<PAGE> 1
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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
HCR MANOR CARE, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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HCR LOGO
HCR MANOR CARE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
and
PROXY STATEMENT
MEETING DATE
MAY 4, 1999
YOUR VOTE IS IMPORTANT!
Please mark, date and sign the enclosed proxy card and
promptly return it to the Company in the enclosed envelope.
- --------------------------------------------------------------------------------
<PAGE> 3
HCR LOGO
HCR MANOR CARE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 4, 1999
The 1999 annual meeting of stockholders of HCR Manor Care, Inc. will be
held on Tuesday, May 4, 1999 at 2:00 p.m. in the auditorium of One SeaGate,
Toledo, Ohio, for the following purposes:
1. To elect three directors for three-year terms, or until their successors
are elected and qualified;
2. To ratify the selection of Ernst & Young LLP as independent public
accountants for the Company for the fiscal year ending December 31,
1999; and
3. To transact such other business as may properly come before the meeting.
The record date for voting at the meeting is March 11, 1999. Only
stockholders of record at the close of business on the record date will be
entitled to notice of and to vote at the meeting.
Please mark, sign, date and return your proxy in the enclosed envelope so
that your shares may be voted at the meeting. If the shares are held in more
than one name, all stockholders of record should sign.
By Order of the Board of Directors,
R. Jeffrey Bixler
Secretary
March 29, 1999
<PAGE> 4
HCR MANOR CARE, INC.
333 N. SUMMIT ST.
TOLEDO, OHIO 43604
The Board of Directors of HCR Manor Care, Inc. ("Company" or "HCR Manor
Care") is soliciting proxies to be used at the 1999 annual meeting of
stockholders which will be held on Tuesday, May 4, 1999 beginning at 2:00 p.m.,
and at any and all adjournments thereof. The meeting will be held at One
SeaGate, Toledo, Ohio, in the auditorium adjacent to the lobby. The mailing of
this proxy statement and the enclosed proxy will commence on or about March 29,
1999.
This meeting is the first annual meeting of stockholders since the
completion of the merger transaction which combined Health Care and Retirement
Corporation ("HCR") and Manor Care, Inc. ("Manor Care") in September, 1998
("Merger"). You are invited to attend the meeting; however, whether or not you
attend the meeting, you are requested to vote on the proposals described in this
proxy statement.
WHAT INFORMATION IS CONTAINED IN THIS DOCUMENT?
The information contained in this proxy statement describes the proposals
to be voted on by the stockholders at the annual meeting, the voting process,
the compensation of directors and the most highly paid executive officers of the
Company and certain other required information. A copy of the Company's 1998
Annual Report is being sent to you at the same time as this statement.
WHAT PROPOSALS WILL BE VOTED ON AT THE MEETING?
Two proposals are scheduled to be voted on:
- The election of three directors for three-year terms.
- The ratification of the selection of the Company's independent
public accountants for 1999.
If other business properly comes before the meeting, such matters may also
require stockholder action.
WHO IS ENTITLED TO VOTE?
Only stockholders of record at the close of business on the record date,
March 11, 1999, are entitled to receive notice of the annual meeting and to vote
the shares of common stock held by them on the record date. Each outstanding
share entitles its holder to cast one vote on each matter to be voted upon. The
Company's Certificate of Incorporation does not provide for cumulative voting.
At the record date, there were outstanding 111,024,222 shares of the Company's
common stock.
WHAT IS THE QUORUM REQUIREMENT FOR THE MEETING?
The presence at the meeting, in person or by proxy, of holders of a
majority of the total shares of common stock issued and outstanding on the
record date will constitute a quorum for the transaction of the business of the
meeting. The election inspector appointed for the meeting will tabulate the
votes cast in person or by proxy and will determine whether or not a quorum is
present.
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<PAGE> 5
HOW DO I VOTE?
If you complete and properly sign the accompanying proxy card and return it
as instructed, your shares will be voted as you direct. If you are a registered
stockholder and attend the meeting in person, you may deliver your completed
proxy card at the meeting.
If your shares are held in a stock brokerage account or by a bank or other
nominee, these proxy materials are being forwarded to you by your broker or
other nominee who is considered to be the stockholder of record with respect to
these shares. As the beneficial owner of these shares you have the right to
direct your broker how to vote your shares. Your broker or nominee has enclosed
a voting instruction card for you to use.
If you hold your shares through a broker or other nominee, your broker or
nominee may not be permitted to exercise voting discretion with respect to some
of the matters to be acted upon. Thus, if you do not give your broker or nominee
specific instructions, your shares may not be counted on those matters and will
not be counted in determining the number of shares necessary for approval. If a
broker indicates on the proxy that it does not have discretionary authority as
to certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter. The
election inspector will treat a properly executed proxy that abstains with
respect to any matter as not voted, but the shares represented by the proxy will
be counted for purposes of determining whether there is a quorum.
HOW DO I VOTE MY 401(K) SHARES?
If you hold shares in an account under the Health Care and Retirement
Corporation Stock Purchase and Retirement Savings Plan ("SPARS"), you will
receive a separate proxy card. The trustee under the plan must vote your shares
in accordance with written instructions received from you. As to the shares for
which written instructions are not received, the trustee will vote the shares in
a uniform manner as a single block in accordance with the instructions received
with respect to the majority of the shares. The common stock outstanding on the
record date included 565,467 shares held by the trustees under the SPARS. The
trustees under the Manor Care, Inc. Retirement Savings and Investment Plan and
the Manor Care, Inc. Nonqualified Retirement Savings and Investment Plan have
the exclusive right to vote the shares held in such plans.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Any proxy may be revoked by the person or persons giving it at any time
before it is exercised at the annual meeting by giving notice of revocation to
the Company in writing or at the annual meeting.
WHO WILL COUNT THE VOTE?
A representative of Harris Trust and Savings Bank, the Company's transfer
agent, will tabulate the votes and act as inspector of the election.
IS MY VOTE CONFIDENTIAL?
Yes. Proxy instructions, ballots and voting tabulations that identify
individual stockholders are handled in a manner that protects your voting
privacy.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
Election of Directors. Directors are elected by a plurality of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. A stockholder may withhold
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<PAGE> 6
authority to vote for all or certain nominees in which case the proxy will not
be voted with respect to the director or directors indicated, although it will
be counted for purposes of determining whether there is a quorum.
Other Items. For each other item, the affirmative vote of the holders of a
majority of the shares represented in person or by proxy and entitled to vote on
the item will be required for approval.
CAN I ATTEND THE MEETING IN PERSON?
All stockholders as of the record date or their duly appointed proxies may
attend the meeting. Stockholders may be requested to present valid
identification for admission to the meeting.
