-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BUXGnbFFhfMw3TDiUgSo5Kyx3QcchFgW8dnjRjs7k0bW8dYejh0NsQWVJv3+WxMt ESDJHXVmGZBSvSlHLDBZGQ== 0000950116-97-000109.txt : 19970123 0000950116-97-000109.hdr.sgml : 19970123 ACCESSION NUMBER: 0000950116-97-000109 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970306 FILED AS OF DATE: 19970122 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENESIS HEALTH VENTURES INC /PA CENTRAL INDEX KEY: 0000874265 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 061132947 STATE OF INCORPORATION: PA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11666 FILM NUMBER: 97509047 BUSINESS ADDRESS: STREET 1: 148 W STATE ST STE 100 CITY: KENNETT SQUARE STATE: PA ZIP: 19348 BUSINESS PHONE: 6104446350 MAIL ADDRESS: STREET 1: 148 W STATE STREET CITY: KENNETT SQUARE STATE: PA ZIP: 19348 DEF 14A 1 DEFINITIVE PROXY STATEMENT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant /X/ Filed by a Party other than the Registrant / / Check the appropriate box: / / Preliminary Proxy Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) /X/ Definitive Proxy Statement / / Definitive Additional Materials / / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12 Genesis Health Ventures - ----------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) ----------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): /X/ No fee required / / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. 1) Title of each class of securities to which transaction applies: ---------------------------------------------------------------------- 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: ___________________________________________________________________________ LOGO Genesis Health Ventures(SM) 148 West State Street Kennett Square, PA 19348 Tel 610 444 6350 Fax 610 444 3365 January 21, 1997 Dear Shareholder: You are cordially invited to attend the 1997 Annual Meeting of Shareholders of Genesis Health Ventures, Inc. which will be held on Thursday, March 6, 1997 at 10:00 A.M., at 209 Dalmatian Street, Kennett Square, Pennsylvania 19348. The official notice of the meeting together with a proxy statement and form of proxy are enclosed. Please give this information your careful attention. Shareholders of the Company are being asked to elect two directors of the Company to serve for three-year terms until the 2000 Annual Meeting of Shareholders and to approve an amendment to the Company's Employee Stock Option Plan. Whether or not you expect to attend the meeting in person, it is important that your shares be voted at the meeting. I urge you to specify your choices by marking the enclosed proxy and returning it promptly. Sincerely, /s/ Michael R. Walker --------------------------- MICHAEL R. WALKER Chairman and Chief Executive Officer GENESIS HEALTH VENTURES, INC. 148 WEST STATE STREET KENNETT SQUARE, PA 19348-3021 ------ NOTICE OF ANNUAL MEETING OF SHAREHOLDERS MARCH 6, 1997 ------ To Our Shareholders: The 1997 Annual Meeting of Shareholders of Genesis Health Ventures, Inc. (the "Company") will be held at 209 Dalmatian Street, Kennett Square, Pennsylvania 19348, on Thursday, March 6, 1997 at 10:00 A.M., for the following purposes as more fully described in the annexed Proxy Statement: 1. To elect two directors for terms of three years each; 2. To consider and act on an amendment to the Company's Employee Stock Option Plan which increases the number of shares issuable under the Plan from 3,750,000 to 4,500,000; and 3. To transact such other business as may properly come before the meeting or any postponement or adjournment thereof. The Board of Directors has fixed December 20, 1996, as the record date for the determination of shareholders entitled to vote at the meeting. Only shareholders of record at the close of business on that date will be entitled to notice of, and to vote at, the meeting. You are cordially invited to attend the meeting in person. Whether or not you expect to attend the meeting in person, you are urged to sign and date the enclosed proxy and return it promptly in the envelope provided for that purpose. By the Order of the Board of Directors /s/ Ira C. Gubernick --------------------------------------- IRA C. GUBERNICK Corporate Secretary January 21, 1997 GENESIS HEALTH VENTURES, INC. 148 West State Street Kennett Square, PA 19348-3021 ------ PROXY STATEMENT ------ This proxy statement, which together with the accompanying proxy card is first being mailed to shareholders on or about January 21, 1997, is furnished to the shareholders of the Company in connection with the solicitation of proxies by the Board of Directors on behalf of the Company for use in voting at the 1997 Annual Meeting of Shareholders, including any adjournment or postponement thereof. Proxies in the form enclosed, if properly executed and received in time for voting, and not revoked, will be voted as directed in accordance with the instructions thereon. Any proxy not so directing to the contrary will be voted FOR the Company's nominees as directors and FOR approval of the amendment to the Employee Stock Option Plan. Sending in a signed proxy will not affect a shareholder's right to attend the meeting and vote in person since the proxy is revocable. Any shareholder giving a proxy may revoke it at any time before it is voted at the meeting by delivering a later dated proxy or by giving written notice to the Secretary of the Company. The cost of this solicitation will be borne by the Company. In addition to solicitation by mail, proxies may be solicited in person or by telephone, telegraph or facsimile by directors, officers or employees of the Company and its subsidiaries without additional compensation. In addition, Corporate Investors Communications, Inc. will provide solicitation services to the Company for a fee of approximately $4,000 plus out-of-pocket expenses. The Company will, on request, reimburse shareholders of record who are brokers, dealers, banks or voting trustees, or their nominees, for their reasonable expenses in sending proxy materials and annual reports to the beneficial owners of the shares they hold of record. VOTING SECURITIES At the close of business on December 20, 1996, the record date for the determination of shareholders entitled to receive notice of and to vote at the meeting, the Company's outstanding voting securities consisted of 34,900,863 shares of Common Stock. Holders of Common Stock are entitled to one vote per share. PRINCIPAL SHAREHOLDERS The following table sets forth at November 30, 1996, certain information with respect to the beneficial ownership of Common Stock (i) by each person who is known by the Company to be the beneficial owner of more than five percent of the Common Stock, (ii) by each director and nominee for director, (iii) by each of the Company's five most highly compensated executive officers and (iv) by all directors and executive officers as a group.
