SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-11666
GENESIS HEALTH VENTURES, INC.
(Exact name of Registrant as specified in its charter)
101 East State Street
Pennsylvania Kennett Square, PA 19348 06-1132947
(State or other jurisdiction of (Address of principal executive (I.R.S. Employer
incorporation or organization) offices including zip code) Identification Number)
(610) 444-6350
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock, par value $.02 per share New York Stock Exchange
9 3/4% Senior Subordinated Debentures due 2005 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (ii) has been subject to such filing
requirements for the past 90 days. YES _X_ NO__
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
The aggregate market value of voting stock held by non-affiliates of
the Registrant is $281,820,464 (1). As of December 14, 1998, 35,227,558 shares
of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(Specific sections incorporated are identified under applicable items herein)
Certain exhibits to the Company's Current Report on Form 8-K and 8-K/A
dated October 10, 1997, July 11, 1996, May 3, 1996, November 30, 1995, August
18, 1995, November 30, 1993 and September 19, 1993, Registration Statement on
Form S-1 (File No. 33-4007), Registration Statement on Form S-1 (File No.
33-51670), Registration Statement on Form S-3 (file No. 33-9350), Registration
Statement on Form S-4 (File No. 333-15267), Registration Statement on Form S-4
(File No. 333-58221), Registration Statement on Form S-8 (File No. 333-53043),
Annual Reports on Form 10-K for the fiscal years ended September 30, 1996, 1995,
1993 and 1992, and Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 1998, March 31, 1997, March 31, 1996 and March 31, 1994, Registration
Statement on Form 8-A dated May 11, 1995, Filing on Schedule 13D on May 6, 1998
and the Tender Offer Statement on Schedule 14D-1 filed by Genesis Eldercare
Corp. on June 20, 1997 are incorporated by reference as Exhibits in Part IV of
this Report.
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(1) The aggregate dollar amount of the voting stock set forth equals the number
of shares of the Company's Common Stock outstanding, reduced by the amount
of Common Stock held by officers, directors and shareholders owning in
excess of 10% of the Company's Common Stock, multiplied by the last reported
sale price for the Company's Common Stock on December 14, 1998. The
information provided shall in no way be construed as an admission that any
officer, director or 10% shareholder in the Company may or may not be deemed
an affiliate of the Company or that he/it is the beneficial owner of the
shares reported as being held by him/it, and any such inference is hereby
disclaimed. The information provided herein is included solely for
recordkeeping purposes of the Securities and Exchange Commission.
1
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information with respect to the
Directors of the Company. Information concerning certain Executive Officers of
the Company was set forth in Item 4.1 of this Form 10-K filed with Commission on
December 28, 1998.
Jack R. Anderson (age 73) has served as a director of the Company since
November 1998. Since 1982, Mr. Anderson has been President of Calver
Corporation, a Dallas based health care consulting and investing firm. From
September 1981 until May 1982, Mr. Anderson served as President of Manor Care,
Inc. From 1970 until 1981, Mr. Anderson served as President and later as
Chairman of Hospital Affiliates International, Inc., a hospital management
company in Nashville. Mr. Anderson is a member of the Board of Directors of
Horizon Health Corporation and PacifiCare Health Systems, Inc.
Richard R. Howard (age 49) has served as a director of the Company
since its inception, as Vice President of Development from September 1985 to
June 1986, as President and Chief Operating Officer from June 1986 to April
1997, as President from April 1997 to November 1998 and as Vice Chairman since
November 1998. Mr. Howard's background in healthcare includes two years as the
Chief Financial Officer of Health Group Care Centers ("HGCC"). Mr. Howard's
experience also includes over ten years with Fidelity Bank, Philadelphia,
Pennsylvania and one year with Equibank, Pittsburgh, Pennsylvania. Mr. Howard is
a graduate of the Wharton School, University of Pennsylvania, where he received
a Bachelor of Science degree in Economics in 1971. Mr. Howard is a member of the
Board of Directors of The Multicare Companies, Inc. ("Multicare").
Samuel H. Howard (age 59) has served as a director of the Company since
March 1988. He is the founder and chairman of Xantus Corporation and the founder
and President of Phoenix Communications Group, Inc. and Phoenix Holdings, Inc.
all of which are based in Nashville, Tennessee. Mr. Howard's past corporate and
operations experience in the healthcare industry include having served as the
Senior Vice President of Public Affairs for Hospital Corporation of America from
August 1981 to January 1990, Vice President and Treasurer for Hospital
Affiliates International Inc., and Vice President of Finance and Business for
Meharry Medical College. In addition, Mr. Howard was a financial analyst for
General Electric and a White House Fellow with U.S. Ambassador Arthur Goldberg.
