<PAGE>
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:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Genesis Health Ventures, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Not Applicable
- --------------------------------------------------------------------------------
(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)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined.):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
LOGO
101 East State Street
Kennett Square, PA 19348-3021
Tel: 610 444 6350
February __, 1999
Dear Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of
Shareholders of Genesis Health Ventures, Inc. which will be held on Thursday,
March 11, 1999 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 three
directors of the Company to serve for three-year terms until the 2002 Annual
Meeting of Shareholders, to approve amendments to the Company's Amended and
Restated Employee Stock Option Plan and, if properly presented by the
shareholder, to consider a shareholder proposal. 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.
101 East State Street
Kennett Square, PA 19348-3021
------------------------------------
Notice of Annual Meeting of Shareholders
March 11, 1999
-----------------------------------
To Our Shareholders:
The 1999 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 11, 1999 at 10:00 A.M., for the following
purposes as more fully described in the annexed Proxy Statement:
1. To elect three directors for terms of three years each;
2. To consider and act on amendments to the Company's Amended and
Restated Employee Stock Option Plan which (a) increase the number of
shares issuable under the plan from 6,250,000 to 6,750,000; (b)
eliminate the ability to issue Non-Qualified Stock Options at less
than the fair market value of the Company's Common Stock as of the
date of grant;
3. If presented properly by the Shareholder, to consider and act on a
shareholder proposal; and
4. 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 18, 1998, as the record date
for the determination of shareholders entitled to vote at the meeting or any
postponement or adjournment thereof.
IF YOU PLAN TO ATTEND:
Only shareholders as of the record date, or their duly appointed
proxies, may attend the meeting. Seating is limited. Admission to the meeting
will be on a first-come, first-served basis. Registration and seating will begin
at 9:30 a.m. Each shareholder may be asked to present valid picture
identification, such as a driver's license or passport. Please note that if your
shares, or the person or entity for whom you are the duly appointed proxy, are
held in "street name" (that is, through a broker or other nominee), you will
need to bring a copy of a brokerage statement reflecting stock ownership as of
the record date. Cameras, recording devices and other electronic devices will
not be permitted at the meeting.
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
Vice President - Office of the Chairman
and Corporate Secretary
February __, 1999
<PAGE>
GENESIS HEALTH VENTURES, INC.
101 East 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 February __, 1999, 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 1999 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, FOR approval of the amendments to the
Company's Amended and Restated Employee Stock Option Plan and AGAINST the
shareholder proposal described below if it is properly presented at the Annual
Meeting. 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 $4,500.00 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 18, 1998, 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 35,206,418
shares of Common Stock and 590,253 shares of Series G Cumulative Convertible
Preferred Stock (the "Preferred Stock"). Holders of Common Stock are entitled to
one vote per share and holders of the Preferred Stock are entitled to 13.44
votes per share.
Pursuant to an agreement dated April 26, 1998 (the "Rights Agreement")
between the Company and HCR Manor Care, Inc. ("Manor"), Manor has agreed to vote
its 586,240 shares of the Company's Preferred Stock in accordance with the
recommendation of the Company's Board of Directors. In connection with the
Rights Agreement, Genesis has agreed to appoint one nominee of Manor as a member
of the Company's Board of Directors. The Manor nominee is Jack R. Anderson.
3
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth at December 31, 1998, 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.
Shares of
Common Stock Percent of
Beneficially Common Stock
Owned (1) Owned
------------ ------------
Putnam Investments, Inc. (2)
One Post Office Square
Boston, Massachusetts 02109 3,289,151 9.0%
HCR Manor Care, Inc.
One Seagate
Toledo, OH 43604-2616 (3) 7,879,570 18.3%
Jack R. Anderson (4) 200,000 *
Richard R. Howard (5) 306,450 *
Samuel H. Howard (6) 18,000 *
Roger C. Lipitz (7) 43,000 *
Stephen E. Luongo (8) 52,018 *
Alan B. Miller (9) 28,000 *
Michael R. Walker (10) 926,400 *
David C. Barr (11) 243,270 *
George V. Hager, Jr. (12) 143,353 *
Michael G. Bronfein (13) 271,911 *
All executive officers and directors
as a group (18 persons) 2,441,235 6.9%
- -------------------
* 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 December 31, 1998. 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 28, 1998. 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) Consists of 586,240 shares of Preferred Stock, which are convertible into
7,874,570 shares of Common Stock. Does not include shares beneficially owned by
Jack R. Anderson who is Manor's designee to the Board of Directors.
(4) Does not include shares beneficially owned by Manor; Jack R. Anderson is
Manor's designee to the Board of Directors.
(5) Includes 203,750 shares of Common Stock which may be acquired upon the
exercise of stock options.
(6) Consists of 18,000 shares of Common Stock which may be acquired upon the
exercise of stock options.
(7) Includes 18,000 shares of Common Stock which may be acquired upon the
exercise of stock options.
4
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(8) Includes 30,000 shares of Common Stock which may be acquired upon the
exercise of stock options.
(9) Includes 22,500 shares of Common Stock which may be acquired upon the
exercise of stock options.
(10) Includes 467,500 shares of Common Stock which may be acquired upon the
exercise of stock options.
(11) Includes 213,270 shares of Common Stock which may be acquired upon the
exercise of stock options.
(12) Includes 111,500 shares of Common Stock which may be acquired upon the
exercise of stock options.