Shares of Common Stock Percent of Beneficially Common Stock Owned (1) Owned -------------- -------------- Putnam Investments, Inc. (2) One Post Office Square Boston, Massachusetts 02109 ............................................ 2,969,041 8.51% AIM Management Group Inc. (3) 11 Greenway Plaza Houston, Texas 77046 ................................................... 2,339,781 6.70% Fred F. Nazem (4) ........................................................ 1,623,704 4.65% Allen R. Freedman(5) ..................................................... 4,500 * Richard R. Howard (6) .................................................... 258,202 * Samuel H. Howard (7) ..................................................... 26,250 * Roger C. Lipitz (8) ...................................................... 19,000 * Stephen E. Luongo (9) .................................................... 41,018 * Alan B. Miller (10) ...................................................... 17,000 * Michael R. Walker (11) ................................................... 767,876 2.20% David C. Barr (12) ....................................................... 179,875 * George V. Hager, Jr. (13) ................................................ 93,599 * Edward B. Romanov, Jr.(14) ............................................... 98,947 * All executive officers and directors as a group (16 persons) ............. 3,254,232 9.32%
- ------ * Less than one percent. (1) The securities "beneficially owned" by a person are determined in accordance with the definition of "beneficial ownership" set forth in the regulations of the Securities and Exchange Commission (the "Commission") and accordingly, may include securities owned by or for, among others, the spouse, children or certain other relatives of such person as well as other securities as to which the person has or shares voting or investment power or has the right to acquire within 60 days after November 30, 1996. The same shares may be beneficially owned by more than one person. Beneficial ownership may be disclaimed as to certain of the securities. (2) Based upon a Schedule 13G, dated January 15, 1996. Consists of 2,505,019 shares beneficially owned by Putnam Investment Management, Inc. and 464,022 shares beneficially owned by The Putnam Advisory Company, Inc. which are registered investment advisors, are wholly-owned by Putnam Investments, Inc. Putnam Investments, Inc. is a wholly-owned subsidiary of Marsh & McLennon Companies, Inc. (3) Based upon a Schedule 13G, dated November 9, 1995. (4) Consists of 966,724 shares of Common Stock held by Nazem & Company, II, L.P., 630,480 shares of Common Stock held by Nazem & Company, III, L.P and 22,500 shares of Common Stock which may be acquired upon the exercise of stock options. (5) Consists of 4,500 shares which may be acquired upon the exercise of stock options. (6) Includes 46,877 shares of Common Stock held of record by the Retirement Plan as to which Mr. Howard shares voting power and 152,375 shares which may be acquired upon the exercise of stock options. (7) Consists of 22,500 shares which may be acquired upon the exercise of stock options. (8) Consists of 9,000 shares which may be acquired upon the exercise of stock options. (9) Includes 27,000 shares which may be acquired upon the exercise of stock options. (10) Consists of 13,500 shares which may be acquired upon the exercise of stock options. (11) Includes 46,877 shares of Common Stock held of record by the Retirement Plan as to which Mr. Walker shares voting power and 334,500 shares of Common Stock which may be acquired upon the exercise of stock options. (12) Includes 176,825 shares which may be acquired upon the exercise of stock options. (13) Includes 93,000 shares which may be acquired upon the exercise of stock options. (14) Includes 38,499 shares which may be acquired upon the exercise of stock options. 2 PROPOSAL 1 ELECTION OF DIRECTORS INFORMATION CONCERNING NOMINEES Two directors are to be elected at the Annual Meeting to serve three-year terms until the 2000 Annual Meeting of Shareholders and until their respective successors are elected and qualified. The Board of Directors has designated the persons listed below to be nominees for election as directors:
Name Age Position with the Company ---------------------------- ----- ----------------------------------- Stephen E. Luongo (1) ...... 49 Director Michael R. Walker (2) ...... 48 Chairman and Chief Executive Officer
- ------ (1) Member of the Compensation Committee of the Board of Directors. (2) Member of the Executive Committee of the Board of Directors. Stephen E. Luongo has served as a director of the Company since June 1985. He is a partner in the law firm of Blank Rome Comisky & McCauley. Blank Rome Comisky & McCauley serves as outside legal counsel for the Company. Michael R. Walker, founder of the Company, has served as Chairman and Chief Executive Officer of the Company since its inception. In 1981, Mr. Walker co-founded Health Group Care Centers ("HGCC"). At HGCC, he served as Chief Financial Officer and, later, as President and Chief Operating Officer. Prior to its sale in 1985, HGCC operated nursing homes with 4,500 nursing beds in 12 states. From 1978 to 1981, Mr. Walker was the Vice President and Treasurer of AID Healthcare Centers, Inc. ("AID"). AID, which owned and operated 20 nursing centers, was co-founded in 1977 by Mr. Walker as the nursing home division of Hospital Affiliates, Inc. ("HAI"). Mr. Walker is a member of the Board of Directors of Renal Treatment Centers, Inc. and the Board of Trustees of Universal Health Realty Income Trust. Stephen E. Luongo and Michael R. Walker are currently serving as directors of the Company and have consented to being named in this Proxy Statement and to serve if elected. The Company has no reason to believe that any of the nominees will be unavailable for election. Should any nominee become unavailable for any reason, the Board of Directors may designate a substitute nominee. Unless authority has been withheld, the proxy agents intend to vote FOR the election of all of the Company's nominees. The election of a director requires the affirmative vote of a majority of the votes cast by all shareholders represented and entitled to vote thereon. An abstention, withholding of authority to vote or broker non-vote, therefore, will not have the same legal effect as an "against" vote and will not be counted in determining whether the nominee has received the required shareholder vote. The Board of Directors unanimously recommends that you vote "For" the election of all nominees. INFORMATION CONCERNING CONTINUING DIRECTORS The following tables set forth certain information concerning those directors whose terms will expire at the 1998 and 1999 Annual Meetings of Shareholders:
Name Age Position with the Company -------------------------------------------------------- ----- ----------------------------------------------- The terms of the following directors will expire in 1998: Roger C. Lipitz (1) .................................... 54 Director Alan B. Miller (2) ..................................... 58 Director Fred F. Nazem (3) ...................................... 56 Director The terms of the following directors will expire in 1999: Richard R. Howard (3) .................................. 47 President, Chief Operating Officer and Director Samuel H. Howard (1), (2) .............................. 57 Director Allen R. Freedman (1) .................................. 56 Director
3 - ------ (1) Member of the Audit Committee of the Board of Directors. (2) Member of the Compensation Committee and Stock Option Subcommittee of the Board of Directors. (3) Member of the Executive Committee of the Board of Directors. Roger C. Lipitz has served as a director of the Company since March, 1994. From 1969 until its acquisition by the Company in 1993, Mr. Lipitz served as Chairman of the Board of Meridian Healthcare, Inc., a Maryland based long term care company which operated over 5,000 beds and related businesses. Mr. Lipitz is a past president of the American Health Care Association, Health Facilities Association of Maryland and the National Council of Health Care Services. Mr. Lipitz is a member of the Board of Directors of Blue Cross and Blue Shield of Maryland. Alan B. Miller has served as a director of the Company since October, 1993. Since 1978, he has been Chairman of the Board, President and Chief Executive Officer of Universal Health Services, Inc., a Pennsylvania based health services company. Prior thereto, Mr. Miller was Chairman of the Board, President and Chief Executive Officer of American Medicorp, Inc. Mr. Miller is a member of the Board of Trustees of Universal Health Realty Income Trust and the Board of Directors of GMIS, Inc. Fred F. Nazem has served as a director of the Company since January 1989. He is the founder and Managing Partner of Nazem & Company, a New York-based venture capital organization which manages a number of private partnerships funded by major American and