ITEM 1 -- ELECTION OF DIRECTORS
The Company's Certificate of Incorporation and By-Laws provide that the
Board of Directors is divided into three classes. Each year the stockholders are
asked to elect the members of a class for a term of three years. Currently, the
terms of office for members of Class II of the Board of Directors will expire on
the date of the Annual Meeting in 1999. The members of Class II are Stewart
Bainum, Joseph H. Lemieux and Gail R. Wilensky. The Board of Directors has fixed
the number of directors to be elected at the 1999 Annual Meeting at three and
has nominated Messrs. Bainum and Lemieux and Ms. Wilensky for election to Class
II. Those persons who are elected directors at the 1999 Annual Meeting will hold
office until their terms expire on the date of the 2002 Annual Meeting or until
the election and qualification of their successors. The terms of office of the
members of Class III and Class I of the Board of Directors will expire,
respectively, on the dates of the Annual Meeting in 2000 and 2001.
As provided in the Amended and Restated Agreement and Plan of Merger, dated
as of June 10, 1998 pursuant to which the Merger was consummated ("Merger
Agreement"), the Company's Board of Directors consists of ten directors, five of
whom were designated by HCR ("HCR Directors") and five of whom were designated
by Manor Care ("Manor Care Directors"). Pursuant to the Merger Agreement, the
stockholders of the Company approved amended and restated by-laws which provide
that through the second annual stockholders meeting after the effective time of
the Merger (September 25, 1998): (i) if any vacancy occurs on the Board of
Directors as a result of the death, resignation or removal of an HCR Director or
a Manor Care Director; or (ii) if any seat held by an HCR Director or a Manor
Care Director is subject to nomination for election, then subject to the
fiduciary duties of the directors, the Board of Directors of the Company shall
take all necessary actions to appoint or nominate, as the case may be, such
person as may be requested by the remaining HCR Directors (in the case of a
vacancy or nomination concerning an HCR Director) or by the remaining Manor Care
Directors (in the case of a vacancy or nomination concerning a Manor Care
Director). The amended and restated by-laws further provide that the foregoing
terms may only be amended prior to the second annual stockholders meeting by a
vote of 75% of the directors of the Company or by an 80% vote of the outstanding
shares of common stock. The nominations of Messrs. Bainum and Lemieux and Ms.
Wilensky comply with these provisions.
So far as the Board has been advised, only the three persons named above as
nominees will be nominated for election as directors at the Annual Meeting. It
is intended that the shares represented by proxies in the accompanying form will
be voted for the election of these three nominees unless authority to so vote is
withheld. The nominees have consented to being named herein and to serve if
elected. If any of them should become unavailable prior to the Annual Meeting,
the proxy will be voted for a substitute
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<PAGE> 7
nominee or nominees designated by the Board of Directors or the vacancy will be
filled in accordance with the by-laws of the Company.
The following information, which has been provided by the directors, sets
forth for each nominee for election to the Board of Directors and for each
director whose term continues, the name, age, principal occupation or employment
during at least the past five years, the name of the corporation or other
organization, if any, in which such occupation or employment is carried on and
the period during which the person has served as a director of the Company.
1999 NOMINEES
STEWART BAINUM, age 79, has been a director of the Company since September,
1998. Since 1965 he has been Chairman of the Board of Realty Investment Company,
Inc. From 1968 until September, 1998 Mr. Bainum was a director of Manor Care
which, since the effective time of the Merger, has been a subsidiary of the
Company. Mr. Bainum was Vice Chairman of the Board of Manor Care from March,
1987 until September, 1998 and Chairman of that Board from 1968 to March, 1987.
He was President of Manor Care from December, 1980 through October, 1981 and
from May, 1982 through July, 1985. Mr. Bainum is a member of Class II of the
Board of Directors of the Company.
JOSEPH H. LEMIEUX, age 68, has been a director of the Company since August,
1991. Mr. Lemieux is Chief Executive Officer of Owens-Illinois, Inc., a position
he has held since September, 1990. Mr. Lemieux has been a member of the
Owens-Illinois Board of Directors since July, 1984 and Chairman of that Board
since September, 1991. He is a member of Class II of the Board of Directors of
the Company and a member of the Compensation Committee. Mr. Lemieux is also a
director of National City Corporation.
GAIL R. WILENSKY, Ph.D., age 55, has been a director of the Company since
September, 1998. Since January, 1993 Ms. Wilensky has been a Senior Fellow at
Project Hope. From March, 1992 to January, 1993 she was Deputy Assistant to
President Bush for Policy Development, responsible for advising the President on
health and welfare issues. From January, 1990 to March, 1992 Ms. Wilensky was
Administrator of the Health Care Financing Administration ("HCFA") in the
Department of Health and Human Services where she directed the Medicare and
Medicaid programs. Ms. Wilensky is currently Chairperson of the Medicare Payment
Advisory Commission and has also served as a member and chairperson of the
Physician Payment Review Commission and the Health Advisory Committee of the
General Accounting Office. Ms. Wilensky is a member of Class II of the Board of
Directors and a member of the Audit Committee. She is also a director of
Advanced Tissue Sciences, Inc., Pharmerica, Inc., NeoPath, Inc., Quest
Diagnostics Incorporated, Ralin Medical, Inc., Shared Medical Systems
Corporation, St. Jude Medical, Inc., Syncor International Corporation and United
HealthCare Corporation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH NOMINEE.
CONTINUING DIRECTORS
STEWART BAINUM, JR., age 53, has been Chairman of the Board and a director
since September, 1998. From March, 1987 to September, 1998 he was Chairman of
the Board and Chief Executive Officer of Manor Care and President of Manor Care
from June, 1989 to September, 1998. Mr. Bainum, Jr. was Vice Chairman of Manor
Care from June, 1982 to March, 1987. He is a member of Class I of the Board of
Directors of the Company. Mr. Bainum, Jr. is also a director and chairman of
Choice Hotels International, Inc. and a director and chairman of Sunburst
Hospitality Corporation.
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<PAGE> 8
WILLIAM H. LONGFIELD, age 60, has been a director of the Company since
September, 1998. He was a director of Manor Care from 1989 to September, 1998.
He has been Chairman and Chief Executive Officer of C.R. Bard, Inc. since
September, 1995 and was President and Chief Executive Officer from June, 1994 to
September, 1995. Mr. Longfield was President and Chief Operating Officer of C.R.
Bard, Inc. from September, 1991 to June, 1994. Mr. Longfield is a member of
Class I of the Board of Directors of the Company and a member of the Audit and
Compensation Committees. He is also a director of C.R. Bard, Inc., Horizon
Health Corporation, United Dental Care, Inc. and West Pharmaceutical Services,
Inc.
FREDERIC V. MALEK, age 62, has been a director of the Company since
February, 1999. He previously served as a director of Manor Care from 1990 to
September, 1998. Mr. Malek has been Chairman of Thayer Capital Partners since
January, 1993. Mr. Malek was Campaign Manager of the Bush-Quayle '92 Campaign
from December, 1991 to December, 1992. He was President and Vice Chairman of
Northwest Airlines from late 1989 through 1991. Mr. Malek is a member of Class
III of the Board of Directors of the Company and a member of the Compensation
Committee. He is also a director of Northwest Airlines, Automatic Data
Processing, Inc., FPL Group, PaineWebber Mutual Funds, Global Vacation Group,
Aegis Communications Co., CB Richard Ellis and American Management Systems, Inc.