Mr. Howard is a member of the Board of Directors of O'Charley's Inc.
Richard R. Howard and Samuel H. Howard are not related.
Michael R. Walker (age 50) is the founder of the Company and has served
as Chairman and Chief Executive Officer of the Company since its inception. In
1981, Mr. Walker co-founded HGCC. At HGCC, he served as Chief Financial Officer
and, later, as President and Chief Operating Officer. Prior to its sale in 1985,
HGCC operated nursing homes with 4,500 nursing beds in 12 states. From 1978 to
1981, Mr. Walker was the Vice President and Treasurer of AID Healthcare Centers,
Inc. ("AID"). AID, which owned and operated 20 nursing centers, was co-founded
in 1977 by Mr. Walker as the nursing home division of Hospital Affiliates
International. Mr. Walker holds a Master of Business Administration degree from
Temple University and a Bachelor of Arts in Business Administration from
Franklin and Marshall College. Mr. Walker has served as Chairman of the Board of
Trustees of ElderTrust since its inception in January 1998 and has served as
Chairman of the Board of Directors of Multicare since October 1997.
Roger Lipitz (age 56) has served as a director of the Company since
March 1994. From January 1994 until January 1996, Mr. Lipitz served on a
consulting basis as Director of Government Relations of the Company. From 1969
until its acquisition by the Company in 1993, Mr. Lipitz served as Chairman of
the Board of Meridian Healthcare, Inc., a Maryland based long-term care company
which operated over 5,000 beds and related businesses. Mr. Lipitz is a past
president of the American Health Care Association, Health Facilities Association
of Maryland and the National Council of Health Care Services. Mr. Lipitz is a
member of the Board of Directors of Blue Cross and Blue Shield of Maryland.
2
Stephen E. Luongo (age 51) has served as a director of the Company
since June 1985. He is a Partner in the law firm of Blank Rome Comisky &
McCauley LLP. Blank Rome Comisky & McCauley LLP serves as outside legal counsel
for the Company.
Alan B. Miller (age 61) has served as a director of the Company since
October 1993. Since 1978, he has been Chairman of the Board, President and Chief
Executive Officer of Universal Health Services, Inc., a Pennsylvania based
health services company. Prior thereto, Mr. Miller was Chairman of the Board,
President and Chief Executive Officer of American Medicorp, Inc. Mr. Miller is
Chairman of the Board of Trustees of Universal Health Realty Income Trust and a
member of the Board of Directors of CDI Corp. and Penn Mutual Life Insurance
Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the Commission initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than 10% shareholders
are required by the Commission regulation to furnish the Company with copies of
all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended September 30, 1998, all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% beneficial owners were complied with, except that
Robert Reitz, Richard R. Howard, Barbara Hauswald, Fred Nazem and Vince Barnaba,
each filed a late report on Form 4.
3
ITEM 11: EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding the
compensation paid to the Chief Executive Officer and each of the four other most
highly compensated executive officers of the Company for services rendered in
all capacities for fiscal 1998, fiscal 1997 and fiscal 1996.
Long Term
Annual Compensation Compensation
------------------------------ ------------
Name and Position Fiscal Option
With the Company Year Salary (2) Bonus (3) Awards (3)(4) All Other Compensation(1)
---------------- ---- ---------- --------- ------------- -------------------------
Michael R. Walker 1998 $626,931 $ 0 0 $11,997
Chairman and Chief 1997 521,621 0 200,000 23,673
Executive Officer 1996 450,329 0 0 7,844
Richard R. Howard 1998 $376,924 $ 0 67,900 $ 9,054
Vice Chairman and Director 1997 340,710 0 9,000 15,829
1996 307,035 0 67,000 6,875
David C. Barr 1998 $311,539 $ 0 0 $ 7,767
Vice Chairman 1997 273,333 0 18,500 8,662
1996 256,095 53,000 2,200
George V. Hager, Jr. 1998 $287,616 $ 0 0 $ 3,787
Senior Vice President and 1997 253,557 5,159 15,000 5,961
Chief Financial Officer 1996 224,994 4,143 45,000 3,247
Michael G. Bronfein 1998 $267,306 $ 0 10,000 $ 3,606
President, 1997 250,000 0 0 0
NeighborCare(SM) (5) 1996 65,032 0 75,000 0
- ---------------
(1) Represents the Company's matching contribution under the 401(k), Profit
Sharing Plan, Execuflex Plan and executive insurance policies.
(2) Includes compensation deferred under the Company's 401(k), Profit Sharing
Plan, Execuflex Plan and other arrangements with the Company; does not
include other payments made by the Company under the Company's 401(k),
Profit Sharing Plan and Execuflex Plan.