international institutions. Prior to forming the partnerships, Mr. Nazem founded and managed two venture capital partnerships and an investment advisory firm, the GeoCapital Corporation. Before that, he had various investment management positions at the Irving Trust Company, including Vice President in charge of venture capital. Mr. Nazem is a member of the Board of Directors of Consep, Inc., Tegal Corporation, Oxford Health Plans, Inc. and Spatial Technology, Inc. Richard R. Howard has served as a director of the Company since its inception and as Chief Operating Officer since June, 1986. He joined the Company in September 1985 as Vice President of Development. Mr. Howard's background in healthcare includes two years as the Chief Financial Officer HGCC. Mr. Howard's experience also includes over ten years with Fidelity Bank, Philadelphia, Pennsylvania and one year with Equibank, Pittsburgh, Pennsylvania. Samuel H. Howard has served as a director of the Company since March, 1988. He is the founder and Chairman of Phoenix Healthcare Corporation ("Phoenix Healthcare") and the founder and President of Phoenix Communications Group, Inc. ("Phoenix Group") and Phoenix Holdings, Inc. all of which are based in Nashville, Tennessee. Formed in 1993, Phoenix Healthcare provides management services for managed care organizations, including health maintenance organizations serving Tennessee's Medicaid population through the innovative TennCare program which offers a managed care approach to meeting the healthcare needs of Tennessee's Medicaid and uninsured populations. Mr. Howard's past corporate and operations experience in the healthcare industry include having served as the Senior Vice President of Public Affairs for Hospital Corporation of America from August 1981 to January 1990, Vice President and Treasurer for HAI, and Vice President of Finance and Business for Meharry Medical College. In addition, Mr. Howard was a financial analyst for General Electric and a White House Fellow with U.S. Ambassador Arthur Goldberg. Mr. Howard is a member of the Board of Directors of O'Charley's, Inc. Richard R. Howard and Samuel H. Howard are not related. Allen R. Freedman has served as a director of the Company since February, 1996. Since 1990, Mr. Freedman has served on the executive board of Fortis, a multinational financial services organization, which is the operating entity of Fortis AG, based in Belgium, and Fortis AMEV, based in the Netherlands. Since 1990, he has been Chairman and Chief Executive Officer of Fortis, Inc. and Chairman of the Board of its principal insurance and investment affiliates in the United States. These affiliates include American Security Group; Fortis Benefits Insurance Company; Time Insurance Company; and United Family Life Insurance Company. Mr. Freedman served as President of Fortis, Inc. from 1979 to 1990. Mr. Freedman is also a director of Fortis Advisors, Inc. and Systems and Computer Technology Corporation. BOARD MEETINGS AND COMMITTEES OF THE BOARD The Board of Directors held four regular meetings and six special meetings during the fiscal year ended September 30, 1996. 4 The Executive Committee held four meetings during the fiscal year ended September 30, 1996. The Executive Committee has the authority of the Board of Directors in the management of the business of the Company between the dates of regular meetings of the Board of Directors. The Compensation Committee held two meetings during the fiscal year ended September 30, 1996. The Compensation Committee reviews the compensation of executive officers, makes recommendations to the Board regarding executive compensation and, through its Stock Option Subcommittee, administers the Company's Employee Stock Option Plan and Incentive Compensation Program. The Audit Committee held two meetings during the fiscal year ended September 30, 1996. The Audit Committee is responsible for reviewing the Company's accounting and financial practices and policies and the scope and results of the Company's audit. The Audit Committee is also responsible for recommending the selection of the Company's independent public accountants. The Company does not have a standing nominating committee. Each director attended more than 75% of the meetings of the Board and committees of which they were members during the fiscal year ended September 30, 1996, except that Alan R. Freedman attended 57% of the meetings of the Board and committee to which he is a member. Directors who are not employees of the Company receive an annual retainer of $6,000 plus $2,500 for each regularly scheduled Board meeting which they attend and annually receive options to purchase 4,500 shares of Common Stock at an option price equal to the share's fair market value on the date of the grant. See "Executive Compensation and Certain Transactions -- Stock Option Plans -- Director Plan." PROPOSAL 2 APPROVAL OF AMENDMENT TO THE COMPANY'S EMPLOYEE STOCK OPTION PLAN On, November 13, 1996 the Board of Directors approved an amendment to the Company's 1985 Amended and Restated Employee Stock Option Plan (the "Employee Plan") that increased the maximum number of shares issuable under the Employee Plan by 750,000 shares to a total of 4,500,000 shares, subject to approval by the shareholders of the Company. In fiscal 1996, the Company revised its incentive compensation program, which provided for cash bonuses and stock options, with its new incentive compensation program. Under the revised incentive compensation program, stock options issued under the Employee Plan are the sole form of incentive compensation to most eligible employees. Assuming approval of the amendment to increase the number of shares issuable under the Employee Plan by 750,000, options for a total of 3,760,700 shares are issued under the Employee Plan, corresponding to 10.7% of the total shares outstanding as of December 20, 1996. See "Executive Compensation and Certain Transactions -- Incentive Compensation Program." INCREASE IN AUTHORIZED SHARES Currently, options for a total of 3,750,000 shares may be issued under the Employee Plan. Of these shares, no shares remain currently available for future options, assuming approval of the proposed amendment. The amendment increases the maximum number of shares issuable under the Employee Plan by 750,000 to a total of 4,500,000 shares. Of these shares, a determination has been made that all of the proposed additional 750,000 options will be allocated among eligible participants in the Employee Plan. If the shareholders do not approve the increase, then the maximum number of shares issuable under the Employee Plan will remain at 3,750,000. The purpose of the proposed increase is to provide sufficient shares for future option grants to officers, key employees, consultants and advisors of the Company. The Board of Directors believes that the Company should have shares available under the Employee Plan to provide options to certain of its officers, key employees, consultants and advisors. The Board of Directors believes that the Company and its shareholders significantly benefit from having the Company's key management employees receive options to purchase the Company's Common Stock, and that the opportunity thus afforded these employees to acquire Common Stock is an essential element of an effective management incentive program. The Board of Directors also believes that stock options, particularly incentive stock options, are very valuable in attracting and retaining highly qualified management personnel and in providing additional motivation to management to use their best efforts on behalf of the Company and its shareholders. Set forth below is a summary of certain significant provisions of the Employee Plan. 5 GENERAL Pursuant to the Employee Plan, stock options may be granted which are intended to qualify as incentive stock options ("Incentive Options") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as stock options not intended to so qualify ("Non-Qualified Options"). The primary purpose of the Employee Plan is to provide additional incentive to key employees and officers of the Company by encouraging them to invest in the Company's Common Stock and thereby acquire a proprietary interest in the Company and an increased personal interest in the Company's continued success and progress. ELIGIBILITY AND ADMINISTRATION All officers and key employees of, and consultants and advisors to, the Company or any current or future subsidiary ("Subsidiary") (currently in excess of 750 people) are eligible to receive options under the Employee Plan. The Employee Plan is administered by the Stock Option Subcommittee of the Compensation Committee ("the Stock Option Subcommittee"). Subject to the provisions of the Employee Plan, the Stock Option Subcommittee determines, among other things, which officers, directors, key employees, consultants and advisors of the Company and any subsidiary will be granted options under the Employee Plan, whether options granted will be Incentive Options or Non-Qualified