<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
[X] Definitive Proxy Statement Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
VITALINK PHARMACY SERVICES, INC.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No Filing Fee Required.
[_] 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:
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(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.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT
LOGO
[LOGO OF VITALINK PHARMACY SERVICES APPEARS HERE]
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 20, 1997
<PAGE>
VITALINK PHARMACY SERVICES, INC.
1250 EAST DIEHL ROAD
SUITE 208
NAPERVILLE, ILLINOIS 60563
(630) 245-4800
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 20, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Vitalink
Pharmacy Services, Inc. (the "Company"), will be held at the Wyndham Garden
Hotel, located at 1837 Centre Point Circle, Naperville, Illinois, on Thursday,
November 20, 1997, at 9:00 a.m., to consider and vote upon the following
matters:
1. To elect a Board of Directors consisting of six persons to serve until
the next Annual Meeting of Stockholders of the Company and/or until
their successors are duly elected and qualified.
2. To approve and adopt the Company's Amended and Restated 1996 Long-Term
Incentive Plan (the "1996 Plan"), which would (i) increase by 1,000,000
the number of shares authorized for issuance pursuant to such plan
(bringing the total number of shares authorized under the 1996 Plan to
1,493,900); and (ii) expand the class of persons eligible to participate
in the 1996 Plan to include non-employee directors.
3. To approve and adopt the Company's 1997 Non-Employee Director Stock
Compensation Plan.
4. To transact such other business as may properly come before such meeting
or any adjournment thereof.
The close of business on October 30, 1997 has been fixed as the record date
for the determination of stockholders entitled to notice of, and to vote at,
the Annual Meeting or any adjournment thereof.
Your management sincerely desires the presence in person of every
stockholder able to attend the meeting; however, in order to be assured of the
representation of the greatest number of stockholders either in person or by
proxy, it is requested that you date and sign the accompanying proxy and
return it as promptly as possible in the enclosed self-addressed envelope. No
postage is required if mailed in the United States.
If you attend the Annual Meeting in person, you may revoke your proxy at
such meeting and cast your vote in person. If you receive more than one proxy
because your shares are held in various names or accounts, each proxy should
be completed and returned.
By Order of the Board of Directors:
/s/ Robert W. Horner, III
Robert W. Horner, III
Secretary
Naperville, Illinois
November 5, 1997
<PAGE>
VITALINK PHARMACY SERVICES, INC.
1250 EAST DIEHL ROAD
SUITE 208
NAPERVILLE, ILLINOIS 60563
(630) 245-4800
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 20, 1997
INTRODUCTION
The enclosed proxy is solicited by and on behalf of the Board of Directors
of Vitalink Pharmacy Services, Inc. (the "Company"), a Delaware corporation,
to be used at the 1997 Annual Meeting of Stockholders of the Company (the
"Annual Meeting") to be held on Thursday, November 20, 1997, at 9:00 a.m., at
the Wyndham Garden Hotel, 1837 Centre Point Circle in Naperville, Illinois,
and at any and all adjournments thereof. All shares represented by proxies
will be voted at the Annual Meeting in accordance with the specifications
marked thereon, or if no specifications are made, proxies will be voted FOR
all matters set forth in the attached Notice of Meeting and in the discretion
of the proxy holder as to any other business which comes before the Annual
Meeting. Any stockholder giving a proxy may revoke the same at any time prior
to the voting of such proxy by giving written notice of revocation to the
Secretary, by submitting a later dated proxy or by attending the Annual
Meeting and voting in person. The Proxy Statement is first being mailed to
stockholders on or about November 5, 1997.
The Company's Annual Report (including audited financial statements) for the
fiscal year ended May 31, 1997 has been mailed to the Company's stockholders
under separate cover. The Annual Report is not a part of the proxy soliciting
material.
