1
SCHEDULE 14C INFORMATION
RULE 14c-101
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14(c) INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Information Statement
[X] Definitive Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
Fresenius Medical Care Holdings, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
2
FRESENIUS MEDICAL CARE HOLDINGS, INC.
------------------------
2001 ANNUAL MEETING OF SHAREHOLDERS
MAY 25, 2001
To the Shareholders:
Notice is hereby given that the 2001 Annual Meeting of Shareholders of
Fresenius Medical Care Holdings, Inc., a New York corporation (the "Company"),
will be held at the Westin Waltham-Boston, 70 Third Avenue, Waltham,
Massachusetts on Friday, May 25, 2001 at 1:00 p.m. for the following purposes:
1. To elect three directors of the Company to hold office until the next
Annual Meeting of Shareholders or until their respective successors
have been elected or appointed; and
2. To consider and vote upon a proposal to approve and adopt an amendment
to the Certificate of Incorporation of the Company to permit corporate
action to be taken by the majority consent of the Company's
shareholders in accordance with New York law; and
3. To transact any and all other business that may properly come before
the meeting.
All shareholders of record at the close of business on April 23, 2001 are
entitled to notice of and to vote at this meeting.
The Company's audited financial statements for the year ended December 31,
2000, together with certain other information concerning the Company, are
included in the Company's Annual Report on Form 10-K which is enclosed herewith.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
By order of the Board of Directors,
RONALD J. KUERBITZ
Senior Vice President, Secretary and
General Counsel
Lexington, Massachusetts
April 30, 2001
3
TABLE OF CONTENTS
PAGE
----
INTRODUCTION................................................ 1
PROPOSAL 1 -- ELECTION OF DIRECTORS......................... 1
PROPOSAL 2 -- AMENDMENT TO CERTIFICATE OF INCORPORATION..... 4
EXECUTIVE COMPENSATION...................................... 5
REPORT OF THE BOARD OF DIRECTORS REGARDING EXECUTIVE
COMPENSATION.............................................. 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 12
REPORT OF THE BOARD OF DIRECTORS REGARDING AUDIT ISSUES..... 15
OTHER MATTERS............................................... 16
EXHIBIT A................................................... A-1
4
INFORMATION STATEMENT
INTRODUCTION
This Information Statement, dated April 30, 2001, is furnished in
connection with the 2001 Annual Meeting of Shareholders of Fresenius Medical
Care Holdings, Inc. (the "Company"; as used herein the term the "Company" shall
also include, as required by the context, its subsidiaries) to be held at the
Westin Waltham-Boston, 70 Third Avenue, Waltham, Massachusetts on Friday, May
25, 2001 at 1:00 p.m., and any adjournments thereof (the "Annual Meeting"), for
the purposes set forth in the notice of such meeting.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
This Information Statement was mailed to shareholders on or about April 30,
2001.
The complete mailing address of the Company's principal executive office is
95 Hayden Avenue, Lexington, Massachusetts 02420-9192 (telephone (781)
402-9000).
Only shareholders of record at the close of business on April 23, 2001 are
entitled to vote at the Annual Meeting and any adjournments thereof. At that
record date, the following voting shares of the Company were outstanding:
SHARES VOTES PER
CLASS OUTSTANDING SHARE
----- ----------- ---------
6% Preferred Stock.......................................... 36,460 160
Class A Preferred Stock..................................... 16,176 16
Class B Preferred Stock..................................... 21,483 16
Class D Special Dividend Preferred Stock.................... 89,062,316 0.1
Common Stock................................................ 90,000,000 1
Holders of all shares will vote together as a single class on all matters
expected to be acted on at the Annual Meeting. Under the laws of the State of
New York (in which the Company is incorporated), abstentions and broker
non-votes are counted in determining the votes present at the Annual Meeting. As
to Proposals 1 and 2, an abstention or broker non-vote has the same effect as a
vote against the proposal.
Appraisal rights are not available to shareholders with respect to any
matter expected to be acted upon at the Annual Meeting.
The Annual Report on Form 10-K of the Company for the year ended December
31, 2000 (the "Annual Report"), including the Company's audited consolidated
financial statements for the year ended December 31, 2000, is being mailed to
the Company's shareholders with this Information Statement. The Annual Report is
not to be regarded as proxy soliciting material or as a communication by means
of which a solicitation of proxies is to be made.
At the date hereof, management of the Company has no knowledge of any
business other than that described in the notice for the Annual Meeting which
will be presented for consideration at such Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, the terms of all of the directors will expire. Under
the laws of the State of New York (in which the Company is incorporated), the
election of directors requires the affirmative vote of a plurality of the shares
represented at the Annual Meeting. The holders of all classes of the Company's
Preferred Stock and the Common Stock will vote as a single class on Proposal 1.
Fresenius Medical Care AG ("Fresenius Medical Care") intends to vote in favor of
this proposal. Fresenius Medical Care holds all outstanding shares of Company's
Common Stock. Accordingly, Proposal 1 will be approved even if all other
1
5
shares currently outstanding that are not held by Fresenius Medical Care vote
against the proposal. The name and biography of each nominee are set forth below
under "Nominee."
NOMINEES
At the Annual Meeting it is intended that three directors be elected to
hold office until the 2002 annual meeting and until their successors shall have
been duly elected and qualified. The nominees listed below have been designated
as such by the Board of Directors, and it is anticipated that the nominees will
be candidates when the election is held. However, if for any reason a nominee is
not a candidate at that time, a substitute nominee will be designated by the
Company. The nominees are currently directors of the Company.
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Ben Lipps............................ 60 Chairman of the Board, President and Chief
Executive Officer
Jerry Schneider...................... 53 Director, Vice President, Chief Financial
Officer and Treasurer
John Markus.......................... 49 Director and Senior Vice President for
Compliance and Administration
Ben Lipps has been President, Chief Executive Officer and a Director of the
Company since 1996. Mr. Lipps has been Chairman of the Board since May 1, 1999.
Mr. Lipps has served as a member of the Managing Board of Fresenius Medical Care
since February 1996 and was appointed Chairman of the Managing Board effective
May 1, 1999.
Mr. Schneider has been a Vice President, the Chief Financial Officer and
Treasurer of the Company since August 18, 1997 and was appointed a Director of
the Company in August 1999. From January 1995 to July 1997 Mr. Schneider was the
Chief Financial Officer of Grancare, Inc., a provider of long term nursing,
rehabilitation and pharmacy services.
John Markus has been Senior Vice President for Compliance and
Administration since September 2000, and served as Senior Vice President of
Business Practices and Corporate Compliance between June 1999 and September
2000. Mr. Markus was appointed a Director of the Company in March 2001. From May
1998 through June 1999, Mr. Markus served as a Vice President for Oxford Health
Plans, Inc., a Norwalk, CT health insurance company. During the period between
November 1996 and May 1998, Mr. Markus practiced law at Greenberg, Traurig, LLP
in Washington, DC, and between October 1996 and November 1996, he practiced law
at Arent Fox Kintner Plotkin & Kahn in Washington, D.C. From November 1990
through August 1996, Mr. Markus served as Executive Vice President for
Laboratory Corporation of America, a laboratory testing business.