(13) Includes 55,000 shares of Common Stock which may be acquired upon the
exercise of stock options.
5
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Information Concerning Nominees
Three directors are to be elected at the Annual Meeting to serve
three-year terms until the 2002 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
------ --- --------------------------
Jack R. Anderson (1) 73 Director
Richard R. Howard (2) 49 Vice Chairman and Director
Samuel H. Howard (3) 59 Director
- -------------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Executive Committee of the Board of Directors.
(3) Member of the Audit Committee, Compensation Committee and Stock Option
Committee of the Board of Directors.
Jack R. Anderson has served as a director of the Company since November
1998. Since 1982, Mr. Anderson has been President of Calver Corporation, a
Dallas based health care consulting and investing firm. From September 1981
until May 1982, Mr. Anderson served as President of Manor Care, Inc. From 1970
until 1981, Mr. Anderson served as President and later as Chairman of Hospital
Affiliates International, Inc., a hospital management company in Nashville. Mr.
Anderson is a member of the Board of Directors of Horizon Health Corporation and
PacifiCare Health Systems, Inc.
Richard R. Howard has served as a director of the Company since its
inception, as Vice President of Development from September 1985 to June 1986, as
President and Chief Operating Officer from June 1986 to April 1997, as President
from April 1997 to November 1998 and as Vice Chairman since November 1998. Mr.
Howard's background in healthcare 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 graduate of the
Wharton School, University of Pennsylvania, where he received a Bachelor of
Science degree in Economics in 1971. Mr. Howard is a member of the Board of
Directors of The Multicare Companies, Inc. ("Multicare").
Samuel H. Howard has served as a director of the Company since March
1988. He is the founder and chairman of Xantus Corporation and the founder and
President of Phoenix Communications Group, Inc. and Phoenix Holdings, Inc. all
of which are based in Nashville, Tennessee. 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 Hospital
Affiliates International Inc., 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.
Jack R. Anderson, Richard R. Howard and Samuel H. Howard 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.
6
<PAGE>
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
each nominee.
Information Concerning Continuing Directors
The following tables set forth certain information concerning those
directors whose terms will expire at the 2000 and 2001 Annual Meetings of
Shareholders:
Name Age Position with the Company
---- --- -------------------------
The terms of the following directors will expire in 2000:
Stephen E. Luongo (1) 51 Director
Michael R. Walker (2) 50 Chairman and Chief Executive Officer
The terms of the following directors will expire in 2001:
Roger C. Lipitz (1), (3) 56 Director
Allen B. Miller (2) 61 Director
- -------------------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Executive Committee of the Board of Directors.
(3) Member of the Audit Committee and Stock Option 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 LLP.
Blank Rome Comisky & McCauley LLP serves as outside legal counsel for the
Company.
Michael R. Walker is the founder of the Company and 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 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
International. Mr. Walker holds a Master of Business Administration degree from
Temple University and a Bachelor of Arts in Business Administration from
Franklin and Marshall College. Mr. Walker has served as Chairman of the Board of
Trustees of ElderTrust since its inception in January 1998 and has served as
Chairman of the Board of Directors of Multicare since October 1997.
Roger Lipitz has served as a director of the Company since March 1994.
From January 1994 until January 1996, Mr. Lipitz served on a consulting basis as
Director of Government Relations of the Company. 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
Chairman of the Board of Trustees of Universal Health Realty Income Trust and a
member of the Board of Directors of CDI Corp., and Penn Mutual Life Insurance
Company.
7
<PAGE>
Board Meetings and Committees of the Board
The Board of Directors held four regular meetings and seven special
meetings during the fiscal year ended September 30, 1998.
The Executive Committee held four meetings during the fiscal year ended
September 30, 1998. 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, 1998. 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, 1998. 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, 1998. 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 he was a member during the fiscal year ended September 30,
1998.
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 AMENDMENTS TO THE COMPANY'S AMENDED AND RESTATED
EMPLOYEE STOCK OPTION PLAN
On November 11, 1998 the Board of Directors approved an amendment to
the Company's Amended and Restated Employee Stock Option Plan (the "Employee
Stock Option Plan") that increased the maximum number of shares issuable under
the Employee Stock Option Plan by 500,000 shares to a total of 6,750,000 shares,
subject to approval by the shareholders of the Company. Under the Company's
incentive compensation program, stock options issued under the Employee Stock
Option Plan are the sole form of incentive compensation to officers and most
eligible employees of the Company. In January 1999, the Board of Directors
approved an amendment to the Employee Stock Option Plan that eliminated the
right to issue Non-Qualified Stock Options at less than the fair market value of
the Company's Common Stock as of the date of grant.
8
<PAGE>
Amendment to Increase Authorized Shares from 6,250,000 to 6,750,000
Currently, options for a total of 6,250,000 shares may be issued under
the Employee Stock Option Plan. Of these shares, 254,372 shares remain currently
available for future options. The amendment increases the maximum number of
shares issuable under the Employee Stock Option Plan by 500,000 to a total of
6,750,000 shares. If the shareholders do not approve the increase, then the
maximum number of shares issuable under the Employee Stock Option Plan will
remain at 6,250,000.
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 Stock Option 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. On November 11, 1998, subject to shareholder approval of the plan
amendments, the Stock Option Committee approved the grant of 300,000
Non-Qualified Stock Options to Michael R. Walker, the Company's Chairman and
Chief Executive Officer.