(3) Under the Company's incentive compensation program, stock options issued
under the Employee Stock Option Plan are the sole form of incentive
compensation to most eligible employees, including the Company's executive
officers.
(4) Does not include 100,000, 42,500, 45,000 and 37,500 stock options Messrs.
Walker, Howard, Barr and Hager forfeited, respectively.
(5) Mr. Bronfein joined the Company on June 5, 1996.
4
Employment Agreements
The Company entered into new employment agreements, effective August
12, 1998, with Michael R. Walker as its Chairman and Chief Executive Officer,
Richard R. Howard and David C. Barr as its Vice Chairmen and George V. Hager,
Jr., as its Senior Vice President and Chief Financial Officer. The agreement
with Mr. Walker currently expires on August 12, 2003; the agreements with
Messrs. Howard, Barr and Hager each currently expire on August 12, 2001. Unless
notice of non-renewal is given by two-thirds of the entire Board of Directors,
the current term of Mr. Walker's agreement shall automatically extend an
additional year beginning on the anniversary thereof in 2001, and the agreements
for Messrs. Barr, Howard and Hager extend an additional year beginning on the
anniversary thereof in 1999. The annual base salaries of Messrs. Walker, Howard,
Barr and Hager currently are $650,000, $400,000, $333,000 and $295,000,
respectively, and are reviewable by the Company's Board of Directors at least
annually. The agreements may be terminated by the Company at any time for Cause
(as defined), upon the vote of not less than two-thirds of the entire membership
of the Company's Board of Directors. Each Genesis Executive may terminate his
employment agreement upon notice to the Company of the occurrence of certain
events, including an election by the Company not to renew the term of the
agreement, as described above. In the event that the Company terminates the
Genesis Executive's employment agreement without Cause, or the Genesis Executive
terminates his employment agreement as described in the preceding sentence, Mr.
Walker is entitled to severance compensation equal to the greater of the
remainder of the term of the agreement or three years average base salary plus
the value of stock options (using a Black-Scholes valuation method) granted
during such period and Messrs. Barr, Howard, and Hager are entitled to severance
compensation equal to three years base salary plus the value of stock options
(using a Black-Scholes valuation method) and cash bonus granted during such
period. In each case, the value of such stock options and cash bonus may not
exceed 100% of such base salary. Messrs. Walker, Barr and Howard are entitled to
certain insurance benefits. If a Genesis Executive becomes disabled, he will
continue to receive all of his compensation and benefits so long as such period
of disability does not exceed 12 consecutive months or shorter period
aggregating 12 months in any 24 month period. Each employment agreement also
contains provisions which are intended to limit the Genesis Executive from
competing with the Company throughout the term of the agreement and for a period
of two years thereafter. In addition, under the Senior Executive Employee Stock
Ownership Program, the Company may make loans to the Genesis Executives to
maintain a predetermined stock ownership position in the Company.
The Company entered into an employment agreement, effective November
11, 1998, with Michael G. Bronfein as President and Chief Executive Officer of
Neighborcare pharmacies, a wholly-owned subsidiary of the Company. The Company
has consolidated its pharmacy, medical supply and infusion business under the
brand name "NeighborCare," and Mr. Bronfein is the president of all subsidiaries
of the Company which do business as NeighborCare. The agreement with Mr.
Bronfein currently expires on November 11, 2001. The annual base salary of Mr.
Bronfein is $350,000, and is reviewable by the Company's Board of Directors at
least annually. The agreement may be terminated by the Company at any time for
Cause (as defined), upon the vote of not less than two-thirds of the entire
membership of the Company's Board of Directors. In the event that the Company
terminates Mr. Bronfein's employment agreement without Cause, or Mr. Bronfein
terminates his employment agreement as described in the preceding sentence, Mr.
Bronfein is entitled to severance compensation equal to three years base salary
plus the value of stock options (using a Black-Scholes valuation method) and
cash bonus granted during such period, which value may not exceed 60% of his
base salary. If Mr. Bronfein becomes disabled, he will continue to receive all
of his compensation and benefits so long as such period of disability does not
exceed 12 consecutive months or shorter period aggregating 12 months in any 24
month period. Mr. Bronfein's agreement also contains provisions which are
intended to limit him from competing with the Company throughout the term of the
agreement and for a period of two years thereafter.
5
Retirement Plan
On January 1, 1989, the Company adopted an employee Retirement Plan
which consists of a 401(k) component and a profit sharing component. The
Retirement Plan, which is intended to be qualified under Sections 401(a) and (k)
of the Code, is a cash deferred profit-sharing plan covering all of the
employees of the Company (other than certain employees covered by a collective
bargaining agreement) who have completed at least 1,000 hours of service and
twelve months of employment. Under the 401(k) component, each employee may elect
to contribute a portion of his or her current compensation up to the lesser of
$10,000 (or the maximum then permitted by the Code) or 15% (or for more highly
compensated employees 2%) of such employee's annual compensation. The Company
may make a matching contribution each year as determined by the Board of
Directors. The Board of Directors may establish this contribution at any level
each year, or may omit such contribution entirely.