Except where the context requires otherwise, the term "Company" includes
Vitalink Pharmacy Services, Inc. and its subsidiaries as comprised following
the merger of the Company on February 12, 1997 with GranCare, Inc.
("GranCare"), a California corporation (the "GranCare Merger"), with the
Company being the surviving entity.
VOTING AT THE ANNUAL MEETING
The Board of Directors has fixed October 30, 1997 as the Record Date for
determination of stockholders entitled to notice of and to vote at the Annual
Meeting (the "Record Date"). On the Record Date there were outstanding
25,738,721 shares of common stock, par value $0.01 per share ("Common Stock").
Each such share of Common Stock is entitled to one vote. The presence in
person or by proxy of the holders of a majority of the Company's outstanding
shares of Common Stock will constitute a quorum.
A plurality of the shares present and voting at the Annual Meeting, in
person or by proxy, will be necessary for the election of the directors
nominated herein. The affirmative vote of a majority of shares present and
voting at the Annual Meeting, in person or by proxy, will be necessary for
approval of the proposals to: (i) approve and adopt an amendment to the
Company's 1996 Long-Term Incentive Plan (the "1996 Plan") (x) increasing by
1,000,000 the number of shares authorized for issuance pursuant to such plan
(bringing the total number of shares authorized under the 1996 Plan to
1,493,900) and (y) expanding the class of persons eligible to participate in
the 1996 Plan to include non-employee directors (the "1996 Plan Proposal");
(ii) approve and adopt the Company's 1997 Non-Employee Director Stock
Compensation Plan (the "Directors Plan Proposal" and together with the 1996
Plan Proposal, the "Plan Proposals"); and (iii) the taking of all other
actions at the Annual Meeting. Approval of Plan Proposals is being sought in
order to receive certain tax treatment in connection with awards made under
the related benefit plans pursuant to Rule 162m promulgated under the Internal
Revenue Code of 1986, as amended (the "Code"), and in order to comply with the
rules of the New York Stock Exchange ("NYSE"), upon which the Company's Common
Stock is listed.
<PAGE>
A stockholder who is present in person or by proxy at the Annual Meeting and
who abstains from voting on any or all proposals will be included in the
number of stockholders present at the Annual Meeting for the purpose of
determining the presence of a quorum. An abstention with respect to any
matter, however, will not be counted either in favor of or against such
matter.
Brokers who hold shares for the account of their clients may vote such
shares either as directed by their clients or in their own discretion if
permitted by the exchange or other organization of which they are members.
Companies listing their securities on the NYSE are permitted to vote their
clients' proxies in their own discretion as to the election of directors.
Proxies which are voted by brokers on some but not all of the proposals are
referred to as "broker non-votes." Broker non-votes will be included in
determining the presence of a quorum. A broker non-vote, however, is not
treated as being in favor of or against the particular proposal under
consideration.
If any nominee for election to the Board of Directors named in this Proxy
Statement shall become unavailable for election for any reason, the proxy will
be voted for a substitute nominee selected by the Board of Directors.
SOLICITATION OF PROXIES
The cost of the proxy solicitations will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by the directors,
officers and employees of the Company, without additional compensation, by
personal interview, telephone, telegram or otherwise. Arrangements may also be
made with brokerage firms or other custodians, nominees or fiduciaries for the
forwarding of soliciting material to the beneficial owners of Common Stock of
the Company held of record by such persons, and the Company will reimburse
such respective brokers, custodians, nominees and fiduciaries for the
reasonable out-of-pocket expenses incurred by them in connection therewith.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's reporting officers and directors and
persons who own more than ten percent of the Company's Common Stock to file
reports of ownership and changes in ownership on Forms 3, 4, and 5 with the
Securities and Exchange Commission (the "Commission"), the NYSE and the
Company. Based solely on the Company's review of the forms filed with the
Commission and written representations from reporting persons that they were
not required to file a Form 5 for certain specified years, the Company
believes that Manor Care, Inc. (defined below), Ms. DeNardo and Messrs.
