $35.25 per share.
14
<PAGE>
Option Grants
The following table sets forth certain information concerning stock
options granted under the Employee Plan during fiscal 1997 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
Value
at Assumed Annual
Rates of Stock Price
Individual Grants Appreciation for Option Term
-------------------------------------------------------------- -----------------------------
Percent of Total
Options Granted
Options to Employees In Exercise Expiration
Name Granted Fiscal Year Price Date 5% 10%
- ------------------------------ ---------------- ----------------- ------------ ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Walker ............ 300,000(1) 24.6% $ 35.25 3/5/07 $6,650,560 $16,853,827
Richard R. Howard ............ 18,000 1.5% 35.25 3/5/07 399,034 1,011,230
David C. Barr ................ 37,000 3.0% 35.25 3/5/07 820,236 2,078,639
George V. Hager, Jr. ......... 30,000 2.5% 35.25 3/5/07 665,056 1,685,383
Michael G. Bronfein .......... 0 0% -- -- -- --
</TABLE>
- ------------
(1) Subject to shareholder approval increasing the number of shares issuable
under the Employee Plan.
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 1997 held by the Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company:
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Year-End Year-End
Shares Acquire Exercisable/ Exercisable/
Name on Exercise Value Realized Unexercisable Unexercisable(1)
- ------------------------------ ---------------- ---------------- ------------------------ ------------------------
<S> <C> <C> <C> <C>
Michael R. Walker ............ 0 $ 0 367,000/300,000(2) $9,822,065/$1,106,250
Richard R. Howard ............ 8,000 194,921 203,750/51,500 4,174,432/390,906
David C. Barr ................ 7,730 202,086 213,270/63,500 5,019,137/393,156
George V. Hager, Jr. ......... 10,000 305,000 108,500/61,500 2,298,219/496,781
Michael G. Bronfein .......... 0 0 25,000/50,000 176,563/353,125
</TABLE>
- ------------
(1) Stock Price at close of business on September 30, 1997 was $38.94.
(2) Includes 300,000 options which will be issued at an exercise price of
$35.25 per share, subject to shareholder approval increasing the number of
shares issuable under the Employee Plan.
15
<PAGE>
Incentive Compensation Program
Under the Company's incentive compensation program, which was revised in
fiscal 1996, 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 in fiscal 1996, 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 Committee. The Stock Option Committee 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 Plan."
Execuflex Plan
In November 1991, the Company adopted the Execuflex Plan. All Company
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 match since March 1, 1997 has been based on years of service.
For an employee who has completed ten years of service prior to the beginning
of the calendar year, he receives a match of $0.50 per $1.00 of contribution up
to 2% of his salary. Therefore, if this employee contributes 4% or more of his
salary, the Company contributes 2% of his salary. If the employee contributes
less than 4%, the Company contributes $0.50 per $1.00 of contribution. If an
employee has completed more than six and less than ten years of service, he is
matched $0.38 per $1.00 of contribution up to 1.5% of his salary. Therefore, if
this employee contributes 4% or more of his salary, the Company contributes
1.5% of his salary. If the employee contributes less than 4%, the Company
contributes $0.38 per $1.00 of contribution. If an employee has not completed
seven years of service, he is matched $0.25 per $1.00 of contribution up to 1%
of his salary. Therefore, if this employee contributes 4% or more of his
salary, the Company contributes 1% of his salary. If the employee contributes
less than 4%, the Company contributes $0.25 per $1.00 of contribution. 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 Insider Participation
A limited partnership (the "Nazem Affiliate") affiliated with Fred F.
Nazem, a director of the Company, owns 1.4% of the outstanding Common Stock of
Genesis ElderCare Corp., the parent corporation of the Multicare Companies,
Inc. and its subsidiaries ("Multicare"). Multicare is owned 44% by the Company
and is consolidated for financial accounting purposes.
The Nazem Affiliate's stock ownership is subject to an agreement (the
"Put/Call Agreement") pursuant to which, among other things, the Company will
have the option, on the terms and conditions set forth in the Put/Call
Agreement to purchase (the "Call") Genesis ElderCare Corp. Common Stock held by
the Nazem Affiliate commencing on October 9, 2001 and for a period of 270 days
thereafter, at a price determined pursuant to the terms of the Put/Call
Agreement. The Nazem Affiliate will have the option, on the terms and
conditions set forth in the Put/Call Agreement, to require the Company to
purchase (the "Put") such Genesis ElderCare Corp. Common Stock commencing on
October 9, 2002 and for a period of one year thereafter, at a price determined
pursuant to the Put/Call Agreement.
