<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
VITALINK PHARMACY SERVICES, INC.
COMMISSION FILE NUMBER 0-19820
Incorporated in Delaware E.I. 37-0903482
1250 E. Diehl Road, Suite 208, Naperville, Illinois 60563
Telephone: (630) 245-4800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ----
25,737,871 Common Shares were outstanding as of October 14, 1997.
This report contains 11 pages.
1
<PAGE> 2
VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
FINANCIAL STATEMENTS
The consolidated balance sheets as of August 31, 1997, the consolidated income
statements for the three month periods ended August 31, 1997 and 1996, and the
consolidated statements of cash flows for the three month periods ended August
31, 1997 and 1996, have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position, results of
operations and cash flows at August 31, 1997, and for all periods presented
have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's May 31, 1997 Annual Report to
shareholders, previously filed with the Commission. The results of operations
for the three month periods ended August 31, 1997 and 1996, and cash flows for
the three month periods ended August 31, 1997 and 1996, are not necessarily
indicative of the operating results or cash flows for the full year.
2
<PAGE> 3
VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 31, 1997 MAY 31, 1997
--------------- ------------
<S> <C> <C>
(unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash $ 13,250 $ 3,660
Receivables (net of allowances of $6,562 and $4,872) 80,040 79,745
Inventories 26,489 25,193
Deferred income taxes 10,329 9,590
Other 941 1,829
-------- --------
TOTAL CURRENT ASSETS 131,049 120,017
Due from Affiliate -- 1,053
Property and equipment, at cost (net of accumulated depreciation) 23,230 22,908
Pharmacy contracts (net of amortization of $5,250 and $4,579) 38,843 39,313
Goodwill (net of amortization of $7,743 and $5,705) 331,591 326,884
Other assets (net of amortization of $5,009 and $4,689) 5,489 6,630
-------- --------
TOTAL ASSETS $530,202 $516,805
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 21,646 $ 22,867
Accrued expenses 19,434 20,979
Due to Affiliate 500 --
Income taxes payable -- --
Current portion of long-term debt 2,413 2,165
-------- --------
TOTAL CURRENT LIABILITIES 43,993 46,011
-------- --------
Long-term debt 114,223 104,873
-------- --------
Deferred income taxes and other long-term liabilities 19,445 17,390
-------- --------
STOCKHOLDERS' EQUITY
Common stock (80,000,000 shares authorized,
25,386,553 and 25,402,510 shares issued and
outstanding, $.01 par value) 254 254
Contributed capital 282,012 281,956
Retained earnings 70,275 66,321
-------- --------
TOTAL STOCKHOLDERS' EQUITY 352,541 348,531
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $530,202 $516,805
======== ========
</TABLE>
Note: The balance sheet at May 31, 1997 has been taken from the audited
financial statements at that date.
3
<PAGE> 4
VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
August 31
1997 1996
-------- -------
<S> <C> <C>
NET REVENUES $118,258 $39,373
COST OF GOODS SOLD 61,352 20,005
-------- -------
GROSS PROFIT 56,906 19,368
-------- -------
OPERATING EXPENSES
Payroll expenses 27,638 8,198
Selling, general and administrative expenses 10,541 3,342
Provision for doubtful accounts 2,338 616
Unusual Item 3,087 --
Depreciation and amortization 4,177 1,247
-------- -------
TOTAL OPERATING EXPENSES 47,781 13,403
-------- -------
INCOME FROM OPERATIONS 9,125 5,965
INTEREST INCOME AND OTHER, NET 303 264
INTEREST EXPENSE (1,778) (11)
-------- -------
INCOME BEFORE INCOME TAXES 7,650 6,218
INCOME TAXES 3,696 2,506
-------- -------
NET INCOME $ 3,954 $ 3,712
======== =======
AVERAGE SHARES OUTSTANDING 25,387 13,980
======== =======
EARNINGS PER SHARE $.16 $.27
======== =======
</TABLE>
4
<PAGE> 5
VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
August 31
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,954 $ 3,712
Reconciliation of net income to cash provided by operating activities:
Depreciation and amortization 4,177 1,247
Provision for doubtful accounts 2,338 616
Increase (decrease) in deferred income taxes 1,904 (76)
Change in assets and liabilities, net of acquisitions:
Change in receivables (3,173) (762)
Change in inventories (897) (703)
Change in other current assets 153 16