THE BOARD OF DIRECTORS
The Company's Board of Directors is responsible for the affairs of the
Company.
During 2000, the Board acted by unanimous written consent of its members on
thirteen occasions. Mr. Lipps has served on the Board since 1996. Mr. Schneider
has served on the Board since August 1999. Mr. Markus was appointed to the Board
in March 2001. The Company has no standing Compensation Committee, Audit
Committee or Nominating Committee.
2
6
EXECUTIVE OFFICERS
The current executive officers of the Company are as follows:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Ben Lipps............................ 60 Chairman of the Board, President and Chief
Executive Officer
E. Craig Dawson...................... 49 Senior Vice President, President of Spectra
Renal Management Division
Ronald Kuerbitz...................... 41 Senior Vice President, Secretary and General
Counsel
J. Michael Lazarus, M.D.............. 63 Senior Vice President of Clinical Quality and
Medical Director
John Markus.......................... 49 Senior Vice President for Compliance and
Administration
Dwight Morgan........................ 44 Chief Operating Officer for Dialysis Services
Division
Robert Powell, Jr.................... 45 President of Dialysis Products Division
Jerry Schneider...................... 53 Vice President, Chief Financial Officer and
Treasurer
Each corporate officer was elected to hold office until he resigns or is
removed by the Board of Directors.
For a biography of Messrs. Lipps, Markus and Schneider, see "Nominees"
above.
E. Craig Dawson has served as Senior Vice President of the Company, and
President of its Spectra Renal Management Division, since December 1997. From
July 1994 through December 1997, he served as Senior Vice President for
Laboratory Corporation of America, a laboratory testing business.
Ronald Kuerbitz has been Senior Vice President, Secretary and General
Counsel since October 1999. Mr. Kuerbitz had previously served as Vice President
for Corporate Development for the Company since March 1997. Prior to joining the
Company, Mr. Kuerbitz was Vice President for Planning and Development for
Neomedica, Inc., a regional privately-held dialysis services provider, between
March 1996 and February 1997.
J. Michael Lazarus, M.D. has been the Senior Vice President of Clinical
Quality and Medical Director of the Company since 1996. Prior to joining the
Company Dr. Lazarus maintained a private practice in internal medicine and
nephrology from 1963 to 1996 and was Director of Clinical Services of the
Nephrology Division and a senior physician at Brigham and Women's Hospital in
Boston Massachusetts from 1992 to 1996. Dr. Lazarus is board certified in
internal medicine and nephrology and is currently an Associate Professor of
Medicine at Harvard Medical School. Dr. Lazarus is also a director of Novavax,
Inc., a bio-pharmaceutical company focused on the research and development of
proprietary topical and oral drug delivery and encapsulation technologies and
the applications of those technologies.
Dwight Morgan has served as Chief Operating Officer for the Company's
Dialysis Services Division since December 2000. From May 1999 through December
2000 he served as President of the South Business Unit of Company's Dialysis
Services Division, and from January 1998 through May 1999 he served as a
Regional Vice President for the South Business Unit. Mr. Morgan served as Vice
President of Administration for the Company's Dialysis Services division from
August 1997 through January 1998, and served as Director of Operations of
Company's Dialysis Services division from January 1997 through August 1997. From
January 1996 through January 1997 he served as Vice President of the
International division of the Company.
Robert Powell, Jr. has served as President of the Company's Dialysis
Products Division since December 2000. From December 1998 through November 2000,
Mr. Powell served as President of Sales, Marketing and Service for the Company's
Dialysis Products Division and from August 1997 through November 1998 he served
as Company's President of Renal Product Technologies. From January 1997 through
July 1997, Mr. Powell served as Vice President of Quality and Regulatory Affairs
for the Company's Dialysis Products
3
7
Division. From January 1996 through December 1996, he served as Vice President
of Operations for Ergo Science Corporation, a Massachusetts-based
biopharmaceutical company.
PROPOSAL 2
AMENDMENT TO COMPANY'S CERTIFICATE OF INCORPORATION TO PROVIDE FOR
APPROVAL OF CORPORATE ACTION BY WRITTEN CONSENT IN LIEU OF A MEETING
The Company's board of directors, having declared its advisability, submits
for shareholder approval a proposal to amend the Company's Certificate of
Incorporation to permit the approval of corporate action by written consent of
shares entitled to vote at a meeting. The full text of the proposed amendments
to the Certificate of Incorporation is attached hereto as Appendix A. The
amendments will not affect the provisions of the Certificate of Incorporation
entitling the holders of the Company's Preferred Stock to elect a specified
number of directors upon the Company's failure to pay specified dividends on the
Preferred Stock.
If the amendment to the Company's Certificate of Incorporation to provide
for approval of corporate action by written consent in lieu of a meeting is
approved, written consent shall be effective to take applicable corporate
actions, so long as written consents are delivered to the Company (as required
by New York Business Corporation Law) by holders representing (in aggregate) a
majority of the shares within 60 days following the earliest dated consent so
delivered. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those shareholders who
have not consented in writing.
Written consent thus given by the holders of outstanding shares having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting shall have the same effect as a valid vote of
holders of such number of shares.
Under the laws of the State of New York (in which the Company is
incorporated), approval of the proposed amendments to the Certificate of
Incorporation require the affirmative vote of the holders of a majority of all
outstanding shares entitled to vote thereon at the Annual Meeting. The holders
of all classes of the Company's Preferred Stock and the Common Stock will vote
as a single class on Proposal 2. Fresenius Medical Care intends to vote in favor
of this Proposal. Accordingly, Proposal 2 will be approved even if all other
shares currently outstanding that are not held by Fresenius Medical Care vote
against the proposal.
4
8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table summarizes the total compensation paid or to be paid by
the Company and its subsidiaries for services rendered during 1998, 1999 and
2000 to Ben Lipps, Chief Executive Officer of the Company, and to E. Craig
Dawson, J. Michael Lazarus, M.D., Jerry Schneider and Roger Stoll, the four most
highly compensated executive officers of the Company or its subsidiaries other
than the Chief Executive Officer (collectively, the "Specified Executives"):
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------ ---------- --------
OTHER SECURITIES LTIP ALL OTHER
COMPENSATION UNDERLYING PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) OPTIONS(#) ($) ($)
--------------------------- ---- --------- -------- ------------ ---------- -------- ------------
Ben Lipps(1)......................... 2000 855,000 30,469(6)
President, Chief Executive 1999 855,000 389,025(9) 3,680(4) 100,000(3) 31,208(6)
Officer and Director 1998 602,933 240,000(8) 31,153(6)
J. Michael Lazarus, M.D.............. 2000 500,851 37,600(3) 341(2)
Senior Vice President of Clinical 1999 474,148 191,000(9) 4,864(2)
Quality and Medical Director 1998 467,308 225,000(8) 35,834(3) 4,540(2)
Jerry Schneider...................... 2000 381,000 1,632(14) 32,400(3) 4,591(2)
Vice President, Chief Financial 1999 355,399 150,000(9) 27,474(5) 5,000(3) 4,864(2)
Officer and Treasurer 1998 345,622 232,500(8) 189,025(5) 2,923(2)
Roger Stoll(7)....................... 2000 562,640 341(2)
Former Executive Vice President, 1999 547,110 226,000(9) 153,282(10) 864(2)
Renal Products and 1998 137,200 54,100(10) 90,000(3) 540(2)
Laboratory Services(11)
E. Craig Dawson...................... 2000 239,883 243(14) 6,000(3) 4,591(2)
Senior Vice President, 1999 223,763 292,600(9) 84,211(13) 4,341(2)
President of Spectra Renal 1998 218,077 134,040(12) 78,217(13) 13,333(3) 341(2)
Management Division
- ---------------
(1) During 1998, 1999 and 2000, Seratronics, Inc. ("Seratronics") paid
$68,602, $66,080 and $5,117, respectively, of Mr. Lipps' salary. In each
year listed above, Seratronics was reimbursed by Fresenius USA for such
salary payments.