The Company match since January, 1995 has been based on years of
service. For an employee who has completed six years of service prior to the
beginning of the calendar year, he receives a match of $0.75 per $1.00 of
contribution up to 4% of his salary. Therefore, if this employee contributes 4%
or more of his salary, the Company contributes 3% of his salary. If the employee
contributes less than 4%, the Company contributes $0.75 per $1.00 of
contribution.
If an employee has not completed six years of service, he is matched
$0.50 per $1.00 of contribution up to 2% of his salary. Therefore, if this
employee contributes 2% or more of his salary, the Company contributes 1% of his
salary. If the employee contributes less than 2%, the Company contributes $0.50
per $1.00 of contribution. Highly Compensated Employees (as such term is defined
in the Code) regardless of their years of service, are matched $0.50 per $1.00
of contribution up to 2% of salary.
Under the profit sharing provisions of the Retirement Plan, the Company
may make an additional employer contribution as determined by the Board of
Directors each year. The Board of Directors may establish this contribution at
any level each year, or may omit such contribution entirely. It is the Company's
intent that employer contributions under the profit sharing provisions of the
Retirement Plan are to be made 50% in the form of Common Stock and 50% in cash,
and are to be made only if there are sufficient profits to do so. Profit sharing
contributions are allocated among the accounts of participants in the proportion
that their annual compensation bears to the aggregate annual compensation of all
participants. All employee contributions to the Retirement Plan are 100% vested.
Company contributions are vested in accordance with a schedule that generally
provides for vesting after five years of service with the Company (any
non-vested amounts that are forfeited by participants used to reduce the
following year's contribution by the Company). Distribution of benefits normally
will commence upon the participant's reaching age 65 (or, if earlier, upon the
participant's death or disability). Payment of Retirement Plan benefits will
generally be made in a lump sum unless an alternative equivalent form of benefit
is elected. Certain special rules apply to the distribution of benefits to
participants for whom the Retirement Plan has accepted a transfer of assets from
another tax-qualified pension plan.
Stock Option Plans
Amended and Restated Employee Stock Option Plan. Pursuant to the
Employee Stock Option Plan (the "Employee Stock Option Plan"), stock options may
be granted which are intended to qualify as incentive stock options ("Incentive
Options") under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), as well as stock options not intended to so qualify
("Non-Qualified Options"). The primary purpose of the Employee Stock Option Plan
is to provide additional incentive to key employees and officers of the Company
by encouraging them to invest in the Company's Common Stock and thereby acquire
a proprietary interest in the Company and an increased personal interest in the
Company's continued success and progress.
All officers and key employees of, and consultants and advisors to, the
Company or any current or future subsidiary ("Subsidiary") (currently in excess
of 1300 people) are eligible to receive options under the Employee Stock Option
Plan. The Employee Stock Option Plan is administered by the Stock Option
Committee. Subject to the provisions of the Employee Stock Option Plan, the
Stock Option Committee determines, among other things, which officers, key
employees, consultants and advisors of the Company and any subsidiary will be
granted options under the Employee Stock Option Plan, whether options granted
will be Incentive Options or Non-Qualified Options, the number of shares subject
to an option, the time at which an option is granted, the rate of option
exercisability, the duration of an option and the exercise price of an option.
The Stock Option Committee has the exclusive right to adopt or rescind rules for
the administration of the Employee Stock Option Plan, correct defects and
omissions in, reconcile inconsistencies in, and construe the Employee Stock
Option Plan. The Stock Option Committee also has the right to modify, suspend or
terminate the Employee Stock Option Plan, subject to certain conditions.
6
The aggregate number of shares which may be issued upon the exercise of
options granted under the Employee Stock Option Plan currently is 6,250,000
shares of the Company's Common Stock. The aggregate number and kind of shares
issuable under the Employee Stock Option Plan is subject to appropriate
adjustment to reflect changes in the capitalization of the Company, such as by
stock dividend, stock split or other circumstances deemed by the Stock Option
Committee to be similar. Any shares of Common Stock subject to options that
terminate unexercised will be available for future options granted under the
Employee Stock Option Plan. The maximum number of shares for which options may
be granted to any participant in any year is 750,000 shares of Common Stock,
subject to certain adjustments in the event of any change in the outstanding
shares of the Common Stock of the Company.