Change in accounts payable and accrued expenses (2,481) 274
Change in income taxes payable -- 255
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,975 4,579
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment (1,412) (570)
Decrease in due from affiliate, net 1,553 2,149
Acquisition of pharmacy business (5,550) (5,291)
Deferred payments on previous acquisitions (218) --
Other items, net (1,120) (117)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (6,747) (3,829)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt (132) (1,168)
Proceeds from long-term borrowings 894 --
Net borrowings under revolving credit facility 9,600 --
------- -------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 10,362 (1,168)
------- -------
NET INCREASE (DECREASE) IN CASH 9,590 (418)
CASH AT BEGINNING OF PERIOD 3,660 889
------- -------
CASH AT END OF PERIOD $13,250 $ 471
======== =======
</TABLE>
5
<PAGE> 6
VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 1997
(UNAUDITED)
MERGERS AND ACQUISITIONS
Fiscal 1998
On July 11, 1997, Vitalink Pharmacy Services, Inc., (the "Company"), acquired
certain assets of the institutional pharmacy and medical supply businesses of
Nationwide Pharmacies, Inc., located in Upper Marlboro, Maryland, for
$5,550,000 in cash plus the assumption of $30,000 in liabilities and future
contingent payments not to exceed $400,000 based on the achievement of certain
future profitability objectives.
Fiscal 1997
On February 12, 1997, the Company merged with TeamCare, GranCare's
institutional pharmacy business (the " TeamCare Merger"), by acquiring all of
the outstanding shares of GranCare, Inc. after the spin-off of its skilled
nursing business. The Company issued approximately 11.4 million shares of
common stock and funded the redemption of approximately $100 million face value
of GranCare senior subordinated notes. The merger was accounted for using the
purchase method of accounting with an effective date of February 1, 1997 and,
accordingly, the results of operations of TeamCare have been included in the
consolidated financial statements since February 1, 1997. The purchase price
of $351 million was allocated to the net assets acquired based on their
estimated fair values at the date of the merger. The excess of the purchase
price over the fair value of net assets acquired was approximately $292
million and has been recorded as goodwill, which is being amortized on a
straight-line basis over 40 years.
The purchase price has been allocated to the net assets purchased and
liabilities assumed as presented below (in thousands).
<TABLE>
<S> <C>
Working capital $ 21,066
Property and equipment 12,832
Pharmaceutical Supply Agreement 34,262
Other assets 2,240
Goodwill 292,496
Other liabilities (11,896)
---------
Purchase price $351,000
=========
</TABLE>
The following unaudited pro forma information presents a summary of the
consolidated results of operations of the Company and TeamCare as if the merger
had occurred at the beginning of fiscal 1996, after giving effect to
amortization of goodwill, increased interest expense on the acquisition debt
and related income tax effects.
<TABLE>
<S> <C>
Three Months Ended
August 31, 1996
--------------
Net revenues $106,930
Net income $5,118
Earnings per share $0.20
</TABLE>
6
<PAGE> 7
VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 1997
(UNAUDITED)
MERGERS AND ACQUISITIONS (CONTINUED)
The pro forma information is presented for informational purposes only and is
not necessarily indicative of results that would have occurred had the merger
been effective at the beginning of fiscal 1996, nor is the pro forma
information necessarily indicative of results that will be obtained in the
future.
On July 31, 1996, The Company acquired Medisco Pharmacies, Inc., located in San
Bernardino, California for $5,291,000 in cash plus the assumption of $2,510,000
in liabilities and future payments totalling $1,150,000.
The above acquisitions are accounted for under the purchase method of
accounting with the assets recorded at their estimated fair market values at
the date of acquisition. The estimated fair market values of pharmacy
contracts acquired are amortized over the expected remaining lives not to
exceed 20 years including estimated contract renewals. Goodwill, representing
the excess of acquisition costs over the fair market value of acquired assets,
is amortized over 40 years.
