<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 14a-11(c) or 14a-12
</TABLE>
NCS HEALTHCARE, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
KEVIN B. SHAW, PRESIDENT AND CHIEF EXECUTIVE OFFICER
(NAME OF PERSON FILING PROXY STATEMENT)
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:
Not Applicable
(2) Aggregate number of securities to which transaction applies:
Not Applicable
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11*
Not Applicable
(4) Proposed maximum aggregate value of transaction:
Not Applicable
(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:
- ------------------
*Set forth the amount on which the filing fee is calculated and state how it was
determined.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
NCS Healthcare Logo
October 28, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of NCS HealthCare, Inc. to be held Monday, November 23, 1998, at 9:30 a.m.
(local time), at the Private Rooms at Playhouse Square, 1515 Euclid Avenue, 2nd
Floor, Cleveland, Ohio.
In addition to the election of Directors, at this year's Annual Meeting,
stockholders will be asked to approve a proposal to adopt the NCS HealthCare,
Inc. 1998 Performance Plan. There will also be a discussion of the Company's
activities and a report on our first quarter, which ended on September 30, 1998.
Whether or not you plan to attend the Annual Meeting in person, it is
important that your shares are represented. Therefore, please complete, sign,
date and promptly return the enclosed proxy card in the accompanying envelope.
You are, of course, welcome to attend the Annual Meeting and vote in person even
if you have previously returned your proxy card.
On behalf of the Board of Directors and the management of NCS HealthCare,
Inc., we would like to thank you for your continued support and confidence.
<TABLE>
<S> <C>
Sincerely,
/s/ Jon H. Outcalt /s/ Kevin B. Shaw
Jon H. Outcalt Kevin B. Shaw
Chairman President and Chief Executive
Officer
</TABLE>
<PAGE> 3
NCS HEALTHCARE, INC.
3201 Enterprise Parkway
Cleveland, Ohio 44122
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MONDAY, NOVEMBER 23, 1998
The 1998 Annual Meeting of Stockholders of NCS HealthCare, Inc. ("NCS" or
the "Company"), a Delaware corporation, will be held Monday, November 23, 1998,
at 9:30 a.m. (local time), at the Private Rooms at Playhouse Square, 1515 Euclid
Avenue, 2nd Floor, Cleveland, Ohio. Doors to the meeting will be open at 9:00
a.m.
The meeting will be conducted:
1. To consider and vote upon the election of the class of Directors
whose terms will expire at the Annual Meeting of Stockholders to be
held in 2001;
2. To consider and vote upon a proposal to approve and adopt the NCS
HealthCare, Inc. 1998 Performance Plan; and
3. To consider and act upon such other matters as may properly come
before the meeting or any and all postponements or adjournments
thereof.
Only stockholders of record at the close of business on October 26, 1998,
will be entitled to notice of and to vote at the meeting or any adjournments or
postponements thereof.
Kevin B. Shaw
President and Chief Executive Officer
October 28, 1998
EACH STOCKHOLDER IS REQUESTED TO EXECUTE AND PROMPTLY RETURN THE ENCLOSED PROXY
CARD IN THE ENCLOSED PREPAID ENVELOPE.
<PAGE> 4
NCS HEALTHCARE, INC.
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To be held Monday, November 23, 1998
Mailed on or about October 28, 1998
INTRODUCTION
This proxy statement (the "Proxy Statement") is being furnished to
stockholders of NCS Healthcare, Inc., a Delaware corporation ("NCS" or the
"Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company (the "Board" or the "Board of Directors") from holders
of record of the Company's outstanding shares of Class A Common Stock, $.01 par
value (the "Class A Stock"), and Class B Common Stock, $.01 par value (the
"Class B Stock") (the Class A Stock and Class B Stock hereinafter collectively
referred to as the "Common Stock"), as of the close of business on October 26,
1998 (the "Annual Meeting Record Date") for use at the 1998 Annual Meeting of
Stockholders of the Company (the "Annual Meeting"), and at any adjournments or
postponements thereof. The Annual Meeting will be held on Monday, November 23,
1998, at 9:30 a.m. (local time), at the Private Rooms at Playhouse Square, 1515
Euclid Avenue, 2nd Floor, Cleveland, Ohio. This Proxy Statement and the
accompanying proxy card are being mailed to stockholders on or about October 28,
1998. The headquarters and principal executive offices of the Company are
located at 3201 Enterprise Parkway, Cleveland, Ohio 44122.
Proxies will be solicited by mail, telephone or other means of
communication. Solicitation also may be made by Directors, officers and other
employees of the Company not specifically employed for this purpose. The Company
will reimburse brokerage firms, custodians, nominees and fiduciaries in
accordance with the rules of the National Association of Securities Dealers,
Inc. for reasonable expenses incurred by them in forwarding materials to the
beneficial owners of the Common Stock. The entire cost of solicitation will be
borne by the Company.
VOTING RIGHTS AND PROXY INFORMATION
Only holders of record of Common Stock as of the close of business on the
Annual Meeting Record Date will be entitled to notice of and to vote at the
Annual Meeting or any adjournments or postponements thereof. Holders of Class A
Stock are entitled to one vote per share on any matter that may properly come
before the Annual Meeting, and holders of Class B Stock are entitled to ten
votes per share on any such matters. Except as otherwise provided by the
Company's Certificate of Incorporation or required by law, holders of the Class
A Stock and Class B Stock will at all times vote on all matters (including the
election of Directors) together as one class. The presence, either in person or
by properly executed and delivered proxy, of the holders of a majority of the
voting power of the Common Stock entitled to vote is necessary to constitute a
quorum at the Annual Meeting and to permit action to be taken by stockholders at
such meeting. Under Delaware law,
1
<PAGE> 5
Common Stock represented by proxies that reflect abstentions or "broker
non-votes" (i.e., shares held by a broker or nominee that are represented at the
Annual Meeting, but with respect to which such broker or nominee is not
empowered to vote on a particular proposal) will be counted as shares present
and entitled to vote for purposes of determining the presence of a quorum.
A plurality of the votes present in person or represented by proxy at the
Annual Meeting is required to elect the nominees for Director. "Plurality" means
that the individuals who receive the largest number of votes cast are elected as
Directors up to the maximum number of Directors to be chosen at the meeting.
Consequently, any shares not voted (whether by abstention, broker non-vote or
otherwise) will have no impact on the election of Directors, except to the
extent that the failure to vote for an individual results in another individual
receiving a larger number of votes.
Unless otherwise provided by law or the Company's Certificate of
Incorporation, the affirmative vote of the holders of at least a majority of the
voting power of the Common Stock entitled to vote on such a matter and present
in person or represented by proxy at the Annual Meeting is required to approve
all other matters properly brought before the Annual Meeting. Abstentions as to
all such matters will have the same effect as votes against such matters. Broker
non-votes, however, are not counted as present and entitled to vote for purposes
of determining whether a proposal has been approved and will have no effect on
the outcome of any proposal requiring the affirmative vote of the holder of a
majority of the outstanding shares present and entitled to vote.
As of October 26, 1998, there were 13,973,462 shares of Class A Stock and
6,206,651 shares of Class B Stock outstanding and entitled to vote at the Annual
Meeting. All shares of Common Stock of the Company represented at the Annual
Meeting by properly executed and delivered proxies received prior to or at the
Annual Meeting and not revoked will be voted at the Annual Meeting in accordance
with the instructions indicated in such proxies. If no instructions are
indicated, such proxies will be voted for the nominees recommended by the Board.
In the event that a quorum is not present at the time the Annual Meeting is
convened, or if for any other reason the Company believes that additional time
should be allowed for the solicitation of proxies, the Company may adjourn the
Annual Meeting with or without a vote of the stockholders. If the Company
proposes to adjourn the Annual Meeting by a vote of the stockholders, the
persons named in the enclosed proxy will vote all Common Stock for which they
have voting authority in favor of such adjournment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with National City Bank, in its capacity as transfer agent for the Company (the
"Transfer Agent"), at or before the Annual Meeting, a written notice of
revocation bearing a later date than the proxy, (ii) duly executing a subsequent
proxy relating to the same Common Stock and delivering it to the Transfer Agent
at or before the Annual Meeting or (iii) attending the Annual Meeting and voting
in person (although attendance at the Annual Meeting will not, in and of itself,
constitute a revocation of a proxy). Any written notice revoking a proxy should
be sent to National City Bank, Corporate Trust Administration, 629 Euclid
Avenue, Room 635, Cleveland, Ohio 44114, Attention: Mr. J. Dean Presson.
2
<PAGE> 6
STOCK OWNERSHIP OF PRINCIPAL HOLDERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of October 20, 1998, unless
indicated otherwise, by (i) each person known by the Company to be the
beneficial owner of more than 5% of any class of Common Stock, (ii) each
Director, (iii) each Named Executive Officer and (iv) all Directors and
executive officers as a group.
<TABLE>
<CAPTION>
CLASS A STOCK CLASS B STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
------------------------ ------------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ---- ------------- ------- ------------- -------
<S> <C> <C> <C> <C>
AMVESCAP PLC
11 Devonshire Square
London, England EC2M 4YR................. 993,943(2) 7.1% -- --
Massachusetts Financial Services Company
500 Boylston St., 15th Floor
Boston, MA 02116......................... 692,500(3) 5.0% -- --
Pilgrim Baxter & Associates, Ltd.
825 Duportail Rd.
Wayne, PA 19087.......................... 828,700(4) 5.9% -- --
Putnam Investments, Inc.
One Post Office Square
Boston, MA 02109......................... 2,323,935(5) 16.6% -- --
T. Rowe Price Associates, Inc.
100 East Pratt St.
Baltimore, MD 21202...................... 1,131,800(6) 8.1% -- --
Jon H. Outcalt (7)......................... 34,563(8) * 3,476,086(9) 56.0%
Kevin B. Shaw (7).......................... 15,663(10) * 1,141,134(11) 18.4%
Phyllis K. Wilson.......................... 11,666(12) * 150,507(13) 2.4%
Jeffrey R. Steinhilber..................... 10,798(14) * 110,896(15) 1.8%
Marvin R. Richardson....................... 50,163(16) * -- --
William B. Byrum........................... 49,755(17) * -- --
A. Malachi Mixon III....................... 35,650 * 92,185 1.5%
Richard L. Osborne......................... 3,565 * 147,495(18) 2.4%
Boake A. Sells............................. 14,260 * 92,185 1.5%
All Directors and executive officers as a
group (12 persons) (19).................. 226,083 1.6% 5,210,488 82.1%
</TABLE>
- ---------------
* Less than one percent.