(2) Represents the value of the group term life and disability insurance
premiums paid by the Company and the Company's contributions to the
respective officer's 401(k) plan. Mr. Stoll was not eligible to
participate in the Company's 401(k) plan in 1998 and elected not to
participate in such plan in 1999 and 2000. Dr. Lazarus did not participate
in the Company's 401(k) plan in 2000. Mr Dawson was not eligible to
participate in the Company's 401(k) plan in 1998.
(3) Represents the number of options to purchase Fresenius Medical Care
Preference Shares which were granted under the Fresenius Medical Care 1998
Stock Incentive Plan, as amended (the "1998 FMC Stock Plan").
(4) Represents interest earned in excess of 120% of the applicable federal
long-term rate on deferred compensation during 1999.
(5) Represents (a) $187,829 with respect to 1998 and $24,463 with respect to
1999, which amounts are attributable to the value of relocation expenses
paid by the Company in connection with Mr. Schneider's relocation to
Massachusetts; (b) interest earned in excess of 120% of the applicable
federal long-term rate on deferred compensation during 1998 and 1999; and
(c) a car allowance paid in 1998 only.
(6) These amounts include the value of (a) the Company's contribution to Mr.
Lipps' 401(k) plan in 1998; (b) the Company's payment of group term life
and disability insurance premiums and (c) the Company's payment of
premiums attributable to a supplemental life insurance policy and a
supplemental disability insurance policy in the amount of $27,395 $30,128
and $30,128 for 1998, 1999 and 2000, respectively.
5
9
(7) With respect to 1998, amount represents salary earned by Mr. Stoll from
the commencement of his employment on October 5, 1998 through December 31,
1998.
(8) Represents incentive bonus payments paid under the FMC Bonus Plan which
relate to the achievement of 1998 Company and individual performance
targets, but which were paid in 1999.
(9) Represents incentive bonus payments made under the FMC Bonus Plan which
relate to the achievement of 1999 Company and individual performance
targets, but which were paid in 2000.
(10) Represents (a) $144,123 which amount is attributable to the value of
relocation expenses paid by the Company in connection with Mr. Stoll's
relocation to Massachusetts (b) interest earned in excess of 120% of the
applicable federal long-term rate on deferred compensation during 1999 and
(c) a car allowance paid in 1999 only.
(11) Mr. Stoll resigned from his position with the Company effective January
31, 2001. See "Resignation of Executive Officer" for a description of Mr.
Stoll's separation agreement with the Company.
(12) $45,000 of this amount represents a signing bonus paid to Mr. Dawson in
1998 relative to his commencement of employment in December 1997, and a
$89,040 incentive bonus payment paid under the FMC Bonus Plan which
relates to the achievement of 1998 Company and individual performance
targets, but which was paid in 1999.
(13) Represents $78,217 with respect to 1998 and $84,211 with respect to 1999,
both of which are attributable to the value of relocation expenses paid by
the Company in connection with Mr. Dawson's relocation to Massachusetts.
(14) Represents interest earned in excess of 120% of the applicable federal
long-term rate on deferred compensation during 2000.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The Company does not currently have a stock option plan. However, executive
officers and certain employees of the Company and its subsidiaries are eligible
to participate in Fresenius Medical Care's 1996 FMC Stock Plan and its 1998 FMC
Stock Plan. See "Certain Relationships and Related Transactions -- Relationships
and Transactions with Executive Officers -- Loans to Officers under the Stock
Incentive Plans."
The following table sets forth information concerning stock options to
purchase Fresenius Medical Care's Preference Shares granted in 2000, including
the potential realizable value of each grant assuming that the market value of
the Fresenius Medical Care's Preference Shares appreciates from the date of
grant to the expiration of the option at annualized rates of (a) 5% and (b) 10%,
in each case compounded annually over the term of the option. These assumed
rates of appreciation have been specified by the SEC for illustrative purposes
only and are not intended to predict future prices of the Company's Fresenius
Medical Care's Preference Shares, which will depend upon various factors,
including market conditions and the Company's future performance and prospects.
The options shown below became exercisable in three approximately equal annual
installments beginning one year after the date of grant.
2000 GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER % OF TOTAL ANNUAL RATES OF STOCK
OF SHARES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTIONS TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(1) 2000 ($/SHARE)(2) DATE 5% 10%
---- ----------- ------------ ------------ ---------- ---------- ----------
E. Craig Dawson........... 6,000 0.9% $46.12 7/25/10 $ 173,700 $ 440,770
J. Michael Lazarus........ 37,600 5.7% $46.12 7/25/10 $1,088,520 $2,761,720
Jerry Schneider........... 32,400 4.9% $46.12 7/25/10 $ 937,980 $2,379,780
- ---------------
(1) Options granted in 2000 to Messrs. Dawson, Lazarus, and Schneider under the
1998 FMC Stock Plan vest over a three-year period.
(2) Options granted to Messrs. Dawson and Schneider, and Dr. Lazarus, were
granted with an exercise price of 49.0 Eurodollars ("Euros") per share. For
the purposes of this table the exercise price has been converted to its per
share U.S. dollar equivalent based on the July 25, 2000 (i.e. the grant
date) conversion rate of 1.0625 Euros per U.S. Dollar. (Source for
conversion rates: Bridge Dow Jones Information Systems).