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its ongoing capital requirements and operating needs from
operating cash flows. Cash flows provided by operating activities were
$5,975,000 in the first quarter of fiscal 1998 compared to $4,579,000 in the
year earlier period. Effective October 1, 1997, the Company assumed
responsibility of managing all of its cash activities through the
implementation of an integrated cash management program. Previously, the
Company's cash activities, except for the activities of the TeamCare
pharmacies, were managed through an arrangement with Manor Care, Inc. ("Manor
Care").
Except for the TeamCare Merger, previously acquired businesses were paid for
with operating cash flows or borrowings under the Company's revolving credit
facility. The purchase contracts for acquisitions generally stipulate future
payments contingent upon achievement of future profitability objectives.
In connection with the TeamCare Merger, the Company entered into a credit
facility (the "Credit Facility") with various banks providing for unsecured
borrowings of up to $200 million. Funds used to redeem substantially all of
GranCare's $100 million face value senior subordinated notes were obtained
through borrowings under the Credit Facility. At August 31, 1997, there were
$107 million in borrowings outstanding under the Credit Facility and the
Company was in compliance with the terms of the Credit Facility.
7
<PAGE> 8
VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 1997
(UNAUDITED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
At August 31, 1997, available funds of $93,000,000 under the Credit Facility
and $13,250,000 of cash were available for general corporate purposes,
including potential acquisitions of pharmacies, the internal development of
additional pharmacies, working capital and capital expenditures.
The Company believes that its current cash balances, cash generated from
operations and available funds under the Credit Facility will be adequate to
meet the Company's foreseeable capital and other cash requirements.
RESULTS OF OPERATIONS
Net revenues for the three months ended August 31, 1997 were $118,258,000, an
increase of $78,885,000 or 200% over the same period last year primarily due to
the contribution from TeamCare, which was acquired in February, 1997.
Excluding TeamCare revenues, net revenues for the three months ended August 31,
1997 were $47,994,000, an increase of $8,621,000 or 21.9% over the year earlier
period. The increase was due to a combination of factors, including revenues
contributed by the acquisition of Medisco effective July 31, 1996, an increase
in beds obtained through marketing and sales efforts and increased revenues per
bed.
Gross profit for the three months ended August 31, 1997 was $56,906,000, an
increase of $37,538,000 or 193.8% over the same period last year. The gross
profit margin was 48.1% for the three months ended August 31, 1997, compared to
49.2% for the same period last year. The reduction in gross margin percentage
was due to a variety of pricing related factors, including certain third party
reimbursement reductions and changes in customer base.
Included in operating expenses for the three months ended August 31, 1997 is an
unusual item representing a non-recurring charge of $3,087,000 relating to
costs associated with the August 1997 resignation of the Company's Chief
Executive Officer and the consolidation of all corporate functions in
Naperville, IL. Excluding the unusual item, operating expenses increased
$31,291,000 to $44,694,000 or 37.8% of net revenues in the first quarter of 1998
compared to $13,403,000 or 34.0% of net revenues in the first quarter of 1997.
The increase is primarily attributable to the inclusion of TeamCare results
effective February 1, 1997. The increase in operating costs as a percentage of
net revenue is attributable to a variety of factors, including TeamCare's higher
payroll costs as a percentage of revenue, TeamCare's higher selling, general and
administration costs and the amortization of goodwill and pharmacy contracts
arising from the TeamCare Merger ($1,704,000).
The increase in interest expense is largely attributable to interest expense
incurred relating to borrowings under the Credit Facility used to consummate
the TeamCare Merger. The effective income tax rate in the first quarter of
1998 increased to 48.3% compared to 40.3% in the year earlier period due to the
non-deductible nature of the goodwill arising from the TeamCare Merger.
8
<PAGE> 9
VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 1997
(UNAUDITED)
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128"),
which is effective for interim and annual periods ending after December 15,
1997. Early adoption is prohibited. Had the Company adopted SFAS No. 128 in
the first quarter of fiscal 1998, basic earnings per share would have been $.16
and $.27 for the three months ended August 31, 1997 and 1996 respectively.
Diluted earnings per share would have been $.15 and $.26 for the three months
ended August 31, 1997 and 1996, respectively.