PAUL A. ORMOND, age 49, has been President and Chief Executive Officer of
the Company since August, 1991. He was Chairman of the Board from August, 1991
until September, 1998. Since October, 1991 he has been employed by Health Care
and Retirement Corporation of America ("HCRA"), a subsidiary of the Company, as
President and Chief Executive Officer. He is a member of Class I of the Board of
Directors of the Company. Mr. Ormond is also a director of Aeroquip-Vickers,
Inc. and became a director of National City Corporation in February, 1999.
ROBERT G. SIEFERS, age 53, has been a director of the Company since
February, 1992. Since October, 1997 Mr. Siefers has been Vice Chairman and Chief
Financial Officer of National City Corporation, Cleveland, Ohio. From February,
1991 until October, 1997 Mr. Siefers was Executive Vice President and Chief
Financial Officer of National City Corporation. Mr. Siefers is a member of Class
III of the Board of Directors and a member of the Audit Committee.
M. KEITH WEIKEL, age 61, has been Senior Executive Vice President and Chief
Operating Officer of the Company since August, 1991 and a director of the
Company since February, 1992. Since October, 1991 he has been employed by HCRA
as Senior Executive Vice President and Chief Operating Officer. Mr. Weikel is a
member of Class III of the Board of Directors.
THOMAS L. YOUNG, age 55, has been a director of the Company since August,
1991. He is Executive Vice President and General Counsel of Owens-Illinois,
Inc., a position he has held since April, 1992. He is a member of Class III of
the Board of Directors and a member of the Audit and Compensation Committees.
Mr. Young is also a director of Owens-Illinois, Inc.
COMPENSATION OF DIRECTORS
During 1998, the annual fee for service on the Board by each non-management
director was $20,000. In addition, the fee paid to non-management directors for
attendance at Board meetings was $1,000 per meeting, and the fee for attendance
at meetings of a committee of the Board was $500 per meeting. Such fees were
paid in cash quarterly unless deferred under the Deferred Compensation Plan for
Outside Directors. Management directors do not receive additional compensation
for service on the Board of Directors.
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<PAGE> 9
The Company has adopted, with stockholder approval, a Stock Option Plan for
Outside Directors ("Outside Directors Plan"). Under the terms of the Outside
Directors Plan, each non-management director receives an option to purchase
9,000 shares of common stock upon election to the Board and, after completing
one year of service, an additional option to purchase 9,000 shares of common
stock on the business day immediately following each annual stockholders'
meeting for so long as such person continues to serve as a director. The per
share exercise price of each option is the fair market value of a share of
common stock on the date of grant. Options granted under this plan are
immediately exercisable. During 1998, Ms. Wilensky and Messrs. Stewart Bainum,
Stewart Bainum, Jr., Lemieux, Longfield, Siefers and Young each received option
grants under the terms of the Outside Directors Plan.
BOARD MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors met fourteen times during 1998. All members of the
Board attended all meetings of the Board and all meetings of the committees on
which each served except Mr. Lemieux who was unable to attend one Board meeting
and one Compensation Committee meeting.
The Board of Directors currently has an Audit Committee and a Compensation
Committee. The Audit Committee makes recommendations to the Board of Directors
as to the engagement or discharge of the independent public accountants; reviews
the plan and results of the auditing engagement with the independent public
accountants; reviews the scope and results of the Company's internal auditing
procedures; reviews the adequacy of the Company's system of internal accounting
controls and corporate compliance program; and directs and supervises
investigations into matters within the scope of its duties. The Audit Committee
met twice during 1998. The Committee is comprised of Ms. Wilensky and Messrs.
Longfield, Siefers and Young.
The Compensation Committee of the Board of Directors is comprised of
directors who are not officers or employees of the Company and are not eligible
to participate in any of the Company's executive compensation programs. The
Committee has overall responsibility for administering the executive
compensation program of the Company. The Committee regularly evaluates the
executive compensation program to ensure its appropriateness in the context of
the Company's business and its competitiveness with the compensation practices
of other companies. From time to time, the Committee seeks the advice of
independent experts in evaluating plan design, compensation levels and
administration. Each year the Compensation Committee reviews and approves
salaries for the executive officers of the Company. The Committee is also
responsible for administering the Amended Stock Option Plan for Key Employees,
the Amended Restricted Stock Plan and certain other incentive compensation plans
covering executive officers. The Compensation Committee met five times during
1998. The Committee is comprised of Messrs. Lemieux, Longfield, Malek and Young.
OTHER DIRECTOR INFORMATION
During 1998, National City Corporation and certain of its subsidiaries
provided commercial banking, private banking and trust services to the Company
and certain of its officers. Mr. Lemieux was a director of National City
Corporation and Mr. Siefers was an executive officer of such company during
1998. From the effective time of the Merger until December 31, 1998, Mr. Bainum,
Jr. served as a special consultant to the Company pursuant to a retention
agreement which entitled him to a continuation of salary payments established by
Manor Care and a stay bonus of $838,724. In addition, the Company and Mr.
Bainum, Jr., have entered into a non-competition agreement pursuant to which Mr.
Bainum, Jr. is prohibited from engaging in certain competitive activity as
described in the non-competition agreement until June 9, 2001 in exchange for
which Mr. Bainum, Jr. received a lump sum payment of $2,100,000.
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<PAGE> 10
SECURITY OWNERSHIP OF CERTAIN MANAGEMENT
AND BENEFICIAL OWNERS
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows, as of the record date, information concerning
beneficial ownership of shares of Common Stock by directors and nominees
individually, the individuals named in the Summary Compensation Table, and
directors and executive officers of the Company as a group. Except as indicated
by the notes to the table, the holders listed below have sole voting and
investment power over the shares beneficially owned by them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP(1)(2)(3) OF CLASS
- ------------------------------------- ----------------------- ------------------ --------
<S> <C> <C> <C>
Common Stock......................... Stewart Bainum 10,379,192(4) 9.4%
Common Stock......................... Stewart Bainum, Jr. 15,189,508(5) 13.7%
Common Stock......................... R. Jeffrey Bixler 157,999 (7)
Common Stock......................... Joseph H. Lemieux 78,000 (7)
Common Stock......................... William H. Longfield 21,069 (7)
Common Stock......................... Frederic A. Malek 9,000 (7)
Common Stock......................... Geoffrey G. Meyers 514,758 (7)
Common Stock......................... Paul A. Ormond 2,730,649(6) 2.4%
Common Stock......................... Paul G. Sieben 105,228 (7)
Common Stock......................... Robert G. Siefers 66,000 (7)
Common Stock......................... M. Keith Weikel 693,753 (7)
Common Stock......................... Gail R. Wilensky 9,000 (7)
Common Stock......................... Thomas L. Young 59,550 (7)
Common Stock......................... Executive Officers & 24,485,187 21.4%
Directors as a group
</TABLE>
- ---------------
(1) Includes shares of restricted stock granted to certain executive officers
and directors under Manor Care Inc.'s restricted stock plans.