(1) Each share of Class B Stock carries ten votes per share and is convertible
at any time into one share of Class A Stock.
(2) Based solely upon information contained in Amendment No. 1, dated February
12, 1998, to the Schedule 13G filed with the Securities and Exchange
Commission by INVESCO, Inc. on behalf of itself and Amvescap PLC, AVZ,
Inc., AIM Management Group Inc., Amvescap Group Services, Inc.,
3
<PAGE> 7
INVESCO North American Holdings, Inc., INVESCO Capital Management, Inc.,
INVESCO Funds Group, Inc., INVESCO Management & Research, Inc. and INVESCO
Realty Advisors, Inc., all of which share voting and dispositive power over
993,943 shares of Class A Stock.
(3) Based solely upon information contained in a Schedule 13G, dated February
12, 1998, filed with the Securities and Exchange Commission by
Massachusetts Financial Services Company. Massachusetts Financial Services
Company has sole dispositive power over 692,500 shares of Class A Stock and
sole voting power over 675,600 shares of Class A Stock.
(4) Based solely upon information contained in Amendment No. 1, dated February
12, 1998, to the Schedule 13G filed with the Securities and Exchange
Commission by Pilgrim Baxter & Associates, Ltd. Pilgrim Baxter &
Associates, Ltd. has sole dispositive power over 828,700 shares of Class A
Stock and sole voting power over 762,400 shares of Class A Stock.
(5) Based solely upon information contained in Amendment No. 1, dated September
18, 1998, to the Schedule 13G filed with the Securities and Exchange
Commission by Putnam Investments, Inc. ("PI") on behalf of itself and Marsh
& McLennan Companies, Inc. ("MMC"), Putnam Investment Management, Inc.
("PIM") and The Putnam Advisory Company, Inc. ("PAC"). PI is a wholly-owned
subsidiary of MMC. PIM, the investment adviser to the Putnam family of
mutual funds, and PAC, the investment adviser to Putnam's institutional
clients, are wholly owned by PI. PIM and PAC share dispositive power over
2,132,629 shares and 191,306 shares of Class A Stock, respectively. PAC
also shares voting power over 140,151 shares of Class A Stock held by
institutional clients. PI and MMC disclaim beneficial ownership over the
shares held by PIM and PAC.
(6) Based solely upon information contained in a Schedule 13G, dated February
12, 1998, filed with the Securities and Exchange Commission by T. Rowe
Price Associates, Inc. ("Price Associates") on behalf of itself and the T.
Rowe Price New Horizons Fund, Inc. ("Price Horizons"). Price Horizons is a
wholly owned subsidiary of Price Associates. Price Associates serves as the
investment advisor to Price Horizons. Price Associates has sole dispositive
power over 1,131,800 shares of Class A Stock and has sole voting power over
216,800 shares of Class A Stock. Price Horizons has sole voting power over
915,000 shares of Class A Stock.
(7) The beneficial owner's address is c/o NCS HealthCare, Inc., 3201 Enterprise
Parkway, Suite 220, Cleveland, Ohio 44122.
(8) Includes 32,063 shares of Class A Stock held by Mr. Outcalt's spouse and
options to purchase 2,500 shares of Class A Stock.
(9) Owned of record by the Jon H. Outcalt Trust.
(10) Includes 32,063 shares of Class A Stock held by Mr. Shaw's spouse and
options to purchase 3,333 shares of Class A Stock exercisable within 60
days of the Annual Meeting Record Date.
(11) Includes 184,370 shares of Class B Stock held by a limited partnership of
which Mr. Shaw is the general partner.
(12) Includes 10,000 shares of Class A Stock held by a trust for which Ms.
Wilson acts as the trustee and options to purchase 1,666 shares of Class A
Stock that were exercisable within 60 days of the Annual Meeting Record
Date.
(13) Consists of shares of Class B Stock held by a trust for which Ms. Wilson
acts as the trustee.
(14) Includes options to purchase 9,016 shares of Class A Stock that were
exercisable within 60 days of the Annual Meeting Record Date.
4
<PAGE> 8
(15) Includes options to purchase 94,764 shares of Class B Stock that were
exercisable within 60 days of the Annual Meeting Record Date.
(16) Includes 930 shares of Class A Stock owned by the trustee for an individual
retirement account for the benefit of Mr. Richardson, 850 shares of Class A
Stock owned by the trustee for an individual retirement account for the
benefit of Mr. Richardson's spouse, 44,750 shares of Class A Stock owned by
a corporation of which each of Mr. Richardson and Mr. Richardson's spouse
own a 45% equity interest and options to purchase 333 shares of Class A
Stock that were exercisable within 60 days of the Annual Meeting Record
Date.
(17) Includes 280 shares of Class A Stock owned by the trustee for an individual
retirement account for the benefit of Mr. Byrum's spouse and options to
purchase 333 shares of Class A Stock that were exercisable within 60 days
of the Annual Meeting Record Date.
(18) Includes options to purchase 46,092 shares of Class B Stock exercisable
within 60 days of the Annual Meeting Record Date.
(19) Includes options to purchase 28,263 shares of Class A Stock and 140,856
shares of Class B Stock that were exercisable within 60 days of the Annual
Meeting Record Date.
5
<PAGE> 9
ELECTION OF DIRECTORS
The Board of Directors of the Company is comprised of six Directors. The
Company presently has three classes of Directors. The Board has nominated and
recommends the reelection of Messrs. Outcalt and Osborne as "Class III
Directors" for a three-year term expiring at the Annual Meeting of Stockholders
to be held in 2001. Unless otherwise instructed, the proxy holders will vote the
proxies received by them FOR Messrs. Outcalt and Osborne.
If elected, Messrs. Outcalt and Osborne have consented to serve as
Directors of the Company for the three-year term or until their respective
successors are elected and qualified. Further information with respect to both
nominees is set forth below in the section entitled "Nominees for Class III
Director." Although it is not contemplated that any nominee will be unable to
serve as a Director, in such event the proxies will be voted by the proxy
holders for such other person or persons as may be designated by the present
Board of Directors.
NOMINEES FOR CLASS III DIRECTOR
Jon H. Outcalt Jon H. Outcalt is a founding principal of
Chairman of the Board NCS. He served as Senior Vice President
Director since 1986 of Alliance Capital Management L.P., a
Age: 62 global investment management company,
from 1975 to December 1995. Mr. Outcalt
serves on the Board of Directors of Myers
Industries, Inc., a manufacturer of
plastic and rubber parts for the
automotive and other industries, and Ohio
Savings Financial Corporation, a savings
and loan holding company.
Richard L. Osborne Richard L. Osborne has served as the
Director since 1986 Executive Dean of the Weatherhead School
Member of the Audit and Human of Management, Case Western Reserve
Resources Committees of the University, Cleveland, Ohio, since 1971.
Board of Directors Mr. Osborne serves on the Boards of
Age: 60 Directors of Myers Industries, Inc., a
manufacturer of plastic and rubber parts
for the automotive and other industries,
New Horizons Worldwide, Inc., a provider
of computer training services and Ohio
Savings Financial Corporation, a savings
and loan holding company.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS A VOTE FOR
EACH OF THE FOREGOING NOMINEES AS CLASS III DIRECTORS OF THE COMPANY.
DIRECTORS CONTINUING IN OFFICE
A. Malachi Mixon III A. Malachi Mixon III has been the Chief
Director since 1994 Executive Officer and a Director of
Member of the Audit and Human Invacare Corporation since 1979 and,
Resources Committees of the since 1983, its Chairman of the Board.
Board of Directors Mr. Mixon also served as President of
Term as Class I Director expires Invacare Corporation from 1979 to 1996.
1999 Invacare Corporation is a leading world-
Age: 58 wide manufacturer and distributor of home
health care products. Mr. Mixon also
serves as a Director of Lamson & Sessions
Co., a supplier of engineered
thermoplastic
6
<PAGE> 10
products, and Sherwin-Williams Company, a
producer and distributor of coatings and
related products, and is Chairman of the
Board of Trustees of The Cleveland Clinic
Foundation, one of the world's leading
health care institutions.
Phyllis K. Wilson Phyllis K. Wilson is the founder of NCS'
Executive Vice President Columbus, Ohio operation and chairs the
Director since 1993 Company's Pharmacy and Therapeutics
Term as Class I Director expires Committee. From 1989 to June 1995, she
1999 was responsible for corporate development
Age: 57 and oversaw the Company's Ohio and
Michigan operations. She is past
President of the Ohio State Board of
Pharmacy and served as a member of that
board from 1977 to 1985.
Boake A. Sells Boake A. Sells has been a self-employed
Director since 1993 private investor since June 1992. He was
Member of the Audit and Human Chairman of the Board, President and
Resources Committees of the Chief Executive Officer of Revco D.S.,
Board of Directors Inc. from September 1987 to June 1992 and
Term as Class II Director expires was formerly President and Chief
2000 Operating Officer of Dayton Hudson
Age: 61 Corporation and President and Chief
Operating Officer of Cole National
Corporation. Mr. Sells is a Director of
Harrah's Entertainment, Inc., a leading
casino gaming company.
Kevin B. Shaw Kevin B. Shaw is a founding principal of
President, Chief Executive NCS and has served as President,
Officer and Secretary Secretary and a Director of the Company
Director since 1986 since 1986 and as Chief Executive Officer
Term as Class II Director expires since December 1995. Prior to joining the
2000 Company, he was employed by McKinsey &
Age: 41 Company and Owens Corning Fiberglas.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
Presently, the Board is comprised of six members, three of whom are not
officers or employees of the Company. During the fiscal year ended June 30,
1998, the Board met five times and acted by unanimous written consent without a
meeting five times.