The Company anticipates submitting certain amendments to the Employee
Stock Option Plan to the shareholders of the Company at its 1999 Annual Meeting
of Shareholders, including increasing the number of shares which may be issued
under the plan to 6,750,000.
1998 Non-Qualified Employee Stock Option Plan. On November 11, 1998,
the Company adopted the 1998 Non-Qualified Employee Stock Option Plan (the
"Non-Officer Stock Option Plan") which authorizes the issuance of up to
1,500,000 shares of the Company's Common Stock. The Company uses the Non-Officer
Stock Option Plan as a long-term incentive plan for non-officer employees of the
Company. The objectives of the Non-Officer Stock Option Plan are to align the
long-term interests of employees and shareholders by creating a direct link
between compensation and shareholder return, and to enable employees to develop
and maintain a significant long-term equity interest in the Company. The
Employee Plan authorizes the Chief Executive Office to award Non-Qualified Stock
Options to employees of the Company.
Director Plan. In March 1992, the Company adopted, and in February
1993, the shareholders approved, the Company's 1992 Stock Option Plan for
Non-Employee Directors (the "Director Plan"). The purpose of the Director Plan
is to attract and retain non-employee directors and to provide additional
incentive to them by encouraging them to invest in the Common Stock and acquire
an increased personal interest in the Company's business. Payment of the
exercise price for options granted under the Director Plan may be made in cash,
shares of Common Stock or a combination of both. All options granted pursuant to
the Director Plan are immediately exercisable and, except as indicated below,
may not be exercised more than ten years from the date of grant.
The Director Plan is administered by the Board of Directors of the
Company, including non-employee directors, who may modify, amend, suspend or
terminate the Director Plan, other than the number of shares with respect to
which options are to be granted, the option exercise price, the class of persons
eligible to participate, or options previously granted. Pursuant to the Director
Plan, options may be granted for an aggregate of 225,000 shares of Common Stock.
Options granted under the Director Plan are not incentive stock options under
Section 422 of the Code. The Director Plan terminates ten years after its
approval by shareholders.
At each Annual Meeting of shareholders, each individual who is elected,
re-elected or continues as a non-employee director automatically is granted an
option to purchase 4,500 shares of Common Stock at the then fair market value of
the Common Stock. On February 24, 1998, each non-employee director of the
Company was granted an option to purchase 4,500 shares of Common Stock at an
exercise price of $28.75 per share.
7
Option Grants
The following table sets forth certain information concerning stock
options granted and not forfeited under the Employee Stock Option Plan during
fiscal 1998 to the Chief Executive Officer and each of the four other most
highly compensated executive officers of the Company:
Option Grants in Last Fiscal Year
Potential Realizable
Value
at Assumed Annual
Rates of Stock Price
Individual Grants Appreciation for Option Term
----------------------------------------------------------- ----------------------------
Percent of Total
Options Granted Option
Options to Employees In Exercise Expiration
Name Granted Fiscal Year Price Date 5% 10%
---- ------- ---------------- -------- ---------- ---------- ----------
Michael R. Walker 0 0% -- -- --
Richard R. Howard 67,900 6.32% $28.75 2/24/08 $1,186,758 $3,056,022
David C. Barr 0 0% -- -- -- --
George V. Hager, Jr. 0 0% -- -- -- --
Michael G. Bronfein 10,000 .93% $28.75 2/24/08 $ 174,780 $ 448,604
The following table sets forth certain information concerning the
shares acquired upon exercise of options, the number of unexercised options and
the value of unexercised options at the end of fiscal 1998 held by the Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company:
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
Number of Value of Unexercised
Unexercised In-the-Money
Options at Options at Fiscal
Fiscal Year-End Year-End
Shares Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized Unexercisable Unexercisable(1)
---- --------------- -------------- --------------- -------------------
Michael R. Walker - - 417,501/150,000 $967,262/$0
Richard R. Howard - - 203,750/76,900 $237,231/$0
David C. Barr - - 213,270/18,500 $516,495/$0
George V. Hager, Jr. - - 111,500/21,000 $286,875/$0
Michael G. Bronfein - - 52,500/32,500 $0/$0
(1) Stock Price at close of business on September 30, 1998 was $12.25.
Execuflex Plan
In November 1991, the Company adopted the Execuflex Plan. All Company
employees who achieve a certain salary grade and all employed physicians are
entitled to participate in the Execuflex Plan. Pursuant to the terms of the
Execuflex Plan, an eligible employee may authorize the Company to reduce his or
her base compensation or bonuses and credit such amounts to a retirement
account, education account or fixed period account.