(2) Includes the following number of shares which the person has a right to
acquire within 60 days of the record date upon the exercise of options:
Bainum -- 9,000; Bainum, Jr. -- 9,000; Bixler -- 124,820; Lemieux -- 63,000;
Longfield -- 9,000; Malek -- 9,000; Meyers -- 389,348; Ormond -- 1,829,302;
Siefers -- 63,000; Weikel -- 506,394; Wilensky -- 9,000; Young -- 54,000;
and Executive Officers and Directors as a Group -- 3,248,339.
(3) Includes shares held by Messrs. Bixler, Meyers, Ormond, Sieben and Weikel,
and by all executive officers as a group, under the Company's 401(k) savings
plans as of the record date.
(4) Includes 3,723,410 shares held directly or indirectly by the Stewart Bainum
Declaration of Trust, the sole trustee of which is Mr. Bainum (the "SB
Trust"); his interest in 975,603 shares owned by Bainum Associates Limited
Partnership ("Bainum Associates"), and 1,233,539 shares owned by MC
Investments Limited Partnership ("MC Investments"), each of which is a
limited partnership in which the SB Trust is a limited partner and as such
has the right to acquire at any time a number of shares equal in value to
the liquidation preference of its limited partnership interest; 3,567,869
shares owned by Realty Investment Company, Inc. ("Realty Investment"), a
real estate investment and management company in which Mr. Bainum and his
wife have shared voting authority with other family members; and 70,205
shares held by the Commonweal Foundation of which Mr. Bainum is Chairman of
the Board of Directors and has shared voting authority; and 798,711 shares
held by the Jane L. Bainum Declaration of Trust, the sole trustee of which
is Mr. Bainum's wife.
(5) Includes 5,417,761 shares owned by Bainum Associates and 4,415,250 shares
owned by MC Investments in both of which the Stewart Bainum, Jr. Declaration
of Trust, the sole trustee of which is
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<PAGE> 11
Stewart Bainum, Jr. (the "SB, Jr. Trust"), is managing general partner with
the sole right to dispose of the shares. Authority to vote such shares is
held by the voting general partner, Mr. B. Houston McCeney. Also includes
1,779,628 shares owned by Mid-Pines Associates, L.P. ("Mid-Pines"), in which
the SB, Jr. Trust is managing general partner and has shared voting
authority; and 3,567,869 shares held by Realty Investment in which the SB,
Jr. Trust has shared voting authority. Due to the shared voting authority of
Mr. Bainum and Mr. Bainum, Jr. with respect to certain shares owned by
Bainum Associates, MC Investments and Realty Investments, the individual
totals stated in the table include shares attributable to both individuals.
The total shares over which either Mr. Bainum or Mr. Bainum, Jr. have any
voting or investment power is approximately 19,791,689 shares or 17.8% of
the total outstanding shares.
(6) Includes 81,472 shares held by family members of Mr. Ormond and 89,286
shares held in trust for certain family members of Mr. Ormond. Mr. Ormond
disclaims any beneficial interest in the shares held by family members or in
trust.
(7) Percentage of ownership does not exceed one percent of the class.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information, as of December 31, 1998, with
respect to any person who is known to the Company to be the beneficial owner of
more than five percent of its common stock other than Stewart Bainum and Stewart
Bainum, Jr. whose holdings are disclosed in the table above. The information
presented is based upon filings made pursuant to the Securities Exchange Act of
1934 and received by the Company.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------------------- ------------------------------------------ ----------------- ----------
<S> <C> <C> <C>
Common Stock................... Ronald Baron 13,701,686 12.4%
767 Fifth Ave., 24th Floor
New York, NY 10153
</TABLE>
- ---------------
(1) The Schedule 13D information received by the Company indicates that Mr.
Baron has sole voting and dispositive power over 1,033,620 shares and shared
voting and dispositive power over 12,668,066 shares; Baron Capital Group,
Inc. ("BCG") has sole voting and dispositive power over 880,000 shares and
shared voting and dispositive power over 12,668,066 shares; Baron Capital
Management, Inc. ("BCM"), a registered investment adviser, has sole voting
and dispositive power over 880,000 shares and shared voting and dispositive
power over 1,592,366 shares; BAMCO, Inc., a registered investment adviser,
has shared voting and dispositive power over 11,075,700 shares; Baron Asset
Fund ("BAF"), an investment company registered under the Investment Company
Act of 1940, has shared voting and dispositive power over 10,350,700 shares.
Mr. Baron is President of BCG, BAMCO and BCM and Chief Executive Officer of
BAF.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the annual and long-term compensation for
the last three completed fiscal years for the Company's Chief Executive Officer
and the four other most highly compensated executive officers at the end of the
last completed fiscal year.
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<PAGE> 12
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1) LONG-TERM COMPENSATION
------------------- ------------------------------------
AWARDS PAYOUTS
------------------------ ---------
RESTRICTED SECURITIES LONG-TERM
NAME AND STOCK UNDERLYING INCENTIVE ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(2) OPTIONS (#) PAYOUTS COMPENSATION(3)
------------------ ---- -------- -------- ---------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul A. Ormond.................... 1998 $606,758 $840,000 -- 460,000 $432,000 $5,973,636
President and 1997 511,904 550,000 $4,387,500 90,000 405,000 38,395
Chief Executive Officer 1996 481,731 500,000 -- 90,000 396,900 32,781
M. Keith Weikel................... 1998 386,942 450,000 -- 160,000 228,000 3,428,785
Senior Exec. Vice President 1997 326,154 285,000 1,170,000 30,000 213,750 30,022
and Chief Operating Officer 1996 306,154 260,000 -- 30,000 211,680 24,055
Geoffrey G. Meyers................ 1998 285,392 245,000 -- 77,756 115,500 2,151,983
Exec. Vice President 1997 234,808 140,000 877,500 18,000 109,200 12,403
and Chief Financial Officer 1996 220,808 128,000 -- 18,000 108,241 13,300
R. Jeffrey Bixler................. 1998 208,335 150,000 -- 43,000 60,000 1,394,862
Vice President and 1997 172,635 80,000 585,000 12,898 54,375 9,575
General Counsel 1996 160,692 66,000 -- 12,000 53,746 8,407
Paul G. Sieben.................... 1998 187,027 75,000 -- 18,000 58,125 13,363
Vice President, Director of 1997 164,519 62,000 219,375 9,000 54,375 9,829
Development & Construction 1996 155,519 57,000 -- 9,000 53,746 8,231
</TABLE>
- ---------------
(1) The aggregate incremental cost of perquisites and other personal benefits
was less than the minimum required to be reported pursuant to the Securities
and Exchange Commission's rules.