Amendment to Eliminate Right to Issue Non-Qualified Stock Options
at Less Than Fair Market Value
Currently, the Employee Stock Option Plan permits the minimum option
price of Non-Qualified Stock Options issued under the Employee Stock Option Plan
to be equal to 85% of the fair market value of the Company's Common Stock as of
the date of grant. The amendment requires all Non-Qualified Stock Options issued
under the Employee Stock Option Plan to be issued at a price of not less than
100% of the fair market value of the Company's Common Stock as of the date of
grant.
Set forth below is a summary of certain significant provisions of the
Employee Stock Option Plan.
General
Pursuant to the Employee Stock Option 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 Stock Option 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 1300 people) are eligible to receive options under the Employee Stock Option
Plan. The Employee Stock Option Plan is administered by the Stock Option
Committee. Subject to the provisions of the Employee Stock Option 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 Stock Option 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 Stock Option Plan, correct defects and
omissions in, reconcile inconsistencies in, and construe the Employee Stock
Option Plan. The Stock Option Committee also has the right to modify, suspend or
terminate the Employee Stock Option Plan, subject to certain conditions.
9
<PAGE>
Number of Shares Adjustment
The aggregate number of shares which may be issued upon the exercise of
options granted under the Employee Stock Option Plan will be increased as a
result of the proposed amendment from 6,250,000 to 6,750,000 shares of the
Company's Common Stock. The aggregate number and kind of shares issuable under
the Employee Stock Option 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 Stock Option Plan. The
maximum number of shares for which options may be granted to any participant in
any year is 750,000 shares of Common Stock, subject to certain adjustments in
the event of any change in the outstanding shares of the Common Stock of the
Company. On November 11, 1998, subject to shareholder approval of the plan
amendments, the Stock Option Committee approved the grant of 300,000
Non-Qualified Stock Options to Michael R. Walker, the Company's Chairman and
Chief Executive Officer.
Exercise Price and Terms
The exercise price for Incentive Options granted under the Employee
Stock Option 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. Currently, 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. As discussed above,
the proposed amendments to the Employee Stock Option Plan would require all
Non-Qualified Stock Options to be issued at a price of not less than 100% of the
fair market value of the Company's Common Stock as of the date of grant.
Unless terminated earlier by the option's terms, Non-Qualified Options
and Incentive Options granted under the Employee Stock Option 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 Stock Option 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).
10
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Assignment of Options
In January 1999, the Company's Stock Option Committee and Board of
Directors amended the Employee Stock Option Plan to permit the transfer of
Non-Qualified Stock Options to certain family members and to trusts and
partnerships established for the benefit of certain family members. Prior to
such amendment, the Employee Stock Option Plan provided that options granted
under the plan could not be transferred except by the laws of descent and
distribution in the event of death. Under current tax law, certain transfer tax
benefits may be obtained when an optionee transfers an option to a family member
who then exercises the option.
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 reporting rules and (ii) either the deduction
limitation imposed by Section 162(m) of the 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, capital gain is
subject to a maximum tax rate of 20% if the holding period is more than 18
months. 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.
In the event of a permitted transfer by gift of a Non-Qualified Option,
the transferor will remain taxable on the ordinary income realized as and when
such Non-Qualified Option is exercised by the transferee. All other tax
consequences described above will be applicable to the transferee of the
Non-Qualified Option. A permitted transfer by gift of a Non-Qualified Option may
result in federal transfer taxes to the transferor at such time as the option is
transferred, as well as such later time or times as the Non-Qualified Option
vests, if not fully vested on the date of the initial transfer.
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 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.
11
<PAGE>
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.
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), the Company believes that Section 162(m) will have no application to
stock options to be granted by reason of the amendment to increase the number of
stock options which may be granted under the Employee Stock Option Plan, and
will have limited applicability to stock options heretofore granted under the
Employee Stock Option Plan, either because such stock options were grandfathered
from the application of Section 162(m) by certain transition rules, or will
qualify for the performance based compensation exemption to Section 162(m).
Option Grants
At January 22, 1999, options to purchase a total of 4,983,382 shares of
Common Stock were outstanding under the Employee Stock Option Plan at an average
exercise share price of $22.05.
On November 11, 1998, subject to shareholder approval of the plan
amendments, the Stock Option Committee approved the grant of 300,000
Non-Qualified Stock Options to Michael R. Walker, Chairman and Chief Executive
Officer of the Company.
12
<PAGE>
The following table sets forth certain information concerning options
issued to date and not forfeited under the Employee Stock Option 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 618,126(1) $19.02
Chairman and Chief Executive Officer
Richard R. Howard 574,150 $15.32
Vice Chairman and Director
David C. Barr 469,500 $13.61
Vice Chairman
George V. Hager, Jr. 240,000 $15.23
Senior Vice President and Chief Financial Officer
Michael G. Bronfein 135,000 $23.98
President, NeighborCareSM
All Executive Officers as a Group (14 persons) 2,583,376(1) $17.86
All Employees, other than Executive Officers and Directors, 4,149,665 $20.97
as a Group
</TABLE>
- ---------------
(1) Does not include the November 11, 1999 grant of 300,000 Non-Qualified
Options which is subject to shareholder approval of the plan amendments, as
discussed above.