The Board has three standing committees: (i) Audit, (ii) Human Resources
and (iii) Executive. The Audit and Human Resources Committees were created on
February 5, 1996, in connection with the Company's initial public offering. The
Executive Committee was created on April 22, 1997. The members of each committee
are appointed by the Board of Directors and serve at its discretion. A majority
of the members of each committee constitutes a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by all of the members, are acts of any of the
respective committees. The Company does not have a standing nominating committee
or a committee performing similar functions.
The members of the Audit Committee are A. Malachi Mixon III, Richard L.
Osborne and Boake A. Sells, none of whom has been an officer or employee of the
Company or any of its subsidiaries. The Audit Committee has general
responsibility for the supervision of the financial controls as well as
accounting and
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<PAGE> 11
audit activities of the Company. The Audit Committee annually reviews the
qualifications of the Company's independent certified public accountants, makes
recommendations to the Board of Directors concerning the selection of the
accountants and reviews the planning, fees and results of such accountants'
audits. The Audit Committee met once during the fiscal year ended June 30, 1998.
The members of the Human Resources Committee are A. Malachi Mixon III,
Richard L. Osborne and Boake A. Sells, none of whom was an officer or employee
of the Company or any of its subsidiaries. The Human Resources Committee has the
authority to (i) administer the Company's stock option plans, including the
selection of optionees and the timing of option grants, (ii) review and monitor
key employee compensation and benefits policies and (iii) administer the
Company's management compensation plans. The Human Resources Committee met twice
during the fiscal year ended June 30, 1998.
The members of the Executive Committee are Jon H. Outcalt, Kevin B. Shaw
and Phyllis K. Wilson. The Executive Committee has general authority for
exercising the power of the Board of Directors regarding acquisitions of
institutional pharmacies and related businesses in the long-term care industry.
The Executive Committee also has general authority to authorize execution of
asset purchase agreements or other acquisition agreements, issue shares of the
Company's capital stock and incur indebtedness necessary to complete such
acquisitions. The Executive Committee acted by unanimous written consent without
a meeting eleven times during the fiscal year ended June 30, 1998.
COMPENSATION OF DIRECTORS
The Company endeavors to maintain a mutuality of interest between its
Directors and the stockholders of the Company. Hence, it has required all of its
Directors to purchase Common Stock and has compensated its Directors, who are
not also key employees, solely by granting options to purchase shares of Class B
Stock. No Director fees have been paid, and the Company does not anticipate
paying Director fees in the foreseeable future.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The table below sets forth certain information with respect to compensation
paid or accrued by the Company during the fiscal years ended June 30, 1996, 1997
and 1998, to the Company's Chief Executive Officer and to the four most highly
compensated executive officers of the Company for the fiscal year ended June 30,
1998 (collectively, the "Named Executive Officers").
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<PAGE> 12
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL -------------------
COMPENSATION(1) SECURITIES
------------------ UNDERLYING ALL OTHER
FISCAL YEAR SALARY BONUS OPTIONS COMPENSATION
----------- -------- ------- ------------------- ------------
<S> <C> <C> <C> <C> <C>
Kevin B. Shaw..................... 1998 $187,000 $ -- -- $ 1,852(2)
President and Chief Executive
Officer 1997 153,970 -- 30,000(3) 4,660(2)
1996 140,000 32,000 10,000(3) 4,787(2)
Phyllis K. Wilson................. 1998 138,200 -- -- 49,446(4)
Executive Vice President 1997 138,200 -- 5,000(3) 50,476(4)
1996 138,200 20,000 5,000(3) 49,849(4)
Jeffrey R. Steinhilber............ 1998 175,000 -- -- 2,450(5)
Executive Vice President 1997 139,423 30,000 15,000(3) 1,938(5)
1996 130,000 28,000 22,540(3) 1,322(5)
Marvin R. Richardson (6).......... 1998 135,000 -- -- 2,116(7)
Senior Vice President 1997 115,385 -- 10,000(3) 2,307(7)
1996 80,000 -- 1,000(3) --
William B. Byrum.................. 1998 135,000 -- -- 2,437(8)
Senior Vice President 1997 129,808 72,500 30,000(3) 2,299(8)
1996 112,500 64,250 1,000(3) 467(8)
</TABLE>
- ---------------
(1) No Named Executive Officer received perquisites or other personal benefits
in excess of the lesser of $50,000 or 10% of such individual's salary plus
annual bonus.
(2) Includes, for fiscal year ended June 30, 1998, fiscal year ended June 30,
1997, and fiscal year ended June 30, 1996, respectively, (i) $511 paid by
the Company for the payment of premiums on life insurance policies and
$1,341 contributed by the Company to its 401(k) Plan on behalf of Mr. Shaw;
(ii) $3,077 paid by the Company for the payment of premiums on life
insurance policies and $1,583 contributed by the Company to its 401(k) Plan
on behalf of Mr. Shaw; and (iii) $2,938 paid by the Company for the payment
of premiums on life insurance policies and $1,849 contributed by the Company
to its 401(k) Plan on behalf of Mr. Shaw. The Company currently matches each
participating employee's contributions to the 401(k) Plan to the extent of
20% of the first 10% of the participant's salary reduction, up to the
maximum allowable under the Internal Revenue Code.
(3) Represents options to purchase shares of Class A Stock.
(4) Includes, for fiscal year ended June 30, 1998, fiscal year ended June 30,
1997 and fiscal year ended June 30, 1996, respectively, (i) $48,576 in
premiums used to fund deferred compensation to be paid to Ms. Wilson
pursuant to the terms of a Deferred Compensation Agreement and $870
contributed by the Company to its 401(k) Plan on behalf of Ms. Wilson; (ii)
$48,576 in premiums used to fund deferred compensation to be paid to Ms.
Wilson pursuant to the terms of a Deferred Compensation Agreement and $1,900
contributed by the Company to its 401(k) Plan on behalf of Ms. Wilson; and
(iii) $48,000 in premiums used to fund deferred compensation to be paid to
Ms. Wilson pursuant to the terms of a Deferred Compensation Agreement and
$1,849 contributed by the Company to its 401(k) Plan on behalf of Ms.
Wilson.
9
<PAGE> 13
(5) Includes, for fiscal year ended June 30, 1998, fiscal year ended June 30,
1997, and fiscal year ended June 30, 1996, respectively; (i) $2,450
contributed by the Company to its 401(k) Plan on behalf of Mr. Steinhilber;
(ii) $1,938 contributed by the Company to its 401(k) Plan on behalf of Mr.
Steinhilber; and (iii) $1,322 contributed by the Company to its 401(k) Plan
on behalf of Mr. Steinhilber.
(6) Mr. Richardson joined the Company on January 1, 1996.
(7) Represents amounts contributed by NCS to its 401(k) Plan on behalf of Mr.
Richardson.
(8) Includes, for fiscal year ended June 30, 1998, fiscal year ended June 30,
1997 and fiscal year ended June 30, 1996, respectively, (i) $1,962
contributed by the Company to its 401(k) Plan on behalf of Mr. Byrum and
$475 representing the rate of interest that would have been paid during
fiscal year ended June 30, 1998 on a below market rate loan from the Company
to Mr. Byrum had the rate of interest been fixed at the then-current market
rate; (ii) $2,299 contributed by the Company to its 401(k) Plan on behalf of
Mr. Byrum; and (iii) $467 contributed by the Company to its 401(k) Plan on
behalf of Mr. Byrum.
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table provides certain information concerning the value of
securities underlying unexercised stock options held by each of the Named
Executive Officers during the fiscal year ended June 30, 1998. No stock options
were exercised by any of the Named Executive Officers during the fiscal year
ended June 30, 1998. This table assumes the conversion into Class A Stock of all
shares of Class B Stock issuable upon the exercise of certain options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT JUNE 30, 1998 JUNE 30, 1998 (1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kevin B. Shaw............ -- $ -- 3,333 36,667 $ 39,996 $ 335,004
Phyllis K. Wilson........ -- -- 1,667 13,333 20,004 124,996
Jeffrey R. Steinhilber... -- -- 103,780 52,215 2,222,377 818,334
Marvin R. Richardson..... -- -- 333 10,667 3,996 93,004
William B. Byrum......... -- -- 333 30,667 3,996 263,004
</TABLE>
- ---------------
(1) Represents the total gain that would be realized if all in-the-money options
beneficially held at June 30, 1998, were exercised, determined by
multiplying the number of shares underlying the options by the difference
between the per share option exercise price and $28.50, the closing price
for the Company's Class A Stock as reported by the Nasdaq National Market at
June 30, 1998.
EMPLOYMENT AGREEMENT
The Company is party to an employment agreement with William B. Byrum,
dated September 1, 1995, pursuant to which Mr. Byrum was employed by the Company
as Vice President -- Corporate Development until June 1998. In June 1998, Mr.
Byrum was promoted to the position of Senior Vice President. The agreement
provides for a term of five years and an annual salary subject to increase at
the discretion of the Company. The agreement provides for a bonus to be paid to
Mr. Byrum. In addition, the agreement contains certain non-compete,
non-disclosure and non-interference provisions applicable to Mr. Byrum.
The Company, through its wholly owned subsidiary, NCS HealthCare of
Indiana, Inc., is also party to an employment agreement with Marvin R.
Richardson, dated May 31, 1995, pursuant to which Mr. Richardson
10
<PAGE> 14
was employed by the Company as the President of NCS HealthCare of Indiana, Inc.
(f/k/a Quality Health Care NCS, Inc.) until March 1997. The agreement provides
for a term of four years from July 1, 1996 and an annual salary in addition to
cash bonuses based on certain performance targets. The agreement also contains
certain non-compete, non-disclosure and non-interference provisions applicable
to Mr. Richardson. In March 1997, Mr. Richardson was promoted to the position of
Senior Vice President -- Sales and Marketing.
