SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e) (2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
Karrington Health, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person (s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------
(5) Total fee paid:
------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a) (2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------
(3) Filing Party:
---------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------
[KARRINGTON LOGO]
KARRINGTON HEALTH, INC.
919 Old Henderson Road
Columbus, Ohio 43220
April 10, 1998
Dear Fellow Shareholders:
The Annual Meeting of the Shareholders (the "Annual Meeting") of Karrington
Health, Inc., an Ohio corporation (the "Company"), will be held at 11:00 a.m.,
local time, on Tuesday, May 12, 1998, at the Wyndham Dublin Hotel, 600 Metro
Place North, Dublin, Ohio. The enclosed Notice of Annual Meeting of Shareholders
and Proxy Statement contain detailed information about the business to be
transacted at the Annual Meeting.
The Board of Directors has nominated four directors, each for a term to expire
at the Annual Meeting in the year 2001. The Board of Directors recommends that
you vote FOR the nominees.
On behalf of the Board of Directors and management, I cordially invite you to
attend the Annual Meeting. Whether or not you plan to attend the Annual
Meeting, the prompt return of your proxy in the enclosed return envelope will
save the Company additional expenses of solicitation and will help ensure that
as many shares as possible are represented.
Sincerely,
/s/ Richard R. Slager
Richard R. Slager
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
KARRINGTON HEALTH, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held Tuesday, May 12, 1998
NOTICE IS HEREBY GIVEN that the Second Annual Meeting of Shareholders (the
"Annual Meeting") of Karrington Health, Inc., an Ohio corporation (the
"Company"), will be held at Wyndham Dublin Hotel, 600 Metro Place North, Dublin,
Ohio, on Tuesday, May 12, 1998, at 11:00 a.m., local time, for the following
purposes:
1. To elect four directors, each for a term to expire at the Annual
Meeting of Shareholders in the year 2001; and
2. To transact such other business as may properly come before the Annual
Meeting or any adjournment(s) thereof.
The Board of Directors has fixed the close of business on April 8, 1998,
as the record date for determining the shareholders entitled to notice of,
and to vote at, the Annual Meeting and at any adjournment or postponement
thereof.
You are cordially invited to attend the Annual Meeting. Whether or not you
plan to attend the Annual Meeting, you may insure your representation by
completing, signing, dating and promptly returning the enclosed proxy card. A
return envelope, which requires no postage if mailed in the United States, has
been provided for your use. If you attend the Annual Meeting and inform the
Secretary of the Company in writing that you wish to vote your shares in person,
your proxy will not be used.
If your shares are held of record by a broker, bank or other nominee and
you wish to attend the Annual Meeting, you must obtain a letter from the broker,
bank or other nominee confirming your beneficial ownership of the shares and
bring it to the meeting. In order to vote your shares at the Annual Meeting, you
must obtain from the record holder a proxy issued in your name.
By Order of the Board of Directors,
/s/ Charles H. McCreary
Charles H. McCreary,
SECRETARY
Karrington Health, Inc.
919 Old Henderson Road
Columbus, Ohio 43220
April 10, 1998
KARRINGTON HEALTH, INC.
919 OLD HENDERSON ROAD
COLUMBUS, OHIO 43220
-------------------
PROXY STATEMENT
-------------------
This Proxy Statement is furnished in connection with the solicitation on
behalf of the Board of Directors and management of Karrington Health, Inc., an
Ohio corporation (the "Company"), of proxies for use at the 1998 Annual Meeting
of Shareholders of the Company (the "Annual Meeting") to be held at the Wyndham
Dublin Hotel, 600 Metro Place North, Dublin, Ohio, on Tuesday, May 12, 1998, at
11:00 a.m., local time, and at any and all postponements or adjournments
thereof, for the purposes set forth in the accompanying Notice of Annual Meeting
of Shareholders.
This Proxy Statement and the accompanying form of proxy are first being
mailed to shareholders on or about April 10, 1998.
GENERAL
Only holders of record of the Company's common shares (the "Common
Shares"), on April 8, 1998 (the "Record Date"), are entitled to notice of and
to vote at the Annual Meeting or any postponements or adjournments thereof.
As of the Record Date, there were 6,837,363 Common Shares outstanding. Each
Common Share entitles the holder thereof to one vote. A quorum for the Annual
Meeting is a majority of the voting shares outstanding. There is no
cumulative voting. Other than the Common Shares, there are no other voting
securities of the Company outstanding.
If the accompanying proxy card is properly signed and returned to the
Company prior to the Annual Meeting and not revoked, it will be voted in
accordance with the instructions contained therein. If no instructions are
given, the persons designated as proxies in the accompanying proxy card will
vote FOR the election as directors of those persons named below.
The Board of Directors is not currently aware of any matters other than
those referred to herein which will come before the Annual Meeting. If any
other matter should be presented at the Annual Meeting for action, the persons
named in the accompanying proxy card will vote the proxy in their own
discretion.
