<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
CAPSTONE PHARMACY SERVICES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
CAPSTONE PHARMACY SERVICES, INC.
2930 WASHINGTON BLVD.
BALTIMORE, MARYLAND 21230
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 1996
TO THE STOCKHOLDERS OF CAPSTONE PHARMACY SERVICES, INC.:
The Annual Meeting of Stockholders of CAPSTONE PHARMACY SERVICES,
INC. (the "Company") will be held at Hotel Intercontinental, 111 East 48th
Street, New York, New York 10017, on June 4, 1996, at 9:30 a.m. Eastern
Daylight Time, for the purposes of considering and voting upon the following
matters:
1. To elect new Directors to serve for one-year terms and until their
successors are duly elected and qualified;
2. To approve an amendment to the Company's 1995 Incentive and
Nonqualified Stock Option Plan for Key Personnel and Directors, that
will give the Board of Directors the discretion to increase the number
of shares of Common Stock reserved for issuance from 550,000 shares to
1,600,000 shares; and
3. In their discretion, on such other matters as may properly come before
the Annual Meeting.
Stockholders of record at the close of business on April 8, 1996, will
be entitled to vote at the Annual Meeting of Stockholders.
The Company's Board of Directors urges all Stockholders of record to
exercise their right to vote at the Annual Meeting of Stockholders personally
or by proxy. Accordingly, we are sending you the accompanying Proxy Statement
and the enclosed proxy card.
Your attention is directed to the Proxy Statement accompanying this
notice for a statement regarding matters to be acted upon at the Annual Meeting
of Stockholders.
By Order of the Board of Directors,
Donald W. Hughes, Secretary
Baltimore, Maryland
May 1, 1996
YOUR REPRESENTATION AT THE ANNUAL MEETING OF STOCKHOLDERS IS
IMPORTANT. TO ENSURE YOUR REPRESENTATION, WHETHER OR NOT YOU PLAN TO ATTEND
THE ANNUAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY
CARD. SHOULD YOU DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE
IT IS VOTED IN THE MANNER PROVIDED IN THE ACCOMPANYING PROXY STATEMENT.
<PAGE> 3
CAPSTONE PHARMACY SERVICES, INC.
2930 WASHINGTON BLVD.
BALTIMORE, MARYLAND 21230
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 1996
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of CAPSTONE PHARMACY SERVICES, INC. (the
"Company") to be used at the Annual Meeting of Stockholders to be held on June
4, 1996, and at any adjournment thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting of
Stockholders will be held at Hotel Intercontinental, 111 East 48th Street, New
York, New York 10017, on June 4, 1996, at 9:30 a.m. Eastern Daylight Time.
This Proxy Statement and the accompanying form of proxy are being mailed to
stockholders on or about May 1, 1996.
A stockholder who executes and returns the accompanying form of proxy
may revoke it at any time before it is voted by giving written notice of
revocation to the Secretary of the Company, by executing a proxy bearing a
later date, or by attending the Annual Meeting of Stockholders and voting in
person. Proxies will be voted in accordance with instructions noted on the
proxies. Unless otherwise specifically instructed in the proxies, it is the
intention of the persons named in the proxy to vote all proxies received by
them FOR THE ELECTION OF ALL OF THE NOMINEES NAMED HEREIN WHO ARE STANDING FOR
ELECTION AS DIRECTORS, AND FOR APPROVAL OF AN AMENDMENT TO THE COMPANY'S 1995
INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN FOR KEY PERSONNEL AND DIRECTORS,
THAT WILL GIVE THE BOARD OF DIRECTORS THE DISCRETION TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK RESERVED FOR ISSUANCE FROM 550,000 SHARES TO 1,600,000
SHARES. Management does not know of any other matters which will be presented
for action at the Annual Meeting of Stockholders. If any other matter does come
before the Annual Meeting of Stockholders, however, the persons appointed in
the proxy will vote in accordance with their best judgment on such matter.
This solicitation is made by the Company, by whom the cost of this
proxy solicitation will be borne. It is contemplated that proxies will be
solicited solely by mail. Banks, brokers and other custodians will be requested
to forward proxy soliciting materials to their customers where appropriate, and
the Company will reimburse such banks, brokers, and custodians for their
reasonable out-of-pocket expenses in sending the proxy materials to beneficial
owners of the Company's shares.
2
<PAGE> 4
SUMMARY OF MATTERS TO BE CONSIDERED
At the Annual Meeting of Stockholders, the stockholders of the Company
will be asked to vote on the following matters: (1) the election of ten
nominees to serve as directors for one-year terms and until their successors
are duly elected and qualified (See Proposal 1: "Election of Directors"); (2)
To approve an amendment to the Company's 1995 Incentive and Nonqualified Stock
Option Plan for Key Personnel and Directors that will give the Board of
Directors the discretion to increase the number of shares of Common Stock
reserved for issuance from 550,000 shares to 1,600,000 shares (See Proposal 2:
"Amendment of 1995 Nonqualified Stock Option Plan for Key Personnel and
Directors"); and (3) on such other matters as may properly come before the
Annual Meeting of Stockholders.
VOTING
Stockholders of record as of April 8, 1996, will be entitled to vote
at the Annual Meeting of Stockholders. At the close of business on that day,
there were outstanding 14,623,002 shares of the Company's Common Stock, par
value $.01 per share (the "Common Stock"). See "Stock Ownership of Directors,
Executive Officers and Principal Holders." Each share of Common Stock is
entitled to one vote, which may be given in person or by proxy authorized in
writing. The Company has no other classes of voting stock issued. The Company
has the authority to issue shares of preferred stock in one or more series,
although no series of preferred stock has been designated or issued.
To vote by proxy, a stockholder should complete, sign, date and return
the enclosed proxy to the Secretary of the Company. The Board of Directors
urges you to so complete the proxy card whether or not you plan to attend the
Annual Meeting of Stockholders. If you attend the Annual Meeting of
Stockholders in person, you may, if you wish, vote in person on all matters
brought before the Annual Meeting of Stockholders even if you have previously
delivered your proxy. Any stockholder who has given a proxy may revoke it any
time prior to exercise by filing an instrument revoking it with the Secretary
of the Company, by duly executing a proxy bearing a later date, or by attending
the Annual Meeting of Stockholders and voting in person. The mere presence at
the Annual Meeting of a stockholder who has appointed a proxy will not revoke
the appointment.
The director nominees will be elected by a plurality of the votes of
the shares of Common Stock present or represented and entitled to vote at the
Annual Meeting of Stockholders. All other matters submitted to the
stockholders will be approved by the affirmative vote of a majority of shares
for which votes are cast at the Annual Meeting of Stockholders. Abstentions
and broker non-votes will not be counted as affirmative votes, but will be
counted for purposes of determining the presence or absence of a quorum. On
matters requiring majority or two-thirds vote of all outstanding shares for
approval, abstentions have the effect of negative votes. Abstentions and
broker non-votes have no legal effect on any other proposal.