(2) The amounts in this column represent the value of restricted stock awards
made to the named individuals in March 1997. The grant of the restricted
stock was contingent upon achievement by the Company of certain
performance-based criteria specified in the award and the certification by
the Compensation Committee that the criteria was achieved. Subsequent to
December 31, 1997, the Committee certified the achievement of the criteria
and the restricted stock grants were made on January 29, 1998. The Committee
imposed restrictions on the sale or encumbrance of the restricted shares
granted to officers, including the individuals named in the Summary
Compensation Table, until the later of December 31, 2000 or retirement. As a
result of the Merger, the restrictions on the restricted stock lapsed on
September 25, 1998 and there was no restricted stock outstanding at December
31, 1998.
(3) The amounts disclosed in this column for 1998 include (a) retention payments
pursuant to the employment agreements described below for Messrs. Ormond,
Weikel, Meyers and Bixler in the amounts of $5,916,000, $3,384,000,
$2,131,500 and $1,380,000, respectively; (b) Company matching contributions
to the HCR Senior Management Savings Plan ("SMSP"), a nonqualified defined
contribution plan, on behalf of Messrs. Ormond, Weikel, Meyers, Bixler and
Sieben in the amounts of $34,703, $20,158, $8,562, $7,292 and $7,471,
respectively; and (c) the dollar value of premiums paid for life insurance
for Messrs. Ormond, Weikel, Meyers, Bixler and Sieben in the amounts of
$22,933, $24,627, $11,921, $7,570 and $5,892, respectively.
OPTION GRANTS
The following table sets forth information on stock option grants during
1998 pursuant to the Company's Amended Stock Option Plan for Key Employees
("Option Plan") for the individuals named in
9
<PAGE> 13
the Summary Compensation Table. The Company does not maintain a stock
appreciation rights plan covering executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
-------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION GRANT DATE
NAME GRANTED(#) 1998 PRICE DATE PRESENT VALUE(2)
- ---- ----------- ------------ -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Paul A. Ormond................. 300,000 18.3% $32.4375 9/26/08 $3,246,000
160,000 9.7% 44.1250 10/24/01 1,451,200
M. Keith Weikel................ 100,000 6.1% 32.4375 9/26/08 1,082,000
60,000 3.7% 44.1250 10/24/01 544,200
Geoffrey G. Meyers............. 60,000 3.7% 32.4375 9/26/08 649,200
17,756 1.1% 44.1250 10/24/01 161,047
R. Jeffrey Bixler.............. 40,000 2.4% 32.4375 9/26/08 432,800
3,000 0.2% 44.1250 10/24/01 27,210
Paul G. Sieben................. 18,000 1.1% 32.4375 9/26/08 194,760
</TABLE>
- ---------------
(1) Each grant with an exercise price of $32.4375 provides that the option shall
not be exercisable to any extent until three years following the grant date
at which time the option becomes exercisable at the rate of one-third on
each of the third, fourth and fifth anniversary of the date of the grant.
Each grant with an exercise price of $44.125 is immediately exercisable,
pursuant to the Additional Option feature of the Option Plan.
(2) Represents an estimate of option values at grant date by using the
Black-Scholes option pricing model with the following weighted average
assumptions: dividend yield of 0%, expected volatility of 28%, risk-free
rate of return of 4.85% and expected life of 4 years.
AGGREGATED OPTION VALUES
The following table sets forth information concerning option exercises
during the last fiscal year by the individuals named in the Summary Compensation
Table and the aggregate dollar value of unexercised options held at the end of
the last fiscal year by such individuals. The value is based upon a share price
of $29.375.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT DECEMBER 31, 1998 OPTIONS AT DECEMBER 31, 1998
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul A. Ormond....... 300,000 $11,914,749 1,829,302 300,000 $32,322,692
M. Keith Weikel...... 108,000 4,289,310 506,394 100,000 8,130,153
Geoffrey G. Meyers... 41,400 1,644,235 389,348 60,000 7,371,166
R. Jeffrey Bixler.... 5,753 228,485 124,820 40,000 1,963,244
Paul G. Sieben....... 75,001 36,000 1,441,237 $ 14,625
</TABLE>
10
<PAGE> 14
- ---------------
LONG-TERM INCENTIVE PLANS
The individuals named in the Summary Compensation Table are covered by the
Company's Performance Award Plan ("PAP") under which eligible employees receive
a cash award payable at the end of the three-year period specified in the award.
The total amount of any award payable at the end of an award period is
determined by the Compensation Committee of the Board of Directors and is based
upon Company performance criteria established at the beginning of the period.
Award payouts for the 1998-2000 and 1999-2001 award periods will be based on the
compound annual growth rate in earnings per share of common stock over the
period.
LONG-TERM INCENTIVE PLANS -- AWARDS IN JANUARY, 1998
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS
OR OTHER UNDER NON-STOCK
PERIOD UNTIL PRICE-BASED PLANS
MATURATION ---------------------------------
NAME OR PAYOUT THRESHOLD TARGET MAXIMUM
---- ------------- --------- -------- --------
<S> <C> <C> <C> <C>
Paul A. Ormond........................ 1998-2000 $162,900 $325,800 $488,700
M. Keith Weikel....................... 1998-2000 86,250 172,500 258,750
Geoffrey G. Meyers.................... 1998-2000 43,400 86,800 130,200
R. Jeffrey Bixler..................... 1998-2000 27,450 54,900 82,350
Paul G. Sieben........................ 1998-2000 21,625 43,250 64,875
LONG-TERM INCENTIVE PLANS -- AWARDS IN SEPTEMBER, 1998
Paul A. Ormond........................ 1999-2001 $210,000 $420,000 $630,000
M. Keith Weikel....................... 1999-2001 112,500 225,000 337,500
Geoffrey G. Meyers.................... 1999-2001 61,250 122,500 183,750
R. Jeffrey Bixler..................... 1999-2001 37,500 75,000 112,500
</TABLE>
RETIREMENT PLANS
The following table illustrates the estimated combined annual retirement
benefits which would be provided under the Company's Pension Plan, a qualified
defined benefit plan ("Pension Plan"), and the Senior Executive Retirement Plan,
a nonqualified defined benefit plan ("SERP"), in various average earnings
classifications upon normal retirement at age 65:
<TABLE>
<CAPTION>
HIGH CONSECUTIVE YEARS OF CREDITED SERVICE
THREE-YEAR --------------------------------------------------------------------------------
AVERAGE EARNINGS 5 10 15 20 25 30 35
- ---------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 300,000 20,300 40,600 60,800 81,100 101,400 121,700 141,900
600,000 41,700 83,400 125,100 166,800 208,500 250,200 291,900
900,000 63,100 126,300 189,400 252,500 315,700 378,800 441,900
1,200,000 84,600 169,100 253,700 338,300 422,800 507,400 591,900
1,500,000 106,000 212,000 318,000 424,000 530,000 636,000 741,900
1,700,000 120,300 240,600 360,800 481,100 601,400 721,700 841,900
2,000,000 141,700 283,400 425,100 566,800 708,500 850,200 991,900
</TABLE>
The benefits illustrated in the above table are calculated on a
straight-life annuity basis. In accordance with the provisions of the Pension
Plan and the SERP, the table reflects the greater of the regular benefit
11
<PAGE> 15
under current provisions of the plans and the "grandfathered benefit" under the
formula in effect prior to January 1, 1989. The regular benefit does not contain
an offset for social security or other benefits, but the "grandfathered" benefit
does contain a partial offset for social security benefits.