SUBSEQUENT EVENTS
On September 5, 1997, the Company reached a settlement, pending the fulfillment
of certain conditions, of a lawsuit against GranCare to enforce a
Non-Competition Agreement that the parties entered into on February 12, 1997
as part of the TeamCare Merger. Under the terms of a Termination and Release
Agreement dated September 3, 1997, by and between the Company, GranCare,
ManorCare, Apollo Management L.P. and Living Centers of America, Inc., GranCare
agreed to pay $18,500,000 to Vitalink in consideration of the cancellation of
and termination of the Non-Competition Agreement.
The Non-Competition Agreement automatically terminates as of the closing of the
merger by and between Living Centers of America and GranCare. In the event
that such merger does not close, GranCare may, at its sole discretion,
terminate the Non-Competition Agreement upon payment of the $18,500,000. In
any event, the termination of the Non-Competition Agreement is contingent on
the termination of the Shareholders Agreement. The Shareholders Agreement is
described in the Company's previously filed Form 10-K/A.
On September 30, 1997, the Company acquired HomeCare Medical Equipment, Inc.,
located in Oklahoma City, Oklahoma, in exchange for approximately 351,000
shares of the Company's common stock and additional consideration based on a
yet to be determined closing balance sheet adjustment.
9
<PAGE> 10
VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
10.1 Employment Agreement dated October 1, 1997 between the Company
and Stephen A. Thompson
4.1 Amendment to Vitalink Pharmacy Services, Inc.
1996 Long-Term Incentive Plan -- Exhibit A.
4.2 Amendment to Vitalink Pharmacy Services, Inc. Key
Executive Stock Option and Appreciation Right Plan -- Exhibit
B.
There were no reports filed on Form 8-K for the three months ended
August 31, 1997.
10
<PAGE> 11
VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VITALINK PHARMACY SERVICES, INC.
(Registrant)
Date: October 14, 1997 By: /s/ Scott T. Macomber
-----------------------
Scott T. Macomber
Senior Vice President, Finance and
Chief Financial Officer
11
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Agreement ("Agreement") dated this 1st day of October, 1997 between
Vitalink Pharmacy Services, Inc. ("Employer" or "Vitalink"), a Delaware
corporation with its principal office at 1250 East Diehl Road, Suite 208,
Naperville, Illinois 60563 ("Principal Office"), and Stephen A. Thompson
("Employee"), sets forth the terms and conditions governing the employment
relationship between Employee and Vitalink.
1. Employment. During the term of this Agreement, as hereinafter defined,
Employer hereby employs Employee as Senior Vice President, Human Resources.
Employee hereby accepts such employment upon the terms and conditions
hereinafter set forth and agrees to faithfully and to the best of his/her
ability perform such duties as may be from time to time assigned by Employer,
its Board of Directors or its designees, such duties at all times to be
rendered at the Principal Office of Employer and to be consistent with the
duties customarily associated with Employee's position and title.
2. Term. Subject to the provisions for termination hereinafter provided,
the term of this Agreement shall begin on the date of this Agreement and shall
terminate on January 23, 2000. Upon expiration of said period, the parties may
extend the term if they mutually agree to do so.
3. Compensation. For all services rendered by Employee under this
Agreement during the term thereof, Employer shall pay Employee the following
compensation:
a) Salary. A base salary of One Hundred Thirty Five Thousand
Dollars ($135,000.00) per annum payable in accordance with Employer's
standard payroll practices from time to time in effect. Such salary
shall be reviewed annually and may be increased in accordance with
Employer's standard practices.
b) Incentive Bonus. Employee shall have the opportunity to earn a
percentage of the base salary set forth in subparagraph 3(a) above in
Employer's bonus plans as adopted from time to time by Employer's Board
of Directors.
c) Automobile. Employer shall provide Employee with the use of a
suitable automobile during the term of this Agreement, and shall provide
gas, oil, maintenance, insurance and other operating expenses for such
automobile, or may provide a car allowance in lieu of the foregoing, in
accordance with Employer's standard practices.
<PAGE> 2
d) Stock Options. Employee shall be eligible to receive options
under the Vitalink Pharmacy Services, Inc. 1996 Long Term Incentive Plan,
or similar plan, to purchase common shares of Vitalink or receive stock
appreciation rights in accordance with the policy of the Vitalink Board
of Directors as in effect from time to time.
e) Other Benefits. Employee shall, when eligible, be entitled to
participate in all other fringe benefits accorded headquarters employees
by Employer as are in effect from time to time.