CERTAIN TRANSACTIONS
The Company leases its Hilliard, Ohio facility from PR Realty, a
partnership of which Phyllis K. Wilson is Managing Partner. The lease is in the
second year of a ten-year term, with rent payable at an annual rate of $255,750.
The Company believes that this lease is on terms comparable to those that could
be obtained from an unrelated third party.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the Human
Resources Committee (the "Committee") of the Board of Directors. The Committee
is comprised of Messrs. Mixon, Osborne and Sells, none of whom is an officer or
employee of the Company.
COMPENSATION PHILOSOPHY
The Committee's philosophy regarding the compensation of its executive
officers is to (i) provide a competitive total compensation package that enables
the Company to attract and retain qualified executives; (ii) provide executives
with incentive bonuses linked to Company and individual performance; and (iii)
provide executive officers with a significant equity stake in the Company
through stock options or other equity incentives.
Section 162(m) of the Internal Revenue Code prohibits a deduction to any
publicly held corporation for compensation paid to a "covered employee" in any
year in excess of $1 million. A covered employee is generally one of the Named
Executive Officers. The Committee does not expect the deductibility of any
compensation paid to any of the Named Executive Officers in 1998 to be affected
by Section 162(m). However, the Committee may consider alternatives to its
existing compensation programs in the future to assure the deductibility of
executive compensation.
FISCAL 1998 COMPENSATION DECISIONS
Salaries. Base salaries for all executive officers for fiscal 1998, other
than Mr. Shaw, were established by the Committee based on recommendations by Mr.
Shaw. Generally, base salaries for these executive officers were increased (i)
in order to sufficiently retain and attract qualified executives and (ii) as a
reflection of the Company's continued increase in revenues and net income.
Bonuses. Executive officers were eligible to receive cash bonuses for
fiscal 1998 with bonus levels established based on each executive's function,
level of responsibility and/or the terms of their employment agreements.
Stock Options. The Committee believes that the interests of executives most
responsible for the management and growth of the Company should be closely
aligned with the long-term interests of the
11
<PAGE> 15
Company's stockholders. As a consequence the Committee granted options to
purchase an aggregate of 345,250 shares of Class A Stock to the Named Executive
Officers and other key employees as described below.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Consistent with the Committee's desire to base much of the compensation of
the Company's executives on performance during the year, the Committee
determined to increase the base salary of Mr. Shaw, the President and Chief
Executive Officer of the Company, for fiscal 1998 to $193,382, from $153,970 for
fiscal 1997.
The compensation arrangements of Mr. Shaw are determined based on the
Committee's subjective assessment of his performance, measured by the Company's
overall financial performance and the Committee's assessment of Mr. Shaw's
contributions to achieving strategic objectives during the year. In assessing
Mr. Shaw's contribution to the Company's financial performance, the Committee
took into account the fact that the Company achieved its highest level of
revenues and net income during fiscal 1998. In assessing Mr. Shaw's contribution
to achieving the Company's strategic objectives, the Committee considered the
fact that during the year, the Company (i) completed several strategic
acquisitions of institutional pharmacies and businesses providing related
services, including the two largest acquisitions in the Company's history, the
long-term care businesses of Eckerd Corporation and Walgreen Company, and (ii)
achieved the highest rate of internal growth in the Company's history.
Although the Company achieved many of its strategic objectives during
fiscal 1998, Mr. Shaw requested that he receive no bonus for his contribution to
the Company's financial performance, electing instead to be considered for
additional future stock option grants.
ADDITIONAL MATTERS
On October 23, 1998, the Committee awarded options to 53 employees of the
Company to purchase an aggregate of 345,250 shares of Class A Stock. Of the
total stock options, the Company awarded options to purchase an aggregate of
141,250 shares of Class A Stock to the Company's executive officers. In
determining the number of options awarded to individual executive officers, the
Committee generally establishes a level of award based on the individual's
position and level of responsibility. The stock options vest incrementally over
time beginning two years from the date of grant and expire five years from the
date of grant. The exercise price of each stock option is $15.00 per share,
which was the closing price of the Class A Stock on the date of grant.
THE HUMAN RESOURCES COMMITTEE
Richard L. Osborne, Chairman
A. Malachi Mixon III
Boake A. Sells
12
<PAGE> 16
PERFORMANCE GRAPH
The following line graph compares the percentage change in the cumulative
total stockholder return on the Company's Class A Stock against the cumulative
total return of the Standard & Poor's 500 Stock Index (the "S&P 500 Index") and
the Standard & Poor's Health Care Sector Index (the "S&P Health Care Sector
Index") for the period that commenced February 14, 1996 and ended June 30, 1998.
The graph assumes an investment of $100 on February 14, 1996 in Class A Stock or
on January 31, 1996 for the applicable index, a reinvestment of dividends (no
dividends were declared on the Company's Class A Stock during the period) and
actual market value increases and decreases of the Company's Class A Stock
relative to an initial investment of $100.
The Company believes the information provided has only limited relevance
and is not necessarily indicative of future price performance.
COMPARISON OF 28 MONTH CUMULATIVE TOTAL RETURN*
AMONG NCS HEALTHCARE, INC., THE S&P INDEX
AND THE S&P HEALTH CARE SECTOR INDEX
<TABLE>
<CAPTION>
S&P
NCS Healthcare, Healthcare
Inc. S&P 500 Sector
<S> <C> <C> <C>
Feb-14-96 100.00 100.00 100.00
Jun-96 183.33 106.47 102.23
Jun-97 184.09 143.42 150.69
Jun-98 172.73 186.67 206.83
</TABLE>
*100 INVESTED ON 2/14/96 IN STOCK OR ON 1/31/96
IN INDEX-INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.
PROPOSAL TO APPROVE AND ADOPT THE NCS
HEALTHCARE, INC. 1998 PERFORMANCE PLAN
Stockholders will be asked at the Annual Meeting to vote on a proposal to
approve and adopt the NCS HealthCare, Inc. 1998 Performance Plan (the "Plan").
The Plan was adopted by the Board of Directors on
13
<PAGE> 17
October 23, 1998, subject to stockholder approval. As of October 26, 1998, only
3,960 shares remained available for future option grants under the Company's
existing 1996 Long Term Incentive Stock Option Plan. Therefore, the Human
Resources Committee of the Board of Directors (the "Committee") recommended
approval of the Plan in order to continue to have access to a sufficient pool of
shares of Class A Stock to provide incentives to the Company's Directors and key
employees. The Plan provides the Committee with broad discretion to fashion
awards in the form of stock options, stock awards, stock appreciation rights and
cash awards to individuals whose services are expected to aid in the long-term
growth and performance of the Company.
The full text of the Plan is attached hereto as Appendix A to this Proxy
Statement. Important details about specific provisions of the Plan are more
fully described below, but the following summary is not intended to be complete
and it is qualified in its entirety by reference to the Plan.
GENERAL
The Plan will give the Committee discretion to fashion the terms of awards
in order to provide the Company's employees with cash and/or stock-based
incentives that are appropriate under the circumstances. It will permit the
issuance of restricted stock, stock options and stock appreciation rights.
All Directors (including members of the Committee) and employees of the
Company and its subsidiaries will be eligible to be selected by the Committee
for participation in the Plan. The Plan will be administered by the Committee or
any other committee of the Board that the Board or the Committee authorizes.
Authority of the Committee. The Committee has authority to: select the
persons who will receive awards (persons receiving awards under the Plan are
known as "Participants"); grant awards; determine the terms, conditions and
restrictions applicable to the awards (including the forms of agreements for
such awards); determine how the exercise price is paid; modify or replace
outstanding awards within the limits of the Plan; accelerate the date on which
awards become exercisable; waive the restrictions and conditions applicable to
awards; defer payout on awards; and establish rules governing the Plan,
including special rules applicable to awards made to employees who are foreign
nationals or are employed outside the United States.
The Plan does not establish limits on the terms of awards such as the
exercise price, restrictions, performance objectives, vesting periods, or
termination provisions in the event of termination of employment. Instead, the
Committee is given the broad authority to establish these terms in order best to
achieve the purposes of the Plan.
The Committee may delegate its authority under the Plan to any other person
or persons that it deems appropriate. Any decision made by the Committee in
connection with the administration, interpretation and implementation of the
Plan and of its rules and regulations will be, to the extent permitted by law,
final and binding upon all persons. Neither the Committee nor any of its members
is liable for any act taken by the Committee pursuant to the Plan. No member of
the Committee is liable for the acts of any other member.
Number of Shares of Class A Stock. The aggregate number of shares of Class
A Stock that may be subject to awards granted under the Plan during its term is
1,200,000 shares of the Company's Class A Stock, subject to certain adjustments.
Shares of Class A Stock issued under the Plan may be either newly-issued shares
or treasury shares. The assumption of obligations in respect of awards granted
by an organization acquired by the Company, or the grant of awards under the
Plan in substitution for any such awards, will not reduce the number of shares
of Class A Stock available in any fiscal year for the grant of awards under the
Plan.
14
<PAGE> 18
Shares of Class A Stock subject to an award that are forfeited, terminated,
or canceled without having been exercised (other than shares subject to a stock
option that are canceled upon the exercise of a related stock appreciation
right) will generally be available again for grant under the Plan, without
reducing the number of shares of Class A Stock available in any fiscal year for
grant of awards under the Plan.
In the event of a recapitalization, stock dividend, stock split,
distribution to stockholders (other than cash dividends), or similar
transaction, the Committee can adjust, in any manner that it deems equitable,
the number and class of shares that may be issued under the Plan and the number
and class of shares, and exercise price, applicable to outstanding awards.
Types of Awards. The Plan provides for the grant of stock options, which
may either be incentive stock options or "non-qualified" stock options, stock
awards, restricted stock, stock equivalent units, stock appreciation rights and
cash awards. These awards are payable in cash or shares of Class A Stock, or any
combination thereof, as determined by the Committee.