3
<PAGE> 5
STOCK OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS AND PRINCIPAL HOLDERS
The following table sets forth, as of April 8, 1996 the number and
percentage of shares of the Company's Common Stock owned by (i) all persons
known to the Company to be holders of 5% or more of such securities, (ii) each
director and nominee, (iii) each of the executive officers named in the Summary
Compensation Table appearing elsewhere herein, and (iv) all directors and
executive officers of the Company, as of April 8, 1996, as a group. Unless
otherwise indicated, all holdings are of record and beneficial.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE
BENEFICIALLY OF TOTAL
NAME OWNED(1) OUTSTANDING(2)
- ---- ------------ --------------
<S> <C> <C>
Counsel Corporation(3) . . . . . . . . . . 6,244,325 36.8%
Exchange Tower
Two First Canadian Place, Suite 1300
Toronto, Ontario, Canada M5X 1E3
R. Dirk Allison(4) . . . . . . . . . . . . 97,746 *
Donald W. Hughes(5) . . . . . . . . . . . . 8,333 *
Allan C. Silber(6) . . . . . . . . . . . . 387,500 2.6%
Morris A. Perlis(6) . . . . . . . . . . . . 387,500 2.6%
Joseph F. Furlong, III(7),(8) . . . . . . . 74,500 *
John Haronian(8),(10) . . . . . . . . . . . 142,500 *
Edward Sonshine, Q.C(7),(8) . . . . . . . . 74,500 *
Gail Wilensky, Ph.D.(9) . . . . . . . . . . 15,000 *
Albert Reichmann(9) . . . . . . . . . . . . 15,000 *
J. Brendan Ryan(9) . . . . . . . . . . . . 15,000 *
John E. Zuccotti(9),(11) . . . . . . . . . 24,500 *
All directors and executive officers
as a group(12) (11 persons) . . . . . . . 1,242,079 8.0%
</TABLE>
- ------------------
* Indicates less than 1%
(1) Unless otherwise indicated, the persons or entities identified in this
table have sole voting and investment power with respect to all shares
shown as beneficially owned by them, subject to community property laws,
where applicable.
(2) The percentages shown are based on 14,623,002 shares of Common Stock
outstanding on April 8, 1996, plus, as to each individual and group
listed, the number of shares of Common Stock deemed to be owned by such
holder pursuant to Rule 13d-3 under the Securities Exchange Act of 1934
(the "Exchange Act"), which includes shares subject to stock options and
warrants held by such holder which are exercisable within sixty (60) days
of March 1, 1996. As of March 23, 1996, there were an additional
1,075,000 shares outstanding as a result of option exercises and
completion of a private placement. None of such additional shares were
acquired by a party listed in this table.
(3) Includes 1,298,181 and 1,038,545 shares purchasable upon exercise of
warrants at $4.50 and $5.50 per share respectively. Counsel Corporation
("Counsel") is a publicly traded Ontario, Canada corporation primarily
engaged in the health care industry. Directors Silber, Sonshine and
Perlis are directors of Counsel and director Silber beneficially owns or
controls approximately 25% of the common stock of Counsel, a majority of
which is pledged to a lender. Directors Sonshine and Perlis own in the
aggregate less than 5% of Counsel's common stock. All of the directors
listed in this footnote (3) disclaim beneficial ownership of shares of
Common Stock in their capacity as directors of Counsel, and Mr. Silber
disclaims beneficial ownership of shares of Common Stock in his capacity
as a significant stockholder of Counsel.
(4) Includes 15,170 and 12,136 shares purchasable upon exercise of warrants at
$4.50 and $5.50 per share, respectively and 15,000 and 25,000 shares
purchasable upon exercise of options at $4.44 and $8.50 per share,
respectively.
(5) Includes 8,333 shares purchasable upon exercise of options at $8.50 per
share.
4
<PAGE> 6
(6) Includes 25,000 and 20,000 shares purchasable upon exercise of warrants
at $4.50 and $5.50 per share, respectively and 15,000, 2,500, 250,000
and 25,000 shares purchasable upon exercise of options at $4.44, $7.50,
$4.31 and $8.50 per share, respectively.
(7) Includes 15,000 and 12,000 shares purchasable upon exercise of warrants
at $4.50 and $5.50 per share, respectively.
(8) Includes 15,000 and 2,500 shares purchasable upon exercise of options at
$4.44 and $7.50 per share, respectively.
(9) Includes 15,000 shares purchasable upon exercise of options at $4.44 per
share.
(10) Includes 15,000 and 15,000 shares purchasable upon exercise of options at
$2.85 and $3.50 per share, respectively, issued under the 1991 Option
Plan and 25,000 and 20,000 shares purchasable upon exercise of warrants
at $4.50 per share, and $5.50 per share, respectively.
(11) Includes 2,500 and 2,000 shares purchasable upon exercise of warrants at
$4.50 and $5.50 per share, respectively.
(12) Includes 950,639 shares issuable under the Company's Option Plans and upon
exercise of warrants.
5
<PAGE> 7
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, 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 with the
Securities and Exchange Commission ("SEC") (and, if such security is registered
on a national securities exchange, also with the exchange). Such executive
officers, directors and greater than 10% stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely upon representations submitted by the Company's directors and
executive officers and the Company's review of filings on Forms 3, 4 and 5,
including amendments thereto, the Company has concluded that all such forms
were timely filed.
EXECUTIVE OFFICERS
The Company's executive officers are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION;
NAME OF OFFICER AGE OFFICER SINCE OCCUPATION LAST FIVE YEARS
- --------------- --- ------------- --------------------------
<S> <C> <C> <C>
R. Dirk Allison 40 May 1995 Director of the Company since August 1995;
President and Chief Executive Officer of the
Company since May 1995; President and Chief
Executive Officer of PremierPharmacy, Inc.
("Premier") from July 1993 to May 1995;
President and Chief Executive Officer of
Allied Pharmacy Management, Inc. from February
1988 to June 1993.
Donald W. Hughes 45 December 1995 Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company since December 1995;
Executive Vice President and Chief Financial
Officer of Broventure Company, Inc., a
closely-held investment management company
from November 1990 and January 1988,
respectively; a Director of C.P. Clare
Corporation, a telecommunications equipment
supplier, since June 1993.
</TABLE>
6
<PAGE> 8
EXECUTIVE COMPENSATION
The following table sets forth the compensation for the services in
all capacities to the Company for the ten months ended December 31, 1995 (the
"Interim Fiscal Period") and fiscal years ended February 28, 1995 and 1994 of
those persons who were, at any time during the Interim Fiscal Period, the
Company's chief executive officer or, at December 31, 1995, the Company's other
executive officers, and who received annual salary and bonus in excess of
$100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
---------------------------------------
Annual Compensation Awards Payouts
---------------------------------------------- ------------------------- ----------
Securities
Restricted Underlying
Name and Principal Other Annual Stock Options/ LTIP All Other
Position (1) Year(s) Salary($) Bonus($) Compensation(2)($) Award(s)($) SARs (#) Payouts($) Compensation($)
- ------------------- ------- --------- -------- ------------------ ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. Dirk Allison . . Dec 1995(3) 123,000 -0- -0- -0- 65,000 -0- -0-
President and Feb 1995 * * * * * * *
CEO(2) Feb 1994 * * * * * * *
Morris A. Perlis. . Dec 1995(3) -0- -0- -0- -0- 267,500 -0- -0-
Former Interim Feb 1995 -0- -0- -0- -0- -0- -0- -0-
CEO(4) Feb 1994 * * * * * * *
</TABLE>
- ---------
* Indicates periods prior to employment with the Company.
(1) Perquisites for each executive officer are in amounts which do not
require disclosure.
(2) Mr. Allison joined the Company on May 22, 1995, upon completion of
the Premier Acquisition. The base salary for Mr. Allison is $230,000.
(3) Represents a ten-month period.
(4) Mr. Perlis served as interim Chief Executive Officer from December
1995 until completion of the Premier Acquisition in May 1995. Mr.