On January 20, 1999, the last sale price of the Company's Common Stock
as reported on the New York Stock Exchange was $9.00.
Unless authority has been withheld, the proxy agents intend to vote FOR
approval of the amendments to the Employee Stock Option Plan. The approval of
the amendments to the Employee Stock Option Plan requires the affirmative vote
of a majority of the votes cast by all shareholders represented and entitled to
vote thereon, provided that the total votes cast represent over 50% of all
securities entitled to vote on the proposal. 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 Stock Option Plan.
SHAREHOLDER PROPOSAL
The Service Employees International Union (the "Union"), the holder of
one share of the Company's Common Stock, has notified the Company that it
intends to submit the following resolution at the Annual Meeting:
RESOLVED, that the shareholders of the Company urge the Board of
Directors to take the necessary steps, in compliance with state law, to
declassify the Board of Directors so that all directors are elected
annually. The declassification shall be done in a manner that does not
affect the unexpired terms of directors previously elected.
13
<PAGE>
The Union has indicated its intention to solicit proxies in support of
its proposal. As noted above, the Union has indicated that it owns one share of
Common Stock of the Company with a market value of approximately $9.00 as of
January 20, 1999. The Union's solicitation materials indicate that the Union
intends to spend about $5,000 on printing, mailing and postage in connection
with the solicitation, which is substantially in excess of the value of their
Company Common Stock.
The Board of Directors recommends a vote AGAINST this proposal if it is
submitted for the following reasons:
This shareholder proposal is expected to be submitted to the Company by
the Union. The Company is regularly engaged in negotiating labor agreements with
various local chapters of the Union. Furthermore, the Union has had an ongoing
organizing campaign against the Company since July 1998. Management believes
this proposal reflects an attempt by the Union to gain leverage over the Company
in the Union's organizing campaign and for use in labor negotiations with the
Company. The Board believes it is inappropriate for the Union to seek to gain
negotiating leverage in its dealings with the Company through the use of the
Company's proxy process.
The Board of Directors believes that a classified board continues to
serve the Company, the shareholders and those with whom the Company does
business by permitting all to rely on the consistency and continuity of
corporate policy. At the same time, annual elections, in which approximately
one-third of the board is elected each year, offer shareholders a regular
opportunity to renew and reinvigorate corporate decision-making while
maintaining the basic integrity of corporate policy year-to-year for the benefit
of all who rely on it. A system of classified directors also benefits
shareholders by making corporate takeovers, or the threat of corporate
takeovers, by proxy contest more difficult, since incumbent directors always
represent a majority of the Board and are in a position to protect the interests
of all shareholders.
Unless authority has been withheld, the proxy agents intend to vote
against approval of the shareholder proposal if it is submitted at the Annual
Meeting. The approval of the shareholder proposal requires the affirmative vote
of a majority of the votes cast by all shareholders represented and entitled to
vote. 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. For the foregoing reasons, the Board of Directors believes
that this proposal is not in the best interests of the Company and unanimously
recommends that you vote against the shareholder proposal if it is submitted at
the Annual Meeting.
14
<PAGE>
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, Roger C. Lipitz and Samuel H. Howard, who were not officers
or employees of the Company during the fiscal year. The Compensation 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 Roger C. Lipitz and Samuel H. Howard.
The Stock Option Committee administers the Company's Employee Stock Option 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.
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,
stock options issued under the Employee Stock Option 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 Stock Option Plan as a long-term
incentive plan for executive officers and key employees. The objectives of the
Employee Stock Option Plan is 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
Stock Option Plan authorizes the Stock Option Committee to award stock options
to officers and key employees. Stock option grants in fiscal 1998 were
determined by the Stock Option Committee based upon recommendations of senior
management.
In February, 1998, the Compensation Committee retained the services of
Mercer Consulting to review executive compensation and employment contract
terms. Following several meetings and discussions with Mercer Consulting,
employment agreements were approved for 13 key executives of the Company
including the agreements with Messrs. Walker, Howard, Barr, Hager and Bronfein
discussed below.
The Company entered into new employment agreements, effective August
12, 1998, with Michael R. Walker as its Chairman and Chief Executive Officer,
Richard R. Howard and David C. Barr as its Vice Chairmen and George V. Hager,
Jr., as its Senior Vice President and Chief Financial Officer (collectively
Messrs. Walker, Howard, Barr and Hager are the "Genesis Executives"). The
agreement with Mr. Walker currently expires on August 12, 2003; the agreements
with Messrs. Howard, Barr and Hager each currently expire on August 12, 2001.