6
10
AGGREGATED OPTION EXERCISES IN 2000
AND DECEMBER 31, 2000 OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE AT 12-31-00(#) AT 12-31-00($)
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ ----------- ------------------------------ -------------------------
Ben Lipps............... 0 0 33,333/66,667 $561,396/$1,122,809
J. Michael Lazarus...... 0 0 23,890/49,545 $ 0/$69,974
Jerry Schneider......... 0 0 125,000 ADSs/0 ADSs $ 0/$0
2,867/36,333 $ 28,076/$116,431
Roger Stoll............. 0 0 60,000/30,000 $ 478,061/$239,030
E. Craig Dawson......... 0 0 8,889/10,444 $ 0/$11,166
PENSION ARRANGEMENTS
Most of the Company's employees who work 900 hours or more per year are
covered by the Fresenius Medical Care North America Retirement Plan (the "FMC
Retirement Plan"), effective as of the first day of January or July after
completing one year of service with the Company. Under this basic retirement
plan, pension benefits are based upon (1) the number of years of the covered
employee's credited service (subject to a maximum of 30), (2) the covered
employee's final average earnings for the 60 consecutive months in which his or
her compensation on any July 1 was highest during the last 120 months of
continuous participation (subject to a maximum amount equal to the then-current
IRS pension limit), and (3) the social security covered compensation (the
average social security tax base for the 35 years prior to the covered
employee's 65th birthday).
The annual retirement benefit under the FMC Retirement Plan consists of the
sum of (1) 0.85% of the covered employee's final average earnings multiplied by
his or her years of benefit service, and (2) 0.65% of the covered employee's
final average earnings greater than his or her social security covered
compensation base multiplied by his or her years of benefit service.
All management and executive employees with an annual base pay of at least
$75,000 who are covered by the FMC Retirement Plan are also automatic
participants in the Company's Supplemental Executive Retirement Plan (the
"SERP"). Vesting requirements for the SERP and the FMC Retirement Plan are the
same. Under the SERP, the FMC Retirement Plan is essentially modified by
expanding the definition of compensation to include annual incentive bonus
payments, and by eliminating the maximum limitation to the calculation of final
average earnings.
The following table shows the annual pensions payable under the FMC
Retirement Plan and the SERP for different levels of compensation and years of
credited service. The amounts shown have been computed on the assumption that
the covered employee retired at age 65 on December 31, 2000, with benefits
payable on a straight life annuity basis.
YEARS OF CREDITED SERVICE
----------------------------------------------------------------
10 15 20 25 30
YEARS YEARS YEARS YEARS YEARS
-------- -------- -------- -------- --------
$100,000.................... $ 12,719 $ 19,078 $ 25,437 $ 31,796 $ 38,156
$200,000.................... 27,719 41,578 55,437 69,296 83,156
$300,000.................... 42,719 64,078 85,437 106,796 128,156
$400,000.................... 57,719 86,578 115,437 144,296 173,156
$500,000.................... 72,719 109,078 145,437 181,796 218,156
$600,000.................... 87,719 131,578 175,437 219,296 263,156
$700,000.................... 102,719 154,078 205,437 256,796 308,156
$800,000.................... 117,719 176,578 235,437 294,296 353,156
$900,000.................... 132,719 199,078 265,437 331,796 398,156
$1,000,000.................. 147,719 221,578 295,437 369,296 443,156
$1,100,000.................. 162,719 244,078 325,437 406,796 488,156
7
11
YEARS OF CREDITED SERVICE
----------------------------------------------------------------
10 15 20 25 30
YEARS YEARS YEARS YEARS YEARS
-------- -------- -------- -------- --------
$1,200,000.................. 177,719 266,578 355,437 444,296 533,156
$1,300,000.................. 192,719 289,078 385,437 481,796 578,156
$1,400,000.................. 207,719 311,578 415,437 519,296 623,156
$1,500,000.................. 222,719 334,078 445,437 556,796 668,156
Messrs. Lipps, Dawson, Schneider and Stoll and Dr. Lazarus had 1.5, 3.1,
3.4, 2.2 and 4.8 years of credited service, respectively, under the FMC
Retirement Plan at year-end 2000. The average compensation of the highest
consecutive five years of the last ten years of credited service cannot be
computed for Messrs. Lipps, Dawson, Schneider, Stoll and Dr. Lazarus since they
have less than five years of credited service. Mr. Lipps commenced participation
in the FMC Retirement Plan in July 1999.
DIRECTORS' COMPENSATION AND CONSULTING ARRANGEMENTS
The directors of the Company are not compensated for their services as
such. For information with respect to compensation paid by the Company and its
subsidiaries to Messrs. Lipps, Schneider and Stoll, see the Summary Compensation
Table above.
EMPLOYMENT AGREEMENTS
Mr. Lipps has served as Chairman of the Managing Board of Fresenius Medical
Care (the "Managing Board") since May 1, 1999 and had served as Vice Chairman of
the Managing Board since January 1999 and has been a member of the Managing
Board since 1996. As Chairman of the Managing Board, Mr. Lipps is responsible
for managing the worldwide business of Fresenius Medical Care and its affiliated
companies. In addition, Mr. Lipps also serves as Chairman of the Board,
President and Chief Executive Officer of the Company. In connection with Mr.
Lipps' services to the Company, pursuant to an Employment Contract between Mr.
Lipps and Fresenius Medical Care which became effective January 1, 1999 (the
"Employment Contract"), Mr. Lipps receives an annual base salary, payable by or
on behalf of the Company, of $855,000, subject to annual increases based on
performance, and is eligible to participate in Fresenius Medical Care's
management bonus plan (the "FMC Bonus Plan") based on the attainment of certain
earnings-after-taxes targets set annually by Fresenius Medical Care and reviewed
by the Company's Board of Directors. Under the FMC Bonus Plan, Mr. Lipps can
earn a bonus of up to one hundred percent of his base salary. Mr. Lipps is also
eligible to receive stock options under the incentive stock option plans of
Fresenius Medical Care, including the 1998 FMC Stock Plan and the FMC AG Stock
Plan which are described above. See "Report of the Board of Directors Regarding
Executive Compensation -- Compensation of the Chief Executive Officer," and see
also "Certain Relationships and Related Transactions -- Loans to Chief Executive
Officer."
Pursuant to the terms of an Employment Agreement between the Company and
Dr. Lazarus, dated as of March 15, 2000, Dr. Lazarus receives an annual base
salary of $505,620, subject to annual increases based on satisfactory job
performance, and is eligible to participate in the FMC Bonus Plan. Under the FMC
Bonus Plan, Dr. Lazarus can earn, subject to the Company's attainment of
specified individual and company financial objectives, a bonus of forty percent
of his annual base salary with a maximum bonus of one hundred percent of his
annual base salary. In addition, Dr. Lazarus is paid a monthly car allowance of
$700 and is entitled to reimbursement for expenses associated with financial
planning assistance and/or individual income tax preparation up to a total of
$2,000 each year. The term of the agreement expires on March 15, 2003 unless
terminated earlier as provided for in the agreement. In the event Dr. Lazarus's
employment agreement is terminated for any reason other than by the Company for
cause, or if Dr. Lazarus terminates his employment agreement for cause, Dr.
Lazarus is entitled a lump sum payment equal to his base salary for the period
equal to the greater of (a) the then remaining term of the agreement or (b) 18
months and a pro-rated portion of his annual incentive bonus based on his
termination date. The terms of the agreement impose a non-compete obligation on
Dr. Lazarus during the one-year period after he ends his employment with the
Company or stops receiving any salary continuation under the agreement. The
foregoing description of Dr. Lazarus's employment agreement does not purport to
be complete and is qualified in its entirety by reference to such
8
12
agreement, a copy of which was filed with the SEC as an exhibit to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 2000.