Perlis currently serves as Vice Chairman of the Company.
7
<PAGE> 9
OPTION GRANTS
The table below provides information on grants of stock
options pursuant to the Company's Option Plans (the "Option Plans") during the
Interim Fiscal Period, to the officers named in the Summary Compensation Table.
Additional grants have been made to certain officers and other employees since
December 31, 1995. See "Stock Ownership of Directors, Executive Officers and
Principal Holders". The Company grants no stock appreciation rights.
OPTION/SAR GRANTS IN TEN MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------
PERCENT OF
NUMBER OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS/SARS AT ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE OR STOCK PRICE APPRECIATION FOR(1)
NAME OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION OPTION TERM
---- GRANTED (#) FISCAL YEAR ($/SH) DATE -------------------------------
------------ ------------- ----------- ---------- 5% ($) 10% ($)
--------------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. Dirk Allison 15,000 1.7% $4.44 08/28/05 $ 41,884 $ 106,413
50,000 5.8% 4.31 08/29/05 135,527 343,452
Morris A. Perlis 15,000 1.7% 4.44 08/28/05 41,884 106,143
250,000 29.0% 4.31 08/29/05 677,634 1,717,258
2,500 * 7.50 12/31/05 11,792 29,883
</TABLE>
- ---------------------
* Less than one percent.
(1) The dollar amounts under these columns are the result of calculations
at 5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future appreciation,
if any, of the Company's Common Stock price.
8
<PAGE> 10
OPTION EXERCISES AND VALUES
The table below provides information as to exercises of
options by the executive officers named in the Summary Compensation Table
during the ten months ended December 31, 1995 under the Company's option plans
and the year-end value of unexercised options. The Company grants no stock
appreciation rights.
AGGREGATED OPTION/SAR EXERCISES IN THE TEN MONTH PERIOD
ENDED DECEMBER 31, 1995 AND PERIOD-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS
SHARES OPTIONS/SARS AT DECEMBER 31,
ACQUIRED ON VALUE AT DECEMBER 31, 1995 1995 FISCAL
NAME EXERCISE (#) REALIZED ($) FISCAL YEAR-END (#) YEAR-END ($) (1)
---- ------------ ------------ -------------------- ----------------
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
------------- -------------
<S> <C> <C> <C> <C>
R. Dirk Allison . . . . . -0- $-0- 15,000/50,000 $45,900/$159,500
Morris A. Perlis . . . . -0- -0- 267,500/-0- 843,400/-0-
</TABLE>
- ------------------------------
(1) Options are classified as "in-the-money" if the fair market value of
the underlying Common Stock exceeds the exercise price of the option.
The per share value of such in-the-money options is the difference
between the option exercise price and $7.50, the per share fair market
value of the underlying Common Stock as of December 29, 1995. Such
amounts may not necessarily be realized. Actual values which may be
realized, if any, upon the exercise of the options will be based on
the per share market price of the Common Stock at the time of exercise
and are thus dependent upon future performance of the Common Stock.
COMPENSATION COMMITTEE REPORT
The following Compensation Committee Report is not deemed to
be part of a document filed with the SEC pursuant to the Securities Act of 1933
(the "Securities Act") or the Exchange Act and is not to be deemed incorporated
by reference in any documents filed under the Securities Act or the Exchange
Act without the express written consent of the persons named below.
Decisions on compensation of the Company's senior executives,
except for decisions related to awards under the Company's Option Plans, are
made by the Compensation Committee of the Company's Board of Directors. It is
the task of the Compensation Committee to establish executive compensation
guidelines for the Company which are reasonable and appropriate, meet their
stated purpose and effectively serve the needs of the Company and its
stockholders.
9
<PAGE> 11
Former interim chief executive officer Morris Perlis received no
cash compensation for his interim services. The current members of the
Compensation Committee have met with the entire Board of Directors in setting
the compensation for the current executive officers and have set forth policies
to govern such compensation currently and in the future. The Committee
continues to review all management compensation in light of these policies.
Compensation Philosophy and Policies for Executive Officers
The Company's primary business goal is to provide high quality
service while maximizing stockholder value. The Company believes it can best
achieve this goal by achieving leadership in the provision of relevant and high
quality health services, expanding its operations primarily through
acquisitions and internal growth without imperiling the achievement of other
strategic objectives, and establishing a reputation as a desirable employer and
responsible corporate citizen. The Compensation Committee seeks to forge a
strong link between the Company's business goal and its compensation program by
aligning the interests of its stockholders and management personnel, including
executive officers. The Company's executive compensation program is intended
to be consistent with this overall philosophy for compensation at all
management levels. The Company believes that by aligning management
compensation with the Company's business goal, the likelihood of the Company's
success on both a short-term and long-term basis is increased. As an example,
the Company has created and requested stockholder approval of the 1995 Key
Personnel and Directors Option Plan and the Employee Stock Purchase Plan.
The Company's current executive compensation program supports the
Company's strategy and objective of creating stockholder value by:
- Emphasizing pay for performance by linking a significant portion
of executive compensation to the performance of both the Company
and the individual executive officer.
- Directly aligning the interest of executives with the long-term
interest of stockholders by awarding stock options at current
market prices which have value to the executives through long-term
stock appreciation.
- Providing compensation opportunities that attract and retain
talented and committed executives on a long-term basis.
- Appropriately balancing the Company's short-term and long-term
business, financial and strategic goals.
Currently, the Company's executive compensation program is
comprised of three principal components: base salary, annual cash incentive
(bonus) and long-term incentive opportunity through stock options. The annual
executive pay targets (base salary plus incentive) are intended to be
competitive with executive compensation of other U.S. public health care
companies, particularly institutional pharmacy companies, when the Company
meets or exceeds its annual operating goals.
The Company attempts to compare its executive pay targets with the
annual pay of other publicly held companies, particularly institutional
pharmacy companies, subject to available information. These other companies
include companies from the Peer Group reflected in the Stock Performance Graph
found elsewhere
10
<PAGE> 12
in this Proxy Statement. Since the Peer Group is small, however, the
Compensation Committee retains the discretion to compare the Company's executive
pay targets with those of companies outside of this group. The performance of
these other companies is not currently considered in setting executive
compensation, largely because the Company's historical operations were
significantly worse, requiring special efforts and talents from the current
executives. The Company's compensation is lower than that of most comparable
companies, particularly because no bonuses were granted for the last fiscal
year. The Compensation Committee expects compensation for the current fiscal
year to be below, but closer to, the median if incentive targets are reached.
Base Salary
All management salaries, including those of the executives, are
evaluated on a regular basis. In making its decision on salary levels, the
Company does not use a predetermined formula. In determining the salaries of
the Company's new executive team, the Company considered past earnings of
certain individuals as officers of Premier and the new executives' potential to
contribute to the Company's future. In evaluating appropriate pay levels and
salary increases for Company executives, the Compensation Committee, without
assigning particular weight to any, intends to consider the following factors:
level of responsibility of the executive, individual job performance, internal
salary structure, pay practices of other companies, and achievement of the
Company's strategic goals. In the past, salary ranges have been based primarily
on individual job performances and past earnings.
Annual Cash Incentives
Annual cash incentive awards are designed to focus management
attention on key operational goals for the current fiscal year. The key
operational goals are specific to each executive's area of responsibility.