Unless notice of non-renewal is given by two-thirds of the entire Board of
Directors, the current term of Mr. Walker's agreement shall automatically extend
an additional year beginning on the anniversary thereof in 2001, and the
agreements for Messrs. Barr, Howard and Hager extend an additional year
beginning on the anniversary thereof in 1999. The annual base salaries of
Messrs. Walker, Howard, Barr and Hager currently are $650,000, $400,000,
$333,000 and $295,000, respectively, and are reviewable by the Company's Board
of Directors at least annually. 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. Each Genesis
Executive may terminate his employment agreement upon notice to the Company of
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 Genesis Executive's employment agreement without Cause,
or the Genesis Executive terminates his employment agreement as described in the
preceding sentence, Mr. Walker is entitled to severance compensation equal to
the greater of the remainder of the term of the agreement or three years average
base salary plus the value of stock options (using a Black-Scholes valuation
method) and cash bonus granted during such period and Messrs. Barr, Howard, and
Hager are entitled to severance compensation equal to three years base salary
plus the value of stock options (using a Black-Scholes valuation method) and
cash bonus granted during such period. In each case the value of such stock
options and cash bonus may not exceed 100% of such base salary. Messrs. Walker,
Barr and Howard are entitled to certain insurance benefits. If a Genesis
Executive becomes disabled, he will continue to receive all of his compensation
and benefits so long as such period of disability does not exceed 12 consecutive
months or shorter period aggregating 12 months in any 24 month period. Each
employment agreement also contains provisions which are intended to limit the
Genesis Executive from competing with the Company throughout the term of the
agreement and for a period of two years thereafter. In addition, under the
Senior Executive Employee Stock Ownership Program, the Company may make loans to
the Genesis Executives to maintain a predetermined stock ownership position in
the Company.
15
<PAGE>
The Company entered into an employment agreement, effective November
11, 1998, with Michael G. Bronfein as President and Chief Executive Officer of
Neighborcare Pharmacies. The Company has consolidated its pharmacy, medical
supply and infusion business under the brand name "NeighborCare," and Mr.
Bronfein is the President and Chief Executive Officer of all subsidiaries of the
Company which do business as NeighborCare. The agreement with Mr. Bronfein
currently expires on November 11, 2001. The annual base salary of Mr. Bronfein
is $350,000, and is reviewable by the Company's Board of Directors at least
annually. The agreement 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. 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 three years base salary plus the
value of stock options (using a Black-Scholes valuation method) and cash bonus
granted during such period, which value may not exceed 60% of his base salary.
If Mr. Bronfein becomes disabled, he will continue to receive all of his
compensation and benefits so long as such period of disability does not exceed
12 consecutive months or shorter period aggregating 12 months in any 24 month
period. Mr. Bronfein's agreement also contains provisions which are intended to
limit him from competing with the Company throughout the term of the agreement
and for a period of two years thereafter.
Compensation of the named executive officers for fiscal 1998 was
determined in accordance with the employment agreements in effect prior to the
adoption of the new employment agreements described above and/or the Company's
compensation policies. In accordance with the previous employment agreements and
the newly adopted employment agreements, base salary is reviewed annually and
set by the Board, based upon the recommendation of the Committee, for Messrs.
Walker, Howard, Barr and Hager.
In the case of all other executive officers, compensation was set at
levels consistent with the Company's policies and performance.
Messrs. Walker, Howard, Barr, Hager and Bronfein's compensation for
fiscal 1998 is commensurate with the Company's performance and their
contributions thereto. As with the Company's other executive officers, Messrs.
Walker, Howard, Barr, Hager and Bronfein'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.
The Company uses the Employee Stock Option Plan as a long-term
incentive plan for officers and senior executives of the Company. On November
11, 1998, the Stock Option Committee approved option grants of 200,000
Non-Qualified Options to each of Messrs. Howard and Barr, 75,000 Non-Qualified
Options to Mr. Hager, and 50,000 Non-Qualified Options to Mr. Bronfein. In
addition, as discussed above, subject to shareholder approval, the Stock Option
Committee approved the grant of 300,000 Non-Qualified Stock Options Michael R.
Walker, the Company's Chairman and Chief Executive Officer.
16
<PAGE>
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 Hager 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 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 Roger C. Lipitz
17
<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 1998, fiscal 1997 and fiscal 1996.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
---------------------- ------------
Name and Position Fiscal Option
With the Company Year Salary (2) Bonus (3) Awards (3)(4) All Other Compensation (1)
---------------- ---- ---------- --------- ------------- ----------------------
<S> <C> <C> <C> <C> <C>
Michael R. Walker 1998 $626,931 $ 0 0 $11,997
Chairman and Chief 1997 521,621 0 200,000 23,673
Executive Officer 1996 450,329 0 0 7,844
Richard R. Howard 1998 $376,924 $ 0 67,900 $ 9,054
Vice Chairman and Director 1997 340,710 0 9,000 15,829
1996 307,035 0 67,000 6,875
David C. Barr 1998 $311,539 $ 0 0 $ 7,767
Vice Chairman 1997 273,333 0 18,500 8,662
1996 256,095 53,000 2,200
0
George V. Hager, Jr. 1998 $287,616 $ 0 0 $ 3,787
Senior Vice President and 1997 253,557 5,159 15,000 5,961
Chief Financial Officer 1996 224,994 4,143 45,000 3,247
Michael G. Bronfein 1998 $267,306 $ 0 10,000 $ 3,606
President, 1997 250,000 0 0 0
NeighborCare(SM) (5) 1996 65,032 0 75,000 0
</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, stock options issued
under the Employee Stock Option 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) Does not include 100,000, 42,500, 45,000 and 37,500 stock options Messrs.
Walker, Howard, Barr and Hager forfeited, respectively.
(5) Mr. Bronfein joined the Company on June 5, 1996.