Grant of Awards. Awards may be granted singly or in combination or tandem
with other awards. Awards may also be granted to replace other awards granted by
the Company. If an employee pays all or part of the exercise price or taxes
associated with an award by the transfer of shares of Class A Stock or the
surrender of all or part of an award (including the award being exercised), the
Committee may, in its discretion, grant a new award to replace the award or the
shares of Class A Stock that were transferred or surrendered. The Company may
also assume awards granted by an organization acquired by the Company or may
grant awards in replacement of any such awards.
Certain Limits on Grant of Stock Options or Stock Appreciation Rights. The
Plan provides that the maximum aggregate number of shares of Class A Stock (i)
for which stock options may be granted, and (ii) with respect to which stock
appreciation rights may be granted, to any particular employee during any
calendar year during the term of the Plan is 300,000 shares of Class A Stock,
subject to adjustment in accordance with Section 4(c) of the Plan.
Payment of Exercise Price. The exercise price of a stock option (other than
an incentive stock option) and any other stock award for which the Committee has
established an exercise price may be paid in cash, by the transfer of shares of
Class A Stock, by the surrender of all or part of an award (including the award
being exercised), or by a combination of these methods, as and to the extent
permitted by the Committee. The exercise price of an incentive stock option may
be paid in cash, by the transfer of shares of Class A Stock, or by a combination
of these methods, as and to the extent permitted by the Committee at the time of
grant, but may not be paid by the surrender of an award. The Committee may
prescribe any other method of paying the exercise price that is determined to be
consistent with applicable law and the purpose of the Plan.
Taxes Associated with Awards. Prior to the payment of an award, the Company
may withhold, or require a participant to remit to the Company, an amount of
cash sufficient to pay any federal, state, and local taxes associated with the
award. The Committee may permit participants to pay the taxes associated with an
award (other than an incentive stock option) by the transfer of shares of Class
A Stock, by the surrender of all or part of an award (including the award being
exercised), or by a combination of cash and/or one of these methods. In
addition, the Committee may permit a participant to pay the taxes associated
with an incentive stock option by the transfer of shares of Class A Stock or by
a combination of cash and such method.
Termination of Awards. The Committee may cancel any awards if the
participant, without the Company's prior written consent, (i) renders services
for an organization, or engages in a business, that is (in the judgment of the
Committee) in competition with the Company or (ii) discloses to anyone outside
of the
15
<PAGE> 19
Company, or uses for any purpose other than the Company's business, any
confidential information relating to the Company.
Change in Control. In the event of a change in control of the Company, as
defined in the Plan, the Board of Directors or the Committee, in its discretion
may (i) accelerate the exercisability of any stock options and stock
appreciation rights, notwithstanding any limitations set forth in the Plan, (ii)
deem all restrictions and conditions applicable to restricted stock and other
stock awards as having been satisfied and (iii) release all cash awards and/or
deem them to have been fully earned as of the date of the change in control.
Amendment, Effective Date, and Termination of the Plan. The Board of
Directors may amend, suspend, or terminate the Plan at any time. Stockholder
approval for any such amendment will be required if the amendment results in:
(i) an increase, subject to certain exceptions, in the maximum number of shares
of Class A Stock that may be subject to awards granted under the Plan, (ii) a
change that would cause any incentive stock option granted under the Plan not to
qualify as an incentive stock option under the Internal Revenue Code of 1986, as
amended (the "Code") or (iii) any change that would eliminate the exemption from
the "short-swing profits" rules currently available to the Plan and to awards
granted under the Plan.
The Plan was approved by the Board of Directors on October 23, 1998, but
will not be effective until its adoption by the Company's stockholders; the Plan
will remain in effect until November 1, 2008.
FEDERAL INCOME TAX CONSEQUENCES OF AWARDS
The anticipated income tax treatment, under current provisions of the Code,
of the grant and exercise of awards is as follows:
Incentive Stock Options. In general, within certain dollar limits, an
employee will not recognize taxable income at the time an incentive stock option
is granted or exercised provided the employee has been employed by the Company
at all times from the date of grant until the date three months before the date
of exercise (one year in the case of permanent disability). However, the excess
of the fair market value of the shares of Class A Stock acquired upon exercise
of the incentive stock option over the exercise price is an item of tax
preference for purposes of the alternative minimum tax. If the employee
exercises an incentive stock option without satisfying the employment
requirement, the income tax treatment will be the same as that for a non-
qualified stock option described below. Upon disposition of the shares of Class
A Stock acquired upon exercise of an incentive stock option, capital gain or
capital loss will be recognized in an amount equal to the difference between the
sale price and the exercise price, provided that the employee has not disposed
of the shares of Class A Stock within two years of the date of option grant or
within one year from the date of option exercise (a "Disqualifying
Disposition"). If the employee disposes of the shares in a Disqualifying
Disposition, the employee will recognize ordinary income at the time of the
Disqualifying Disposition to the extent of the difference between the exercise
price and the lesser of the fair market value of the shares on the date the
incentive stock option is exercised or the amount realized in the Disqualifying
Disposition. Any remaining gain or loss is treated as a capital gain or capital
loss.
The Company is not entitled to a tax deduction either upon the exercise of
an incentive stock option or upon the disposition of the Common Shares acquired
thereby, except to the extent that the employee recognizes ordinary income in a
Disqualifying Disposition and subject to the applicable provisions of the Code.
Non-Qualified Stock Options. In general, an employee will not recognize
taxable income at the time a stock option that does not qualify as an incentive
stock option (a "Non-qualified Stock Option") is granted. An amount equal to the
difference between the exercise price and the fair market value, on the date of
16
<PAGE> 20
exercise, of the shares of Class A Stock acquired upon exercise of the
Non-qualified Stock Option will be included in the employee's ordinary income in
the taxable year in which the Non-qualified Stock Option is exercised, and the
employee will receive a tax basis for the shares equal to their fair market
value on the date of exercise. Upon disposition of the shares of Class A Stock
acquired upon exercise of the Non-qualified Stock Option, appreciation or
depreciation from the tax basis of the acquired shares after the date of
exercise will be treated as either capital gain or capital loss.
Subject to the applicable provisions of the Code, the Company generally
will be entitled to a tax deduction in the amount of the ordinary income
realized by the employee in the year the Non-qualified Stock Option is
exercised. Any amounts includable as ordinary income to an employee in respect
of a Non-qualified Stock Option will be subject to applicable withholding for
federal income and employment taxes.
Stock Appreciation Rights. The grant of stock appreciation rights will have
no immediate tax consequences to the Company or the employee receiving the
grant. In general, the amount of compensation that will be realized by an
employee upon exercise of a stock appreciation right is equal to the difference
between the grant date valuation of the Common Shares underlying the stock
appreciation right and the fair market value of those shares on the date of
exercise. The amount received by the employee upon the exercise of the stock
appreciation rights will be included in the employee's ordinary income in the
taxable year in which the stock appreciation rights are exercised. Subject to
the applicable provisions of the Code, the Company generally will be entitled to
a deduction in the same amount in that year.
The discussion set forth above does not purport to be a complete analysis
of all potential tax consequences relevant to recipients of awards under the
Plan or to the Company or to describe tax consequences based on particular
circumstances. It is based on United States federal income tax law and
interpretational authorities as of the date of this Proxy Statement, which are
subject to change at any time. The discussion does not address state or local
income tax consequences or income tax consequences for taxpayers who are not
subject to taxation in the United States.
NEW PLAN BENEFITS
No awards to any person have been made under the Plan. The benefits that
will be received by eligible persons under the Plan or that would have been
received under the Plan if it had been in effect in the fiscal year ended June
30, 1998 are not currently determinable because awards will be made at the
discretion of the Committee.
The Board of Directors recommends a vote "FOR" the proposal to approve and
adopt the Plan. The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock of the Company present, either in person or
by proxy, at the Annual Meeting is required to approve and adopt the Plan. Thus,
stockholders who vote to abstain will in effect be voting against the proposal.
Broker non-votes, however, are not counted as present for determining whether
this proposal has been approved and have no effect on its outcome.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's Directors and certain of its officers and persons who own
more than 10% of a registered class of the Company's equity securities to file
reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission. Such persons are further required to furnish
the Company with copies of all such
17
<PAGE> 21
forms they file. Based solely on the Company's review of the copies of such
forms it has received, the Company believes all Section 16(a) filing
requirements were satisfied by the Company's Directors and executive officers
for the fiscal year ended June 30, 1998, except that (i) the gifts by Ms. Wilson
of 17,932 shares of Class B Stock on December 31, 1996, 165,507 shares of Class
B Stock on January 15, 1997 and 1,782 shares of Class A Stock on January 15,
1997, the open market sale by Ms. Wilson, as trustee, of 9,174 shares of Class A
Stock on November 4, 1997 and the conversion of 10,000 shares of Class B Stock
to Class A Stock on December 30, 1997 were reported on March 6, 1998 on three
separate Section 16 forms, (ii) Mr. Richardson's open market purchase of 850
shares of Class A Stock on February 2, 1998 by the custodian for an IRA for the
benefit of Mr. Richardson's spouse was reported on April 12, 1998 on a single
Section 16 form, (iii) Mr. Mangum's initial statement of beneficial ownership
for June 1998 was reported on August 4, 1998 on a single Section 16 form and
(iv) the gifts by Mr. Outcalt's spouse of 700 shares of Class A Stock on
December 31, 1998 and 300 shares of Class A Stock on January 5, 1998 were
reported on October 8, 1998 on a single Section 16 form.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Any stockholder who meets the requirements of the proxy rules under the
Exchange Act may submit to the Board of Directors proposals to be considered for
submission to the Annual Meeting of Stockholders to be held in 1999. Any such
proposal should be submitted in writing by notice delivered or mailed by
first-class United States mail, postage prepaid, to NCS HealthCare, Inc., 3201
Enterprise Parkway, Cleveland, Ohio 44122 and must be received no later than
June 30, 1999. Any such notice shall set forth: (a) the name and address of the
stockholder and the text of the proposal to be introduced; and (b) the number of
shares of stock held of record, owned beneficially and represented by proxy by
such stockholder as of the date of such notice. If the proponent is not a
stockholder of record, proof of beneficial ownership also should be submitted.