4. Extent of Services. Employee shall devote his full time, attention,
and energies to the business of Employer, and shall not during the term of this
Agreement be engaged in any other business activity whether or not such
business activity is pursued for gain, profit, or other pecuniary advantage;
but this shall not be construed as preventing Employee from investing his/her
assets in the securities of public companies, or the securities of private
companies or limited partnerships, if such holdings are passive investments of
One Percent (1%) of less of outstanding securities and Employee does not hold
positions of director, officer, employee or general partner of such company or
partnership. Employee warrants and represents that he/she has no contracts or
obligations to others which would materially inhibit the performance of his/her
services under this Agreement.
5. Disclosure of Use of Information. Employee recognizes and acknowledges
that Employer's and its affiliates' present and prospective clients, contracts,
development plans, operating data, policies and personnel, as they may exist
from time to time, are valuable, special and unique assets of Employer's
business. Throughout the term of this Agreement and for a period of two (2)
years after its termination or expiration for whatever cause or reason,
Employee shall not directly or indirectly, or cause others to: (1) make use of
or disclose to others any information relating to the business of Employer that
has not otherwise been made public, including but not limited to Employer's and
its affiliates' present or prospective clients, contracts, development plans,
operating data and policies; or (2) without Employer's prior written consent,
offer employment to or employ on behalf of Employee or any other person, any
person who at any time is or has been within the preceding one (1) year an
employee of Employer or any affiliate of Employer, or induce such person
directly to leave his or her employment. In the event of an actual or
threatened breach by Employee of the provisions of this paragraph, Employer
shall be entitled to injunctive relief restraining Employee from
<PAGE> 3
committing such breach or threatened breach. Nothing herein stated shall be
construed as preventing Employer from pursuing any other remedies available to
Employer for such breach or threatened breach, including the recovery of
damages from Employee.
6. Notices. Any notice, request or demand required or permitted to be
given under this Agreement shall be in writing, and shall be delivered
personally to the recipient or sent by certified, registered or overnight mail
to his/her resident in the case of Employee, or to the Principal Office in the
case of the Employer.
7. Elective Position. Nothing contained in this Agreement is intended to
nor shall be construed to abrogate, limit or affect the powers, rights and
privileges of the Board of Directors or stockholders to remove Employee as
Senior Vice President, Human Resources, with or without just cause, during the
term of this Agreement or to elect someone other than Employee as Senior Vice
President, Human Resources as provided by law and the By-Laws of Employer;
provided; however, that if Employee is so removed without cause, it is
expressly understood and agreed, in the event any one or combination of the
foregoing occurs, Employee's rights under this Agreement shall in no way be
prejudiced, and Employee shall be entitled to immediately receive compensation
referred to in paragraph 3 above, except ungranted stock options, provided that
he is ready, willing and able to perform the duties and responsibilities set
forth above. Notwithstanding the foregoing, the election or appointment of
Employee to a different executive position shall not be considered removal
hereunder. Employee upon removal shall be entitled to pursue other employment,
and Employer shall be entitled to receive as offset and thereby reduce its
payment, the amount received by Employee from any other active employment. As
a condition to Employee receiving his compensation from Employer, Employee
agrees to furnish Employer annually with full information regarding such other
employment and to permit inspection of his employment records and copies of his
income tax returns. Employer shall receive credit for unemployment insurance
benefits, social security insurance or like amounts actually received by
Employee.
8. Waiver of Breach. The waiver of either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
9. Assignment. The rights and obligations of Employer under this
Agreement shall insure to the benefit of and shall be binding upon the
successors and assigns of Employer. The obligations of Employee hereunder may
not be assigned or delegated.
<PAGE> 4
10. Termination of Agreement. This Agreement shall terminate upon the
following events and conditions:
(a) Upon expiration of its term.
(b) For just cause, including but not limited to refusal to carry
out duties and instructions relative to this position, dishonesty,
violation of this Agreement, and any willful acts or omissions inimical
to or contrary to policies of Employer not arbitrarily applied in the
case of Employee. Just cause shall also include solicitation by Employee
of offers of employment from others prior to the last year of this
Agreement, and solicitation by Employee of the services of, or positive
response by Employee to solicitation by, professional search or executive
recruitment organizations prior to the last year of this Agreement.