You may revoke your proxy at any time before it is actually voted at the
Annual Meeting by delivering written notice of revocation to the Secretary of
the Company, by submitting a subsequently dated proxy or by attending the Annual
Meeting and voting in person. Attendance at the Annual Meeting will not, in
itself, constitute revocation of the proxy.
The expense of preparing, printing and mailing proxy materials to the
Company's shareholders will be borne by the Company. In addition, proxies may
be solicited personally or by telephone, mail or telegram. Officers or
employees of the Company may assist with personal or telephone solicitation and
will receive no additional compensation therefor. The Company will also
reimburse brokerage houses and other nominees for their reasonable expenses in
forwarding proxy materials to beneficial owners of the Common Shares.
BENEFICIAL OWNERSHIP OF COMPANY SECURITIES
The following table sets forth certain information with respect to each
person known by the Company to own beneficially more than five percent of any
class of the Company's voting securities. The Company believes that each
individual or entity named has sole investment and voting power with respect to
the Common Shares indicated as beneficially owned by such individual or entity,
except as otherwise noted.
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class
---------- ----- ---------- --------- -----
JMAC, Inc. 2,250,000 32.9%
150 E. Wilson Bridge Road, Suite 230
Worthington, Ohio 43085
John H. McConnell 2,263,800 (1)(2) 33.1%
150 E. Wilson Bridge Road, Suite 230
Worthington, Ohio 43085
Richard R. Slager 717,770 (3) 10.5%
Karrington Health, Inc.
919 Old Henderson Road
Columbus, Ohio 43220
Alan B. Satterwhite 687,750 (4) 10.1%
Famous Photography, Inc.
4663 Kenny Road
Columbus, Ohio 43220
Ohio PERS 600,000 (4) 8.8%
277 East Town Street
Columbus, Ohio 43215
_____________________
(1) Includes currently exercisable options to purchase 8,000 Common Shares and
800 Common Shares held of record by Mr. McConnell's wife with respect to
which he disclaims beneficial ownership.
(2) Includes all of the Common Shares held of record by JMAC, Inc. ("JMAC").
Mr. McConnell is the Chairman of the Board of JMAC, and the directors of
JMAC have given him sole voting and investment power in the Common Shares
of the Company held by it.
(3) Includes 200,000 Common Shares held of record by Mr. Slager's wife with
respect to which he disclaims beneficial ownership.
(4) Based upon filings with the Securities and Exchange Commission.
2
The following table sets forth the number and percentage of outstanding
Common Shares beneficially owned as of the Record Date by (i) each director
of the Company; (ii) each executive officer of the Company included in the
Summary Compensation Table; and (iii) all directors and executive officers of
the Company as a group. The Company believes that each individual or entity
named has sole investment and voting power with respect to the Common Shares
indicated as beneficially owned by such individual or entity, except as
otherwise noted.
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class (1)
- ---------- ----- ---------- --------- ----- ---
Richard R. Slager 717,770 (2) 10.5%
Alan B. Satterwhite 687,750 (3) 10.1%
Pete A. Klisares 30,675 (4) *
Robin V. Holderman 0 *
John K. Knutson 0 *
Stephen Lewis 300 *
Anthony E. DiBlasi 550 *
Charles H. McCreary 10,970 (5)(6) *
Michael H. Thomas 14,000 (5) *
John S. Christie 10,700 (5)(7) *
Bernadine P. Healy 9,300 (5) *
David H. Hoag 10,000 (5) *
John H. McConnell 2,263,800 (8) 33.1%
James V. Pickett 11,000 (5)(9) *
Harold A. Poling 18,000 (5) *
Robert D. Walter 28,000 (5) *
All directors and executive
officers as a group (16 persons) 3,125,515 (2)(6)(7)(8)(9)(10) 45.1%
_____________________
Less than 1%.
(1) The percent of class is based upon the sum of (i) 6,837,363 Common Shares
outstanding on the Record Date and (ii) the number of Common Shares as to
which the named person has the right to acquire beneficial ownership upon
the exercise of options under the Karrington Health, Inc. 1996 Incentive
Stock Plan (the "Plan") which are exercisable within 60 days of the Record
Date.
(2) See Note 3 to preceding table.
(3) See Note 4 to preceding table.
(4) Includes currently exercisable options to purchase 25,000 Common Shares.
(5) Includes currently exercisable options to purchase 8,000 Common Shares.
(6) Includes 1,700 Shares as to which Mr. McCreary has shared voting and
investment power with his wife and 970 Shares held by Mr. McCreary as
custodian for his minor children.
(7) Includes 500 shares to which Mr. Christie has shared voting and investment
power.
(8) See Notes 1 and 2 to preceding table.
(9) Includes 3,000 shares as to which Mr. Pickett has shared voting and
investment power.
(10) Includes currently exercisable options to purchase 97,000 Common Shares and
excludes the beneficial Common Shares of Mr. Satterwhite and Mr. DiBlasi,
both of whom have resigned as of the Record Date.