Specific weighting is assigned for identified financial, strategic and
management practices goals. At least 50% of the available bonus percentage for
each named executive officer is now tied to Company profitability, generally
defined by achievement of the annual budget as approved by the Board of
Directors. The remaining percentages are based on such goals as quality of
care, revenue growth, accounts receivable management and control of expenses.
The nature of the operational goals and the weighting assigned to each is
subject to change annually.
Company executives may earn a bonus of between 20% and 50% of
their annual base salaries based upon achievement of their specific operational
goals and achievement by the Company or business unit of its financial targets.
At the end of the year, performance in light of these goals is determined on an
arithmetic scale with the pre-established weighting. Discretionary
adjustments by the Compensation Committee are possible if the Committee
believes the circumstances so warrant. No bonuses were awarded by the
Compensation Committee during the last fiscal year, and the current bonus
system was not in place then.
Long-Term Incentives
The Company's long-term incentive compensation program consists of
incentive and nonqualified stock options which are related to improvement in
long-term stockholder value. Stock option grants are designed to focus an
executive's attention on managing the Company from the perspective of long-term
owner
11
<PAGE> 13
with an equity stake in the business. Stock options are granted under
the Option Plans by the Disinterested Stock Option Plan Committee.
The option grants to executive officers offer the right to
purchase shares of Common Stock at their fair market value on the date of the
grant. These options will have value only if the Company's stock price
increases. The number of shares covered by each grant is selected based on the
executive's level of responsibility and past and anticipated contributions to
the Company.
Chief Executive Officer Compensation
Mr. Allison is the Company's Chief Executive Officer. Mr. Perlis
served as the Company's interim Chief Executive Officer from December 1994 to
May 1995, at which time he resigned in connection with the acquisition of
Premier and the related hiring of Mr. Allison.
Generally, the Chief Executive Officer is eligible to participate
in the same executive compensation plans available to the Company's other
senior executive officers. The Compensation Committee's general approach in
setting the Chief Executive Officer's annual compensation is derived from the
same considerations described above, that is to be competitive with other U.S.
publicly held health care corporations, but also to have a significant portion
of annual incentive compensation based upon specific corporate-wide operating
performance criteria.
In May 1995, the Compensation Committee approved a $210,000 base
salary for Mr. Allison for the current fiscal year (subsequently increased to
$230,000 at the approval of the Committee) and established his range of
incentive bonus at between 35-50% of this base salary, or a maximum of
$115,000. Mr. Allison's compensation package was developed primarily based
upon his historical compensation elsewhere and his experience in the industry
and with turn-around situations. According to market data, such base salary
and annual incentive target were below the median of the comparison companies
mentioned above and appropriately within the Company's overall internal pay
practices. No bonus has been paid to any person acting as Chief Executive
Officer since the beginning of the last fiscal year. In August 1995 and March
1996, stock options to acquire 50,000 and 75,000, respectively, shares of
Common Stock were granted to Mr. Allison.
New Tax Regulations
Section 162(m) of the Internal Revenue Code of 1986, as amended,
generally disallows a tax deduction to public companies for executive
compensation in excess of $1 million. It is not anticipated that the Company
will pay any of its executive officers compensation in excess of $1 million in
the current fiscal year and, accordingly, to date the Company has not adopted a
policy in this regard.
THE FOREGOING REPORT IS SUBMITTED BY ALL OF THE MEMBERS OF THE
COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS, WHOSE MEMBERS ARE
AS FOLLOWS: ALBERT REICHMANN, MORRIS A. PERLIS AND JOSEPH F. FURLONG, III.
12
<PAGE> 14
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following current directors served on the Compensation
Committee during a portion of the ten months ended December 31, 1995:
Reichmann, Perlis and Furlong. No member of the Compensation Committee is an
employee of the Company.
13
<PAGE> 15
CERTAIN TRANSACTIONS
CERTAIN SERVICES BY NON-EMPLOYEE DIRECTORS
Since his election to the Board of Directors in December 1994, Mr.
Silber has provided various services to the Company in connection with
improving the financial position, results of operations and capital structure
of the Company. These have included his service as Co-Chairman and Chairman of
the Board of Directors, direction of the negotiation of the recent acquisition
of three institutional pharmacies, PremierPharmacy, Inc. ("Premier"), Geri-Care
Systems, Inc. ("Geri-Care") and I.M.D. Corporation ("IMD"), direction of the
completion of certain private placements and direction of the replacement of
the Company's bank line of credit. Mr. Silber has received no cash
compensation for such services.
Since his election to the Board of Directors in December 1994, Mr.
Perlis has provided various services to the Company in connection with the
Company's long term strategy and decisions concerning the retention or
disposition of the Company's lines of business. These have included his
service as Vice Chairman of the Board of Directors and interim Chief Executive
Officer, direction of the negotiation of modifications to material contracts
and indebtedness of the Company, direction of personnel and operational
matters, and direction of the Company's regulatory compliance program. Mr.
Perlis has received no cash compensation for such services.
Set forth below is a summary of various transactions involving the
Company and certain directors, officers, stockholders or other affiliates. It
is the policy of the Company to notify the Board of Directors and seek the
approval of a majority of the members of the Board or an appropriate committee
who are not related to an interested party in connection with transactions
between the Company and a related party.
PRIVATE OFFERINGS BY THE COMPANY
Counsel acquired 596,362 Units in a May 22, 1995 private placement
by the Company (the "May Private Placement"), representing approximately 37.3%
of the Units sold. In addition, Curtis B. Johnson, who is employed by Counsel
to serve as in-house legal counsel and who provides legal services to the
Company pursuant to an agreement between the Company and Counsel, acquired
27,400 Units, representing approximately 1.7% of the Units sold. The
securities sold in the May Private Placement are unregistered and are thus
subject to typical restrictions on resale or transfer. In connection with the
May Private Placement, Counsel Corporation, a Toronto, Ontario, Canada
corporation ("Counsel") agreed to abandon certain demand and piggyback
registration rights previously granted to it by the Company. Investors in the
May Private Placement, including Counsel, are however, entitled to demand and
piggyback registration rights comparable to those abandoned by Counsel. The
terms of the May Private Placement were approved by an independent committee of
the Board of Directors. In addition, the Board of Directors received an
opinion from an independent investment banking firm to the effect that the
transaction was fair from a financial point of view to the Company's
stockholders.
14
<PAGE> 16
Certain directors and officers of the Company also participated in the
May 22, 1995 Private Placement as noted in the table below:
<TABLE>
<CAPTION>
Number of Units % of
Participant Acquired Units
----------- -------- -----
<S> <C> <C>
Joseph F. Furlong III 30,000 1.88%
John Haronian 50,000 3.13
Morris A. Perlis 50,000 3.13
Allan C. Silber 50,000 3.13
Edward Sonshine, Q.C. 30,000 1.88
R. Dirk Allison 30,340 1.90
Carl A. Pannuti 13,700 *
A. Joe McLelland 2,740 *
John E. Zuccotti 5,000 *
Individuals cited above as a
group (9) persons 261,780 16.36
</TABLE>
- -------------------------------------
* Indicates less than 1%
Counsel acquired 1,311,237 shares in an August 29, 1995 private
placement by the Company (the "August Private Placement") representing
approximately 37.5% of the shares sold. There were no warrants issued in
connection with the August Private Placement. The Company has also granted
registration rights with respect to shares issued under the August Private
Placement comparable to the registration rights granted in the May Private
Placement.