Employee shall be entitled to fourteen (14) days advance written notice
of termination, except where the basis for termination constitutes
conduct on the part of Employee involving dishonesty or bad faith, in
which case the termination shall be effective upon the sending of notice.
(c) In the event that Employee is unable to perform the services
called for hereunder by reason of incapacity or disablement for more than
six (6) months (whether or not consecutive) in any period of twenty-four
(24) consecutive months, Employer shall have the right to terminate this
Agreement by written notice to Employee. Not withstanding such
termination, Employee shall be entitled to any disability benefits
accorded headquarters employees pursuant to paragraph 3(e) above. In the
event of such termination, all non-vested obligations of Employer or
Employee pursuant to this Agreement shall terminate.
(d) In the event of Employee's death during the term of this
Agreement, the Agreement shall terminate as of the date thereof.
11. Entire Agreement. This instrument contains the entire agreement of
the parties. It may be changed only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification, extension,
or discharge is sought. This Agreement shall be governed by the laws of the
State of Illinois, and any litigation shall be conducted in the State of
Illinois.
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
Employer:
Attest: VITALINK PHARMACY SERVICES, INC.
By:
--------------------- ------------------------------------------
Robert W. Horner, III Donna L. DeNardo
Secretary President and Chief Operating Officer
Witness: Employee:
--------------------- ------------------------------------------
Stephen A. Thompson
<PAGE> 1
EX.4.1
EXHIBIT A
VITALINK PHARMACY SERVICES, INC.
1996 LONG-TERM INCENTIVE PLAN
AMENDMENT TO SECTION 12
D) Change in Control.
1. Regardless of any other provision in the Plan to the contrary, if, while any
Awards remain outstanding under the Plan, a "Change in Control" of the Company
(as defined in this Section 12) shall occur, (1) all Options and freestanding
SARs granted under the Plan that are outstanding at the time of such Change in
Control shall become immediately vested and exercisable in full; (2) with
respect to Awards granted with respect to Performance Shares, all Performance
Periods outstanding at the time of such Change in Control shall be deemed to
have been completed, the maximum level of performance set forth under the
respective Performance Shares shall be deemed to have been attained and each
such outstanding Award granted to each Participant for all outstanding
Performance Periods shall become payable to each Participant; and (3) all
restrictions with respect to shares of Restricted Stock or any other Awards not
described in (1) and (2) above shall lapse, and such shares or other Awards
shall be fully vested and nonforfeitable.
2. For purposes of this Section 12, a Change in Control of the Company shall
occur upon the happening of the earliest to occur of the following:
(i) any "person" as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (other than (1) the Company, (2)
any trustee or other fiduciary holding securities under an employee benefit
plan of the Company, or (3) any corporations owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of Stock (each an "excluded person")) becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the combined voting power
of the Company's then outstanding voting securities;
(ii) the stockholders of the Company approve a plan of merger,
consolidation, complete liquidation of the Company or an agreement for the sale
or disposition by the Company of all or substantially all of the Company's
stock and/or assets, or accept a tender offer for substantially all of the
Company's stock (or any transaction having a similar effect).
3. In the event of a merger, consolidation, or sale or disposition of
substantially all of the Company's assets or stock, a Participant shall be paid
the value of his/her Awards (e.g., for all shares subject to option, the excess
of the greater of fair market value of the Company's stock
<PAGE> 2
on the date of consummation of such sale or purchase price of the Company's
stock pursuant to such sale, over the exercise price of such option) in cash
(the "Cash Payment") by the Company (or, if not by the Company, by the
successor entity) as of the consummation of such sale or disposition.
4. In the event of a Change in Control as defined under Section 280G of the
Code, if the vesting of Awards and/or payment of Awards under this Plan and/or
payments of amounts under any other agreement with or plan of the Company (in
the aggregate the "Total Payments") subject all or any part of the Total
Payments to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or
any similar tax that may hereafter be imposed) the Company shall pay to the
Participant in cash an additional amount (the "Additional Payment") such that
the net amount retained by the Participant, after deduction of any Excise Tax
imposed upon the Total Payments and any federal, state and local income tax and
Excise Tax upon the Additional Payment provided for by this Section 12.D., and
any employment tax (including FICA and FUTA), shall be equal to the amount of
Total Payments prior to such taxes. Such Additional Payment shall be made by
the Company to the Participant as soon as practical following the date of the
Cash Payment (or, if there is no Cash Payment, the date such payment would
otherwise be made), but in no event beyond thirty (30) days from such date.