Options, the number of shares subject to an option, the time at which an option is granted, the rate of option exercisability, the duration of an option and the exercise price of an option. The Stock Option Subcommittee has the exclusive right to adopt or rescind rules for the administration of the Employee Plan, correct defects and omissions in, reconcile inconsistencies in, and construe the Employee Plan. The Stock Option Subcommittee also has the right to modify, suspend or terminate the Employee Plan, subject to certain conditions. NUMBER OF SHARES ADJUSTMENT The aggregate number of shares which may be issued upon the exercise of options granted under the Employee Plan will be increased as a result of the proposed amendment from 3,750,000 to 4,500,000 shares of the Company's Common Stock. The aggregate number and kind of shares issuable under the Employee Plan is subject to appropriate adjustment to reflect changes in the capitalization of the Company, such as by stock dividend, stock split or other circumstances deemed by the Stock Option Subcommittee to be similar. Any shares of Common Stock subject to options that terminate unexercised will be available for future options granted under the Employee Plan. EXERCISE PRICE AND TERMS The exercise price for Incentive Options granted under the Employee Plan must be equal to at least 100% of the fair market value of the Company's Common Stock as of the date of the grant of the option, except that the option exercise price of Incentive Options granted to an individual owning shares of the Company possessing more than 10% of the total combined voting power of all classes of stock of the Company must not be less than 110% of the fair market value as of the date of the grant of the option. The option price for Non-Qualified Options must equal at least 85% of the fair market value of the Common Stock on the date of the grant. Unless terminated earlier by the option's terms, Non-Qualified Options and Incentive Options granted under the Employee Plan will expire ten years after the date they are granted, except that if Incentive Options are granted to an individual owning shares of the Company possessing more than 10% of the total combined voting power of all classes of stock of the Company on the date of the grant, such options will expire five years after the date they are granted. Payment of the option price on exercise of Incentive Options and Non-Qualified Options may be made in cash, shares of Common Stock of the Company or a combination of both. Under the terms of the Employee Plan, the Stock Option Subcommittee could interpret the provision of the plan which allows payment of the option price in shares of Common Stock of the Company to permit the "pyramiding" of shares in successive, simultaneous exercises. As a result, an optionee could initially exercise an option in part, acquiring a small number of shares of Common Stock and immediately thereafter effect further exercises of the option, using the shares of Common Stock acquired upon earlier exercises to pay for an increasingly greater number of 6 shares received on each successive exercise. This procedure could permit an optionee to pay the option price by using a single share of Common Stock or a small number of shares of Common Stock and to acquire a number of shares of Common Stock having an aggregate fair market value equal to the excess of (a) the fair market value of all shares to which the option relates over (b) the aggregate exercise price under the option. TERMINATION OF SERVICE, DEATH AND DISABILITY All unexercised options will terminate three months following the date an optionee ceases to be employed by the Company or any Subsidiary, other than by reason of disability or death (but in no event later than the expiration date). An optionee who ceases to be an employee because of a disability must exercise the option within one year after he ceases to be an employee (but in no event later than the expiration date). The heirs or personal representative of a deceased optionee who could have exercised an option while alive may exercise such option within one year following the optionee's death (but in no event later than the expiration date). No option granted under the Employee Plan is transferable except by the laws of descent and distribution in the event of death. FEDERAL INCOME TAX CONSEQUENCES Non-Qualified Options. Generally, there will be no federal income tax consequences to either the optionee or the Company on the grant of a Non-Qualified Option. On the exercise of a Non-Qualified Option, the optionee (except as described below) has taxable ordinary income equal to the excess of the fair market value of the shares acquired on the exercise date over the option price of the shares. The Company will be entitled to a federal income tax deduction in an amount equal to such excess, provided that the Company (i) complies with applicable withholding rules and (ii) either the deduction limitation imposed by Section 162(m) of the Internal Revenue Code of 1986, as amended ("Code") is not exceeded or the Non-Qualified Options are excepted from the limitation imposed by Section 162(m) by reason of qualifying under the performance based compensation exception contained in Section 162(m). See "Section 162(m)" below. Upon the sale of stock acquired by exercise of a Non-Qualified Option, optionees will realize long-term or short-term capital gain or loss depending upon their holding period for such stock. Under current law, net capital gain (net long term capital gain less net short term capital loss) is subject to a maximum tax rate of 28%. Capital losses are deductible only to the extent of capital gains for the year plus $3,000 for individuals. An optionee who surrenders shares in payment of the exercise price of a Non-Qualified Option will not recognize gain or loss with respect to the shares so delivered unless such shares were acquired pursuant to the exercise of an Incentive Stock Option and the delivery of such shares is a disqualifying disposition. See "Incentive Stock Options" below. The optionee will recognize ordinary income on the exercise of the Non-Qualified Option as described above. Of the shares received in such an exchange, that number of shares equal to the number of shares surrendered will have the same tax basis and capital gains holding period as the shares surrendered. The balance of the shares received will have a tax basis equal to their fair market value on the date of exercise and the capital gains holding period will begin on the date of exercise. Incentive Stock Options. Generally, under the Code, an optionee will not realize taxable income by reason of the grant or the exercise of an Incentive Option (see, however, the discussion of alternative minimum tax below). If an optionee exercises an Incentive Option and does not dispose of the shares until the later of (i) two years from the date the option was granted and (ii) one year from the date of exercise, the entire gain, if any, realized upon disposition of such shares will be taxable to the optionee as long-term capital gain, and the Company will not be entitled to any deduction. If an optionee disposes of the shares within the period of two years from the date of grant or one year from the date of exercise (a "disqualifying disposition"), the optionee generally will realize ordinary income in the year of disposition and the Company will receive a corresponding deduction, in an amount equal to the excess of (1) the lesser of (a) the amount, if any, realized on the disposition and (b) the fair market value of the shares on the date the option was exercised over (2) the option price, provided that the deduction limit of Section 162(m) is not exceeded or the Incentive Option qualifies for the performance-based compensation exception provided for in Section 162(m). See "Section 162(m)" below. Any additional gain realized on the disposition will be long-term or short-term capital gain and any loss will be long-term or short-term capital loss. The optionee will be considered to have disposed of 7 a share if he sells, exchanges, makes a gift of or transfers legal title to the share (except transfers, among others, by pledge, on death or to spouses). If the disposition is by sale or exchange, the optionee's tax basis will equal the amount paid for the share plus any ordinary income realized as a result of the disqualifying disposition. The exercise of an Incentive Option may subject the optionee to the alternative minimum tax. The amount by which the fair market value of the shares purchased at the time of the exercise exceeds the option exercise price is an adjustment for purposes of computing the so-called alternative minimum tax. In the event of a disqualifying disposition of the shares in the same taxable year as exercise of the Incentive Option, no adjustment is then required for purposes of the alternative minimum tax, but regular income tax, as described above, may result from such disqualifying disposition. An optionee who