3
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Pursuant to the Code of Regulations of the Company, the authorized number
of directors is eleven, divided into one class consisting of three directors and
two classes consisting of four directors each. At the Annual Meeting, four
directors will be elected, each for a term expiring at the Annual Meeting in the
year 2001 and until his or her successor is duly elected and qualified, or until
his or her earlier death, resignation or removal. The Board of Directors has no
reason to believe that any of the nominees will not serve if elected, but if any
of them should become unavailable to serve as a director, and if the Board
designates a substitute nominee, the persons named in the accompanying proxy
card will vote for the substitute nominee designated by the Board of Directors.
The following information, as of the Record Date, with respect to the
principal occupation or employment, other affiliations and business experience
of each director during the last five years has been furnished to the Company
by each director. References to "the Company" include the Company's
predecessors, DevelopMed Associates, Inc. and Karrington Operating Company.
Except where indicated, each director has had the same principal occupation for
the last five years.
NAME AGE PRINCIPAL OCCUPATION
---- --- --------- ----------
NOMINEES STANDING FOR
ELECTION TO THE BOARD OF
DIRECTORS
John S. Christie 48 Director of the Company since May 1996.
Since October 1, 1995, Mr. Christie has
been the President of JMAC. Prior to
1995, Mr. Christie was Senior Vice
President, Corporate Development, of The
Battelle Memorial Institute, the world's
largest private research organization,
based in Columbus, Ohio. Mr. Christie
serves on the Board of Directors of
Neoprobe Corporation.
David H. Hoag 58 Director of the Company since July 1996.
Mr. Hoag has served as the Chairman of
the Board, President and Chief Executive
Officer of The LTV Corporation since
June 1991. The LTV Corporation
completed a reorganization under Chapter
11 of the U.S. Bankruptcy Code in June
1993. Mr. Hoag serves on the Board of
Directors of The Chubb Corporation and
Lubrizol Corporation.
Charles H. McCreary 45 Secretary of the Company since May 1996;
Director of the Company since July 1996.
Mr. McCreary is a partner in the law
firm of Bricker & Eckler, which firm has
represented the Company since its
formation.
James V. Pickett 56 Director of the Company since July 1996.
Mr. Pickett has served as Chairman of
Pickett Realty Advisors, a Dublin, Ohio-
based asset manager for a hotel
portfolio, since 1965, and, in addition,
has served as the Vice Chairman since
1997 and the Managing Director from 1993
to 1997 of Banc One Capital Corporation,
a real estate investment group. Mr.
Pickett serves on the Board of Directors
of Wendy's International, Inc. and
Metatec Corporation.
4
TERMS EXPIRING IN 1999
John H. McConnell 74 Director of the Company since July 1996.
Mr. McConnell is the founder and
Chairman Emeritus of Worthington
Industries, Inc. Mr. McConnell is
Chairman of the Board of U.S. Health,
Inc., a regional not-for-profit acute
care provider based in Columbus, Ohio.
Harold A. Poling 72 Director of the Company since July 1996.
Mr. Poling is the retired Chairman of
the Board of Ford Motor Company and also
serves on the Board of Directors of
Shell Oil Company, The LTV Corporation
and Kellogg Company.
Richard R. Slager 44 Co-founder of the Company; Chairman of
the Board of the Company since April
1996 and Chief Executive Officer since
the Company's formation in 1990.
Robert D. Walter 52 Director of the Company since July 1996.
Mr. Walter is the Chairman and Chief
Executive Officer of Cardinal Health,
Inc., a Dublin, Ohio based health care
service provider. Mr. Walter serves on
the Board of Directors of Banc One
Corporation and CBS Corporation.
TERMS EXPIRING IN 2000
Bernadine P. Healy 53 Director of the Company since July 1996.
Dr. Healy has served as Dean of Medicine
and as a Professor of Internal Medicine
at The Ohio State University since
October 1995. Prior thereto she was
Senior Policy Advisor of The Page
Center, The Cleveland Clinic Foundation.
From 1991 to 1993, Dr. Healy was the
Director of the National Institutes of
Health. Dr. Healy serves on the Board
of Directors of National City Corp.,
Invacare, Medronics and Somatogen.
Pete A. Klisares 62 President and Chief Operating Officer of
the Company since August 1997. Prior to
joining the Company, Mr. Klisares served
as Executive Vice President of
Worthington Industries, Inc. from August
1993 to July 1997 and as an assistant to
the Chairman from December 1991 to July
1993. Mr. Klisares also serves on the
Board of Directors of Worthington
Industries, Inc., Dominion Homes, Inc.
and Huntington National Bank, N.A.
Michael H. Thomas 48 Director of the Company since May 1996.
Mr. Thomas is a certified public
accountant and has been employed by JMAC
as its Executive Vice President and
Treasurer since 1980.
5
RECOMMENDATION AND VOTE
Under Ohio law and the Company's Code of Regulations, the four nominees for
election to the Board of Directors receiving the greatest number of votes will
be elected.