Pursuant to the terms of an Employment Agreement between the Company and
Mr. Schneider, dated as of March 15, 2000, Mr. Schneider receives an annual base
salary of $372,600, subject to annual increases based on satisfactory job
performance, and is eligible to participate in the FMC Bonus Plan. Under the FMC
Bonus Plan, Mr. Schneider can earn, subject to the Company's attainment of
specified individual and company financial objectives, a bonus of forty percent
of his annual base salary with a maximum bonus of one hundred percent of his
annual base salary. In addition, Mr. Schneider is paid a monthly car allowance
of $700 and is entitled to reimbursement for expenses associated with financial
planning assistance and/or individual income tax preparation up to a total of
$2,000 each year. The term of the agreement expires on March 15, 2003 unless
terminated earlier as provided for in the agreement. In the event Mr.
Schneider's employment agreement is terminated for any reason other than by the
Company for cause, or if Mr. Schneider terminates his employment agreement for
cause, Mr. Schneider is entitled to his base salary and a continuation of his
benefits for a period of equal to the greater of (a) the then remaining term of
the agreement or (b) 18 months and a pro-rated portion of his annual incentive
bonus based on his termination date. The terms of the agreement impose a
non-compete obligation on Mr. Schneider during the one-year period after he ends
his employment with the Company or stops receiving any salary continuation under
the agreement. The foregoing description of Mr. Schneider's employment agreement
does not purport to be complete and is qualified in its entirety by reference to
such agreement, a copy of which was filed with the SEC as an exhibit to the
Company's Quarterly Report on Form 10-Q for the period ended March 31, 2000.
RESIGNATION OF EXECUTIVE OFFICER
Mr. Stoll resigned as Director and Executive Vice President of Renal
Products and Laboratory Services effective January 31, 2001. Mr. Stoll's
Separation Agreement dated January 31, 2001 (the "Separation Agreement")
provides that he will continue to receive his base salary and certain benefits
(the "Benefits") through January 31, 2003; provided, however that, at the
Company's option, such salary continuation may be paid in a lump sum, and in
such case, virtually all of the Benefits would cease to be provided by the
Company upon such payment. The Separation Agreement allows for exercise of his
vested stock options within one year following his separation date. Mr. Stoll's
pre-existing Non-Disclosure and Non-Competition Agreement imposes a non-compete
obligation for the greater of (1) a one-year period following termination of
employment with the company for any reason, or (2) any period during which
salary continues to be paid to him. Pursuant to the terms of Mr. Stoll's
employment, the Company and Mr. Stoll have entered into a Loan Agreement dated
January 31, 2001 (the "Loan Agreement"), pursuant to which the Company has
agreed to loan to Mr. Stoll an amount of money equal to the state and federal
taxes payable in connection with the sale of Mr. Stoll's former principal
residence. The Loan Agreement references a form of promissory note to be
executed upon the date such loan is actually made, and such note provides for
interest to accrue at the rate of seven and three-quarters percent per annum
beginning on the date of the loan, with all principal and accrued interest due
and payable on January 31, 2003.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has no standing Compensation Committee. During the fiscal year
ended December 31, 2000, deliberations concerning executive officer non-stock
option compensation were carried out by the Company's full Board of Directors.
Options to purchase Fresenius Medical Care Preference Shares were granted to
certain executive officers of the Company in 2000 by the Managing Board of
Fresenius Medical Care on the recommendation of the Company's full Board of
Directors. All members of the Company's Board of Directors were employees of the
Company during the fiscal year ended December 31, 2000. Mr. Lipps is also
Chairman of the Managing Board of Fresenius Medical Care. For information
regarding certain transactions between the Company or its subsidiaries on the
one hand and Fresenius Medical Care or Fresenius AG on the other, see "Certain
Relationships and Related Transactions."
9
13
REPORT OF THE BOARD OF DIRECTORS
REGARDING EXECUTIVE COMPENSATION
OVERALL PHILOSOPHY
The Company's overall executive compensation philosophy is based on the
premise that compensation should be aligned with and support the Company's
business strategy and long-term goals, and that it should give employees
incentives to enhance stockholder value. The key elements of executive
compensation are base salary, annual cash incentive (bonus) awards and/or annual
incentive bonus stock options for non-voting preference shares of Fresenius
Medical Care, the Company's parent corporation. Base salary is intended
primarily to reward past performance; annual cash bonus and stock option
incentives are intended primarily to reward achievement of specific performance
goals during the year; and stock options are designed primarily to foster an
identity of interest between the employee, the Company and the Company's
shareholders.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Lipps' compensation currently consists of a base salary, cash incentive
(bonus) awards and option grants under the 1998 FMC Stock Plan and the FMC AG
Stock Plan. Mr. Lipps' base salary was set under the terms of his employment
contract with Fresenius Medical Care, the parent corporation of the Company, and
is subject to annual increase based on performance as discussed above. Mr.
Lipps' year 2000 annual base compensation for his services as an officer of the
Company was set at $855,000, reflecting his responsibilities for Fresenius
Medical Care and its other subsidiaries and was based on competitive pay
practices, his individual experience and breadth of knowledge and other
subjective factors. Future increases to his base salary are expected to be
determined primarily on the basis of his individual performance and
contributions and involve the application of both quantifiable and subjective
criteria. Mr. Lipps' bonus for 1999 was based on target levels established for
operating results and subjective assessments of his contributions to the Company
during 1999. Mr. Lipps abstained from all Board and Managing Board actions
relating to his compensation.
COMPENSATION OF OTHER EXECUTIVE OFFICERS
Mr. Lipps makes recommendations to the Board of Directors concerning the
base salaries, annual cash and/or stock option incentive awards and stock option
awards for the executive officers of the Company other than himself. Annual cash
and/or stock option incentive awards are granted based on the achievement of
financial targets and individual performance. The number of stock options to be
granted to any particular executive is determined by the Managing Board of
Fresenius Medical Care and is based primarily on that person's perceived ability
to help the Company achieve its goals as well as that person's base salary and
potential bonus.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code prohibits the Company from
deducting annual compensation in excess of $1 million paid to executive officers
named in the Summary Compensation Table of the Information Statement, unless
such compensation is performance-based and satisfies certain other conditions.
The Company intends to the extent practicable to qualify all payments of
compensation under Section 162(m).
BOARD OF DIRECTORS
Ben Lipps
John Markus
Jerry Schneider
10
14
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 19, 2001 certain information
with respect to each person who is known by the Company to own beneficially more
than 5% of each class of the voting securities of the Company, each director of
the Company, each nominee for director of the Company, certain executive
officers and all directors and officers of the Company as a group.