16
<PAGE>
Upon exercise of the Call, the Nazem Affiliate will receive at a minimum
its original investment plus a 25% compound annual return thereon. Upon
exercise of the Put, there will be no minimum return to the Nazem Affiliate;
any payment to the Nazem Affiliate will be based upon a formula set forth in
the terms of the Put/Call Agreement which provides generally for the
preferential return of the stockholders' capital contributions (subject to
certain priorities), a 25% compound annual return on the Nazem Affiliate's
capital contributions and additional amounts to be divided based upon the
proportionate share of the capital contributions of the stockholders to Genesis
ElderCare Corp.
All of the executive officers of the Company are also executive officers
of Multicare, including Messrs. Walker, Howard and Hager, who are also
directors of Multicare. Multicare and the Company have entered into a
management agreement (the "Management Agreement") pursuant to which the Company
will manage Multicare's operations. The Management Agreement has a term of five
years with automatic renewals for two years unless either party terminates the
Management Agreement. The Company will be paid a fee of six percent of
Multicare's net revenues for its services under the Management Agreement
provided that payment of such fee in respect of any month in excess of the
greater of (i) $1,991,666 and (ii) four percent of Multicare's consolidated net
revenues for such month, shall be subordinate to the satisfaction of
Multicare's senior and subordinate debt covenants; and provided, further, that
payment of such fee shall be no less than $23,900,000 in any given year. Under
the Management Agreement, the Company is responsible for Multicare's
non-extraordinary sales, general and administrative expenses (other than
certain specified third-party expenses), and all other expenses of Multicare
will be paid by Multicare.
The Company is sponsoring the formation of ElderTrust(SM) ("ETT"), a
Maryland real estate investment trust. It is anticipated that ETT will commence
an initial public offering (the "ETT Offering") during the first calendar
quarter of 1998. Michael R. Walker, Chairman and Chief Executive Officer of the
Company, will be the Chairman of ETT.
Upon completion of the ETT Offering, substantially all of the ETT
operations will be conducted through ElderTrust Operating Limited Partnership
(the "Operating Partnership"). In fiscal year 1997, Messrs. Walker, Howard,
Barr, Hager and DePodesta formed MGI Limited Partnership ("MGI"). MGI will
receive 95,454 units in the Operating Partnership ("Units"), having a total
value of approximately $1.9 million based on the assumed ETT Offering price of
the Common Shares of ETT, upon the recapitalization of the Operating
Partnership.
Upon consummation of the ETT Offering, Mr. Walker will receive cash
distributions totaling approximately $358,000 from the sale of his interests in
GHV Associates and Salisbury Medical Office Building General Partnership
("SMOPBGP") to the Operating Partnership. Mr. Walker also will receive a direct
or indirect interest in 88,110 Units in exchange for his ownership interests in
GHV Associates, SMOBGP and two other limited partnerships. Such Units, together
with Mr. Walker's interest in the Units to be distributed to MGI, will have a
total value of approximately $2.5 million based on the assumed ETT Offering
price of the Common Shares of ETT. In addition, Mr. Walker will receive
approximately $1.9 million in cash from ETT as repayment of first mortgage
indebtedness loaned by Mr. Walker to GHV Associates and SMOBGP.
Mr. Walker will receive $50,000 in cash (representing a return of his
initial investment) indirectly from the Operating Partnership upon the
dissolution of Elder Trust Realty Group, Inc. following the sale by Elder Trust
Realty Group, Inc. of all its assets and liabilities to the Operating
Partnership.
ETT will grant to Mr. Walker options to purchase 150,000 Common Shares
under ETT's 1998 Share Option and Incentive Plan. These options will vest over
three years.
Upon consummation of the ETT Offering, Mr. Howard will receive a cash
distribution totaling approximately $91,000 from SMOBGP. In addition, Messrs.
Howard, Barr and Hager will receive a direct or indirect interest in 24,139
Units in the aggregate in exchange for their ownership interests in certain
limited partnerships. Such Units will have a total value of approximately
$483,000 based on the assumed ETT Offering price of the Common Shares of ETT.
The Company currently leases the Windsor Office Building and the Windsor
Clinic and Training Facility (the "Buildings") from GHV Associates, a
partnership which is owned by among others, Michael R. Walker,
17
<PAGE>
an officer and director of the Company. Payments under these leases approximate
$191,000 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.
Following consummation of the ETT Offering, ETT will purchase the Buildings
from GHV Associates. The Company will continue to lease these premises from ETT
upon the same terms and conditions.