8
The Company match since March 1, 1997 has been based on years of
service. For an employee who has completed ten years of service prior to the
beginning of the calendar year, he receives a match of $0.75 per $1.00 of
contribution up to 3% of his salary. Therefore, if this employee contributes 4%
or more of his salary, the Company contributes 3% of his salary. If the employee
contributes less than 4%, the Company contributes $0.75 per $1.00 of
contribution. If an employee has completed more than six and less than ten years
of service, he is matched $0.50 per $1.00 of contribution up to 2% of his
salary. Therefore, if this employee contributes 4% or more of his salary, the
Company contributes 2% of his salary. If the employee contributes less than 4%,
the Company contributes $0.50 per $1.00 of contribution. If an employee has not
completed seven years of service, he is matched $0.25 per $1.00 of contribution
up to 1% of his salary. Therefore, if this employee contributes 4% or more of
his salary, the Company contributes 1% of his salary. If the employee
contributes less than 4%, the Company contributes $0.25 per $1.00 of
contribution. Benefits derived from employee deferral contributions are not
subject to forfeiture for any reason. Benefits derived from matching
contributions made by the Company are forfeited if a member of the Execuflex
Plan separates from the Company's employ prior to completing five years of
employment with the Company.
9
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth at December 31, 1998, certain
information with respect to the beneficial ownership of Common Stock (i) by each
person who is known by the Company to be the beneficial owner of more than five
percent of the Common Stock, (ii) by each director, (iii) by each of the
Company's five most highly compensated executive officers and (iv) by all
directors and executive officers as a group.
Shares of
Common Stock Percent of
Beneficially Common Stock
Owned (1) Owned
------------ ------------
Putnam Investments, Inc. (2)
One Post Office Square
Boston, Massachusetts 02109 3,289,151 9.0%
HCR Manor Care, Inc.
One Seagate
Toledo, OH 43604-2616 (3) 7,879,570 18.3%
Jack R. Anderson (4) 200,000 *
Richard R. Howard (5) 306,450 *
Samuel H. Howard (6) 18,000 *
Roger C. Lipitz (7) 43,000 *
Stephen E. Lungo(8) 52,018 *
Alan B. Miller (9) 28,000 *
Michael R. Walker (10) 926,400 *
David C. Barr (11) 243,270 *
George V. Hager, Jr. (12) 143,353 *
Michael G. Bronfein (13) 271,911 *
All executive officers and directors as
a group (18 persons) 2,441,235 6.9%
- -------------------
* Less than one percent.
(1) The securities "beneficially owned" by a person are determined in accordance
with the definition of "beneficial ownership" set forth in the regulations
of the Securities and Exchange Commission (the "Commission") and
accordingly, may include securities owned by or for, among others, the
spouse, children or certain other relatives of such person as well as other
securities as to which the person has or shares voting or investment power
or has the right to acquire within 60 days after December 31, 1998. The same
shares may be beneficially owned by more than one person. Beneficial
ownership may be disclaimed as to certain of the securities.
(2) Based upon a Schedule 13G, dated January 28, 1998. Consists of 2,984,152
shares beneficially owned by Putnam Investment Management, Inc. and 605,948
shares beneficially owned by The Putnam Advisory Company, Inc. which are
registered investment advisors, and are wholly-owned by Putnam Investments,
Inc. Putnam Investments, Inc. is a wholly-owned subsidiary of Marsh &
McLennon Companies, Inc.
(3) Consists of 586,240 shares of Preferred Stock, which are convertible into
7,874,570 shares of Common Stock. Does not include shares beneficially owned
by Jack R. Anderson who is Manor's designee to the Board of Directors.
(4) Does not include shares beneficially owned by Manor; Jack R. Anderson is
Manor's designee to the Board of Directors.
(5) Includes 203,750 shares of Common Stock which may be acquired upon the
exercise of stock options.
10
(6) Consists of 18,000 shares of Common Stock which may be acquired upon the
exercise of stock options.
(7) Includes 18,000 shares of Common Stock which may be acquired upon the
exercise of stock options.
(8) Includes 30,000 shares of Common Stock which may be acquired upon the
exercise of stock options.
(9) Includes 22,500 shares of Common Stock which may be acquired upon the
exercise of stock options.
(10) Includes 467,500 shares of Common Stock which may be acquired upon the
exercise of stock options.
(11) Includes 213,270 shares of Common Stock which may be acquired upon the
exercise of stock options.
(12) Includes 111,500 shares of Common Stock which may be acquired upon the
exercise of stock options.
(13) Includes 55,000 shares of Common Stock which may be acquired upon the
exercise of stock options.
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ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Fred F. Nazem is a former director of the Company. A limited
partnership (the "Nazem Affiliate") affiliated with Mr. Nazem owns 1.4% of the
outstanding Common Stock of Genesis ElderCare Corp., the parent corporation of
Multicare. Multicare is owned 44% by the Company and is consolidated for
financial accounting purposes.