Common Shares represented by the accompanying proxy card will be voted FOR
the election of the above nominees unless authority to vote for one or more
nominees is withheld. Shareholders may withhold authority to vote for the entire
slate as nominated or, by writing the name of one or more nominees in the space
provided in the proxy card, withhold the authority to vote for such nominee or
nominees. Common Shares as to which the authority to vote is withheld will be
counted for quorum purposes but will not be counted toward the election of
directors, or toward the election of the individual nominees specified on the
form of proxy.
Broker/dealers who hold their customers' shares in street name may, under
the applicable rules of the exchange and other self-regulatory organizations of
which the broker/dealers are members, sign and submit proxies for such shares
and may vote such shares on routine matters, which, under such rules, typically
include the election of directors, but broker/dealers may not vote such shares
on other matters, which typically include amendments to the articles of
incorporation of the Company and the approval of stock compensation plans,
without specific instructions from the customer who owns such shares. Proxies
signed and submitted by broker/dealers which have not been voted on certain
matters as described in the previous sentence are referred to as broker
non-votes. Shares as to which the authority to vote is withheld and broker
non-votes are not counted toward the election of directors or toward the
election of the individual nominees specified on the proxy card.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ELECTION
OF ITS NOMINEES FOR DIRECTORS, WHICH IS DESIGNATED AS PROPOSAL NO. 1 ON THE
ENCLOSED PROXY CARD.
COMMITTEES AND MEETINGS OF THE BOARD
The Board of Directors held four regularly scheduled or special meetings
during 1997. The Board of Directors has a standing Audit Committee and
Compensation Committee. During 1997, each member of the Board, except Mr.
Walter, Mr. Hoag and Ms. Healy, attended at least 75% of the aggregate of the
total number of meetings of the Board of Directors and of the committees on
which he or she served. Each member of the Board attended 75% or more of the
regularly scheduled or special meetings of the Board of Directors.
AUDIT COMMITTEE. The Audit Committee (1) reviews the accounting and
financial reporting practices of the Company and the adequacy of its system of
internal controls, (2) reviews the scope and results of any outside audit of the
Company and the fees therefor and (3) makes recommendations to the Board of
Directors or management concerning auditing and accounting matters and the
selection of outside auditors. The Audit Committee met twice during 1997. The
members of the Audit Committee are James V. Pickett, Harold A. Poling, Michael
H. Thomas and Robert D. Walter.
COMPENSATION COMMITTEE. The Compensation Committee reviews, considers and
acts upon matters of salary and other compensation and benefits of all executive
officers of the Company and acts upon all matters concerning executive
compensation and exercises such authority as is delegated to it under the
provisions of the Plan. The Compensation Committee met once during 1997. The
members of the Compensation Committee are Bernadine P. Healy, John S. Christie,
John H. McConnell and David H. Hoag.
In addition to the two committees set forth above, the Board of Directors
has an Executive Committee and a Finance Committee.
6
COMPENSATION OF DIRECTORS
Directors who are officers or employees of the Company receive no
additional compensation for their services as members of the Board of Directors
or as members of Board committees. Directors who are not officers or employees
of the Company are paid a quarterly fee of $3,000, as well as additional fees of
$1,000 for each meeting of the Board or of a Board committee attended by such
Director. The Company's Directors are reimbursed for their out-of-pocket
expenses incurred in connection with their service as directors, including
travel expenses. In addition, pursuant to the Plan, each Director who is not an
employee of the Company receives a grant of an option to purchase 6,000 Common
Shares upon his or her election as a director and an annual option thereafter to
purchase 2,000 Common Shares.
EXECUTIVE OFFICERS
The following table sets forth certain information as of the Record Date
regarding each of the Company's executive officers:
NAME AGE POSITION
- ---- --- --------
Richard R. Slager . . . . . . 44 Chairman of the Board and Chief Executive
Officer
Pete A. Klisares. . . . . . . 62 Director, President and Chief Operating
Officer
Thomas J. Klimback. . . . . . 49 Executive Vice President, Chief Financial
Officer
Robin V. Holderman . . . . . 46 Executive Vice President, Corporate
Development
John K. Knutson . . . . . . . 55 Executive Vice President, Operations
Stephen Lewis . . . . . . . . 52 Senior Vice President, Development,
General Counsel and Assistant Secretary
Mark N. Mace . . . . . . . . 42 Senior Vice President, Finance and
Treasurer
Charles H. McCreary . . . . . 45 Director and Secretary
For additional information regarding Messrs. Slager, Klisares and McCreary,
see "Election of Directors."
Thomas J. Klimback has served as Executive Vice President, Chief Financial
Officer of the Company since October 1997. Prior to joining the Company, Mr.
Klimback served as Senior Vice President, Chief Financial Officer, Secretary and
Principal of Q Clubs, Inc., a national health club chain, from July 1995 to May
1997. From June 1992 to June 1995, Mr. Klimback served as Chief Financial
Officer, Vice President-Finance, Secretary, Treasurer and Principal of PetStuff,
Inc., a national retail pet chain.