At December 31, 1998, Messrs. Ormond, Weikel, Meyers, Bixler and Sieben
had, respectively, total Credited Service under the Pension Plan and the SERP of
25 years, 12 years, 31 years, 16 years and 19 years. Annual covered compensation
includes base salary and amounts earned under the Annual Incentive Award Plan
and PAP. The covered compensation for 1998 does not differ substantially from
that set forth in the Salary, Bonus and Long-Term Payout columns in the Summary
Compensation Table.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of its
executive officers including the executive officers listed in the Summary
Compensation Table, that entitle them to receive their base salaries and to
participate in designated benefit plans of the Company. Each employment
agreement also provides that the officer's base salary may be adjusted
periodically and that benefit plans in which the officer is entitled to
participate may be adjusted or terminated by the Company at any time but that no
vested or accrued benefit may be adversely affected. The agreements provide that
the officer's employment is not for any specified term and may be terminated at
any time. In the event of the officer's termination other than for "cause" (as
defined in the agreements), payment of base salary would continue for one year
except in the case of Messrs. Ormond, Weikel, Meyers and Bixler in which cases
salary would continue as described below.
The employment agreements of Messrs. Ormond, Weikel, Meyers and Bixler also
contain provisions applicable in the event of a change in control of the
Company. Under these provisions, the Company would pay or otherwise provide
certain severance benefits to such individuals in the event that, following a
change in control, the individual's employment is terminated for reasons other
than cause or the individual resigns under specified circumstances. The
severance benefits include a payment equal to three times the aggregate cash
compensation of the individual (as defined in the agreement) plus medical,
dental and other specified benefits for a period of thirty-six months following
termination or resignation. These agreements further provide for the
exercisability of all options held by the individual (other than the options
granted in September, 1998) and the lapsing of restrictions on restricted stock
holdings upon the consummation of the change in control.
The Merger transaction resulted in a change in control within the meaning
of the employment agreements of Messrs. Ormond, Weikel, Meyers and Bixler,
triggering certain rights and benefits under their respective employment
agreements including the right to terminate their employment and receive lump
sum severance benefits. To mitigate certain of such consequences to the Company,
each of these executives agreed to remain in the same position following the
Merger as he held prior to the Merger and to waive certain rights to terminate
his employment and receive severance and other benefits. Such provisions were
included in retention agreements entered into by Messrs. Ormond, Weikel, Meyers
and Bixler, pursuant to which their existing employment agreements were amended.
The amended employment agreements of Messrs. Ormond, Weikel, Meyers and Bixler
("Executive Employment Agreements") each provides for an initial three-year term
of employment with automatic one-year renewals unless notice of termination is
given by either party. The Executive Employment Agreements further provide that
each executive is entitled to a retention payment, paid in February, 1999 (see
note 3, Summary Compensation Table), equal to three times the sum of the
executive's: (i) base pay in effect at December 31, 1998; and (ii) bonuses
payable under the Annual Incentive Plan and the Performance Award Plan for the
periods ending December 31, 1998. If the executive resigns or retires without
the Company's consent (and other
12
<PAGE> 16
than by reason of death or disability) prior to the third anniversary of the
completion of the Merger, the executive is required to repay to the Company a
pro rata portion of the retention payment. In addition to the provisions
described above, the Executive Employment Agreements generally provide severance
benefits equal to three years of base salary in the event of a termination of
the executive's employment other than for cause or due to death or disability.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION IN COMPENSATION DECISIONS
The Compensation Committee is comprised of Messrs. Lemieux, Longfield,
Malek and Young, none of whom were officers or employees of the Company or any
of its subsidiaries during the fiscal year. Mr. Malek joined the Committee in
February 1999 and did not participate in Committee decisions regarding 1998
compensation. Mr. Siefers was a member of the Committee until September, 1998
when he resigned from the Committee as contemplated by the Merger transaction.
During 1998, the Company received banking and related services from subsidiaries
of National City Corporation of which Mr. Siefers was an executive officer and
Mr. Lemieux was a director.
COMPENSATION COMMITTEE REPORT
Compensation Policies Applicable to Executive Officers. During 1998, the
Compensation Committee continued to follow basic compensation policies
previously established. The main objective of the executive compensation program
remains the enhancement of stockholder value over the long term. The Committee
has noted that the health care industry continues to evolve in a highly
competitive and heavily regulated environment which presents senior management
with significant challenges and opportunities. The Committee believes that the
superior performance of the senior management team in this complex business
environment has directly resulted in significant and consistent increases in
recognized measures of stockholder value. In the judgment of the Committee, the
continued achievement of significant increases in stockholder value requires a
superior compensation package which attracts and retains executives of
exceptional talents and leadership ability and motivates superior performance in
achieving future growth in stockholder value. The compensation program therefore
is designed and administered (1) to be strongly competitive within the health
care industry generally and with the compensation policies of other publicly-
held companies of comparable size and complexity; (2) to provide major
incentives directly linked to increases in recognized measures of stockholder
value; and (3) to reward superior performance as measured by financial and
non-financial factors. The Committee believes that the current compensation
program is accomplishing these objectives but the Committee also recognizes its
responsibility to evaluate the program regularly and make appropriate changes to
ensure its continued success.
In the judgment of the Committee, 1998 was a year of extraordinary
achievements for the Company, the most prominent of which was the completion of
the Merger in September, 1998. The Merger significantly increased the size of
the Company in terms of its revenues, facilities, employees and the complexity
and geographic scope of its operations. In recognition of the significantly
enhanced management challenges and opportunities presented by the combined
post-Merger operations, the Committee approved salary increases for the named
executives and certain other corporate officers effective in September, 1998
upon stockholder approval of the Merger transaction. In making these
adjustments, the Committee also considered competitive information, past
individual performance as measured by both qualitative and quantitative factors
and the potential for making significant contributions to future Company
performance. Although strong overall performance by the Company factored into
the salary adjustments, the Merger-related and individual factors stated above
were the primary considerations.