Counsel Corporation beneficially owns approximately 36.8% of the
outstanding Common Stock and voting power of the Company and, as such, is the
Company's largest stockholder. As a result of the Counsel Investment, the
Company has agreed to use its best efforts to cause four Counsel nominees to
serve on the Company's Board of Directors. As a result of the foregoing,
Counsel has a significant influence on matters brought before the stockholders
or the Board of Directors, although it cannot control the outcome of any vote.
PREMIER ACQUISITION
On May 22, 1995, the Company acquired Premier for a purchase price
of $4.25 million (the "Premier Acquisition"). Premier's operations generate
annualized revenues of approximately $24 million, primarily from pharmacy
services provided to long-term care facilities and hospitals. In connection
with such transactions, R. Dirk Allison, President and Chief Executive Officer
of Premier, was elected as President and Chief Executive Officer of the
Company.
15
<PAGE> 17
CONSULTING SERVICES
Curtis B. Johnson, the general counsel of DCAmerica Inc. ("DCA"),
a Counsel Corporation subsidiary, has provided legal services to the Company
since April 1995 pursuant to an agreement between the Company and DCA providing
for reimbursement of DCA's allocable costs related to such services. Mr.
Johnson has options to acquire 25,000 shares of Capstone's common stock for an
exercise price of $4.31 per share.
Marvin Sirota, a former officer and director of the Company, is
providing consulting services pursuant to a Severance and Consulting Agreement
dated January 15, 1995. Under the Severance and Consulting Agreement, Mr.
Sirota receives $11,607.00 per month through May 31, 1997 plus expenses
incurred in connection with his obligations to the Company.
Frank Mandelbaum, a former officer and director of the Company, is
providing consulting services pursuant to a Severance and Consulting Agreement
dated January 26, 1995. Under the Severance and Consulting Agreement, Mr.
Mandelbaum receives $11,607.00 per month through May 31, 1997 plus expenses
incurred in connection with his obligations to the Company.
Charles Lathrop, Jr., a former officer and director of the
Company, is providing consulting services pursuant to a Severance and
Consulting Agreement dated March 8, 1995. Under the Severance and Consulting
Agreement, Mr. Lathrop receives $10,000 per month through April 14, 1997 and
$4,583 per month for twelve months thereafter, plus expenses incurred in
connection with his obligations to the Company.
PF&R Holdings, Inc., an affiliate of Director Reichmann, has
earned fees of $250,000 and $320,000, respectively, for certain services
rendered in connection with the Company's acquisition of Geri-Care Systems,
Inc. effective January 1996 and IMD Corporation effective February 1996.
For a discussion of the relationships between the Company and its
affiliates, directors, officers and principal stockholders, please see "Stock
Ownership of Directors, Executive Officers and Principal Holders," "Executive
Officers" including "Compensation Committee Interlocks and Insider
Participation" and "Election of Directors."
It is the policy of the Company to notify the Board of Directors
and seek the approval of a majority of the members of the Board or its
Executive Committee who are not related to Counsel in connection with
transactions between the Company and its affiliates, including Counsel.
16
<PAGE> 18
STOCK PERFORMANCE GRAPH
The stock performance graph depicted below is not deemed to be
part of a document filed with the Securities and Exchange Commission pursuant
to the Securities Act or the Exchange Act and is not to be deemed incorporated
by reference in any documents filed under the Securities Act or the Exchange
Act without the express written consent of the Company.
The following graph compares the cumulative total returns of the
Company with those of the Nasdaq Market Index and a peer group index.
Cumulative return assumes $100 invested in the Company or respective index on
February 28, 1991, with dividend reinvestment through December 31, 1995. The
Company has selected a peer group known as the DOSE Group (SIC Number 5122), as
compiled by Research Data Group. This peer group index is comprised of
approximately 7 companies, excluding the Company.
<TABLE>
<CAPTION>
Measurement Period Capstone Pharmacy
(Fiscal Year Covered) Services, Inc Peer Group S&P 500
<S> <C> <C> <C>
February 1991 100 100 100
February 1992 433 203 116
February 1993 187 167 128
February 1994 173 202 139
February 1995 187 271 149
December 1995 400 364 193
</TABLE>
To date, the Company has not directly tied executive compensation
to stock performance. The future impact of stock performance on executive
compensation will be determined by the Compensation Committee.
17
<PAGE> 19
PROPOSAL 1:
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of ten
members. Directors are elected to hold office for one-year terms and then
until their successors have been duly elected and qualified.
The Board of Directors proposes that the nominees indicated below
be elected as directors to serve for a one-year term and until their successors
are duly elected and qualified. Should any nominee for the office of director
become unable to accept nomination or election, which is not anticipated, it is
the intention of the persons named in the proxy, unless otherwise specifically
instructed in the proxy, to vote for the election of such other person as the
Board of Directors may recommend.
NOMINEES FOR ELECTION AS DIRECTORS
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
R. Dirk Allison . . . . . . . . . . . . . . . 40 President, Chief Executive Officer and Director
Joseph F. Furlong, III(1) . . . . . . . . . . 46 Director
John Haronian(2)(3) . . . . . . . . . . . . . 62 Director
Morris A. Perlis(1) . . . . . . . . . . . . . 47 Vice Chairman
Albert Reichmann(1) . . . . . . . . . . . . . 67 Director
J. Brendan Ryan(3) . . . . . . . . . . . . . 53 Director
Allan C. Silber . . . . . . . . . . . . . . . 47 Chairman
Edward Sonshine, Q.C.(2) . . . . . . . . . . 49 Director
Gail Wilensky, Ph.D.(3) . . . . . . . . . . . 52 Director
John E. Zuccotti(2) . . . . . . . . . . . . . 58 Director
</TABLE>
(1) Member of Compensation Committee
(2) Member of Audit Committee.
(3) Member of Disinterested Stock Option Plan Committee.
Mr. Allison has served as President and Chief Executive Officer of the
Company since May 1995. He served as President and Chief Executive Officer of
Premier from July 1993 to May 1995. Mr. Allison served as President and Chief
Executive Officer of Allied Pharmacy Management, Inc. from February 1988 to
June 1993.
Mr. Furlong has served as a Director of the Company since December
1994. Mr. Furlong has been a partner of Colman Furlong & Co., a merchant
banking firm, since February 1991. Prior to that he was a partner of Robertson
Stephens & Company, an investment banking firm, from November 1984 to January
1991. Mr. Furlong has served as a director of American HomePatient, Inc., a
home health care provider ("American HomePatient"), since June 1994.
Mr. Haronian has served as a Director of the Company since January
1994. Mr. Haronian has served as Chairman of Vision World, Inc. and President
of Tri-State Leasing, Inc. since April 1991. Mr. Haronian has served as
President of Peoples Liquor, Inc. since November 1991. From May 1965 until
November 1990, Mr. Haronian served as President of Douglas Drug, Inc.
18
<PAGE> 20
Mr. Perlis has been Vice Chairman of the Company since May
1995 and a Director since December 1994. Mr. Perlis served as interim
chief executive officer of the Company from December 1994 to May 1995. He has
served as a director of and consultant to Counsel since September 1992, and as
President of Counsel since January 1994. Mr. Perlis has served as a director of
American HomePatient since March 1993, and as its Chairman since May 1994. He
has served as a director of NOMA, Inc., a manufacturer of consumer wire and
cable, since September 1993. Mr. Perlis was President of Morris A. Perlis &
Assoc., an executive management consulting firm, from September 1992 until
January 1994 and President of American Express Canada, Inc. from September 1988
until September 1992.