Robin V. Holderman has served as Executive Vice President, Corporate
Development of the Company since October 1996. Prior to joining the Company,
Mr. Holderman was President of Ruscilli Development Co., Ltd., a real estate
development company, from May 1995 to November 1996. He served as Manager of
Industrial Development of Duke Realty Investments, Inc., a real estate
development company, from April 1994 to May 1995, and prior thereto was
President of ConQuest Corporation, a commercial and industrial real estate
development company located in Columbus, Ohio, which was founded more than nine
years ago. Mr. Holderman serves on the Board of Directors of Cooker Restaurant
Corporation.
John K. Knutson has served as Executive Vice President, Operations of the
Company since November 1997 and Senior Vice President of Operations from
February 1996 to November 1997. Prior to joining the Company, Mr. Knutson was
Vice President of Operations for LeisureCare, Inc., a senior housing company
based in Bellevue, Washington.
Stephen Lewis has served as Senior Vice President, Development and General
Counsel of the Company since November 1993. Prior to joining the Company, Mr.
Lewis was general counsel of VOCA Corporation, a multi-state operator of
residential centers for persons with mental retardation and other developmental
disabilities.
7
Mark N. Mace has served as Senior Vice President, Finance and Treasurer of
the Company since March 1996. Prior to joining the Company, Mr. Mace was a
Senior Manager with Deloitte & Touche LLP, a national accounting firm.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the years ended December 31, 1997, 1996 and
1995, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer, the four most highly compensated executive officers of the
Company whose compensation exceeded $100,000 and one individual for whom
disclosure would have been provided but for the fact that such individual was
not serving as an executive officer for the Company at the end of 1997 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------------------- --------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION FISCAL SALARY BONUS (1) OPTIONS (2)
YEAR ($) ($) (#) ($)
--------------------------- ------ ------------------------- -------------- --------------
Richard R. Slager . . . . . . 1997 220,000 45,147 40,000 6,526
Chairman of the Board 1996 191,154 46,954 20,000 5,417
and Chief Executive Officer 1995 146,923 56,044 0 2,665
Robin V. Holderman (3). . . . 1997 140,000 4,217 20,000 8,990
Executive Vice President, 1996 18,846 14,272 0 0
Corporate Development
John K. Knutson (4) . . . . . 1997 129,960 21,480 5,000 13,137
Executive Vice President, 1996 101,424 15,000 7,500 33,323
Operations
Stephen Lewis . . . . . . . . 1997 97,169 2,927 0 0
Senior Vice President, 1996 90,380 24,674 7,500 0
Development, General 1995 62,019 10,697 0 0
Counsel and Assistant
Secretary
Anthony E. DiBlasi (5). . . . 1997 97,169 2,927 0 0
Senior Vice President, 1996 68,701 18,083 7,500 0
Construction
Alan B. Satterwhite . . . . . 1997 146,250 30,747 0 97,500 (6)
Chief Financial Officer and 1996 166,154 46,954 20,000 2,853
Chief Operating Officer 1995 123,846 56,044 0 1,435
- -----------------------
8
(1) The Named Executive Officers participate in the Company's profit sharing
plan together with substantially all the employees of the Company. For
residence employees, profit sharing is based on the operating profit of the
residence. For other employees, profit sharing is based on the
profitability of the Company. Cash payments are made quarterly.
(2) All Other Compensation" for the Named Executive Officers consists of life
insurance premiums paid by the Company on behalf of Mr. Slager and Mr.
Satterwhite in 1996 and 1995, automobile allowances or automobile lease
payments paid by the Company on behalf of Mr. Slager and Mr. Holderman in
1997 and moving and relocation expenses for Mr. Knutson.
(3) In October 1996, Mr. Holderman was hired as the Company's Executive Vice
President, Corporate Development for an annual salary of $140,000.
(4) In February 1996, Mr. Knutson was hired as the Company's Senior Vice
President of Operations for an annual base salary of $120,000.
(5) In April 1996, Mr. DiBlasi was hired as the Company's Senior Vice
President, Construction for an annual salary of $95,000. In January 1998,
the Company accepted Mr. DiBlasi's resignation.
(6) Severance pay paid subsequent to the Company's acceptance of Mr.
Satterwhite's resignation in September 1997.
GRANTS OF OPTIONS
The following table sets forth information concerning individual grants of
options made during 1997 to each of the Named Executive Officers. The Company
has never granted stock appreciation rights.
Option Grants in the Last Fiscal Year
Individual Grants (1)
------------------------------------------------------ Potential Realizable
% of Value at Assumed
Number of Total Annual Rates of Stock
Securities Options Price Appreciation
Underlying Granted to Exercise for Option Term (2)
Options Employees in Price Expiration -------------------
Name Granted (#) Fiscal Year ($/Share) Date 5%($) 10%($)
---- ----------- ----------- --------- ---- ----- ------
Richard R. Slager 40,000 20.3% 12.88 11/11/2007 324,000 820,800
Robin V. Holderman 20,000 10.1% 11.00 03/11/2007 138,400 350,600
John K. Knutson 5,000 2.5% 12.88 11/11/2007 40,500 102,600
Stephen Lewis - - - - - -
Anthony E. DiBlasi - - - - - -
Alan B. Satterwhite - - - - - -
- -------------
(1) All options are non-qualified options granted under the Company's 1996
Incentive Stock Plan. All above options become exercisable in four equal
annual portions commencing on the second anniversary of the date of grant.