18
<PAGE>
Employment Agreements
The Company entered into new employment agreements, effective August
12, 1998, with Michael R. Walker as its Chairman and Chief Executive Officer,
Richard R. Howard and David C. Barr as its Vice Chairmen and George V. Hager,
Jr., as its Senior Vice President and Chief Financial Officer. The agreement
with Mr. Walker currently expires on August 12, 2003; the agreements with
Messrs. Howard, Barr and Hager each currently expire on August 12, 2001. Unless
notice of non-renewal is given by two-thirds of the entire Board of Directors,
the current term of Mr. Walker's agreement shall automatically extend an
additional year beginning on the anniversary thereof in 2001, and the agreements
for Messrs. Barr, Howard and Hager extend an additional year beginning on the
anniversary thereof in 1999. The annual base salaries of Messrs. Walker, Howard,
Barr and Hager currently are $650,000, $400,000, $333,000 and $295,000,
respectively, and are reviewable by the Company's Board of Directors at least
annually. 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. Each Genesis Executive may terminate his
employment agreement upon notice to the Company of 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
Genesis Executive's employment agreement without Cause, or the Genesis Executive
terminates his employment agreement as described in the preceding sentence, Mr.
Walker is entitled to severance compensation equal to the greater of the
remainder of the term of the agreement or three years average base salary plus
the value of stock options (using a Black-Scholes valuation method) granted
during such period and Messrs. Barr, Howard, and Hager are entitled to severance
compensation equal to three years base salary plus the value of stock options
(using a Black-Scholes valuation method) and cash bonus granted during such
period. In each case, the value of such stock options and cash bonus may not
exceed 100% of such base salary. Messrs. Walker, Barr and Howard are entitled to
certain insurance benefits. If a Genesis Executive becomes disabled, he will
continue to receive all of his compensation and benefits so long as such period
of disability does not exceed 12 consecutive months or shorter period
aggregating 12 months in any 24 month period. Each employment agreement also
contains provisions which are intended to limit the Genesis Executive from
competing with the Company throughout the term of the agreement and for a period
of two years thereafter. In addition, under the Senior Executive Employee Stock
Ownership Program, the Company may make loans to the Genesis Executives to
maintain a predetermined stock ownership position in the Company.
The Company entered into an employment agreement, effective November
11, 1998, with Michael G. Bronfein as President and Chief Executive Officer of
Neighborcare pharmacies, 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 November 11, 2001. The annual base salary of Mr.
Bronfein is $350,000, and is reviewable by the Company's Board of Directors at
least annually. The agreement 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. 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 three years base salary
plus the value of stock options (using a Black-Scholes valuation method) and
cash bonus granted during such period, which value may not exceed 60% of his
base salary. If Mr. Bronfein becomes disabled, he will continue to receive all
of his compensation and benefits so long as such period of disability does not
exceed 12 consecutive months or shorter period aggregating 12 months in any 24
month period. Mr. Bronfein's agreement also contains provisions which are
intended to limit him 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 Sections 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
$10,000 (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.
19
<PAGE>
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. Highly Compensated Employees (as such term is defined
in the Code) regardless of their years of service, are matched $0.50 per $1.00
of contribution up to 2% of salary.
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 Amendments to the
Company's Amended and Restated Employee Stock Option Plan" for a description of
the Company's Employee Stock Option Plan.
1998 Non-Qualified Employee Stock Option Plan. On November 11, 1998,
the Company adopted the 1998 Non-Qualified Employee Stock Option Plan (the
"Non-Officer Stock Option Plan") which authorizes the issuance of up to
1,500,000 shares of the Company's Common Stock. The Company uses the Non-Officer
Stock Option Plan as a long-term incentive plan for non-officer employees of the
Company. The objectives of the Non-Officer Stock Option Plan are to align the
long-term interests of employees and shareholders by creating a direct link
between compensation and shareholder return, and to enable employees to develop
and maintain a significant long-term equity interest in the Company. The
Employee Plan authorizes the Chief Executive Office to award Non-Qualified Stock
Options to employees of the Company.
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.
20
<PAGE>
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 24, 1998, each non-employee director of the
Company was granted an option to purchase 4,500 shares of Common Stock at an
exercise price of $28.75 per share.
Option Grants
The following table sets forth certain information concerning stock
options granted and not forfeited under the Employee Stock Option Plan during
fiscal 1998 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 Option
Options to Employees In Exercise Expiration
Name Granted Fiscal Year Price Date 5% 10%
---- ------- ---------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Walker 0 0% -- -- -- --
Richard R. Howard 67,900 6.32% $28.75 2/24/08 $1,186,758 $3,056,022
David C. Barr 0 0% -- -- -- --
George V. Hager, Jr. 0 0% -- -- -- --
Michael G. Bronfein 10,000 .93% $28.75 2/24/08 $ 174,780 $ 448,604
</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 1998 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 Options at Fiscal
Fiscal Year-End Year-End
Shares Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized Unexercisable Unexercisable(1)
---- --------------- -------------- --------------- --------------------
<S> <C> <C> <C> <C>
Michael R. Walker -- -- 417,501/150,000 $967,262/$0
Richard R. Howard -- -- 203,750/76,900 $237,231/$0
David C. Barr -- -- 213,270/18,500 $516,495/$0
George V. Hager, Jr. -- -- 111,500/21,000 $286,875/$0
Michael G. Bronfein -- -- 52,500/32,500 $0/$0
</TABLE>
(1) Stock Price at close of business on September 30, 1998 was $12.25.
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.
21
<PAGE>
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 $0.75 per $1.00 of
contribution up to 3% 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 completed more than six and less than ten years
of service, he is matched $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 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.