SHARES
BENEFICIALLY PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNERS OWNED OF CLASS
------------------------------------- ------------ ----------
COMMON STOCK:
Fresenius Medical Care AG(1)
Else-Kroner-Strasse 1
61352 Bad Homburg v.d.H
Germany................................................... 90,000,000 100.0%
All directors and executive officers as a group........... 0 0
6% PREFERRED STOCK:
Grace Institute(2)
c/o Marine Midland Bank
P.O. Box 1329
Buffalo, New York 14240................................... 2,949 8.1%
W.R. Grace & Co. Retirement Plan for Salaried Employees(2)
1750 Clint Moore Road
Boca Raton, Florida 33487................................. 9,648(T)(S) 26.5%
All directors and executive officers as a group........... 0 0
CLASS A PREFERRED STOCK:
Namanco & Co.
P.O. Box 426
Exchange Place Station
69 Montgomery Street
Jersey City, New Jersey 07303............................. 2,803 17.3%
All directors and executive officers as a group........... 0 0
CLASS B PREFERRED STOCK:
Namanco & Co.
P.O. Box 426
Exchange Place Station
69 Montgomery Street
Jersey City, New Jersey 07303............................. 5,143 23.9%
All directors and executive officers as a group........... 0 0
CLASS D SPECIAL DIVIDEND PREFERRED STOCK:
Ben J. Lipps.............................................. 1 (3)
All directors and executive officers as a group........... 1 (3)
- ---------------
(1) Fresenius AG owns 50.76% of the outstanding Fresenius Medical Care Ordinary
Shares and none of the Fresenius Medical Care Preference Shares. The share
capital of Fresenius AG consists of Fresenius AG non-par value Ordinary
Shares and non-par value non-voting preference shares ("Fresenius AG
Preference Shares"), both of which are issued only in bearer form.
Accordingly, Fresenius AG has no way of independently determining who its
shareholders are or how many shares any particular shareholder owns.
However, under the German Stock Corporation and Securities Law, holders of
voting securities of a German company listed on a stock exchange within the
European Union are obligated to notify the company of certain levels of
holdings.
Fresenius AG has been informed that the Else Kroner-Fresenius-Stiftung (the
"Foundation") owns 68% of the Fresenius AG Ordinary Shares. The Foundation
serves to promote medical science, primarily in the fields of research and
treatment of illnesses, including the development of apparatuses and
preparations. The Foundation may promote only those research projects the
results of which will be generally accessible to the public. The Foundation
further serves to promote the education of physicians
11
15
or of others concerned with the treatment and care of sick persons,
primarily those working in the field of dialysis, as well as to promote the
education of particularly gifted pupils and students. Fresenius AG has been
informed that AW Beteiligungs GmbH owns 9% of the Fresenius AG Ordinary
Shares. In addition Neunte Heralkes Beteiligungs-Gellschaft & Co.KG
informed Fresenius AG that it owns 9.93% of the Fresenius AG Ordinary
Shares.
(2) This entity is not affiliated with the Company.
(3) The Class D Preferred Stock owned by Mr. Lipps represents less than 1% of
the total number of outstanding Class D Preferred Stock. Mr. Lipps also owns
10,100 ADSs representing Fresenius Medical Care Ordinary Shares and 5,000
ADSs representing Fresenius Medical Care Preference Shares.
(T) Shares owned by trust and other entities as to which the person has the
power to direct voting and/or investment.
(S) Shares as to which the person shares voting and/or investment power with
others.
OWNERSHIP AND TRANSACTIONS REPORTS
Under Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company's directors, and executive officers, and beneficial
owners of more than 10% of the outstanding shares of a class of the Company's
equity securities registered under the Exchange Act are required to file reports
with the SEC concerning their ownership of and transactions in the shares of
such class; such persons are also required to furnish the Company with copies of
such reports. Based solely upon the reports and related information furnished to
the Company, the Company believes that all such filing requirements were
complied with in a timely manner during and with respect to 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company was formed as a result of a series of transactions (the
"Merger"), pursuant to an Agreement and Plan of Reorganization dated as of
February 4, 1996, as amended, among the Company, Fresenius Aktiengesellschaft
("Fresenius AG") and Fresenius USA, Inc. ("Fresenius USA"). As a result of the
Merger, Fresenius Medical Care acquired all of the Common Stock of the Company.
Accordingly, the Company has entered into certain relationships and related
transactions with Fresenius Medical Care and Fresenius AG.
INVESTMENTS BY FRESENIUS MEDICAL CARE
Fresenius Medical Care is the beneficial owner of all 90,000,000
outstanding shares of the Company's Common Stock. Fresenius Medical Care owns no
shares of the Company's Preferred Stock.
The practical effect of its ownership of all outstanding shares of the
Company's Common Stock is to give Fresenius Medical Care an absolute majority of
the voting power attributable to the Company's voting securities with respect to
all matters in which the classes vote together. Accordingly, Fresenius Medical
Care possesses the ability, through its voting power and its power to elect a
majority of the Company's directors, to approve any actions requiring the vote
of the Company's shareholders, other than matters which materially affect the
rights of the holders of a particular class.
GUARANTEES OF THE COMPANY
The Company has executed a Subsidiary Guarantee in connection with a Senior
Subordinated Indenture dated as of November 27, 1996 (the "Indenture"), under
which Fresenius Medical Care was the Issuer. The Indenture was executed in
connection with the offering of 9% Trust Preferred Securities of Fresenius
Medical Care Capital Trust, a statutory business trust formed under the laws of
the State of Delaware. The proceeds of the offering of the 9% Trust Preferred
Securities were used to purchase 9% Subordinated Notes of Fresenius Medical
Care, and thereafter to repay indebtedness under a credit facility entered into
by NMC and a syndicate of banks in connection with the Merger (the "Credit
Agreement").
12
16
The Company has also executed a Subsidiary Guarantee in connection with
certain Senior Subordinated Indentures dated as of February 13, 1998 (together,
the "1998 Indentures") under which Fresenius Medical Care was the issuer. The
1998 Indentures were executed in connection with the offering of (a) 7 7/8% USD
Trust Preferred Securities of Fresenius Medical Care Capital Trust II and (b)
7 7/8% DM Trust Preferred Securities of Fresenius Medical Care Capital Trust
III, which are statutory business trusts formed under the laws of the State of
Delaware. The proceeds of the offering of the 7 7/8% and 7 3/8% Trust Preferred
Securities were used to purchase, respectively, 7 7/8% and 7 3/8% Subordinated
Notes of Fresenius Medical Care and thereafter to repay certain outstanding
indebtedness including an approximately $250 million permanent reduction of the
credit facility under the Credit Agreement and for general corporate purposes.
MATERIAL CONTRACTS BETWEEN FRESENIUS AG AND THE COMPANY AND FRESENIUS MEDICAL
CARE AND THE COMPANY
The following summarizes the material contracts and transactions between
the Company, Fresenius AG and Fresenius Medical Care during year ended December
31, 2000.