All proposals must be a proper subject for action and comply with the Proxy
Rules of the Securities and Exchange Commission and such other requirements
imposed by the Company as set forth in its Bylaws. The Chairman of the meeting
may refuse to acknowledge the introduction of any stockholder proposal not made
in compliance with the foregoing procedures.
The Company may use its discretion in voting proxies with respect to
stockholder proposals not included in the Proxy Statement for the fiscal year
ended June 30, 1999, unless the Company receives notice of such proposals prior
to September 13, 1999.
INDEPENDENT AUDITORS
The Board of Directors of the Company has selected the firm of Ernst &
Young LLP, independent auditors, to examine and audit the financial statements
of the Company and its subsidiaries for the fiscal year ending June 30, 1999.
Representatives of Ernst & Young LLP will be present at the Annual Meeting and
will have an opportunity to make a statement should they so desire. The
representatives also will be available to respond to appropriate questions from
stockholders.
OTHER MATTERS
The Board of Directors of the Company is not aware of any matter to come
before the meeting other than those mentioned in the accompanying notice.
However, if other matters shall properly come before the meeting, it is the
intention of the persons named in the accompanying Proxy to vote in accordance
with their best judgment on such matters.
18
<PAGE> 22
Upon the receipt of a written request from any stockholder entitled to vote
at the Annual Meeting, the Company will mail, at no charge to the stockholder, a
copy of the Company's Annual Report on Form 10-K, including the financial
statements and schedules required to be filed with the Securities and Exchange
Commission pursuant to Rule 13a-1 under the Exchange Act, for the Company's most
recent fiscal year. Requests from beneficial owners of the Company's voting
securities must set forth a good-faith representation that, as of the Annual
Meeting Record Date, the person making the request was the beneficial owner of
securities entitled to vote at such Annual Meeting. Written requests for the
Annual Report on Form 10-K should be directed to: Investor Relations, NCS
HealthCare, Inc., 3201 Enterprise Parkway, Cleveland, Ohio 44122.
You are urged to sign and return your Proxy promptly in order to make
certain your shares will be voted at the Annual Meeting. For your convenience a
return envelope is enclosed requiring no additional postage if mailed in the
United States.
BY ORDER OF THE BOARD OF DIRECTORS
Kevin B. Shaw
President and Chief Executive Officer
October 28, 1998
19
<PAGE> 23
APPENDIX A
NCS HEALTHCARE, INC.
1998 PERFORMANCE PLAN
1. PURPOSE
The NCS HealthCare, Inc. 1998 Performance Plan, as the same may be amended
(the "Plan"), is designed to foster the long-term growth and performance of the
Company by: (a) enhancing the Company's ability to attract and retain highly
qualified employees and (b) motivating its Directors and employees to serve and
promote the long-term interests of the Company and its stockholders through
stock ownership and performance-based incentives. To achieve this purpose, the
Plan provides authority for the grant of Stock Options, Restricted Stock, Stock
Equivalent Units, Stock Appreciation Rights, Cash Awards and other stock and
performance-based incentives.
2. DEFINITIONS
(a) "AFFILIATE" means the same definition as under Rule 12b-2 under
the Exchange Act.
(b) "AWARD" means the grant of Stock Options, Restricted Stock, Stock
Equivalent Units, Stock Appreciation Rights, Cash Awards, and other stock
and performance-based incentives under this Plan.
(c) "AWARD AGREEMENT" means any agreement between the Company and a
Participant that sets forth terms, conditions, and restrictions applicable
to an Award.
(d) "BOARD OF DIRECTORS" means the Board of Directors of the Company.
(e) "CASH AWARD" is defined in Section 6(b)(iv).
(f) "CHANGE IN CONTROL" means, at any time after the date of the
adoption of this Plan, the occurrence of any one or more of the following:
(i) Any Person (other than any employee benefit plan or employee
stock ownership plan of the Company, or any Person organized, appointed,
or established by the Company, for or pursuant to the terms of any such
plan), alone or together with any of its Affiliates, becomes the
Beneficial Owner of 20% or more of the total outstanding voting power of
the Company, as reflected by the power to vote in connection with the
election of Directors, or commences or publicly announces an intent to
commence a tender offer or exchange offer the consummation of which
would result in the Person becoming the Beneficial Owner of 20% or more
of the total outstanding voting power of the Company as reflected by the
power to vote in connection with the election of Directors. For purposes
of this Section 2(f)(i), the term "Person" means a person as defined by
Section 13(d)(3) of the Exchange Act, and the term "Beneficial Owner"
means a beneficial owner as defined by Rule 13d-3 or any successor rule
or regulation promulgated under the Exchange Act.
(ii) At any time during a period of 24 consecutive months,
individuals who were Directors at the beginning of the period no longer
constitute a majority of the members of the Board of Directors, unless
the election, or the nomination for election by the Company's
stockholders, of each Director who was not a Director at the beginning
of the period is approved by at least a majority of the Directors who
are in office at the time of the election or nomination and were either
Directors at the beginning of the period or are Continuing Directors.
A-1
<PAGE> 24
(iii) A record date is established for determining stockholders
entitled to vote upon (A) a merger or consolidation of the Company with
another corporation (which is not an affiliate of the Company) in which
the Company is not the surviving or continuing corporation or in which
all or part of the outstanding capital stock of the Company is to be
converted into or exchanged for cash, securities, or other property, (B)
a sale or other disposition of all or substantially all of the assets of
the Company, or (C) the dissolution or liquidation (but not partial
liquidation) of the Company.
(g) "CLASS B COMMON STOCK" means the shares of Class B Common Stock,
without par value, of the Company, including authorized and unissued shares
of Class B Common Stock.
(h) "CODE" means the Internal Revenue Code of 1986, or any law that
supersedes or replaces it, as amended from time to time.
(i) "COMMITTEE" means the Human Resources Committee of the Board of
Directors, or any other committee of the Board of Directors that the Board
of Directors or the Human Resources Committee authorizes to administer all
or any aspect of this Plan.
(j) "CLASS A COMMON STOCK" means the shares of Class A Common Stock,
without par value, of the Company, including authorized and unissued shares
of Class A Common Stock and shares of Class A Common Stock held in
treasury.
(k) "COMPANY" means NCS HealthCare, Inc., a Delaware corporation, and
its direct and indirect subsidiaries.
(l) "CONTINUING DIRECTOR" means a Director who was a Director prior to
a Change in Control or was recommended or elected to succeed a Continuing
Director by a majority of the Continuing Directors then in office.
(m) "DIRECTOR" means a director of NCS HealthCare, Inc.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, and any
law that supersedes or replaces it, as amended from time to time.
(o) "FAIR MARKET VALUE" of Class A Common Stock means the value of the
Class A Common Stock determined by the Committee, or pursuant to rules
established by the Committee on a basis consistent with regulations under
the Code.
(p) "INCENTIVE STOCK OPTION" means a Stock Option that meets the
requirements of Section 422 of the Code.
(q) "NOTICE OF AWARD" means any notice by the Committee to a
Participant that advises the Participant of the grant of an Award or sets
forth terms, conditions, and restrictions applicable to an Award.
(r) "PARTICIPANT" means any person to whom an Award has been granted
under this Plan.
(s) "PERFORMANCE OBJECTIVES" means the achievement of performance
objectives, the outcomes of which are substantially uncertain when set,
established pursuant to this Plan. Performance Objectives may be described
in terms of Company-wide objectives or objectives that are related to the
performance of the individual Participant or the subsidiary, division,
department or function within the Company in respect of which the
Participant performs services. Any Performance Objectives applicable to
Awards intended to qualify as "performance-based compensation" under
Section 162(m) of the Code (the
A-2
<PAGE> 25
"Performance-Based Exception") shall be limited to specified levels of or
increases in the Company's, or subsidiary's, or division's, or
department's, or function's return on equity, earnings per share, total
earnings, earnings growth, return on capital, operating measures
(including, but not limited to, operating margin and operating costs)
return on assets, or increase in the Fair Market Value of the Class A
Common Stock. Except in the case of such an Award intended to qualify as
Performance-Based Compensation, if the Committee determines that a change
in the business, operations, corporate structure or capital structure of
the Company, or the manner in which it conducts its business, or other
events or circumstances render the Performance Objectives unsuitable, the
Committee may modify such Performance Objectives or the related minimum
acceptable level of achievement, in whole or in part, as the Committee
deems appropriate and equitable. Before any payment of Performance-Based
Compensation, the Committee shall certify that the Performance Objectives
and any other material terms were in fact satisfied.
The Committee shall have the discretion to adjust the determinations
of the degree of attainment of the pre-established Performance Objectives;
provided, however, that Awards which are designed to qualify for the
Performance-Based Exception, may not be adjusted upward (the Committee
shall retain the discretion to adjust such Awards downward).
In the event that applicable tax and/or securities laws change to
permit Committee discretion to alter the governing performance measures
without obtaining stockholder approval of such changes, the Committee shall
have sole discretion to make such changes without obtaining stockholder
approval. In addition, in the event that the Committee determines that it
is advisable to grant Awards that will not qualify for the
Performance-Based Exception, the Committee may make such grants without
satisfying the requirements of Code Section 162(m).
(t) "PERSON" means an individual, partnership, corporation (including
a business trust), joint stock company, trust, unincorporated association,
joint venture or other entity, or a governmental authority.
(u) "RESTRICTED STOCK" means an Award of Common Stock that are subject
to restrictions or risk of forfeiture.
(v) "RULE 16b-3" means Rule 16b-3 under the Exchange Act, or any rule
that supersedes or replaces it, as amended from time to time.
(w) "STOCK APPRECIATION RIGHT" is defined in Section 6(b)(i).
(x) "STOCK AWARD" is defined in Section 6(b)(ii).
(y) "STOCK EQUIVALENT UNIT" means an Award that is valued by reference
to the value of the Class A Common Stock.
(z) "STOCK OPTION" is defined in Section 6(b)(iii).
3. ELIGIBILITY
All Directors and employees of the Company and its Affiliates are eligible
for the grant of Awards. The selection of any such persons to receive Awards
will be within the discretion of the Committee. More than one Award may be
granted to the same person.