surrenders shares as payment of the exercise price of his Incentive Option generally will not recognize gain or loss on his surrender of such shares. The surrender of shares previously acquired upon exercise of an Incentive Option in payment of the exercise price of another Incentive Option, is, however, a "disposition" of such shares. If the incentive stock option holding period requirements described above have not been satisfied with respect to such shares, such disposition will be a disqualifying disposition that may cause the optionee to recognize ordinary income as discussed above. Under the Code, all of the shares received by an optionee upon exercise of an Incentive Option by surrendering shares will be subject to the incentive stock option holding period requirements. Of those shares, a number of shares (the "Exchange Shares") equal to the number of shares surrendered by the optionee will have the same tax basis for capital gains purposes (increased by an ordinary income recognized as a result of any disqualifying disposition of the surrendered shares if they were incentive stock option shares) and the same capital gains holding period as the shares surrendered. For purposes of determining ordinary income upon a subsequent disqualifying disposition of the Exchange Shares, the amount paid for such shares will be deemed to be the fair market value of the shares surrendered. The balance of the shares received by the optionee will have a tax basis (and a deemed purchase price) of zero and a capital gains holding period beginning on the date of exercise. The Incentive Stock Option holding period for all shares will be the same as if the option had been exercised for cash. Section 162(m). Generally, Section 162(m), denies a deduction to any publicly held corporation, such as the Company, for certain compensation exceeding $1,000,000 paid to the chief executive officer and the other four highest paid executive officers during any taxable year. Although ordinary income that is realized upon the exercise of a Non-Qualified Option or the disqualifying disposition of shares acquired pursuant to the exercise of an Incentive Option is potentially subject to the limitation imposed under Section 162(m), Section 162(m) and the regulations thereunder provide that compensation attributable to the stock options granted under the Employee Plan may qualify for the performance-based exclusion in Section 162(m). If the stock options qualify for the performance-based exclusion, the compensation received upon their exercise would not be subject to the deduction limit set forth in Section 162(m). The Company believes that, assuming satisfaction of certain conditions set forth in Section 162(m), the compensation attributable to the stock options granted under the Employee Plan will meet the performance-based exclusion under Section 162(m) and therefore the deduction limitation will be inapplicable to options to be issued under the Employee Plan. 8 OPTION GRANTS At November 30, 1996, assuming approval of the proposed amendment, options to purchase a total of 3,760,700 shares of Common Stock were outstanding under the Employee Plan at an average exercise share price of $21.08. On November 13, 1996, subject to shareholder approval of the proposed amendment, the Stock Option Subcommittee approved the grant under the Employee Plan of 1,063,913 options among eligible participants at an exercise price of $25.00 per share (the "November Grant"). A determination has been made that all of the proposed additional 750,000 options will be allocated among eligible participants in the Employee Plan. The following table sets forth certain information concerning options issued to date under the Employee Plan, including options which have been exercised:
Total Options Weighted Average Name and Position with the Company Granted Exercise Price - ----------------------------------------------------------------------------------- ----------- ---------------- Michael R. Walker ................................................................. 418,126 $11.25 Chairman and Chief Executive Officer Richard R. Howard ................................................................. 327,000 $15.82 President, Chief Operating Officer and Director David C. Barr ..................................................................... 277,500 $15.41 Executive Vice President George V. Hager, Jr. .............................................................. 172,500 $17.07 Senior Vice President and Chief Financial Officer Edward Romanov, Jr. ............................................................... 297,500 $13.74 Senior Vice President -- Development All Executive Officers and Directors as a Group(1) ................................ 1,741,993 $15.20 All Employees, other than Executive Officers and Directors, as a Group(1) ......... 3,219,003 $20.09
- ------ (1) Includes the November Grant, which is subject to shareholder approval of the proposed amendment. On January 15, 1997, the last sale price of the Company's Common Stock was $28.87. Unless authority has been withheld, the proxy agents intend to vote FOR approval of the amendment to the Employee Plan. The approval of the amendment to the Employee Plan requires the affirmative vote of a majority of the votes cast by all shareholders represented and entitled to vote thereon. An abstention, withholding of authority to vote or broker non-vote, therefore, will not have the same legal effect as an "against" vote and will not be counted in determining whether the proposal has received the required shareholder vote. The Board of Directors unanimously recommends that you vote "FOR" approval of the amendment to the Employee Plan. 9 EXECUTIVE COMPENSATION AND CERTAIN TRANSACTIONS COMPENSATION COMMITTEE REPORT The Compensation Committee of the Board of Directors is comprised of Stephen E. Luongo, Samuel H. Howard and Alan B. Miller, who were not officers or employees of the Company during the fiscal year. The Committee reviews the compensation of executive officers, makes recommendations to the Board of Directors regarding executive compensation and, through its Stock Option Subcommittee, administers the Company's Employee Plan and incentive compensation program. The Company's compensation policies and practices with respect to executive officers are designed and implemented to motivate and retain senior executives. In determining compensation levels the Committee considers compensation packages offered by similar sized companies within the healthcare industry. The Company has employment agreements with Michael R. Walker as Chairman and Chief Executive Officer, Richard R. Howard as President and Chief Operating Officer and David C. Barr as Executive Vice President, which were effective as of April 1, 1994 for Mr. Walker and as of April 1, 1991 for Messrs. Howard and Barr. Mr. Walker's agreement currently expires on March 31, 1997 and automatically extends for a one-year term unless notice of non-renewal is given at least one year prior to termination. Messrs. Howard and Barr's agreements were modified in April, 1994 and currently expire on September 30, 1997 and are automatically extended for a one year term unless notice of non-renewal is given at least one year prior to termination. Messrs. Walker, Howard and Barr have not provided notice of non-renewal and, therefore the term of each of their employment agreements will automatically renew for an additional one year. Total compensation is currently divided into two primary components: base salary and stock options. The award and vesting of stock options serves as incentive for superior performance and is based upon both the performance of the executives and the Company. In fiscal 1996, the Company revised its incentive compensation program. Under the revised incentive compensation program, stock options issued under the Employee Plan are the sole form of incentive compensation to most eligible employees. See "Executive Compensation and Certain Transactions -- Incentive Compensation Program". Compensation of the named executive officers for fiscal 1996 was determined in accordance with the employment agreements as previously described and/or the Company's compensation policies. Under the employment agreements base salary is reviewed annually and set by the Board based upon the recommendation of the Committee. In the case of executive officers with whom the Company did not have employment agreements, compensation was set at levels consistent with the Company's policies and performance. The Company uses the Employee Plan as a long-term incentive plan for executive officers and key employees. The objectives of the Employee Plan are to align the long-term interests of executive officers and shareholders by creating a direct link between executive compensation and shareholder return, and to enable executives to develop and maintain a significant long-term equity interest in the Company. The Employee Plan authorizes the Compensation Committee to award stock options to officers and key employees. Stock option grants in fiscal 1996 were determined by the stock option subcommittee of the Compensation Committee based upon recommendations of senior management. Messrs. Walker, Howard and Barr's compensation for fiscal 1996 is commensurate with the Company's performance and their contributions thereto. As with the Company's other executive officers, Messrs. Walker, Howard and Barr's total compensation involve certain subjective judgment and are not based solely upon specific objective criteria. Generally, Section 162(m) denies deduction to any publicly held company such as the Company for certain compensation exceeding $1,000,000 paid to the chief executive officer and the four other highest paid executive officers, excluding among other things certain performance-based compensation. The Compensation Committee will continually evaluate to what extent Section 162(m) will apply to its other compensation programs. Samuel H. Howard Stephen E. Luongo Alan B. Miller 10 SUMMARY COMPENSATION TABLE The following table sets forth certain information regarding the compensation paid to the Chief Executive Officer and each of the four other most highly compensated executive officers of the Company for services rendered in all capacities for fiscal 1996, fiscal 1995 and fiscal 1994:
Long Term All Other Annual Compensation Compensation Compensation (1) ---------------------------------- -------------- ---------------- Name and Position Fiscal Option with the Company Year Salary (2) Bonus (3) Awards (3) - ------------------------------------- -------- ---------- --------- -------------- Michael R. Walker 1996 $450,329 $ 0 0 $ 7,844 Chairman and Chief 1995 418,773 79,000 0 5,400 Executive Officer 1994 367,326 157,000 202,500 8,611 Richard R. Howard 1996 $307,035 $ 0 100,500 $ 6,875 President, Chief Operating 1995 286,728 151,000 0 4,500 Officer and Director 1994 248,649 90,000 88,500 6,128 David C. Barr 1996 $256,095 $ 0 79,500 $ 2,200 Executive Vice President 1995 241,221 121,000 0 2,725 1994 210,073 80,000 70,500 3,425 George V. Hager, Jr. 1996 $224,994 $ 0 67,500 $ 3,247 Senior Vice President 1995 204,583 55,000 15,000 3,679 and Chief Financial Officer 1994 171,294 45,000 15,000 4,011 Edward Romanov, Jr. 1996 $215,788 $ 0 102,500 $ 0 Senior Vice President - 1995 93,039 52,000 15,000 93,100 Development 1994 0 0 0 246,750
- ------ (1) Represents the Company's matching contribution under the 401(k), Profit Sharing Plan, Execuflex Plan and executive insurance policies. In addition, other compensation for Mr. Romanov in fiscal 1995 and 1994 includes amounts paid to American Community Environments Corporation ("ACE") for consulting services. See "Executive Compensation and Certain Transactions -- Compensation Committee Interlocks and Insider Transactions". (2) Includes compensation deferred under the Company's 401(k), Profit Sharing Plan, Execuflex Plan and other arrangements with the Company; does not include other payments made by the Company under the Company's 401(k), Profit Sharing Plan and Execuflex Plan. (3) In fiscal 1996, the Company revised its former incentive compensation program. Under the revised incentive compensation program, stock options issued under the Employee Plan are the sole form of incentive compensation to most eligible employees, including the Company's executive officers. See "Executive Compensation and Certain Transactions -- Incentive Compensation Program". EMPLOYMENT AGREEMENTS In April 1994, the Company entered into a new employment agreement with Michael R. Walker as its Chairman and Chief Executive Officer. In April 1991, the Company entered into employment agreements with Richard R. Howard as its President and Chief Operating Officer and David C. Barr as its Executive Vice President which agreements were modified in April, 1994 (collectively Messrs. Walker, Howard and Barr are the "Executive Employees"). The agreement with Mr. Walker currently expires on March 31, 1997 and the agreements with Messrs. Howard and Barr, as modified, each currently expire on September 30, 1997. Unless notice of non-renewal is given by either party at least one year prior to the expiration of the then current term, the agreement is automatically extended each year for an additional one year term. Messrs. Walker, Howard and Barr have not provided notice on non-renewal and, therefore, the term of each of their employment agreements automatically renew for an additional one year. The annual base salaries of Messrs. Walker, Howard and Barr currently are $462,000, $315,000 and $263,000, respectively, and are reviewable by the 11 Company's Board of Directors at least annually. In addition, the Executive Employees have received stock options to purchase shares of Common Stock. The agreements may be terminated by the Company at any time for Cause (as defined), upon the vote of not less than two-thirds of the entire membership of the Company's Board of Directors. The Executive Employee may terminate his employment agreement on 30 days' notice upon the occurrence of certain events, including an election by the Company not to renew the term of the agreement, as described above. In the event that the Company terminates the Executive Employee's employment agreement without Cause, or the Executive Employee terminates his employment agreement as described in the preceding sentence, the Executive Employee is entitled to severance compensation equal to two years of his then current base salary for Mr. Walker, and one year for Messrs. Howard and Barr. Each Executive Employee is entitled to certain insurance benefits. If an Executive Employee becomes disabled, he will continue to receive all of his compensation and benefits for six months, less any amounts received under any disability insurance provided by the Company. If the disability continues for more than twelve months in any 24 month period, the Company may terminate the Executive Employee's employment. Each employment agreement also contains provisions which are intended to limit the Executive Employee from competing with the Company throughout the term of the agreement and for a period of two years thereafter. RETIREMENT PLAN On January 1, 1989, the Company adopted an employee Retirement Plan which consists of a 401(k) component and a profit sharing component. The Retirement Plan, which is intended to be qualified under Section 401(a) and (k) of the Code, is a cash deferred profit-sharing plan covering all of the employees of the Company (other than certain employees covered by a collective bargaining agreement) who have completed at least 1,000 hours of service and twelve months of employment. Under the 401(k) component, each employee may elect to contribute a portion of his or her current compensation up to the lesser of $9,500 (or the maximum then permitted by the Code) or 15% (or for more highly compensated employees 2%) of such employee's annual compensation. The Company may make a matching contribution each year as determined by the Board of Directors. The Board of Directors may establish this contribution at any level each year, or may omit such contribution entirely. The Company match since January, 1995 has been based on years of service. An employee who has completed six years of service prior to the beginning of the calendar year, is entitled to receive a match of $0.75 per $1.00 of the employee's contribution, up to 4% of his salary. Therefore, if this employee contributes 4% or more of his salary, the Company contributes 3% of his salary. If the employee contributes less than 4%, the Company contributes $0.75 per $1.00 of contribution. If an employee has not completed six years of service, he is matched $0.50 per $1.00 of contribution up to 2% of his salary. Therefore, if this employee contributes 2% or more of his salary, the Company contributes 1% of his salary. If the employee contributes less than 2%, the Company contributes $0.50 per $1.00 of contribution Under the profit sharing provisions of the Retirement Plan, the Company may make an additional employer contribution as determined by the Board of Directors each year. The Board of Directors may establish this contribution at any level each year, or may omit such contribution entirely. It is the Company's intent that employer contributions under the profit sharing provisions of the Retirement Plan are to be made 50% in the form of Common Stock and 50% in cash, and are to be made only if there are sufficient profits to do so. Profit sharing contributions are allocated among the accounts of participants in the proportion that their annual compensation bears to the aggregate annual compensation of all participants. All employee contributions to the Retirement Plan are 100% vested. Company contributions are vested in accordance with a schedule that generally provides for vesting after five years of service with the Company (any non-vested amounts that are forfeited by participants are used to reduce the following year's contribution by the Company.) Distribution of benefits normally