Mr. Reichmann has served as a Director of the Company since August
1995. He has served as Chairman and a Director of Olympia & York Developments,
Limited, a privately held Canadian real estate company, for at least five years
prior to February 1993. Mr. Reichmann currently participates in major
philanthropic activities in addition to serving on the boards of several major
hospitals in Canada.
Mr. Ryan has served as a Director of the Company since August 1995.
He has served as President and Chief Executive Officer of FCB/Leber Katz
Partners and FCB Direct ("FCB") in New York, a diversified advertising firm,
since 1991. Prior to that, he was Executive Vice President of Ogilvy & Mather,
an advertising firm, from 1977 to 1991 and a director and department head of
OMW from 1986 to 1991. Mr. Ryan has served as a member of the Citizens Crime
Commission of New York City, since 1985. He is a director of True North
Communications, Inc., the parent corporation of FCB.
Mr. Silber has served as Chairman since February 1995 and a director
of the Company since December 1994. Mr. Silber has been Chairman, Chief
Executive Officer and a Director of Counsel since August 1979. He served as
President of Counsel from August 1979 until January 1994. Mr. Silber has served
as a director of Advocat Inc., a nursing home operator ("Advocat"), since
January 1994 and as a director of American HomePatient since September 1991.
Mr. Silber served as chairman of American HomePatient from September 1991 to
May 1994.
Mr. Sonshine has served as a Director of the Company since December
1994. He has been President and Chief Executive Officer of RioCan Real Estate
Investment Trust of Toronto, Canada since July 1995. He has served as a
director of the Company since December 1994. Mr. Sonshine has served as a
director of American HomePatient since September 1991. Mr. Sonshine has served
as Vice Chairman of Counsel since January 1994, as a director of Counsel since
August 1979, and as Chairman, President and Chief Executive Officer of Counsel
Management Services, Inc. since October 1993. Mr. Sonshine served as Executive
Vice President of Counsel from February 1987 until January 1994. Mr. Sonshine
served as President and Chief Executive Officer of Icarus Realty Corp. from
February 1987 until September 1993. Mr. Sonshine has been a director of
Advocat since May 1995.
Dr. Wilensky has served as a Director since August 1995. She has
served as Chair, Physician Payment Review Commission, Senior Fellow since May
1995, and as John M. Olin Senior Fellow, Project HOPE since January 1993. Dr.
Wilensky served as Deputy Assistant to the President for Policy Development
from March 1992 to January 1993. She was Administrator of the Health Care
Financing Administration of the Department of Health and Human Services from
January 1990 to March 1992. Dr. Wilensky also serves as a director for
Advanced Tissue Sciences, Coram Healthcare, St. Jude Medical, Syncor
International and United Healthcare.
19
<PAGE> 21
Mr. Zuccotti has served as a Director of the Company since August
1995. He has served as President and Chief Executive Officer of Olympia & York
Companies (U.S.A.), a real estate company, since January 1990 and has served as
a director since the inception of a board of directors in July 1993. He has
served as a director of Dreyfus Strategic Municipal Bond Fund, Inc. since
November 1989. Mr. Zuccotti also serves as director of Dreyfus Calif. Tax
Exempt Money Market, Dreyfus Capital Value Fund, Inc., Dreyfus Insured
Municipal Bond Fund, Dreyfus New Leaders Fund, Inc., Dreyfus Strategic
Municipals, Inc., Dreyfus Municipal Bond Fund, Inc., Dreyfus Municipal Money
Market Fund, Inc., and Starrett Housing Corporation.
The Stock Purchase Agreement dated December 16, 1994 provides that so long
as Counsel continues to own the Common Stock acquired under the Agreement, the
Registrant will use its best efforts to cause the election to its Board of
Directors of four (4) individuals designated by Counsel who are reasonably
acceptable to the Registrant, currently Messrs. Silber, Perlis, Sonshine and
Furlong. The Stock Purchase Agreement also specifies that the Registrant will
use its best efforts to maintain a Board of Directors consisting of eleven (11)
members. Currently Mr. Silber serves as Chairman of the Board and Mr. Perlis
as Vice Chairman. Mr. Perlis served as interim Chief Executive Officer until
Mr. Allison was appointed as Registrant's President and Chief Executive
Officer following the acquisition of Premier .
Directors who are not officers, employees or consultants of the Company
(currently all Directors except Mr. Allison) receive a fee of $500 for each
meeting of the Board of Directors or any Committee of the Board attended by
telephone and a fee of $1,000 for each such meeting attended in person. All
directors are reimbursed for actual expenses incurred in connection with
attendance at meetings of the Board of Directors or Committees of the Board.
The Board of Directors currently has standing Audit, Compensation,
Disinterested Stock Option Plan Committees and an Executive Committee. The
Board of Directors currently has no standing nominating committee.
The Executive Committee was dissolved on June 28, 1995, and then was
re-created on August 23, 1995. The Committee is composed of Directors Silber,
Perlis and Allison. Previously, the Committee was composed of Directors Perlis,
Silber and Haronian. Former director Falkson served on the Committee for a
portion of the ten months ended December 31, 1995. Messrs. Perlis and Silber
joined the Committee simultaneously with Counsel's investment in the Company in
December 1994. The Delaware General Corporation Law and the Company's Bylaws
provide that the Board may designate such a committee from their number to
carry out the functions of the Board as permitted by law. Between meetings of
the Board, an executive committee may exercise all powers of the Board except
for those prohibited by Delaware General Corporation Law. During the ten months
ended December 31, 1995, the Executive Committee held no meetings and adopted
no written consent actions.
The Audit Committee presently is composed of Directors Haronian, Sonshine
and Zuccotti. Former director Stone served on the Audit Committee for a
portion of the ten months ended December 31, 1995. Responsibilities of this
Committee include engagement of independent auditors, review of audit fees,
supervision of matters relating to audit functions, and review and setting of
internal polices and procedures regarding audits, accounts and other financial
controls. During the ten months ended December 31, 1995, the Audit Committee
held three meetings and adopted no written consent actions.
20
<PAGE> 22
The Compensation Committee presently is composed of Directors Reichmann,
Perlis and Furlong. Former directors Gasbarro, Falkson and Johnson-Brown
served on the Compensation Committee for a portion of the ten months ended
December 31, 1995. Responsibilities of this Committee include approval of
remuneration arrangements for executive officers of the Company, review of
compensation plans relating to executive officers and directors, including
benefits under the Company's compensation plans, and general review of the
Company's employee compensation policies. Prior to the creation of the
Disinterested Stock Option Plan Committee, the Compensation Committee also had
the authority to grant options under the Company's option plans. During the
ten months ended December 31, 1995, the Compensation Committee held one meeting
and adopted no written consent actions.
The Disinterested Stock Option Plan Committee presently is composed of
Directors Haronian, Wilensky and Ryan. Former directors Johnson-Brown and
Gasbarro served on the Disinterested Stock Option Plan Committee for a portion
of the ten months ended December 31, 1995. The Disinterested Stock Option Plan
Committee was created June 28, 1995, and is authorized to grant options to
directors and employees of the Company under the Company's Option Plans.
During the ten months ended December 31, 1995, the Disinterested Stock Option
Plan Committee held two meetings and adopted no written consent actions.
During the ten months ended December 31, 1995, the Company's Board of
Directors held six meetings and adopted four written consent actions. Each
current director who was serving on the Board of Directors during the last
fiscal year attended at least 75% of the Board meetings and Committee meetings
held or taken during the period in which such person served as a director of
the Company and committee member during the last fiscal year.