13
<PAGE> 17
Salary adjustments for executive officers other than Messers. Ormond,
Weikel, Meyers and Bixler also took into account the elimination of such
executive officers' participation in the Performance Award Plan ("PAP"). The
salary adjustments and changes in PAP participation were also designed to
address certain differences in the compensation plans pre-Merger of HCR and
Manor Care. The Committee believes that participation in the PAP remains
appropriate for Messers. Ormond, Weikel, Meyers and Bixler and is an important
component of their overall compensation plan, linking compensation to long-term
increases in stockholder value. During 1998, the Committee set target growth
rates for the 1998-2000 and 1999-2001 award periods which include a threshold
growth rate for any payment and a maximum payment for growth significantly in
excess of the target. The Committee also approved payouts under the PAP based
upon the actual rate of growth in EPS during the 1996-1998 award period, the
criteria established by the Committee at the time the awards were made. During
this period the growth in EPS exceeded the target goal by an amount which earned
maximum payouts under the specific formula established at the time the target
goals were set by the Committee.
The Committee also approved payouts under the Annual Incentive Plan, taking
into account the completion of the most significant strategic merger in the
history of the long-term care industry, the Company's efforts to prepare for the
dramatic changes in reimbursement under the prospective payment system and solid
financial performance both pre-Merger and post-Merger in an exceedingly
challenging environment. The Company's financial performance was demonstrated by
significant growth in earnings per share (EPS), prior to restructuring and other
non-recurring charges, while maintaining its traditionally high operating
margins, strong cash flow and the lowest debt ratios among public companies in
the industry. In addition, the Committee determined that the quality of care in
the Company's nursing centers remained at a high level during 1998. These
performance achievements, which exceeded the performance of other companies in
the industry by a wide margin, justified payouts under the Annual Plan
substantially in excess of the target payout levels.
The Committee continues to believe that a broad-based stock option plan is
an important element in a compensation program designed to maximize stockholder
value. The Company's Amended Stock Option Plan for Key Employees ("Option Plan")
covers executive officers and key corporate and field management. The Committee
believes that the program is valued by eligible employees at all levels of the
organization and that the program is providing an important incentive to
increasing stockholder value. In recognition of the expanded workforce which
would result from the Merger, the Committee and the Board of Directors approved,
subject to stockholder approval, an amendment to the Option Plan increasing the
total number of shares authorized for issuance under the Option Plan by
3,000,000 shares. The amendment was approved by the stockholders in September,
1998.
In 1998, the Committee approved option awards for a broad-based group of
employees covered by the Option Plan including the named executive officers. In
making awards to the officers of the Company, the Committee considered the
significant challenges and opportunities presented by the Merger and determined
that option awards in excess of prior annual grants would be appropriate in
order to provide substantial incentives for growth in stockholder value from the
point of the Merger forward. Accordingly, the Committee made awards to corporate
officers including the named executive officers in amounts approximately three
times the annual grants made in prior years with exercise dates deferred until
the third anniversary of the grant at which time the option becomes exercisable
at the rate of one third of the award on the third, fourth and fifth
anniversaries of the date of the grant. Absent unusual circumstances, the
Committee does not expect to make additional option awards to corporate officers
for two years following the date of the 1998 grants. Individual option grants
were based upon the individual's potential to make a
14
<PAGE> 18
contribution to earnings growth as determined by the individual's job
classification, responsibilities and past performance.
Compensation of Chief Executive Officer. The compensation policies
described above apply as well to the compensation of the Chief Executive Officer
("CEO"). The Committee is directly responsible for determining the CEO's salary
level and for all awards and grants to the CEO under the incentive components of
the compensation program. The overall compensation package of the CEO is
designed to recognize that the CEO bears primary responsibility for increasing
the value of stockholders' investments. Accordingly, a substantial portion of
the CEO's compensation is incentive-based, providing greater compensation as
direct and indirect financial measures of stockholder value increase. The
Committee also believes that the complex health care environment in which the
Company currently operates requires a high degree of leadership, innovation and
prudent risk-taking in order to meet and sustain corporate objectives for
increasing stockholder value. The CEO's compensation is thus structured and
administered to motivate and reward the successful exercise of these
entrepreneurial skills.
The CEO's compensation for 1998 was directly related to the overall
performance of the Company. The Committee believes that the extraordinary
leadership provided by the CEO enabled the Company to complete the most
significant strategic merger in the history of the long-term care industry while
the Company continued to achieve outstanding results as measured by financial
criteria and important qualitative factors. The Committee also recognized that
the highly challenging competitive and regulatory environment continued to
impact the operations of all companies in the long-term care industry. The CEO's
strong performance in leading the Company to meet the numerous challenges and
opportunities presented to it can also be measured by the Company's strong
overall performance relative to substantially all other companies in the
industry. The CEO's compensation also continued to reflect: (1) the high level
of care maintained in the Company's nursing centers and the continued emphasis
on quality among all employees; (2) progress in implementing growth objectives
of the Company as reflected in earnings growth from existing assets, the further
development and addition of specialty care units and acquisition and new
construction activities; (3) the continued strong performance of the senior
management team; and (4) related qualitative factors.
Policy Related to Deductibility of Compensation. Section 162(m) of the
Internal Revenue Code of 1986 denies a deduction to any publicly held
corporation for compensation paid to the CEO and the other four most highly
compensated officers, as of the end of a fiscal year, to the extent that the
compensation exceeds $1 million in any taxable year of the corporation beginning
after 1993, subject to an exception for "performance-based compensation." It is
the Committee's policy to take the necessary steps, including appropriate plan
amendments, to qualify compensation paid to executive officers for deductibility
to the extent that so qualifying the compensation is not inconsistent with the
Company's fundamental compensation policies. In furtherance of this policy, the
stockholders have approved amendments to the PAP, the Option Plan and the
Amended Restricted Stock Plan designed to meet the performance-based
compensation requirements of Section 162(m). The Committee will continue to
monitor developments on this subject and take further action as may be
appropriate.
Joseph H. Lemieux
William H. Longfield
Thomas L. Young
15
<PAGE> 19
PERFORMANCE GRAPH
The graph below compares the total return on an investment in HCR Manor
Care common stock to the cumulative total return for a broad market index (the
Standard & Poor's 500 Stock Index) and to the cumulative total return for an
index comprised of a peer group of companies(1). The indices reflect the year
end market value of an investment in the stock of each company in the index,
including additional shares assumed to have been acquired with cash dividends,
if any.