will commence upon the participant's reaching age 65 (or, if earlier, upon the participant's death or disability). Payment of Retirement Plan benefits will generally be made in a lump sum unless an alternative equivalent form of benefit is elected. Certain special rules apply to the distribution of benefits to participants for whom the Retirement Plan has accepted a transfer of assets from another tax-qualified pension plan. 12 STOCK OPTION PLANS Employee Stock Option Plan. See "Approval of Amendment to the Company's Employee Stock Option Plan" for a description of the Company's Employee Stock Option Plan. Director Plan. In March 1992, the Company adopted, and in February 1993, the shareholders approved, the Company's 1992 Stock Option Plan for Non-Employee Directors (the "Director Plan"). The purpose of the Director Plan is to attract and retain non-employee directors and to provide additional incentive to them by encouraging them to invest in the Common Stock and acquire an increased personal interest in the Company's business. Payment of the exercise price for options granted under the Director Plan may be made in cash, shares of Common Stock or a combination of both. All options granted pursuant to the Director Plan are immediately exercisable and, except as indicated below, may not be exercised more than ten years from the date of grant. The Director Plan is administered by the Board of Directors of the Company, including non-employee directors, who may modify, amend, suspend or terminate the Director Plan, other than the number of shares with respect to which options are to be granted, the option exercise price, the class of persons eligible to participate, or options previously granted. Pursuant to the Director Plan, options may be granted for an aggregate of 225,000 shares of Common Stock. Options granted under the Director Plan are not incentive stock options under Section 422 of the Code. The Director Plan terminates ten years after its approval by shareholders. At each annual meeting of shareholders, each individual who is elected, re-elected or continues as a non-employee director automatically is granted an option to purchase 4,500 shares of Common Stock at the then fair market value of the Common Stock. On February 28, 1996, each non-employee director of the Company was granted an option to purchase 4,500 shares of Common Stock at an exercise price of $29.25 per share. OPTION GRANTS The following table sets forth certain information concerning stock options granted under the Employee Plan during fiscal 1996 to the Chief Executive Officer and each of the four other most highly compensated executive officers of the Company: OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Values at Assumed Annual Rates of Stock Price Appreciation For Individual Grants Option Term -------------------------------------------------------------- ------------------------------ Percent of Total Options Granted Options to Employees Exercise Expiration Name Granted In Fiscal Year Price Date 5% 10% - ------------------------ --------- ---------------- ---------- ----------------- ------------- ------------- Michael R. Walker ...... 0 0% -- -- -- -- Richard R. Howard ...... 100,500 10% $29.25 2/28/06 $1,828,240 $4,652,414 David C. Barr .......... 79,500 8% 29.25 2/28/06 1,446,220 3,680,267 George V. Hager, Jr. ... 67,500 7% 29.25 2/28/06 1,227,922 3,124,755 Edward Romanov, Jr. .... 102,500 10% 26.90 8/21/06 - 2/28/06 1,841,571 4,565,762
The following table sets forth certain information concerning the shares acquired upon exercise of options, the number of unexercised options and the value of unexercised options at the end of fiscal 1996 held by the Chief Executive Officer and each of the four other most highly compensated executive officers of the Company: 13 AGGREGATED OPTIONS EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Value of Unexercised Number of Unexercised In-the-Money Options at Fiscal Options at Fiscal Year-End Year-End Shares Acquired on Exercisable/ Exercisable/ Name Exercise Value Realized Unexercisable Unexercisable - ------------------------ ------------------ -------------- --------------------- -------------------- Michael R. Walker ...... 0 $ 0 334,500/33,001 $5,217,295/$516,322 Richard R. Howard ...... 26,250 496,563 152,375/89,125 1,837,262/253,977 David C. Barr .......... 0 0 176,875/70,625 2,678,832/202,320 George V. Hager, Jr. ... 22,500 522,225 93,000/57,000 1,356,279/90,750 Edward Romanov, Jr. .... 83,250 1,868,205 38,499/79,001 93,368/210,380
INCENTIVE COMPENSATION PROGRAM In fiscal 1996, the Company revised its incentive compensation program. Under the revised incentive compensation program, stock options issued under the Employee Plan are the sole form of incentive compensation granted to most eligible employees. Stock Options granted under the revised incentive compensation program will vest 25% in the fiscal year of the option grant and 25% over each of the next three years. The awards are based upon the Company's performance and achievement of individual management objectives. Prior to revising the incentive compensation program, all eligible employees could be awarded both cash bonuses and stock options. Stock options granted under the former incentive compensation program vested 20% each year over a five year period beginning one year following the date the stock option was granted. The stock option award amounts are determined by management and approved by the Stock Option Subcommittee. The Stock Option Subcommittee has the authority to modify option awards, including changing the vesting schedule of stock option awards. For a description of the Company's Employee Plan see "Approval of Amendment to the Company's Employee Stock Option Plans". EXECUFLEX PLAN In November 1991, the Company adopted the Execuflex Plan. All Genesis employees who achieve a certain salary grade and all employed physicians are entitled to participate in the Execuflex Plan. Pursuant to the terms of the Execuflex Plan, an eligible employee may authorize the Company to reduce his or her base compensation or bonuses and credit such amounts to a retirement account, education account or fixed period account. The Company contributes for each eligible employee an amount equal to 25% of the employee's total contribution, up to an employee contribution amount equal to four percent of the employee's base compensation. Benefits derived from employee deferral contributions are not subject to forfeiture for any reason. Benefits derived from matching contributions made by the Company are forfeited if a member of the Execuflex Plan separates from the Company's employ prior to completing five years of employment with the Company. The five year period is measured from the later of January l, 1989 or the date of the member's commencement of employment with the Company. COMPENSATION COMMITTEE INTERLOCKS AND INSIDE TRANSACTIONS The Company currently leases real estate from GHV Associates, a partnership which is owned by among others, Michael R. Walker, an officer and director of the Company. Payments under these leases, which relate to two offices in New England, approximate $197,000 per year and the current term expires on December 31, 2004. The Company believes that the terms of these leases are at least as favorable to the Company as those it would have obtained from an unaffiliated party. The Company is currently involved in certain lease transactions with Salisbury Medical Office Building General Partnership ("SMOBGP"). This partnership is owned by among others, Richard R. Howard and Michael R. Walker, officers and directors of the Company. The Company rents space in Maryland which is 14 used as a medical clinic and therapy clinic pursuant to two leases with SMOBGP. Payments under these leases approximate $169,000 per year. The leases expire on September 30, 1999. The Company believes that the terms of these leases are at least as favorable to the Company as those it would have obtained from an unaffiliated party. Pursuant to an agreement dated August 19, 1992 by and among ACE, Edward B. Romanov, Jr. and the Company, ACE, through Edward B. Romanov, Jr., provided consulting services to the Company (the "ACE Consulting Agreement"). Mr. Romanov is Senior Vice President - Development, of the Company. The ACE Consulting Agreement was terminated on April 1, 1995. On that date, Mr. Romanov entered into an employment arrangement with the Company. For the 1995 fiscal year ACE received $93,100 under the ACE Consulting Agreement. In addition, Mr. Romanov received a bonus of $52,000 in the 1995 fiscal year. Stephen E. Luongo, a director and member of the Compensation Committee, is a partner in the law firm of Blank Rome Comisky & McCauley which serves as outside legal counsel for the Company. On November 30, 1993, the Company paid approximately $205,000,000 to acquire substantially all of the assets and stock of Meridian Healthcare. Roger C. Lipitz, a director, is a former stockholder of Meridian Healthcare and served as