LEGAL PROCEEDINGS AFFECTING NOMINEES
Olympia and York Developments, Limited. ("O&Y"), a privately-held Canadian
real estate company, entered into a Canadian reorganization proceeding on May
14, 1992 under the Companies Creditors Arrangement Act. This proceeding
related to various real estate projects located in Canada and elsewhere. On
February 5, 1993, a plan of reorganization was sanctioned by the court in such
proceeding. At the time of the institution of such proceeding, Director
Nominee Reichmann served as a director and president of O&Y.
A plurality of the votes of the shares of Common Stock present or
represented by proxy at the Annual Meeting of Stockholders and entitled to vote
is required to elect the nominees as directors of the Company. Counsel has
expressed its intention to vote all its shares in favor of the election of the
nominees. THE BOARD OF DIRECTORS RECOMMENDS THAT ALL STOCKHOLDERS VOTE IN
FAVOR OF THE ELECTION OF THE NOMINEES AS DIRECTORS.
21
<PAGE> 23
PROPOSAL 2:
INCREASE IN THE NUMBER OF SHARES RESERVED
FOR ISSUANCE UNDER THE 1995 INCENTIVE AND NONQUALIFIED
STOCK OPTION PLAN FOR KEY PERSONNEL AND DIRECTORS
On March 20, 1995, the Board of Directors approved an amendment to the
Company's 1995 Incentive and Nonqualified Stock Option Plan for Key Personnel
and Directors ("Key Personnel Plan") to give the Board of Directors or an
appropriate committee the discretion to increase the number of shares of Common
Stock reserved for issuance from 550,000 shares to 1,600,000 shares. The Board
of Directors has adopted the amendment in part to provide an equity interest
and incentive to directors and employees.
During the Company's ten month fiscal period ended December 31, 1995,
options to purchase 712,000 shares at exercise prices of $5.25, $4.31, $5.86
and $6.00 per share were granted under the Key Personnel Plan to employees of
the Company, 162,000 of which are contingent upon adoption by the Company's
stockholders of the proposed amendment to the Key Personnel Plan. Since
January 1, 1996 options to purchase 390,000 shares at exercise prices of $8.00,
$8.75 and $8.50 per share were granted under the Key Personnel Plan to
employees of the Company, all of which are contingent upon adoption by the
Company's stockholders of the proposed amendment to the Key Personnel Plan. As
of April 8, 1996, there were outstanding under the Key Personnel Plan options,
contingent and otherwise, to purchase 1,102,000 shares of Common Stock with an
aggregate market value of approximately $9.9 million (based on the April 8,
1996 closing price of $9.00 per share for the Company's Common Stock). The
outstanding options have expiration dates ranging from July 2005 to March 2006.
The Key Personnel Plan provides that the exercise price of an option must
not be less than the fair market value of the Common Stock on the trading day
next preceding the date of grant. Payment for shares of Common Stock to be
issued upon exercise of an option may be made either in cash, Common Stock or
any combination thereof, at the discretion of the option holder.
The maximum term of any option granted pursuant to the Key Personnel Plan
is ten years. Options are nontransferable, other than by will, the laws of
descent and distribution or pursuant to certain domestic relations orders.
Shares subject to options granted under the Key Personnel Plan which expire,
terminate or are canceled without having been exercised in full become
available again for option grants.
The Disinterested Stock Option Plan Committee of the Board currently
administers the plan. Subject to certain limitations, the Board and its
Committee have the authority to determine the recipients of, as well as the
exercise prices, exercise periods, length and other terms of, stock options
granted pursuant to the Key Personnel Plan. In making such determinations, the
Board may take into account the nature of the services rendered or to be
rendered by option recipients, and their past, present or potential
contributions to the Company.
The number of shares of Common Stock which may be granted under the Key
Personnel Plan or under any outstanding options will be proportionately
adjusted, to the nearest whole share, in the event of any stock dividend, stock
split, share combination or similar recapitalization involving the Common Stock
or any spin-off, spin-out or other significant distribution of the Company's
assets to its stockholders for which the Company receives no consideration.
22
<PAGE> 24
Generally, no option may be exercised until the holder has been employed
by the Company or one of its subsidiaries continuously for at least three
months from the date of grant. In the event the option holder is terminated as
an employee by reason of disability or death, the holder or his or her
representative may exercise the option for a period of 12 months following such
termination unless the Board of Directors elects, in its sole discretion, to
extend the exercise period. If the employment of an option holder is terminated
for "cause," as defined in the Key Personnel Plan, the unexercised options
expire. In the event the option holder is terminated as an employee for any
reason other than disability, death or cause, the holder may exercise his or
her option for a period of three months following termination, unless extended
by agreement of the Company. In addition, the Company may elect to purchase
from such holder any Common Stock held by the holder at the time of termination
for a price per share equal to the fair market value of the Common Stock at the
time the Company exercises its repurchase option. The Company has the right to
repurchase such stock for a period of one year from the date of termination of
employment.
In the event of a dissolution or sale of all or substantially all of the
assets of the Company, or a merger or consolidation in which the Company is not
the surviving corporation, each outstanding option will terminate, unless there
is an express assumption of the option by the surviving corporation. However,
as to any option which is to so terminate, each holder will have the right
immediately prior to the dissolution, sale, merger or consolidation to exercise
his or her options, in whole or in part.
Either nonqualified or incentive stock options may be granted under the
Key Personnel Plan. No federal income tax consequences occur to either the
Company or the optionee upon the Company's grant or issuance of a stock option
under the Key Personnel Plan. Upon an optionee's exercise of a stock option,
the optionee will recognize ordinary income in an amount equal to the
difference between the fair market value of the stock purchased pursuant to the
exercise of the option and the exercise price of the option. However, if the
stock purchased upon exercise of the option is not transferable or is subject
to a substantial risk of forfeiture, then the optionee will not recognize
income until the stock becomes transferable or is no longer subject to such a
risk of forfeiture (unless the optionee makes an election under Internal
Revenue Code Section 83(b) to recognize the income in the year of exercise,
which election must be made within 30 days of the option exercise). The
Company will be entitled to a deduction in an amount equal to the ordinary
income recognized by the optionee in the year in which such income is
recognized by the optionee. Upon a subsequent disposition of the stock, the
optionee will recognize capital gain to the extent the sales proceeds exceed
the optionee's cost of the stock plus the previously recognized ordinary
income.
Incentive stock options granted under the Key Personnel Plan are intended
to qualify for favorable tax treatment under Internal Revenue Code Section 422.
No individual may be granted incentive stock options under the Key Personnel
Plan exercisable for the first time during any calendar year and having an
aggregate fair market value in excess of $100,000. If the recipient of an
incentive stock option disposes of the underlying shares before the end of
certain holding periods (essentially the later of one year after the exercise
date or two years after the grant date), he or she will generally recognize
ordinary income in the year of disposition in an amount equal to the difference
between his or her purchase price and the fair market value of the Common Stock
on the exercise date. If a disposition does not occur until after the
expiration of the holding periods, the recipient will generally recognize a
capital gain equal to the excess of the disposition price over the price paid
by the recipient on the exercise date. The Company generally will not be
entitled to a tax deduction for compensation expense on account of the original
sales to employees, but may be entitled to a deduction if a participant
disposes of stock received upon exercise of an incentive stock option under the
Key Personnel Plan prior to the expiration of the holding periods.