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 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. Following consummation of the ETT
Offering, ETT will purchase all of the outstanding partnership interests in
SMOBGP. The Company will continue to lease these premises from ETT upon the
same terms and conditions.
The Company has established a $6,500,000 line of credit (the "Loan") for
the benefit of HealthObjects Corporation and its subsidiaries (collectively,
"HealthObjects"). HealthObjects is 82% beneficially owned by Michael G.
Bronfein, an officer of the Company. Pursuant to a Participation Agreement
between the Company and Mr. Bronfein and his wife, the Bronfeins participate in
50% of the Loan exceeding $5,000,000. In connection with the loan,
HealthObjects has issued warrants for the purchase of 5% of all outstanding
shares of HealthObjects to the Company.
Stephen E. Luongo, a director and member of the Compensation Committee, is
a partner in the law firm of Blank Rome Comisky & McCauley LLP 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 $923,000 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. Mr. Hager repaid the remaining balance of $85,000 on
this note during Fiscal 1997.
On January 13, 1998, the Company loaned approximately $411,000 to Richard
R. Howard, President and a director of the Company; $624,000 to George V.
Hager, Jr., Senior Vice President and Chief Financial Officer of the Company;
$493,000 to Marc Rubinger, Senior Vice President and Chief Information Officer
of the Company; and $199,000 to Maryann Timon, Senior Vice President, Managed
Care of the Company. The loans were made in connection with the Senior
Executive Officer Stock Ownership Program, and are for five years at a variable
interest rate equal to the Company's cost of borrowing under its Senior Credit
Facility. See "Executive Compensation and Certain Transactions -- Compensation
Committee and Stock Option Committee Report."
18
<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, 1992, 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
700 |-------------------------------------------------------------------------|
| |
| *|
600 |-------------------------------------------------------------------------|
| |
| |
500 |-------------------------------------------------------------------------|
| |
| * |
400 |-------------------------------------------------------------------------|
| * |
| |
300 |-----------------------------*-------------------------------------------|
| & &#|
| |
200 |--------------*--------------&--------------&-------------#--------------|
| # |
| & # |
100 |*#&-----------#----------------------------------------------------------|
| |
| |
0 |--------------|--------------|--------------|-------------|--------------|
9/92 9/93 9/94 9/95 9/96 9/97
* = Genesis Health Ventures, Inc.
# = Dow Jones Equity Market Index & = Health Care Providers
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, 1997, 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 was filed late by Fred F. Nazem, and
the initial report was filed late by David C. Almquist, Vincent Barnaba, M.D.,
Michael G. Bronfein, James V. McKeon, Mary Ann Miller, Robert A. Reitz and
Deborah M. Soutar.
19
<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, 1997 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, 1998. 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 1999 ANNUAL MEETING OF SHAREHOLDERS
Shareholder proposals intended to be presented at the 1999 Annual Meeting
must be submitted by October 27, 1998 to receive consideration for inclusion in
the Company's 1999 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, 1997 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
General Counsel--Corporate
and Corporate Secretary
20
<PAGE>
GENESIS HEALTH VENTURES, INC.
1998 ANNUAL MEETING OF SHAREHOLDERS
FEBRUARY 24, 1998
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 19, 1997, at the Company's 1998 Annual
Meeting of Shareholders to be held on February 24, 1998 or at any postponement
or adjournment of the meeting.
(continued on reverse side)
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o FOLD AND DETACH HERE o
<PAGE>
Please mark
your votes as
indicated in
this example /X/
THIS PROXY WILL BE VOTED AS DIRECTED BELOW.
UNLESS YOU DIRECT OTHERWISE, THIS PROXY WILL BE VOTED "FOR" ALL PROPOSALS.
PROPOSAL 1: The election of Roger C. Lipitz and Alan B. Miller as directors as
described in the accompanying Proxy Statement.
FOR To withhold authority To withhold authority to vote for any
to vote for all nominees, individual nominee(s), clearly print his
check below: or their names in the space provided below:
/ / / / -------------------------------------------
PROPOSAL 2: The approval of the Amendment to the Both proxy agents present and
Company's 1985 Amended and Restated acting in person or by their
Employee Stock Option Plan as substitute (or, if only one
described in the accompanying Proxy is present and acting, then
Statement. that one) may exercise all of
the powers conferred by this
FOR AGAINST ABSTAIN proxy. DISCRETIONARY
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 1997 Annual Report
to Shareholders, Notice of
the Company's 1998 Annual
Meeting of Shareholders and
the Company's Proxy Statement
dated January 23, 1998.
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.
- -------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