(2) The amounts reflected in this table represent certain assumed rates of
appreciation only. Actual realized values, if any, on option exercises will
be dependent on the actual appreciation of the Common Shares of the Company
over the term of the options. There can be no assurances that the Potential
Realizable Values reflected in this table will be achieved.
9
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to unexercised
options and the value of unexercised in-the-money options as of December 31,
1997, held by each of the Named Executive Officers. No options were exercised
during 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options Options at
at Fiscal Year-End (#) Fiscal Year End ($)
--------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ----------- ------------- ----------- -------------
Richard R. Slager - 60,000 - -
Robin V. Holderman - 20,000 - 7,500
John K. Knutson - 12,500 - -
Stephan Lewis - 7,500 - -
Anthony E. DiBlasi - 7,500 - -
Alan B. Satterwhite - - - -
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In September 1997, the Company entered into a $7.5 million promissory note
with JMAC, Inc., an investment company owned by John H. McConnell and John P.
McConnell, the Founder and Chairman, respectively, of Worthington Industries,
Inc., pursuant to which JMAC agreed to provide up to $7.5 million in loans to
the Company during a commitment period expiring in January 2000. Interest is
payable monthly and accrues at a bank's prime rate. Interest cost incurred in
1997 was $190,000 with respect to this agreement. The amount outstanding at
December 31, 1997 and as of the Record Date was $7.5 million.
On April 1, 1998, the Company entered into a $4.0 million promissory note
with JMAC pursuant to which JMAC agreed to provide up to $4.0 million in loans
to the Company during a commitment period expiring on the earlier of (i) June
30, 1998 or (ii) the closing of a specific sale/leaseback transaction. Interest
is payable monthly and accrues at a bank's prime rate. The amount outstanding
as of the Record Date was $3.0 million.
Charles H. McCreary, the Company's Secretary and a Director, is a partner
in the law firm of Bricker & Eckler, which provides legal services to the
Company in connection with a variety of business and organizational matters.
10
PERFORMANCE GRAPH
The following line graph compares the Company's cumulative total
shareholder return against the cumulative return of the NASDAQ Stock Market-U.S.
Index and a peer group constructed by the Company for the period from July 19,
1996, the first day of trading for the Company's Common Shares, to December 31,
1997. The comparison assumes $100 was invested on July 19, 1996 in the
Company's Common Shares and in each of the foregoing indices and assumes
reinvestment of dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN
JULY 19, 1996 TO DECEMBER 31, 1997
[GRAPH: Performance graph plotting cumulative shareholder return for
Karrington Health, Inc., a peer group and the NASDAQ Stock Market -
U.S. Index for the period from July 19, 1996, the first day of trading
for the Company's Common Shares, to December 31, 1997.]
- --------------------------------------------------------------------------------
7/19/96 9/96 12/96 3/97 6/97 9/97 12/97
- --------------------------------------------------------------------------------
Karrington $100 $100 $96 $92 $108 $88 $87
Peer Group 100 106 95 116 145 166 181
NASDAQ-U.S. 100 112 117 113 134 156 146
____________________
The peer group consists of six companies involved in the assisted living
industry that were public on July 19, 1996. These companies are Assisted Living
Concepts, Inc., ARV Assisted Living, Inc., Emeritus Corporation, Just Like Home,
Inc., Regent Assisted Living, Inc., and Sunrise Assisted Living, Inc. The
Standish Care Company was removed from the peer group on October 21, 1996 as a
result of its merger with CareMatrix Corporation. Sterling House Corporation
was removed from the peer group in the third quarter of 1997 as a result of its
merger with Alternative Living Services, Inc.
REPORT OF THE COMPENSATION COMMITTEE
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT
OF 1934 THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT,
IN WHOLE OR IN PART, THIS REPORT AND THE GRAPH SET FORTH ABOVE UNDER "EXECUTIVE
COMPENSATION - PERFORMANCE GRAPH" SHALL NOT BE INCORPORATED BY REFERENCE INTO
ANY SUCH FILINGS.
11
The Compensation Committee of the Board of Directors of the Company (the
"Committee") is comprised of four outside directors, none of whom is or was
formerly an officer of the Company. During 1997, none of the Company's
executive officers served on the board of any entity of which a Committee member
was an executive officer or on the compensation committee of any entity of which
any director of the Company was an executive officer.
COMPENSATION PHILOSOPHY
Prior to the Company's initial public offering, which was consummated on
July 24, 1996, the Company had no Compensation Committee and decisions
concerning compensation of executive officers of the Company were made by the
Company's Chief Executive Officer. With respect to 1996, the executive
compensation packages of the Company's executive officers were subject to
arrangements and understandings made prior to or at the time of the Company's
initial public offering. In general, the Company's compensation program for
executive officers consisted of three main elements: a base salary, a profit
sharing plan and periodic grants of stock options.