Compensation Committee Interlocks and Inside Transactions
Fred F. Nazem is a former director of the Company. A limited
partnership (the "Nazem Affiliate") affiliated with Mr. Nazem owns 1.4% of the
outstanding Common Stock of Genesis ElderCare Corp., the parent corporation of
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.
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.
In connection with the Multicare acquisition, the Company 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 $23,9000,000 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 also entered into an asset purchase agreement
with Multicare and certain of its subsidiaries pursuant to which the Company
acquired all of the assets used in Multicare's outpatient and inpatient
rehabilitation therapy business for $24,000,000 subject to adjustment and a
stock purchase agreement with Multicare and certain subsidiaries pursuant to
which the Company acquired all of the outstanding capital stock and limited
partnership interests of certain subsidiaries of Multicare that are engaged in
the business of providing institutional pharmacy services to third parties for
$50,000,000, subject to adjustment.
22
<PAGE>
In 1998 the Company sponsored the formation of ElderTrustSM ("ETT"),
a Maryland real estate investment trust. ETT completed an initial public
offering (the "ETT Offering") on January 26, 1998.
Substantially all of the ETT operations are conducted through
ElderTrust Operating Limited Partnership (the "Operating Partnership"). In
fiscal year 1997, Messrs. Walker, Howard, Barr, and Hager formed MGI Limited
Partnership ("MGI"). Upon completion of ETT Offering, MGI received 95,454 units
in the Operating Partnership ("Units"), having a total value of approximately
$1.9 million based on the ETT Offering price of the Common Shares of ETT.
Certain other executives of the Company, including Mr. Bronfein, are also a
partners of MGI.
In connection with the ETT Offering, Mr. Walker received cash
distributions totaling approximately $358,000 from the sale of his interests in
GHV Associates SMOBGP to the Operating Partnership. Mr. Walker also received 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 distributed to MGI, have
a total value of approximately $2.5 million based on the ETT Offering price of
the Common Shares of ETT. In addition, Mr. Walker received 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 received $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 granted to Mr. Walker options to purchase 150,000 Common Shares
under ETT's 1998 Share Option and Incentive Plan. These options vest over three
years.
Upon consummation of the ETT Offering, Mr. Howard received a cash
distribution totaling approximately $91,000 from SMOBGP. In addition, Messrs.
Howard, Barr and Hager received a direct or indirect interest in 24,139 Units in
the aggregate in exchange for their ownership interests in certain limited
partnerships. Such Units have a total value of approximately $483,000 based on
the assumed ETT Offering price of the Common Shares of ETT.
The Company leases the Windsor Office Building and the Windsor Clinic
and Training Facility (the "Buildings") from GHV Associates. 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. 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. GHV Associates is a partnership which was owned prior to the ETT Offering
by among others, Michael R. Walker, an officer and director of the Company.
Salisbury Medical Office Building General Partnership ("SMOBGP") is a
partnership which was owned prior to the ETT Offering by among others, Richard
R. Howard and Michael R. Walker, officers and directors of the Company.
The Company has made loans of approximately $7.8 million as of December
31, 1998 (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.
23
<PAGE>
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.
Pursuant to the Senior Executive Officer Stock Ownership Plan, the
Company has loans outstanding to Messrs. Howard Barr, and Hager in the amounts
of $646,889.00, $820,962.00, and $624,244.00, respectively.
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, 1993, and, in the case of the
Indexes, the reinvestment of all dividends.
24
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN
Genesis Health Ventures Inc., Dow Jones Equity Market Index,
Health Care Providers
Genesis Health Ventures Inc (GHV)
<TABLE>
<CAPTION>
Cumulative Total Return
-----------------------------------------------------------
9/93 9/94 9/95 9/96 9/97 9/98
<S> <C> <C> <C> <C> <C> <C>
GENESIS HEALTH VENTURES, INC. 100.00 153.38 193.24 228.04 315.71 99.32
DOW JONES EQUITY MARKET 100.00 102.89 134.00 162.35 225.93 245.22
DOW JONES HEALTH CARE PROVIDERS 100.00 159.37 159.68 193.21 203.69 134.80
</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, 1998, all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% beneficial owners were complied with, except that
Robert Reitz, Richard R. Howard, Barbara Hauswald, Fred Nazem and Vince Barnaba,
each filed a late report on Form 4.
INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of KPMG LLP acted as the Company's independent
public accountants for the fiscal year ended September 30, 1998 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, 1999. A representative of
KPMG 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.
25
<PAGE>
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 did not have notice of at least 45 days before the
date on which the Company first mailed its proxy materials for the 1998 Annual
Meeting of Shareholders; (ii) approval of the minutes of a prior meeting of
shareholders, if such approval does not amount to ratification of the action
taken at the meeting; (iii) the election of any person to any office for which a
bona fide nominee is named in this Proxy and such 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 or Rule 14a-9 under the
Securities Exchange Act of 1934 (the "Exchange Act"); 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 2000 ANNUAL MEETING OF SHAREHOLDERS
Pursuant to recent amendments to the proxy rules under the Exchange
Act, the Company's shareholders are notified that currently there is no deadline
for providing the Company timely notice of any shareholder proposal to be
submitted outside of the Rule 14a-8 process for consideration at the Company's
2000 Annual Meeting of Shareholders (the "2000 Meeting"); as to all such matters
which the Company does not have notice on or prior to December 15, 1999,
discretionary authority shall be granted to the persons designated in the
Company's proxy related to the 2000 Meeting to vote on such proposal. A
shareholder proposal regarding the 2000 Meeting must be submitted to the Company
at its headquarters located at 101 East State Street, Kennett Square,
Pennsylvania, 19348, by September 30, 1999 to receive consideration for
inclusion in the Company's 2000 proxy materials. Any such proposal must also
comply with the proxy rules under the Exchange Act, including Rule 14a-8.