The determination of whether any of the Total Payments to a Participant
will be subject to the Excise Tax, the calculation of Parachute Value under
Section 280G of the Code of the Total Payments, and calculation of the
Additional Payment, shall be made by a Certified Public Accounting firm jointly
agreed to by the Company and the Participant. The Additional Payment shall be
calculated assuming that the Participant will pay taxes at the highest marginal
federal income tax rate (taking into account the loss of the value of itemized
deductions caused by the receipt of the Additional Payment) and the highest
state and local tax rate in his/her place of domicile.
<PAGE> 1
EX.4.2
EXHIBIT B
VITALINK PHARMACY SERVICES, INC.
KEY EXECUTIVE STOCK OPTION AND APPRECIATION RIGHT PLAN
AMENDMENT TO SECTION 14
D) Change in Control.
1. Regardless of any other provision in the Plan to the contrary, if, while any
granted Options remain outstanding under the Plan, a "Change in Control" of the
Company (as defined in this Section 14) shall occur, all Options and tandem
SARs granted under the Plan that are outstanding at the time of such Change in
Control shall become immediately vested and exercisable in full.
2. For purposes of this Section 14, a Change in Control of the Company shall
occur upon the happening of the earliest to occur of the following:
(i) any "person" as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (other than (1) the Company, (2)
any trustee or other fiduciary holding securities under an employee benefit
plan of the Company, or (3) any corporations owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of Stock (each an "excluded person")) becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the combined voting power
of the Company's then outstanding voting securities;
(ii) the stockholders of the Company approve a plan of merger,
consolidation, complete liquidation of the Company or an agreement for the sale
or disposition by the Company of all or substantially all of the Company's
stock and/or assets, or accept a tender offer for substantially all of the
Company's stock (or any transaction having a similar effect).
3. In the event of a merger, consolidation, or sale or disposition of
substantially all of the Company's assets or stock, a Participant shall be paid
the value of his/her Options (e.g., for each such option, the excess of the
greater of fair market value of the Company's stock on the date of consummation
of such sale or purchase price of the Company's stock pursuant to such sale,
over the exercise price of such option) in cash (the "Cash Payment") by the
Company (or, if not by the Company, by the successor entity) as of the
consummation of such sale or disposition.
4. In the event of a Change in Control as defined under Section 280G of the
Internal Revenue Code of 1986 ("Code"), if the vesting of Awards and/or payment
of Awards under
<PAGE> 2
this Plan and/or payments of amounts under any other agreement with or plan of
the Company (in the aggregate the "Total Payments") subject all or any part of
the Total Payments to the tax (the "Excise Tax") imposed by Section 4999 of the
Code (or any similar tax that may hereafter be imposed) the Company shall pay
to the Participant in cash an additional amount (the "Additional Payment") such
that the net amount retained by the Participant, after deduction of any Excise
Tax imposed upon the Total Payments and any federal, state and local income tax
and Excise Tax upon the Additional Payment provided for by this Section 14.D.,
and any employment tax (including FICA and FUTA), shall be equal to the amount
of Total Payments prior to such taxes. Such Additional Payment shall be made by
the Company to the Participant as soon as practical following the date of the
Cash Payment (or, if there is no Cash Payment, the date such payment would
otherwise be made), but in no event beyond thirty (30) days from such date.
The determination of whether any of the Total Payments to a Participant
will be subject to the Excise Tax, the calculation of Parachute Value under
Section 280G of the Code of the Total Payments, and the calculation of the
Additional Payment, shall be made by a Certified Public Accounting firm jointly
agreed to by the Company and the Participant. The Additional Payment shall be
calculated assuming that the Participant will pay taxes at the highest marginal
federal income tax rate (taking into account the loss of the value of itemized
deductions caused by the receipt of the Additional Payment) and the highest
state and local tax rate in his/her place of domicile.
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<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 13,250
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0
0
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