Following the initial public offering, the Committee was formed and was
given the oversight responsibility for the Company's executive compensation
program for periods following January 1, 1997. The Committee believes that it
is important to pay competitive salaries but also to make a high proportion of
the executive officers' total compensation at risk in order to cause the
executive officers to focus on both the short and long-term interests of the
Company's shareholders.
In determining Executive Compensation, including the Company's Chief
Executive Officer, the Committee annually considers qualitative and quantitative
indicators of Company and individual performance in setting the level and
composition of compensation, including the experience and contribution level of
the individual executive and many Company performance measures such as growth in
revenues, open residences, operating results and market capitalization. The
Committee also considers market compensation levels, trends and the compensation
of executives currently employed in similar positions in the assisted living
industry. The competitive evaluation of base salary must consider the
composition of all forms of compensation, including the weight between base
salary and long-term incentive compensation. The Committee does not apply a
specific quantitative formula in making compensation decisions.
The Committee recognizes the Company is young, and as a result,
compensation decisions should consider the rapid growth plans of the Company,
the substantial increase in the projected number of residences scheduled to open
and the resulting operating losses associated with such openings, and the
Company's decision to own a large majority of its residences rather than enter
into a significant off-balance-sheet financing arrangement employed by many of
the Company's competitors, all of which negatively impact short-term earnings.
The Committee recognizes that the Company must achieve a critical mass of stable
residences before it can become profitable and that significant start-up losses
will result until such time. As a result, the Company's short-term operating
performance should be coupled with long-term positioning of the Company in
establishing the executive compensation program.
EXECUTIVE COMPENSATION COMPONENTS
The Executive compensation program for 1997 remained consistent with 1996
and provided for a base salary, a cash profit sharing plan and periodic grants
of stock options.
BASE SALARY. Base salary is reviewed annually and may be adjusted based on
individual performance, business unit performance and industry analysis and
comparisons. The base salary of the Company's executive officers (other than the
Chief Executive Officer) is reviewed and approved by the Committee after
considering recommendations made by the Chief Executive Officer. To date, the
Committee has not utilized compensation consultants, but it may do so in future
years to assist the Committee with respect to industry analysis and comparisons.
12
PROFIT SHARING. In 1997, the executive officers, including the Chief
Executive Officer, participated in the Company's profit sharing plan together
with substantially all employees of the Company. See footnote (1) of the
Summary Compensation Table. To date, the Committee has not established a
separate profit sharing or bonus plan for the Company's executive officers.
STOCK OPTIONS. The purpose of the Company's 1996 Incentive Stock Plan is
to attract and retain key personnel, including consultants and advisors to and
directors of the Company, and to enhance their interest in the Company's
continued success and to allow all employees an opportunity to have an ownership
interest in the Company.
The maximum number of Common Shares with respect to which awards may be
granted under the Plan is 550,000. In 1997 the Committee granted 215,500 non-
qualified stock options to key employees and directors, including the Named
Executive Officers, as set forth in the Option Grants in the Last Fiscal Year
table.
COMPENSATION FOR CHIEF EXECUTIVE OFFICER
The Compensation program for Mr. Slager, including base salary, profit
sharing and stock options, was determined for 1997 using the criteria stated
above for executive officers. The base salary for Mr. Slager in 1997 was
established at the time of the Company's initial public offering in 1996 and did
not change in 1997.
Stock options were granted to Mr. Slager at 100% of the fair market value
of the Company's Common Shares on November 11, 1997, the date of grant. The
Committee considered the number of unexercised options already held by Mr.
Slager and competitive practices in determining the number of options to grant
to Mr. Slager in 1997. Limited by the number of options available for grant
under the Company's 1996 Incentive Stock Plan, the Committee believes the
cumulative unexercised options held by Mr. Slager are substantially below the
number of options held by other chief executive officers in the assisted living
marketplace. The compensation opportunity in the form of stock options to Mr.
Slager will not result in value to him unless the financial performance of the
Company improves and is reflected in a higher price for the Company's stock.
SECTION 162(m) COMPLIANCE
Section 162(m) of the Internal Revenue Code places certain restrictions on
the amount of compensation in excess of $1,000,000 which may deducted for each
executive officer. The Company intends to satisfy the requirements of Section
162(m) should the need arise.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE COMPANY:
John S. Christie
Bernadine P. Healy
David H. Hoag
John H. McConnell
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Ownership of and transactions in the Common Shares of the Company by
executive officers, directors and persons who own more than 10% of the Common
Shares are required to be reported to the SEC pursuant to Section 16 of the
Securities Exchange Act of 1934. Based solely on a review of the copies of
reports furnished to the Company and representations of certain executive
officers and directors, the Company believes that during fiscal 1997 its
officers, directors and greater than 10% beneficial owners complied with such
filing requirements.