The graph assumes a $100 investment in HCR Manor Care stock on December 31,
1993 at a price of $14.8333 per share, as adjusted for a 50% stock dividend on
June 5, 1996. The graph also assumes investments of $100 each in the S&P 500 and
peer group indices on the same date.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
HCR S&P 500 PEER GROUP INDEX (1)
--- ------- --------------------
<S> <C> <C> <C>
'1993' 100.00 100.00 100.00
'1994' 135.39 101.38 90.92
'1995' 157.30 139.45 63.97
'1996' 192.97 171.45 82.65
'1997' 271.34 228.65 108.56
'1998' 198.02 294.00 45.30
</TABLE>
- ---------------
(1) The peer group index is based on the total return for investments in the
common stock of the following companies: Beverly Enterprises, Inc.;
Integrated Health Services, Inc.; and Novacare, Inc. Manor Care, Inc., a
fourth company included in the index last year, has been excluded for all
periods because it ceased to exist as a separate corporation following its
merger into HCR Manor Care in September 1998. Other companies that, as a
result of their acquisition by other companies, have been eliminated from
the index since its inception for the five-year period ending December 31,
1993 include: The Hillhaven Corporation (1995), and Living Centers of
America, Inc. (1997). The index is developed by weighting the returns
achieved by each company in the index in proportion to each company's share
of the market value of the entire group's common equity capitalization.
16
<PAGE> 20
ITEM 2 -- SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors of
the Company has selected Ernst & Young LLP as independent public accountants for
the Company for the fiscal year ending December 31, 1999, subject to
ratification of such selection by the stockholders. If the stockholders do not
ratify the appointment, the appointment will be reconsidered by the Audit
Committee and the Board of Directors.
Representatives of Ernst & Young LLP will be present at the Annual Meeting
to respond to appropriate questions and to make such statements as they so
desire.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ADOPTION OF
THE PROPOSAL.
OTHER BUSINESS
As of the date of this Proxy Statement, management knows of no other
business that will be presented for consideration at the Annual Meeting.
However, if other proper matters are presented at the meeting, it is the
intention of the proxy holders named in the accompanying proxy to take such
action as shall be in accordance with their judgment on such matters. For
adoption, all proposals to be voted upon by stockholders require a majority vote
of common stock represented at the meeting in person or by proxy.
GENERAL INFORMATION
SOLICITATION COSTS
The Company will pay the cost of preparing and mailing this proxy statement
and other costs of the proxy solicitation made by the Company's Board of
Directors. Certain of the Company's officers and employees may solicit the
submission of proxies authorizing the voting of shares in accordance with the
Board of Directors' recommendations, but no additional remuneration will be paid
by the Company for the solicitation of those proxies. Such solicitations may be
made by personal interview, telephone and telegram. Arrangements have also been
made with brokerage firms and others for the forwarding of proxy solicitation
materials to the beneficial owners of common stock, and the Company will
reimburse them for reasonable out-of-pocket expenses incurred in connection
therewith.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
A stockholder desiring to submit a proposal for inclusion in the Company's
proxy statement for the 2000 Annual Meeting must deliver the proposal so that it
is received by the Company no later than November 29, 1999. A stockholder
desiring to bring a proposal before the 2000 Annual Meeting that is not in the
Company's proxy statement for that meeting must deliver its proposal to the
Company not less than sixty (60) nor more than ninety (90) days prior to the
date of the annual meeting; provided, however, that if less than seventy (70)
days notice or prior public disclosure of the date of the annual meeting is
given or made to stockholders, a stockholder's submission will be considered
timely if received within ten (10) days of the date on which notice of the date
of the annual meeting is first mailed or publicly disclosed. The Company
requests that all such proposals be addressed to R. Jeffrey Bixler, Vice
President, General Counsel and Secretary, HCR Manor Care, Inc., 333 N. Summit
St., Toledo, Ohio 43604.
By Order of the Board of Directors,
R. JEFFREY BIXLER, SECRETARY
Toledo, Ohio
March 29, 1999
17
<PAGE> 21
HCR LOGO
<PAGE> 22
HCR MANOR CARE, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [LOGO]
<TABLE>
<CAPTION>
FOR ALL
FOR WITHHELD EXCEPT NOMINEE(S)
ALL ALL WRITTEN BELOW
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS: CLASS II
Nominees: {} {} {}
- -------
Stewart Bainum, Joseph H. Lemieux, and Gail R.
Wilensky
- -----------------------------------------------------
<C> <C> <C>
FOR AGAINST ABSTAIN
2. Ratify selection of Ernst & Young LLP as [ ] [ ] [ ]
auditors.
3. In their discretion, the Proxies are authorized
to vote upon such other business as may properly
come before the meeting.
Please sign exactly as name appears hereon. When shares are held by joint
owners, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such, if a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Dated: , 1999
--------------------------------
--------------------------------------------
Signature
--------------------------------------------
Signature, if held jointly
</TABLE>
................................................................................
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
<PAGE> 23
PROXY PROXY
HCR MANOR CARE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Paul A. Ormond, Geoffrey G. Meyers and R.
Jeffrey Bixler and each of them, as Proxies with full power of substitution, and
hereby authorize(s) them to represent and to vote, as designated herein, all
shares of common stock of HCR Manor Care, Inc. held of record by the undersigned
on March 11, 1999, at the Annual Meeting of Stockholders to be held on May 4,
1999, or at any adjournment thereof.
This proxy when properly executed will be voted in the manner directed by the
undersigned stockholder. If no direction is made, this proxy will be voted FOR
items 1 and 2. Items 1 and 2 have been proposed by the registrant.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
................................................................................
FOLD AND DETACH HERE
<PAGE> 24
HCR MANOR CARE, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. LOGO
<TABLE>
<CAPTION>
FOR ALL
FOR WITHHELD EXCEPT NOMINEE(S)
ALL ALL WRITTEN BELOW
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS: CLASS II [ ] [ ] [ ]
Nominees:
- --------
Stewart Bainum, Joseph H. Lemieux, and Gail R.
Wilensky
<CAPTION> FOR AGAINST ABSTAIN
- ---------------------------------------------- <C> <C> <C>
[ ] [ ] [ ]
2. Ratify selection of Ernst & Young LLP as
auditors.
</TABLE>
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
PLEASE SIGN EXACTLY AS NAME
APPEARS HEREON.
Dated: , 1999
-----------------------
-----------------------------------
Signature
................................................................................
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
<PAGE> 25
PROXY PROXY
HCR MANOR CARE, INC.
HCR STOCK PURCHASE AND RETIREMENT SAVINGS PLAN
The undersigned hereby authorizes and instructs National City Bank, Cleveland,
Trustee under the HCR Stock Purchase and Retirement Savings Plan, to vote in
person or by proxy the full common shares of HCR Manor Care, Inc. credited to my
account under the Health Care and Retirement Corporation Stock Fund as of March
11, 1999, if any, at the Annual Meeting of Stockholders to be held on May 4,
1999, or at any adjournment thereof.
When properly executed, this proxy will be voted in the manner directed on the
reverse side of this card by the undersigned stockholder. If no direction is
made, this proxy will be voted by the Trustee in accordance with the
instructions received with respect to a majority of shares in the Health Care
and Retirement Corporation Stock Fund.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
ITEMS 1 AND 2 HAVE BEEN PROPOSED BY THE REGISTRANT.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
...............................................................................
FOLD AND DETACH HERE