The Nazem Affiliate's stock ownership is subject to an agreement (the
"Put/Call Agreement") pursuant to which, among other things, the Company will
have the option, on the terms and conditions set forth in the Put/Call Agreement
to purchase (the "Call") Genesis ElderCare Corp. Common Stock held by the Nazem
Affiliate commencing on October 9, 2001 and for a period of 270 days thereafter,
at a price determined pursuant to the terms of the Put/Call Agreement. The Nazem
Affiliate will have the option, on the terms and conditions set forth in the
Put/Call Agreement, to require the Company to purchase (the "Put") such Genesis
ElderCare Corp. Common Stock commencing on October 9, 2002 and for a period of
one year thereafter, at a price determined pursuant to the Put/Call Agreement.
Upon exercise of the Call, the Nazem Affiliate will receive at a minimum its
original investment plus a 25% compound annual return thereon. Upon exercise of
the Put, there will be no minimum return to the Nazem Affiliate; any payment to
the Nazem Affiliate will be based upon a formula set forth in the terms of the
Put/Call Agreement which provides generally for the preferential return of the
stockholders' capital contributions (subject to certain priorities), a 25%
compound annual return on the Nazem Affiliate's capital contributions and
additional amounts to be divided based upon the proportionate share of the
capital contributions of the stockholders to Genesis ElderCare Corp.
In connection with the Multicare acquisition, the Company entered into
a management agreement (the "Management Agreement") pursuant to which the
Company will manage Multicare's operations. The Management Agreement has a term
of five years with automatic renewals for two years unless either party
terminates the Management Agreement. The Company will be paid a fee of six
percent of Multicare's net revenues for its services under the Management
Agreement provided that payment of such fee in respect of any month in excess of
the greater of (i) $1,991,666 and (ii) four percent of Multicare's consolidated
net revenues for such month, shall be subordinate to the satisfaction of
Multicare's senior and subordinate debt covenants; and provided, further, that
payment of such fee shall be no less than $23,9000,000 in any given year. Under
the Management Agreement, the Company is responsible for Multicare's
non-extraordinary sales, general and administrative expenses (other than certain
specified third party expenses), and all other expenses of Multicare will be
paid by Multicare. The Company also entered into an asset purchase agreement
with Multicare and certain of its subsidiaries pursuant to which the Company
acquired all of the assets used in Multicare's outpatient and inpatient
rehabilitation therapy business for $24,000,000 subject to adjustment and a
stock purchase agreement with Multicare and certain subsidiaries pursuant to
which the Company acquired all of the outstanding capital stock and limited
partnership interests of certain subsidiaries of Multicare that are engaged in
the business of providing institutional pharmacy services to third parties for
$50,000,000, subject to adjustment.
In 1998 the Company sponsored the formation of ElderTrustSM ("ETT"), a
Maryland real estate investment trust. ETT completed an initial public offering
(the "ETT Offering") on January 26, 1998.
Substantially all of the ETT operations are conducted through
ElderTrust Operating Limited Partnership (the "Operating Partnership"). In
fiscal year 1997, Messrs. Walker, Howard, Barr, and Hager formed MGI Limited
Partnership ("MGI"). Upon completion of ETT Offering, MGI received 95,454 units
in the Operating Partnership ("Units"), having a total value of approximately
$1.9 million based on the ETT Offering price of the Common Shares of ETT.
Certain other executives of the Company, including Mr. Bronfein, are also a
partners of MGI.
In connection with the ETT Offering, Mr. Walker received cash
distributions totaling approximately $358,000 from the sale of his interests in
GHV Associates SMOPBGP to the Operating Partnership. Mr. Walker also received a
direct or indirect interest in 88,110 Units in exchange for his ownership
interests in GHV Associates, SMOBGP and two other limited partnerships. Such
Units, together with Mr. Walker's interest in the Units distributed to MGI, have
a total value of approximately $2.5 million based on the ETT Offering price of
the Common Shares of ETT. In addition, Mr. Walker received approximately $1.9
million in cash from ETT as repayment of first mortgage indebtedness loaned by
Mr. Walker to GHV Associates and SMOBGP.
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Mr. Walker received $50,000 in cash (representing a return of his
initial investment) indirectly from the Operating Partnership upon the
dissolution of Elder Trust Realty Group, Inc. following the sale by Elder Trust
Realty Group, Inc. of all its assets and liabilities to the Operating
Partnership.
ETT granted to Mr. Walker options to purchase 150,000 Common Shares
under ETT's 1998 Share Option and Incentive Plan. These options vest over three
years.