13
INDEPENDENT AUDITORS
Ernst & Young LLP, a certified public accounting firm, has served as the
Company's independent auditors since 1995. It is expected that Ernst & Young
LLP will be appointed as the Company's independent auditors for the 1998 fiscal
year following the Annual Meeting.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting to respond to appropriate questions and to make such statements
as they may desire.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals by shareholders intended to be presented at the 1999 Annual
Meeting of Shareholders must be received by the Secretary of the Company no
later than December 11, 1998, to be included in the Company's proxy, notice of
meeting and proxy statement relating to such meeting and should be mailed to
Karrington Health, Inc., 919 Old Henderson Road, Columbus, Ohio 43220,
Attention: Secretary.
OTHER BUSINESS
The Board of Directors is aware of no other matter that will be presented
for action at the 1998 Annual Meeting. If any other matter requiring a vote of
the shareholders properly comes before the Annual Meeting, the persons
authorized under management proxies will vote and act according to their best
judgments in light of the conditions then prevailing.
ANNUAL REPORT
The Company's 1997 Annual Report to Shareholders containing audited
financial statements for the 1997 fiscal year is being mailed to all
shareholders of record with this Proxy Statement.
14
MAP TO KARRINGTON HEALTH, INC.
ANNUAL MEETING OF SHAREHOLDERS
COLUMBUS, OHIO
[MAP]
HOW TO FIND THE WYNDHAM DUBLIN HOTEL
The Wyndham Dublin Hotel is located in Metro Place North in northwest
Columbus. Exit 17A from I-270 at State Route 161 (heading East) and
at the first traffic light turn right onto Frantz Road. Follow
for approximately 1 block to the first traffic light at Metro
Place North. Turn right, the hotel is 1/2 mile on the right side
and is visible from I-270.
Tuesday, May 12, 1998
Meeting begins at 11:00 a.m. Doors open at 10:45 a.m.
The Wyndham Dublin Hotel
600 Metro Place North, (614) 764-2200
For further information, call 1-800-451-5158 and ask for extension 258.
KARRINGTON HEALTH, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 12, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder(s) of common shares of Karrington Health, Inc. (the
"Company") hereby constitutes and appoints Richard R. Slager and Pete A.
Klisares, or either of them, the Proxy or Proxies of the undersigned, with full
power of substitution, to attend the Annual Meeting of Shareholders of the
Company to be held on Tuesday, May 12, 1998, at the Wyndham Dublin Hotel, at
11:00 A.M., local time, and any adjournment(s) thereof, and to vote all of the
common shares which the undersigned is entitled to vote at such Annual Meeting
or at any adjournment(s) thereof:
1. To elect four directors to serve for terms of three years each.
/ / FOR election as directors of the Company of all / / WITHHOLD AUTHORITY to vote for all of the
of the nominees listed below (except as marked nominees listed below.
to the contrary below.)*
John S. Christie David H. Hoag Charles H. McCreary James V. Pickett
*(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE.)
________________________________________
2. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the Annual Meeting or any adjournment(s)
thereof.
(CONTINUED, AND TO BE EXECUTED AND DATED ON THE REVERSE SIDE.)
(CONTINUED FROM OTHER SIDE.)
WHERE A CHOICE IS INDICATED, THE COMMON SHARES REPRESENTED BY THIS PROXY
WHEN PROPERLY EXECUTED WILL BE VOTED OR NOT VOTED AS SPECIFIED. IF NO CHOICE IS
INDICATED, THE COMMON SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE
ELECTION OF THE NOMINEES LISTED IN ITEM NO. 1 AS DIRECTORS OF THE COMPANY. IF
ANY OTHER MATTERS ARE PROPERLY BROUGHT BEFORE THE ANNUAL MEETING OR ANY
ADJOURNMENT(S) THEREOF OR IF A NOMINEE FOR ELECTION AS A DIRECTOR NAMED IN THE
PROXY STATEMENT IS UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, THE COMMON
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE DISCRETION OF THE PROXIES
ON SUCH MATTERS OR FOR SUCH SUBSTITUTE NOMINEE(S) AS THE DIRECTORS MAY
RECOMMEND.
ALL PROXIES PREVIOUSLY GIVEN OR EXECUTED BY THE UNDERSIGNED ARE HEREBY
REVOKED. The undersigned acknowledges receipt of the accompanying Notice of
Annual Meeting of Shareholders and Proxy Statement for the May 12, 1998 meeting
and Annual Report to Shareholders for the fiscal year ended December 31, 1997.
Dated _________________________, 1998
_____________________________________
Signature of Shareholder(s)
_____________________________________
Signature of Shareholder(s)
Please sign exactly as your name
appears hereon. When common shares
are registered in two names, both
shareholders should sign. When
signing as attorney, executor,
administrator, guardian or trustee,
please give full title as such. If
shareholder is a corporation, please
sign in full corporate name by
President or other authorized
officer. If shareholder is a
partnership, please sign in
partnership name by authorized
person. (Please note any change of
address on this proxy.)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF KARRINGTON
HEALTH, INC. PLEASE FILL IN, SIGN, DATE AND RETURN IT PROMPTLY USING THE
ENCLOSED ENVELOPE.