Meridian's Chairman. As part of the Meridian Transaction, the Company entered into agreements to lease and operate, for ten years with a five year renewal option, at an aggregate cost of $6,000,000 per year, seven geriatric care facilities owned by seven different partnerships formed by certain former shareholders of Meridian, including Mr. Lipitz (the "Former Shareholders"). In March 1996, the Company acquired for total consideration approximately $31,900,000, including the payment of assumed debt, the remaining partnership interest owned by the Former Shareholders in five geriatric care facilities which were jointly owned by the Company and limited partnerships owned by the Former Shareholders. The Company also pays approximately $971,000 per year to Towson Building Associates, L.P., a limited partnership formed by the Former Shareholders, to lease the Company's regional headquarters located in Towson, Maryland. In addition, the Company manages a retirement center owned by Brendenwood MRC L.P., a limited partnership owned by the Former Shareholders. Mr. Lipitz beneficially owns between 20% to 26.5% of the partnership interests in the referenced partnerships formed and owned by the Former Shareholders. On August 24, 1995, the Company loaned $330,000, at an interest rate of four percent, to George V. Hager, Jr., the Company's Senior Vice President and Chief Financial Officer. As a result of a $245,000 payment during Fiscal 1996, the remaining balance of the note is $ 85,000. The loan is prepayable upon the exercise by Mr. Hager of his options to purchase the Company's stock and upon termination of Mr. Hager's employment with the Company. 15 STOCK PERFORMANCE GRAPH The following graph shows a comparison of the cumulative total return for the Company's Common Stock, the Dow Jones Equity Market Index and the stock of a selected group of Health Care Provider companies. The graph assumes an investment of $100 in each on September 30, 1991 and, in the case of the Indexes, the reinvestment of all dividends. COMPARISON OF CUMULATIVE TOTAL RETURN Genesis Health Ventures, Inc., Dow Jones Equity Market Index, Health Care Providers 450 |-------------------------------------------------------------------------| | | | | 400 |-------------------------------------------------------------------------| | * | | | 350 |-------------------------------------------------------------------------| | * | | | 300 |-------------------------------------------------------------------------| | | | * | 250 |-----------------------------------------------------------------------#-| | | | | 200 |--------------------------------------------#------------#-------------&-| | * & | | | 150 |-------------------------------------------------------------------------| | &# & | | & | 100 |*&#-----------#----------------------------------------------------------| | * | | | 50 |-------------------------------------------------------------------------| | | | | 0 |-------------------------------------------------------------------------| 9/91 9/92 9/93 9/94 9/95 9/96
9/91 9/92 9/93 9/94 9/95 9/96 - --------------------------------------------------------------------------------------------------------------- Genesis Health Ventures, Inc.(*) 100 89 180 263 332 391 Dow Jones Equity Market Index(&) 100 112 127 131 171 207 Health Car Providers (#) 100 99 128 204 204 247
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company's directors and executive officers, and persons who own more than 10% of a registered class of the Company's equity securities, to file with the Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than 10% shareholders are required by the Commission regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required during the fiscal year ended September 30, 1996, all Section 16(a) filing requirements applicable to its executive officers, directors and greater than 10% beneficial owners were complied with, except that one report, covering one transaction each, was filed late by Michael Walker and Edward Romanov and the initial report was filed late by Allen Freedman, John DePodesta, Maryann Timon and Marc Rubinger. 16 INDEPENDENT PUBLIC ACCOUNTANTS The accounting firm of KPMG Peat Marwick LLP acted as the Company's independent public accountants for the fiscal year ended September 30, 1996 and has been selected by the Board of Directors to serve as the Company's independent public accountants for the fiscal year ending September 30, 1997. A representative of KPMG Peat Marwick LLP is expected to be present at the shareholders' meeting and to have the opportunity to make a statement, if he desires to do so, and is expected to be available to respond to appropriate questions. OTHER MATTERS As of the date hereof, the Company knows of no other business that will be presented for consideration at the Annual Meeting. However, the enclosed proxy confers discretionary authority to vote with respect to any and all of the following matters that may come before the meeting: (i) matters that the Company's Board of Directors does not know, a reasonable time before proxy solicitation, are to be presented for approval at the meeting; (ii) approval of the minutes of a prior meeting of shareholders, if such approval does not constitute ratification of the action at the meeting; (iii) the election of any person to any office for which a bona fide nominee is unable to serve or for good cause will not serve; (iv) any proposal omitted from this Proxy Statement and the form of proxy pursuant to Rule 14a-8 under the Exchange Act, as amended; and (v) matters incidental to the conduct of the meeting. If any such matters come before the meeting, the proxy agents named in the accompanying proxy card will vote in accordance with their judgment. SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING OF SHAREHOLDERS Shareholder proposals intended to be presented at the 1998 Annual Meeting must be submitted by September 22, 1997 to receive consideration for inclusion in the Company's 1998 proxy materials. EACH PERSON SOLICITED HEREUNDER CAN OBTAIN A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1996 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WITHOUT CHARGE EXCEPT FOR EXHIBITS TO THE REPORT, BY SENDING A WRITTEN REQUEST TO THE CORPORATE SECRETARY, AT 148 WEST STATE STREET, KENNETT SQUARE, PENNSYLVANIA 19348. By Order of the Board of Directors /s/ Ira C. Gubernick ---------------------------------- IRA C. GUBERNICK Corporate Secretary 17 GENESIS HEALTH VENTURES, INC. 1997 ANNUAL MEETING OF SHAREHOLDERS MARCH 6, 1997 SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY The undersigned hereby appoints Michael R. Walker and Richard R. Howard, and each of them, as attorneys and proxies of the undersigned, with full power of substitution, for and in the name, place and stead of the undersigned, to represent the undersigned and to vote, as directed on the reverse side, all shares of Common Stock of Genesis Health Ventures, Inc. (the "Company") held by the undersigned as of December 20, 1996, at the Company's 1997 Annual Meeting of Shareholders to be held on March 6, 1997 or at any postponement or adjournment of the meeting. (continued on reverse side) FOLD AND DETACH HERE
THIS PROXY WILL BE VOTED AS DIRECTED BELOW. Please mark UNLESS YOU DIRECT OTHERWISE, THIS PROXY WILL BE VOTED "FOR" ALL PROPOSALS. your votes as X indictated in this example PROPOSAL 1: The election of Stephen E. Luongo and Michael R. Walker as directors as described in the accompanying Proxy Statement. FOR To withhold authority To withhold authority to vote for any individual nominee(s), to vote for all nominees, clearly print his or their names in the space provided below: Check below: ----------------------------------------------------------------
PROPOSAL 2: The approval of the Amendment to the Company's 1985 Amended and Both proxy agents present and acting in person or Restated Employee Stock Option Plan as described in the by their substitute (or, if only one is present and accompanying Proxy Statement. acting, then that one) may exercise all of the powers conferred by this proxy. DISCRETIONARY FOR AGAINST ABSTAIN AUTHORITY IS CONFERRED BY THIS PROXY WITH RESPECT TO CERTAIN MATTERS, AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. The undersigned hereby acknowledges receipt of the ______ Company's 1996 Annual Report to Shareholders, | Notice of the Company's 1997 Annual Meeting of | Shareholders and the Company's Proxy Statement | dated January 21, 1997. Date: ____________________________________________ (please date this proxy) __________________________________________________ __________________________________________________ Signature(s) Please sign your name exactly as it is printed on this proxy, indicating any title or other representative capacity. If more than one name is printed on this proxy, then all must sign. PLEASE DATE AND SIGN THIS PROXY AND PROMPTLY RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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