A copy of the amendment to the 1995 Incentive and Nonqualified Stock
Option Plan for Key Personnel and Directors is attached hereto as Exhibit A.
A majority of the votes cast for shares of Common Stock present or
represented by proxy at the Annual Meeting of Stockholders and entitled to vote
is required to approve the amendment of the 1995 Incentive and Nonqualified
Stock Option Plan for Key Personnel and Directors. Counsel has expressed its
intention to vote all of its shares in favor of the amendment. THE BOARD OF
DIRECTORS HAS APPROVED THE AMENDMENT AND RECOMMENDS THAT STOCKHOLDERS VOTE IN
FAVOR OF THE PROPOSED AMENDMENT.
23
<PAGE> 25
NEW PLAN BENEFITS
Since December 31, 1995, options to acquire an aggregate of 390,000 shares
of Common Stock were granted, all of which are subject to approval by the
stockholders of the amendment to the Key Personnel Plan, which will allow the
Company to reserve up to 1,600,000 shares of Common Stock for issuance under
the Key Personnel Plan. In 1995 the Company granted options with respect to an
additional 162,000 shares that are contingent upon such approval. The
following table sets forth those granted options that are subject to adoption
of the amendment and held by (i) each executive officer named in the Summary
Compensation Table, (ii) all current executive officers as a group, (iii) all
current directors, who are not executive officers, as a group, and (iv) all
employees, including all current officers who are not executive officers, as a
group. The following table does not reflect options previously granted under
the Key Personnel Plan which are not subject to the amendment. These options
are instead noted in footnote 2 to the table.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
Dollar Number of
NAME AND POSITION Value ($)(1) Units (2)
----------------- ------------ ---------
<S> <C> <C>
R. Dirk Allison
President, CEO, Director, Nominee -0- 75,000
Donald W. Hughes
Vice President, CFO,
Secretary and Treasurer -0- 45,000
Morris Perlis
Former Interim CEO, Director, Nominee -0- 197,000
Allan C. Silber
Director, Nominee -0- 75,000
All current Executive Officers
as a group (2 persons) -0- 120,000
All current Directors who are not
Executive Officers as a group
(2 persons) -0- 272,000
All Employees including Officers
who are not Executive Officers
as a group (14 persons) -0- 160,000
</TABLE>
- -----------
(1) The Dollar Value of all contingent options is -0- because the exercise
price of each option is equal to the fair market value of the underlying
common stock on the date of grant. Actual dollar values which may be
realized will be based on the exercise price and the market price of the
Common Stock on the date of exercise, and are thus indeterminable at this
time.
(2) Number of Units references number of shares of Common Stock underlying
options granted under the 1995 Incentive and Nonqualified Key Personnel and
Director Option Plan contingent upon stockholder approval. Options
previously granted under the 1995 Incentive and Nonqualified Key Personnel
and Director Option Plan and not subject to the proposed amendment to the
plan are as follows: 50,000 to officer Allison; 27,000 to former director
Falkson; 10,000 to former director Stone; 25,000 to former officer Thompson
(all of which have been canceled); 250,000 to director Silber; 128,000 to
director Perlis and 85,000 to other employees of the Company, none of which
have been exercised. No individual other than Allan C. Silber and Morris
A. Perlis has or is expected to receive options to acquire five percent
(5%) or more of the Common Stock available upon exercise of options under
the 1995 Key Personnel and Director Option Plan.
24
<PAGE> 26
INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Arthur Andersen LLP was appointed by the Board
of Directors to serve as the Company's Independent Public Accountants for the
ten months ended December 31, 1995. A representative of that firm will be
present at the Annual Meeting of Stockholders and will have the opportunity to
make a statement if he so desires and to respond to questions.
25
<PAGE> 27
DEADLINE FOR SUBMITTING
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for consideration at the Company's
1997 Annual Meeting of Stockholders must be received by the Company's executive
offices at 2930 Washington Blvd., Baltimore, Maryland 21230, no later than
January 2, 1997, if any such proposal is to be eligible for inclusion in the
Company's proxy materials for that Annual Meeting of Stockholders.
OTHER MATTERS
The management of the Company knows of no other matters to be brought
before the Annual Meeting of Stockholders. If any other matter is duly
presented for action, it is the intention of the persons named in the enclosed
proxy to vote on such matter in accordance with their best judgment.
A copy of the Company's Annual Report on Form 10-K is being mailed to
each stockholder of record together with this Proxy Statement.
EACH STOCKHOLDER IS URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY
PROMPTLY. IN THE EVENT A STOCKHOLDER DECIDES TO ATTEND THE ANNUAL MEETING, THE
PROXY MAY, IF SUCH STOCKHOLDER WISHES, BE REVOKED AND SUCH STOCKHOLDER MAY VOTE
THE SHARES IN PERSON. IN ADDITION, A PROXY MAY BE REVOKED BY A STOCKHOLDER AT
ANY TIME BEFORE SUCH PROXY IS VOTED.
26
<PAGE> 28
APPENDIX A
PROXY PROXY
CAPSTONE PHARMACY SERVICES, INC.
ANNUAL MEETING OF STOCKHOLDERS, JUNE 4, 1996
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints R. Dirk Allison and Donald W. Hughes,
or either of them, as proxies, with power of substitution, to vote all shares
of the undersigned at the Annual Meeting of the Stockholders of Capstone
Pharmacy Services, Inc., to be held on June 4, 1996, at 9:30 a.m. Eastern
Daylight Time, at Hotel Intercontinental, 111 East 48th Street, New York, New
York 10017, and at any adjournments or postponements thereof, in accordance
with the following instructions:
<TABLE>
<S> <C>
(1) ELECTION OF DIRECTORS
|__| FOR all nominees listed below |__| WITHHOLD AUTHORITY to vote
(except as marked to the for all nominees listed below
contrary below)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE CHECK THE BOX TO VOTE "FOR" ALL NOMINEES
AND STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
John Haronian Allan C. Silber Morris A. Perlis Dr. Gail Wilensky
Edward Sonshine, Q.C. R. Dirk Allison John E. Zuccotti J. Brendan Ryan
Joseph F. Furlong, III Albert Reichmann
(2) To approve an amendment to the Company's 1995 Incentive and Nonqualified Stock Option Plan to increase the number
of shares of Common Stock reserved for issuance from 550,000 to 1,600,000 shares.
|__| FOR |__| AGAINST |__| ABSTAIN
(3) In their discretion, on such other matters as may properly come before the meeting.
|__| FOR DISCRETION |__| AGAINST DISCRETION |__| ABSTAIN
(CONTINUED ON REVERSE SIDE)
- ------------------------------------------------------------------------------------------------------------------------
(CONTINUED FROM OTHER SIDE)
</TABLE>
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE NOMINEES IN THE
ELECTION OF DIRECTORS, FOR THE AMENDMENT TO THE 1995 INCENTIVE AND NONQUALIFIED
STOCK OPTION PLAN, AND, IN THE DISCRETION OF THE PROXIES, ON SUCH OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE MEETING.
PLEASE SIGN AND DATE BELOW AND RETURN PROMPTLY.
Dated: , 1996
------------------
-------------------------------------
Dated: , 1996
------------------
-------------------------------------
Signatures of stockholder(s) should
correspond exactly with the name
printed hereon. Joint owners should
each sign personally. Executors,
administrators, trustees, etc.,
should give full title and authority.
CAPSTONE PHARMACY SERVICES, INC.
2930 WASHINGTON BLVD.
BALTIMORE, MARYLAND 21230