Notwithstanding the foregoing, any individual who renounces in writing any
right that he or she may have to receive Awards under the Plan shall not be
eligible to receive any Awards hereunder.
A-3
<PAGE> 26
4. CLASS A COMMON STOCK AVAILABLE FOR AWARDS; ADJUSTMENT
(a) Number of Shares of Common Stock. The aggregate amount of Class A
Common Stock that may be subject to Awards, including Stock Options,
granted under this Plan during the term of this Plan will be equal to One
Million Two Hundred Thousand (1,200,000) shares of Class A Common Stock,
subject to any adjustments made in accordance with the terms of this
Section 4.
The assumption of obligations in respect of awards granted by an
organization acquired by the Company, or the grant of Awards under this Plan in
substitution for any such awards, will not reduce the amount of Class A Common
Stock available in any fiscal year for the grant of Awards under this Plan.
Class A Common Stock subject to an Award that is forfeited, terminated, or
canceled without having been exercised (other than Class A Common Stock subject
to a Stock Option that is canceled upon the exercise of a related Stock
Appreciation Right) will again be available for grant under this Plan, without
reducing the amount of Class A Common Stock available in any fiscal year for
grant of Awards under this Plan. In addition, any Class A Common Stock which is
retained to satisfy a Participant's withholding tax obligations or which is
transferred to the Company by a Participant to satisfy such obligations or to
pay all or any portion of the exercise price of the Award in accordance with the
terms of the Plan, the Award Agreement or the Notice of Award, may be made
available for reoffering under the Plan to any Participant.
(b) No Fractional Shares of Class A Common Stock. No fractional shares
of Class A Common Stock will be issued, and the Committee will determine
the manner in which the value of fractional shares of Class A Common Stock
will be treated.
(c) Adjustment. In the event of any change in the Class A Common Stock
by reason of a merger, consolidation, reorganization, recapitalization, or
similar transaction, including any transaction described under Section
424(a) of the Code, or in the event of a stock dividend, stock split, or
distribution to stockholders (other than normal cash dividends), the
Committee will have authority to adjust, in any manner that it deems
equitable, the number and class of shares of Class A Common Stock that may
be issued under this Plan, the number and class of shares of Class A Common
Stock subject to outstanding Awards, the exercise price applicable to
outstanding Awards, and the Fair Market Value of the Class A Common Stock
and other value determinations applicable to outstanding Awards, including
as may be allowed or required under Section 424(a) of the Code.
5. ADMINISTRATION
(a) Committee. This Plan will be administered by the Committee. The
Committee will, subject to the terms of this Plan, have the authority to:
(i) select the eligible persons who will receive Awards, (ii) grant Awards,
(iii) determine the number and types of Awards to be granted to eligible
persons, (iv) determine the terms, conditions, vesting periods, and
restrictions applicable to Awards, including timing and price, (v) adopt,
alter, and repeal administrative rules and practices governing this Plan,
(vi) interpret the terms and provisions of this Plan and any Awards granted
under this Plan, including, where applicable, determining the method of
valuing any Award and certifying as to the satisfaction of such Awards,
(vii) prescribe the forms of any Notices of Award, Award Agreements, or
other instruments relating to Awards, and (viii) otherwise supervise the
administration of this Plan.
(b) Delegation. The Committee may delegate any of its authority to any
other person or persons that it deems appropriate.
A-4
<PAGE> 27
(c) Decisions Final. All decisions by the Committee, and by any other
Person or Persons to whom the Committee has delegated authority, to the
extent permitted by law, will be final and binding on all Persons.
(d) No Liability. Neither the Committee nor any of its members shall
be liable for any act taken by the Committee pursuant to the Plan. No
member of the Committee shall be liable for the act of any other member.
6. AWARDS
(a) Grant of Awards. The Committee will determine the type or types of
Awards to be granted to each Participant and will set forth in the related
Notice of Award or Award Agreement and the terms, conditions, vesting
periods, and restrictions applicable to each Award. Awards may be granted
singly or in combination or tandem with other Awards. Awards may also be
granted in replacement of, or in substitution for, other awards granted by
the Company, whether or not granted under this Plan; without limiting the
foregoing, if a Participant pays all or part of the exercise price or taxes
associated with an Award by the transfer of Class A Common Stock or the
surrender of all or part of an Award (including the Award being exercised),
the Committee may, in its discretion, grant a new Award to replace the
Class A Common Stock that was transferred or the Award that was
surrendered. The Company may assume obligations in respect of awards
granted by any Person acquired by the Company or may grant Awards in
replacement of, or in substitution for, any such awards.
(b) Types of Awards. Awards may include, but are not limited to, the
following:
(i) Stock Appreciation Right means a right to receive a payment, in
cash or Class A Common Stock, equal to the excess of (A) the Fair Market
Value, or other specified valuation, of a specified number of Class A
Common Stock on the date the right is exercised over (B) the Fair Market
Value, or other specified valuation, of such Class A Common Stock on the
date the right is granted, all as determined by the Committee. The right
may be conditioned upon the occurrence of certain events, such as a
Change in Control of the Company, or may be unconditional, as determined
by the Committee.
(ii) Stock Award means an Award that is made in Class A Common
Stock, Restricted Stock, or Stock Equivalent Units or that is otherwise
based on, or valued in whole or in part by reference to, the Class A
Common Stock. All or part of any Stock Award may be subject to
conditions, restrictions, and risks of forfeiture, as and to the extent
established by the Committee. Stock Awards may be based on the Fair
Market Value of the Class A Common Stock, or on other specified values
or methods of valuation, as determined by the Committee.
(iii) Stock Option means a right to purchase a specified amount of
Class A Common Stock, during a specified period, and at a specified
exercise price, all as determined by the Committee. A Stock Option may
be an Incentive Stock Option or a Stock Option that does not qualify as
an Incentive Stock Option. In addition to the terms, conditions, vesting
periods, and restrictions established by the Committee, Incentive Stock
Options must comply with the requirements of Section 422 of the Code and
regulations promulgated thereunder, including the requirement that the
aggregate Fair Market Value of the Common Stock with respect to which
the Incentive Stock Option first becomes exercisable in any calendar
year shall not exceed $100,000 (measured as of the effective date of the
award of an Incentive Stock Option). If any Incentive Stock Option
granted under the Plan would cause such dollar limits to be exceeded,
then the excess portion of such
A-5
<PAGE> 28
Incentive Stock Option shall become exercisable in the next or
succeeding calendar year in which its exercisability would not violate
the dollar limitations. The exercise price of a Stock Option that does
not qualify as an Incentive Stock Option may be more or less than the
Fair Market Value of the Common Stock on the date the Stock Option is
granted.
(iv) Cash Award means an award denominated in cash. All or part of
any Cash Award may be subject to conditions established by the
Committee, including but not limited to future service with the Company
or the achievement of the Performance Objectives.
(c) Limits on Awards. The maximum aggregate amount of Class A Common
Stock (i) for which Stock Options may be granted, and (ii) with respect to
which Stock Appreciation Rights may be granted, to any particular employee
during any calendar year during the term of this Plan is 300,000 shares,
subject to adjustment in accordance with Section 4(c) hereof. The maximum
aggregate amount of cash which may be granted or awarded to any particular
employee during any calendar year during the term of this Plan is $500,000.
7. DEFERRAL OF PAYMENT
With the approval of the Committee, the delivery of the Class A Common
Stock, cash, or any combination thereof subject to an Award may be deferred,
either in the form of installments or a single future delivery. The Committee
may also permit selected Participants to defer the receipt of some or all of
their Awards, as well as other compensation, in accordance with procedures
established by the Committee to assure that the recognition of taxable income is
deferred under the Code. Deferred amounts may, to the extent permitted by the
Committee, be credited as cash or Stock Equivalent Units. The Committee may also
establish rules and procedures for the crediting of interest on deferred cash
payments and dividend equivalents on Stock Equivalent Units.
8. PAYMENT OF EXERCISE PRICE
The exercise price of a Stock Option (other than an Incentive Stock Option)
and any Stock Award for which the Committee has established an exercise price
may be paid in cash, by the transfer of Class A Common Stock, by the surrender
of all or part of an Award (including the Award being exercised), or by a
combination of these methods, as and to the extent permitted by the Committee.
The exercise price of an Incentive Stock Option may be paid in cash, by the
transfer of Class A Common Stock, or by a combination of these methods, as and
to the extent permitted by the Committee but may not be paid by the surrender of
all or part of an Award. The Committee may prescribe any other method of paying
the exercise price that it determines to be consistent with applicable law and
the purpose of this Plan.
In the event Class A Common Stock that is Restricted Stock is used to pay
the exercise price of a Stock Award, that amount of the Class A Common Stock
issued upon the exercise of the Award equal to the amount of Class A Common
Stock that is Restricted Stock that has been used to pay the exercise price will
be subject to the same restrictions as the Restricted Stock.
9. TAXES ASSOCIATED WITH AWARD
Prior to the payment of an Award or upon the exercise or release thereof,
the Company may withhold, or require a Participant to remit to the Company, an
amount sufficient to pay any federal, state, and local taxes associated with the
Award. The Committee may, in its discretion and subject to such rules as the
Committee may adopt, permit a Participant to pay any or all taxes associated
with the Award (other than an Incentive
A-6
<PAGE> 29
Stock Option) in cash, by the transfer of Class A Common Stock, by the surrender
of all or part of an Award (including the Award being exercised), or by a
combination of these methods. The Committee may permit a Participant to pay any
or all taxes associated with an Incentive Stock Option in cash, by the transfer
of Class A Common Stock, or by a combination of these methods or by any other
method which does not disqualify the option as an Incentive Stock Option under
applicable provisions of the Code.
10. TERMINATION OF EMPLOYMENT
If the employment of a Participant terminates for any reason, all
unexercised, deferred, and unpaid Awards may be exercisable or paid only in
accordance with rules established by the Committee or as specified in the
particular Award Agreement or Notice of Award. Such rules may provide, as the
Committee deems appropriate, for the expiration, continuation, or acceleration
of the vesting of all or part of the Awards.