Technology. Pursuant to a technology license and know-how agreement, dated
April 22, 1994 (the "License Agreement"), Fresenius AG granted Fresenius USA an
exclusive North American license for the technology, processes and know-how for
the manufacture of polysulfone dialyzers, and Fresenius USA agreed to pay
Fresenius AG royalties of 4.5% on Fresenius USA's net sales of dialyzers
produced by it for a 10-year period beginning January 1, 1996. Fresenius USA
also obtained the contractual right to Fresenius AG's know-how relating to
certain peritoneal dialysis products incorporating the Safe-Lock(R) technology
in the U.S., Canada and Mexico. The License Agreement was assumed by Fresenius
Medical Care in connection with the Merger. Pursuant to a modification of the
License Agreement, the rights and obligations of Fresenius USA and Fresenius
Medical Care were assumed as of January 1, 1999 by, respectively, the Company
and Fresenius Medical Care Deutschland GmbH ("FMC GmbH"), an affiliate of
Fresenius Medical Care. Pursuant to this modification, the Company is required
to pay FMC GmbH a fixed royalty payment of $750,000 per quarter.
Products. During 2000, 1999 and 1998 the Company purchased $35.7, $45.8 and
$56.9 million, respectively, of hemodialysis equipment and supplies from
Fresenius AG and/or its subsidiaries. Such products were initially purchased
pursuant to a distribution agreement entered into in 1991 and under which
Fresenius USA acted as sole North American distributor for Fresenius AG products
for treatment of ESRD by hemodialysis. Prices charged under that agreement were
negotiated each year by the parties based on Fresenius AG's estimated costs and
desired profit margins, taking into account the competitive environment in the
U.S. market, and did not exceed the average of the prices charged to Fresenius
AG's other affiliated distributors. By its terms, this distribution agreement
terminates on the earlier of December 31, 2011 or the date Fresenius AG loses
the power to elect 51% of the Fresenius USA Board of Directors. Fresenius AG
assigned this distribution agreement to Fresenius Medical Care in connection
with the Merger. Also during 2000, 1999 and 1998, the Company sold products to
Fresenius AG and certain of its subsidiaries having aggregate sales prices of
approximately $2.2 million, $5.6 million and $2.2 million, respectively.
Intercompany Loans. Pursuant to a Subordinated Loan Note dated as of May
18, 1999 (the "May 1999 Note") NMC, a subsidiary of the Company, and certain of
NMC's subsidiaries, may borrow up to $400 million from Fresenius AG. The
principal amount of each advance under the May 1999 Note is due, as agreed by
the parties, on the date that is one, two or three months after the date of such
advance. The principal amount of each advance under the May 1999 Note bears
interest at a fluctuating rate per annum equal to the Eurocurrency Rate (as
defined and calculated in the Credit Agreement discussed above, a copy of which
has been filed by the Company with the Securities and Exchange Commission) plus
a margin. The Company may borrow under the May 1999 Note until September 30,
2003.
Pursuant to a Promissory Note dated February 19, 1999, as amended, the
Company borrowed approximately $17.5 million, which is due and payable February
20, 2002 at an annual interest rate of 5.995%.
Pursuant to a Loan Agreement dated February 19, 1998, the Company borrowed
approximately $435.5 million from FMC Trust Finance S.a.r.l. ("FMC Finance"), an
affiliate of Fresenius Medical Care (the "February 1998 Loan"). The outstanding
principal amount of the February 1998 Loan is due and
13
17
payable on February 1, 2008. Interest on the outstanding principal amount of the
February 1998 Loan accrues interest at a rate of 8.43% per annum and is payable
on a quarterly basis.
Pursuant to a Loan Agreement dated November 27, 1996, the Company borrowed
approximately $351 million from FMC Finance (the "November 1996 Loan"). The
outstanding principal amount of the November 1996 Loan is due and payable on
December 1, 2006 subject, however, to FMC Finance's right to accelerate the
maturity at any time after December 1, 2001. Interest on the outstanding
principal amount of the November 1996 Loan accrues interest at a rate of 9.25%
per annum and is payable on a quarterly basis.
Pursuant to various Loan Agreements dated as of March and April 2000, the
Company borrowed an aggregate amount of approximately $343.4 million from
Franconia Acquisition LLC, an affiliate of Fresenius Medical Care. The
outstanding principal amount, plus accrued interest calculated based on a
fluctuating rate equal to the one-month LIBOR rate plus 25 basis points, is due
and payable on demand. The Company may also prepay these loans at any time
without premium or penalty.
Foreign Exchange Contracts. Pursuant to a series of Foreign Exchange
Contracts between subsidiaries of the Company and Fresenius Medical Care, the
Company has an obligation to sell approximately $450.9 million in U.S. Dollars
to Fresenius Medical Care in exchange for Euros at an average rate of 0.910942
Euros per U.S. Dollar, through the period ending November, 2003. In addition,
the Company's Canadian subsidiary, whose functional currency is the Canadian
Dollar ("CAD"), had outstanding contracts covering the purchase of 4.0 million
U.S. Dollars at an average contract price of 1.4699 CAD per U.S. Dollar, for
delivery through April 2001.
Mandatorily Redeemable Preferred Securities. During the fourth quarter of
2000, a wholly-owned subsidiary of the Company issued 1,000 shares of Series A
Preferred Stock and 1,700 shares of Series C Preferred Stock that were then
transferred to Fresenius Medical Care for proceeds of $113,500,000 and
$192,000,000, respectively ("Redeemable Preferred Securities"). The Redeemable
Preferred Securities are identical in substance except that the Series A shares
rank prior to the Series C shares both as to dividends and liquidation,
dissolution or winding-up of the issuer.
The Redeemable Preferred Securities have a par value of $.01 per share. The
holders of the securities are entitled to receive dividends in amount of dollars
per share equal to approximately 8% of the share issuance price. The dividends
will be declared and paid in cash at least annually.
Upon liquidation or dissolution or winding up of the issuer, the holders of
the Redeemable Preferred Securities are entitled to an amount equal to the
liquidation preference for each share of stock plus an amount equal to all
accrued and unpaid dividends thereon through the date of distribution. The
liquidation preference is the sum of the issuance price plus, for each year or
portion thereof an amount equal to one-half of one percent of the issuance
price, not to exceed 5%.
The Redeemable Preferred Securities will be sold to the Company in two
years for an amount equal to Euros 341,385,000 plus any accrued and unpaid
dividends. Accordingly, the mandatorily redeemable preferred securities are
deemed a Euro liability and the risk of foreign currency fluctuations are hedged
through forward currency contracts at an average rate of 0.918507 Euros per U.S.
Dollar.
The holders of the Redeemable Preferred Securities have the participation
rights of the holders of all other classes of capital stock of the issuer.
RELATIONSHIPS AND TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
The following are descriptions of certain relationships and transactions
between the Company and its directors and executive officers (or members of
their families) and/or businesses with which they are affiliated. See "Executive
Compensation -- Directors' Compensation and Consulting Arrangements" for a
discussion of certain other relationships and related transactions.