EACH PERSON SOLICITED HEREUNDER CAN OBTAIN A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1998 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 101 EAST
STATE STREET, KENNETT SQUARE, PENNSYLVANIA 19348.
By Order of the Board of Directors
/s/ Ira C. Gubernick
-------------------------------------------
IRA C. GUBERNICK
Vice President - Office of the Chairman
and Corporate Secretary
26
<PAGE>
PROXY
GENESIS HEALTH VENTURES, INC.
1999 ANNUAL MEETING OF SHAREHOLDERS
MARCH 11, 1999
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GENESIS HEALTH VENTURES, INC.
The undersigned hereby constitutes and appoints Michael R. Walker and Richard R.
Howard, and each of them, as attorneys and proxies for 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 Series G Cumulative Convertible Preferred Stock of
Genesis Health Ventures, Inc. (the "Company") held by the undersigned as of
December 18, 1998, at the Company's 1999 Annual Meeting of Shareholders to be
held on March 11, 1999 or at any postponement or adjournment of the meeting.
PROPOSAL 1. FOR [ ] The election of Jack R. Anderson, Richard R. Howard and
Samuel H. Howard as directors as described in the accompanying Proxy Statement.
To withhold authority to vote for all nominees, please check this box. [ ]
To withhold authority to vote for an individual nominee(s), clearly print his or
their names on the space provided below.
PROPOSAL 2. The approval of the Amendments to the Company's Amended and Restated
Employee Stock Option Plan as described in the accompanying Proxy Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
THE BOARD RECOMMENDS A VOTE AGAINST PROPOSAL 3.
PROPOSAL 3. If properly presented, the shareholder proposal to declassify the
Board of Directors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(continued and to be signed on reverse side)
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS TO THE
CONTRARY ARE INDICATED, THE PROXY AGENTS INTEND TO VOTE "FOR" THE ELECTION OF
THE NOMINEE LISTED IN PROPOSAL 1 AND PROPOSAL 2 AND "AGAINST" PROPOSAL 3.
BOTH PROXY AGENTS PRESENT AND ACTING IN PERSON OR BY THEIR SUBSTITUTES
(OR, IF ONLY ONE IS PRESENT AND ACTING, THEN THAT ONE) MAY EXERCISE ALL THE
POWERS CONFERRED BY THIS 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 1998
Annual Report to Shareholders, Notice of the Company's 1999 Annual Meeting of
Shareholders and the Company's Proxy Statement dated February __, 1999.
DATE:____________________________, 1999
(Please date this Proxy)
_______________________________________
_______________________________________
Signature(s)
Please sign your name exactly as it is
printed on this proxy, indicating any
title or 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.
<PAGE>
PROXY
GENESIS HEALTH VENTURES, INC.
1999 ANNUAL MEETING OF SHAREHOLDERS
MARCH 11, 1999
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GENESIS HEALTH VENTURES, INC.
The undersigned hereby constitutes and appoints Michael R. Walker and Richard R.
Howard, and each of them, as attorneys and proxies for 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 18, 1998, at the Company's
1999 Annual Meeting of Shareholders to be held on March 11, 1999 or at any
postponement or adjournment of the meeting.
PROPOSAL 1. FOR [ ] The election of Jack R. Anderson, Richard R. Howard and
Samuel H. Howard as directors as described in the accompanying Proxy Statement.
To withhold authority to vote for all nominees, please check this box. [ ]
To withhold authority to vote for an individual nominee(s), clearly print his or
their names on the space provided below.
- --------------------------------------------------------------------------------
PROPOSAL 2. The approval of the Amendments to the Company's Amended and Restated
Employee Stock Option Plan as described in the accompanying Proxy Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
THE BOARD RECOMMENDS A VOTE AGAINST PROPOSAL 3.
PROPOSAL 3. If properly presented, the shareholder proposal to declassify the
Board of Directors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(continued and to be signed on reverse side)
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS TO THE
CONTRARY ARE INDICATED, THE PROXY AGENTS INTEND TO VOTE "FOR" THE ELECTION OF
THE NOMINEE LISTED IN PROPOSAL 1 AND PROPOSAL 2 AND "AGAINST" PROPOSAL 3.
BOTH PROXY AGENTS PRESENT AND ACTING IN PERSON OR BY THEIR SUBSTITUTES
(OR, IF ONLY ONE IS PRESENT AND ACTING, THEN THAT ONE) MAY EXERCISE ALL THE
POWERS CONFERRED BY THIS 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 1998
Annual Report to Shareholders, Notice of the Company's 1999 Annual Meeting of
Shareholders and the Company's Proxy Statement dated February __, 1999.
DATE:____________________________, 1999
(Please date this Proxy)
_______________________________________
_______________________________________
Signature(s)
Please sign your name exactly as it is
printed on this proxy, indicating any
title or 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.