11. TERMINATION OF AWARDS UNDER CERTAIN CONDITIONS
The Committee may cancel any unexpired, unpaid, or deferred Awards at any
time if the Participant is not in compliance with all applicable provisions of
this Plan or with any Notice of Award or Award Agreement or if the Participant,
without the prior written consent of the Company, engages in any of the
following activities:
(i) Renders services for an organization, or engages in a business,
that is, in the judgment of the Committee, in competition with the Company.
(ii) Discloses to anyone outside of the Company, or uses for any
purpose other than the Company's business any confidential information or
material relating to the Company, whether acquired by the Participant
during or after employment with the Company, in a fashion or with a result
that the Committee, in its judgment, deems is or may be injurious to the
best interests of the Company.
The Committee may, in its discretion and as a condition to the exercise of
an Award, require a Participant to acknowledge in writing that he or she is in
compliance with all applicable provisions of this Plan and of any Notice of
Award or Award Agreement and has not engaged in any activities referred to in
clauses (i) and (ii) above.
12. CHANGE IN CONTROL
In the event of a Change in Control of the Company, unless and to the
extent otherwise determined by the Board of Directors, (i) all Stock
Appreciation Rights and Stock Options then outstanding will become fully
exercisable as of the date of the Change in Control; (ii) all restrictions and
conditions applicable to Restricted Stock and other Stock Awards will be deemed
to have been satisfied as of the date of the Change in Control, and (iii) all
Cash Awards shall be released and/or deemed to have been fully earned as of the
date of the Change in Control. Any such determination by the Board of Directors
that is made after the occurrence of a Change in Control will not be effective
unless a majority of the Directors then in office are Continuing Directors and
the determination is approved by a majority of the Continuing Directors.
A-7
<PAGE> 30
13. AMENDMENT, SUSPENSION, OR TERMINATION OF THIS PLAN; AMENDMENT OF OUTSTANDING
AWARDS
(a) Amendment, Suspension, or Termination of this Plan. The Board of
Directors may amend, suspend, or terminate this Plan at any time; provided,
however, that in no event, without the approval of the Company's
stockholders, shall any action of the Committee or the Board of Directors
result in:
(i) Increasing, except as provided in Section 4(c) hereof, the
maximum amount of Class A Common Stock that may be subject to Awards
granted under the Plan; or
(ii) Making any change which would cause any option granted under
the Plan as an Incentive Stock Option not to qualify as an Incentive
Stock Option within the meaning of Section 422 of the Code; or
(iii) Making any change which would eliminate the exemption
provided by Rule 16b-3 for this Plan and for Awards granted under this
Plan.
(b) Amendment of Outstanding Awards. The Committee may, in its
discretion, amend the terms of any Award, prospectively or retroactively,
but no such amendment may impair the rights of any Participant without his
or her consent. The Committee may, in whole or in part, waive any
restrictions or conditions applicable to, or accelerate the vesting of, any
Award.
14. AWARDS TO FOREIGN NATIONALS AND EMPLOYEES OUTSIDE THE UNITED STATES
To the extent that the Committee deems appropriate to comply with foreign
law or practice and to further the purpose of this Plan, the Committee may,
without amending this Plan, (i) establish special rules applicable to Awards
granted to Participants who are foreign nationals, are employed outside the
United States, or both, including rules that differ from those established under
this Plan, and (ii) grant Awards to such Participants in accordance with those
rules.
15. NONASSIGNABILITY
Unless otherwise determined by the Committee, (i) no Award granted under
the Plan may be transferred or assigned by the Participant to whom it is granted
other than by will, pursuant to the laws of descent and distribution, and (ii)
an Award granted under this Plan may be exercised, during the Participant's
lifetime, only by the Participant.
16. GOVERNING LAW
The interpretation, validity, and enforcement of this Plan will, to the
extent not otherwise governed by the Code or the securities laws of the United
States, be governed by the laws of the State of Delaware.
17. NO RIGHTS AS EMPLOYEES/STOCKHOLDERS
Nothing in the Plan or in any Award Agreement or Notice of Award shall
confer upon any Participant any right to continue in the employ of the Company
or an Affiliate, or to serve as a member of the Board of Directors or to be
entitled to receive any remuneration or benefits not set forth in the Plan or
such Award Agreement or Notice of Award, or to interfere with or limit either
the right of the Company or an Affiliate to terminate the employment of such
Participant at any time or the right of the stockholders of the Company to
remove him or her as a member of the Board of Directors with or without cause.
Nothing contained in the Plan or in any Award Agreement or Notice of Award shall
be construed as entitling any Participant to any
A-8
<PAGE> 31
rights of a stockholder as a result of the grant of an Award until such time as
Class A Common Stock is actually issued to such Participant pursuant to the
exercise of a Stock Option, Stock Appreciation Right or other Stock Award.
18. EFFECTIVE AND TERMINATION DATES
(a) Effective Date. This Plan was approved by the Board of Directors
on October , 1998 and becomes effective upon adoption by the affirmative
vote of the holders of a majority of the voting power of the Company
represented by the Class A Common Stock and the Class B Common Stock,
represented in person or by proxy, at any annual or special meeting of
stockholders at which a quorum is present. The Plan shall be deemed to be
adopted on the date of such stockholder meeting.
(b) Termination Date. This Plan will continue in effect until midnight
on November 1, 2008; provided, however, that Awards granted on or before
that date may extend beyond that date and restrictions and other terms and
conditions imposed on Restricted Stock or any other Award granted on or
before that date may extend beyond such date.
A-9
<PAGE> 32
NCS HEALTHCARE, INC.
PROXY FOR CLASS A COMMON STOCK
ANNUAL MEETING OF STOCKHOLDERS -- NOVEMBER 23, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (i) appoints KEVIN B. SHAW, JEFFREY R. STEINHILBER
and GERALD D. STETHEM, and each of them, as Proxy holders and attorneys, with
full power of substitution, to appear and vote all of the shares of Class A
Common Stock of NCS HealthCare, Inc. that the undersigned shall be entitled to
vote at the Annual Meeting of Stockholders of the Company, to be held at the
Private Rooms at Playhouse Square, 1515 Euclid Avenue, 2nd Floor, Cleveland,
Ohio, on Monday, November 23, 1998, at 9:30 a.m. local time, and at any
adjournments thereof, hereby revoking any and all proxies heretofore given, and
(ii) authorizes and directs said Proxy holders to vote all of the shares of
Class A Common Stock of the Company represented by this Proxy as follows, WITH
THE UNDERSTANDING THAT IF NO DIRECTIONS ARE GIVEN BELOW, SAID SHARES WILL BE
VOTED "FOR" THE ELECTION OF THE TWO DIRECTORS NOMINATED BY THE BOARD OF
DIRECTORS AND "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE NCS HEALTHCARE, INC.
1998 PERFORMANCE PLAN.
(1) Election of Directors.
<TABLE>
<S> <C>
[ ] FOR both nominees listed [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed
</TABLE>
JON H. OUTCALT and RICHARD L. OSBORNE
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the following line.)
------------
(To be signed on other side)
PROXY NO. SHARES
(Proxy -- continued from other side)
(2) Approve and adopt the NCS HealthCare, Inc. 1998 Performance Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) In their discretion to act on any other matter or matters which may
properly come before the meeting.
Please date, sign and return
promptly in the accompanying
envelope.
Dated:................, 1998
............................
Your signature to this Proxy
form should be exactly the
same as the name imprinted
hereon. Persons signing as
executors, administrators,
trustees or in similar
capacities should so
indicate. For joint
accounts, the name of each
joint owner must be signed.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" BOTH OF THE NOMINEES FOR
DIRECTOR AND "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE NCS HEALTHCARE, INC.
1998 PERFORMANCE PLAN.
<PAGE> 33
NCS HEALTHCARE, INC.
PROXY FOR CLASS B COMMON STOCK
ANNUAL MEETING OF STOCKHOLDERS -- NOVEMBER 23, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (i) appoints KEVIN B. SHAW, JEFFREY R. STEINHILBER
and GERALD D. STETHEM, and each of them, as Proxy holders and attorneys, with
full power of substitution, to appear and vote all of the shares of Class B
Common Stock of NCS HealthCare, Inc. that the undersigned shall be entitled to
vote at the Annual Meeting of Stockholders of the Company, to be held at the
Private Rooms at Playhouse Square, 1515 Euclid Avenue, 2nd Floor, Cleveland,
Ohio, on Monday, November 23, 1998, at 9:30 a.m. local time, and at any
adjournments thereof, hereby revoking any and all proxies heretofore given, and
(ii) authorizes and directs said Proxy holders to vote all of the shares of
Class B Common Stock of the Company represented by this Proxy as follows, WITH
THE UNDERSTANDING THAT IF NO DIRECTIONS ARE GIVEN BELOW, SAID SHARES WILL BE
VOTED "FOR" THE ELECTION OF THE TWO DIRECTORS NOMINATED BY THE BOARD OF
DIRECTORS AND "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE NCS HEALTHCARE, INC.
1998 PERFORMANCE PLAN.
(1) Election of Directors.
<TABLE>
<S> <C>
[ ] FOR both nominees listed [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed
</TABLE>
JON H. OUTCALT and RICHARD L. OSBORNE
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the following line.)
-------------
(To be signed on other side)
PROXY NO. SHARES
(Proxy -- continued from other side)
(2) Approve and adopt the NCS HealthCare, Inc. 1998 Performance Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) In their discretion to act on any other matter or matters which may
properly come before the meeting.
Please date, sign and return
promptly in the accompanying
envelope.
Dated:................, 1998
............................
Your signature to this Proxy
form should be exactly the
same as the name imprinted
hereon. Persons signing as
executors, administrators,
trustees or in similar
capacities should so
indicate. For joint
accounts, the name of each
joint owner must be signed.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" BOTH OF THE NOMINEES FOR
DIRECTOR AND "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE NCS HEALTHCARE, INC.
1998 PERFORMANCE PLAN.