Loans to Officers under Stock Incentive Plans. To comply with German
corporate law requirements, award grants under the 1996 FMC Stock Plan and the
1998 FMC Stock Plan are in the form of non-assignable and non-transferable
convertible bonds ("Bonds") and a corresponding non-recourse employee
14
18
loan from Fresenius Medical Care ("Employee Loans") secured solely by the Bonds
with respect to which it was made. The Bonds have a Euro denominated face amount
equal to the aggregate nominal (par) value of the Fresenius Medical Care
Preference Shares into which the Bonds are convertible (in the form of
Preference Shares under the 1998 FMC Stock Plan or ADSs under the 1996 FMC Stock
Plan) and bear interest at a rate equal to 5% per annum. The Employee Loans have
an Euro denominated principal amount equal to the related Bonds and bear
interest at the same rate. On conversion of a Bond, the employee (if a U.S.
citizen or resident) will pay a conversion payment equal to the fair market
value (determined as of the day following the date of grant) of the underlying
ADSs or Preference Shares as the case may be. A portion of the conversion
payment will be used to repay the Employee Loan, and interest on the Employee
Loan will be offset by interest payable on the Bonds. Because the terms of the
Employee Loan and Bond match in all respects, award recipients pay nothing and
receive nothing with respect to the Bonds and the Employee Loans.
Loan to Chief Executive Officer. Pursuant to a loan agreement dated June 7,
1999, Mr. Lipps borrowed $2 million from Fresenius Medical Care to fund the
purchase of his principal residence. The principal amount bears interest at 6%
per annum and is payable on demand after one month prior notice or in any event
on July 1, 2004. Accrued interest is payable in July of each year, during the
term of the loan. The loan is secured by a mortgage on Mr. Lipps' principal
residence.
REPORT OF THE BOARD OF DIRECTORS REGARDING AUDIT ISSUES
KPMG LLP ("KPMG") has been selected as the Company's independent public
accountants and auditors for 2001. The Board of Directors expects that
representatives of KPMG will be present at the Annual Meeting and will have an
opportunity to make a statement if they desire to do so and to respond to
appropriate questions.
The Board of Directors has reviewed and discussed with management the
Company's audited consolidated financial statements as of and for the year ended
December 31, 2000. The Board of Directors has also discussed with KPMG the
matters described in the Statement on Auditing Standards No. 61, Communication
with Audit Committees, as amended, as promulgated by the Auditing Standards
Board of the American Institute of Certified Public Accountants. The Board of
Directors has received and reviewed the written disclosures and the letter from
KPMG described in Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, as amended, and has discussed with KPMG their
independence. Based on the reviews and discussions described herein, the Board
of Directors has included the audited consolidated financial statements referred
to above in the Company's Annual Report on Form 10-K for the year ended December
31, 2000 filed with the Securities and Exchange Commission.
AUDIT FEES
The aggregate fees billed for professional services rendered for the audit
and review of (1) Company's annual financial statements for the year ending
December 31, 2000, and (2) the Company's financial statements included in all
Forms 10-Q for 2000, were $655,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
The Company made no payments to KPMG in 2000 for professional services
relating to financial information systems design and implementation.
15
19
ALL OTHER FEES
The aggregate fees billed in 2000 for services rendered by KPMG, other than
the services described in this Information Statement under the headings "Audit
Fees" and "Financial Information Systems Design and Implementation Fees" above,
were $269,062. These fees relate primarily to tax consulting services. The Board
of Directors considers the provision of these services to be compatible with
maintaining the independence of KPMG.
BOARD OF DIRECTORS
Ben Lipps
John Markus
Jerry Schneider
OTHER MATTERS
FORM 10-K
The Company's Annual Report on Form 10-K for the year ended December 31,
2000 filed by the Company with the SEC, is being provided to you with this
Information Statement. ADDITIONAL COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 2000 MAY BE OBTAINED WITHOUT CHARGE BY
CONTACTING THE SECRETARY OF THE COMPANY, 95 HAYDEN AVENUE, LEXINGTON,
MASSACHUSETTS 02420-9192 (TELEPHONE: (781) 402-9000).
OTHER BUSINESS
The Company does not know of any other business that will be presented for
consideration at the Annual Meeting. However, if any other business should come
before the Annual Meeting, management of the Company will have discretion to act
in accordance with its best judgment.
PROPOSALS FOR 2002 ANNUAL MEETING
Any shareholder wishing to submit a proposal for inclusion in the
Information Statement for the Company's Annual Meeting in 2002 pursuant to the
shareholder proposal rules of the SEC should submit the proposal in writing to
Ronald J. Kuerbitz, Secretary and General Counsel, Fresenius Medical Care
Holdings, Inc., 95 Hayden Avenue, Lexington, Massachusetts 02420-9192. The
Company must receive a proposal by December 31, 2001 in order to consider it for
inclusion in the Information Statement with respect to the 2002 annual meeting.
In addition, the Company's By-laws require that shareholders give advance
notice and furnish certain information to the Company in order to bring a matter
of business before an annual meeting or to nominate a person for election as a
director. Any communication relating to those By-law provisions should be
directed to Ronald J. Kuerbitz at the above address.
16
20
EXHIBIT A
CERTIFICATE OF AMENDMENT OF
THE CERTIFICATE OF INCORPORATION
OF FRESENIUS MEDICAL CARE HOLDINGS, INC.
UNDER SECTION 805 OF THE BUSINESS
CORPORATION LAW OF
THE STATE OF NEW YORK
The undersigned, being the President and the Secretary, respectively, of
Fresenius Medical Care Holdings, Inc., hereby certify that:
1. 1. The name of the corporation is FRESENIUS MEDICAL CARE HOLDINGS, INC.
(THE "CORPORATION"). The Corporation was formed under the name W. R.
Grace & Co.-New York, subsequently renamed W. R. Grace & Co., then
renamed Fresenius National Medical Care Holdings, Inc., and then
renamed Fresenius Medical Care Holdings, Inc.
2. The Certificate of Incorporation of the Corporation was filed with the
Department of State on March 23, 1988.
3. This Certificate of Amendment has been duly authorized, pursuant to
Section 803 of the Business Corporation Law of the State of New York,
by a vote of at least a majority of the members of the Board of
Directors of the Corporation, followed by the vote of the holders of a
majority of all outstanding shares entitled to vote thereon at a
meeting of shareholders duly called for such purpose.
4. The Certificate of Incorporation is amended to permit corporate action
to be taken by written consent of shareholders without a meeting.
5. The Certificate of Incorporation of the Corporation is hereby amended
by the insertion of an Article NINTH which reads as follows:
NINTH: Whenever under the Business Corporation Law of the State of New
York, shareholders are required or permitted to take any action by vote,
such action may be taken without a meeting on written consent signed by
holders of outstanding shares having not less then the minimum number of
votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted.
IN WITNESS WHEREOF, we have signed this Certificate of Amendment on
this day of May, 2001, and we affirm the statements
contained herein as true under penalties of perjury.
FRESENIUS MEDICAL CARE HOLDINGS, INC.
----------------------------------------
Name: Ben J. Lipps
Title: President
----------------------------------------
Name: Ronald J. Kuerbitz
Title: Secretary
A-1