Upon consummation of the ETT Offering, Mr. Howard received a cash
distribution totaling approximately $91,000 from SMOBGP. In addition, Messrs.
Howard, Barr and Hager received a direct or indirect interest in 24,139 Units in
the aggregate in exchange for their ownership interests in certain limited
partnerships. Such Units have a total value of approximately $483,000 based on
the assumed ETT Offering price of the Common Shares of ETT.
The Company leases the Windsor Office Building and the Windsor Clinic
and Training Facility (the "Buildings") from GHV Associates. Payments under
these leases approximate $191,000 per year and the current term expires on
December 31, 2004. The Company believes that the terms of these leases are at
least as favorable to the Company as those it would have obtained from an
unaffiliated party. The Company rents space in Maryland which is used as a
medical clinic and therapy clinic pursuant to two leases with SMOBGP. Payments
under these leases approximate $169,000 per year. The leases expire on September
30, 1999. The Company believes that the terms of these leases are at least as
favorable to the Company as those it would have obtained from an unaffiliated
party. GHV Associates is a partnership which was owned prior to the ETT Offering
by among others, Michael R. Walker, an officer and director of the Company.
Salisbury Medical Office Building General Partnership ("SMOBGP") is a
partnership which was owned prior to the ETT Offering by among others, Richard
R. Howard and Michael R. Walker, officers and directors of the Company.
The Company has made loans of approximately $7.8 million as of December
31, 1998 (the "Loan") for the benefit of HealthObjects Corporation and its
subsidiaries (collectively, "HealthObjects"). HealthObjects is 82% beneficially
owned by Michael G. Bronfein, an officer of the Company. Pursuant to a
Participation Agreement between the Company and Mr. Bronfein and his wife, the
Bronfeins participate in 50% of the Loan exceeding $5,000,000. In connection
with the loan, HealthObjects has issued warrants for the purchase of 5% of all
outstanding shares of HealthObjects to the Company.
Stephen E. Luongo, a director and member of the Compensation Committee,
is a partner in the law firm of Blank Rome Comisky & McCauley LLP which serves
as outside legal counsel for the Company.
On November 30, 1993, the Company paid approximately $205,000,000 to
acquire substantially all of the assets and stock of Meridian Healthcare. Roger
C. Lipitz, a director, is a former stockholder of Meridian Healthcare and served
as Meridian's Chairman. As part of the Meridian Transaction, the Company entered
into agreements to lease and operate, for ten years with a five year renewal
option, at an aggregate cost of $6,000,000 per year, seven geriatric care
facilities owned by seven different partnerships formed by certain former
shareholders of Meridian, including Mr. Lipitz (the "Former Shareholders"). In
March 1996, the Company acquired for total consideration approximately
$31,900,000, including the payment of assumed debt, the remaining partnership
interest owned by the Former Shareholders in five geriatric care facilities
which were jointly owned by the Company and limited partnerships owned by the
Former Shareholders. The Company also pays approximately $923,000 per year to
Towson Building Associates, L.P., a limited partnership formed by the Former
Shareholders, to lease the Company's regional headquarters located in Towson,
Maryland. In addition, the Company manages a retirement center owned by
Brendenwood MRC L.P., a limited partnership owned by the Former Shareholders.
Mr. Lipitz beneficially owns between 20% to 26.5% of the partnership interests
in the referenced partnerships formed and owned by the Former Shareholders.
Pursuant to the Senior Executive Officer Stock Ownership Plan, the
Company has loans outstanding to Messrs. Howard Barr, and Hager in the amounts
of $646,889.00, $820,962.00, and $624,244.00, respectively.
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PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(3) Exhibits
The following exhibits are hereby amended:
No. Description
--- -----------
+10.57 Employment Agreement between the Company and Michael R.
Walker dated August 12, 1998, as amended.
+10.58 Employment Agreement between the Company and George V.
Hager dated August 12, 1998, as amended.
+10.59 Employment Agreement between the Company and Richard R.
Howard dated August 12, 1998, as amended.
+10.60 Employment Agreement between the Company and David C.
Barr dated August 12, 1998, as amended.
+10.61 Employment Agreement between the Company and Michael G.
Bronfein dated November 11, 1998, as amended.
+10.62 Employment Agreement between the Company and Maryann
Timon dated November 11, 1998, as amended.
+10.63 Employment Agreement between the Company and Marc. D.
Rubinger dated November 11, 1998, as amended.
- -------------------------
+ Management contract or compensatory plan or arrangement
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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly caused this
Amendment No. 1 to its Report to be signed on its behalf on January 28, 1999 by
the undersigned hereunto duly authorized.
Genesis Health Ventures, Inc.
/s/ James V. McKeon
---------------------------------------
James V. McKeon
Vice President and Corporate Controller
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