Burleson and Joel S. Kanter (a former director of the Company) filed late
certain reports required under Section 16 of the Exchange Act during the
fiscal year ended May 31, 1997. The Company believes that all other of its
reporting officers, directors and greater than ten percent beneficial owners
complied with all filing requirements applicable to them during fiscal year
ended May 31, 1997.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
As of the Record Date, the only greater than 5% beneficial owner of Common
Stock of the Company is ManorCare Health Services, Inc., a wholly-owned
subsidiary of Manor Care, Inc. (Hereinafter, as and when the context requires,
Manor Care, Inc. and its subsidiaries are collectively referred to as "Manor
Care".) As of the Record Date, Manor Care owned beneficially 13,000,000 shares
of Common Stock of the Company, comprising 50.5% of the Company's outstanding
Common Stock. The address of Manor Care is 11555 Darnestown Road,
Gaithersburg, Maryland 20878.
On October 15, 1997, Manor Care announced that it is exploring strategic
alternatives for its ownership interest in the Company, including mergers,
joint ventures or other business combinations. The Company's Board of
Directors, in response to Manor Care's decision, has authorized management to
engage the services of an investment banker to review strategic alternatives
available to the Company. The fact that Manor Care and the Company may explore
strategic alternatives does not mean that any transaction will be effected.
2
<PAGE>
The following table sets forth, as of the Record Date, the amount of the
Company's Common Stock beneficially owned by (1) each current director and
nominee, (2) the chief executive officers and the four other most highly
compensated executive officers of the Company serving during fiscal 1997, and
(3) all officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF COMPANY
NAME OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------ ------------------------- ----------------
<S> <C> <C>
Stewart Bainum, Jr.................. 0 *
Gene E. Burleson.................... 419,945(1) 1.6
Donald C. Tomasso................... 0 *
Donna L. DeNardo.................... 76,932(2) *
Anil K. Gupta....................... 0 *
Robert W. Horner, III............... 1,331(3) *
Scott T. Macomber................... 33,440(4) *
Stephen A. Thompson................. 6,178(5) *
Essel W. Bailey, Jr................. 451,694(6) 1.8
Joseph R. Buckley................... 0 *
James A. MacCutcheon................ 0 *
Robert L. Parker.................... 104,760(7) *
James H. Rempe...................... 0 *
Gary U. Rolle....................... 479,988(8) 1.9
All directors and officers as a
group (14 persons)................. 1,574,268(9) 6.1
</TABLE>
- --------
* Indicates beneficial ownership of less than 1% of the issued and
outstanding Common Stock of the Company.
(1) Includes 140,895 shares which Mr. Burleson has the right to acquire
pursuant to currently exercisable stock options.
(2) Includes 63,160 shares which Ms. DeNardo has the right to acquire pursuant
to stock options exercisable within 60 days of the Record Date.
(3) Includes 131 shares held through the 1995 Employee Stock Purchase Plan
(the "Purchase Plan") and 1,200 shares which Mr. Horner has the right to
acquire pursuant to stock options exercisable within 60 days of the Record
Date.
(4) Includes 3,000 shares held jointly with Mr. Macomber's spouse. Also
includes 1,200 shares owned by minor children of Mr. Macomber for which he
is custodian and 29,240 shares which Mr. Macomber has the right to acquire
pursuant to stock options exercisable within 60 days of the Record Date.
Beneficial ownership of the shares held as custodian for Mr. Macomber's
minor children is disclaimed.
(5) Includes 173 shares held through the Purchase Plan. Also includes 6,005
shares which Mr. Thompson has the right to acquire pursuant to stock
options exercisable within 60 days of the Record Date.
(6) Includes 10,516 shares held through Mr. Bailey, Jr.'s family foundation.
Also includes 219,173 shares owned by his spouse.
(7) Includes 97,112 shares held through trusts. Also includes 7,648 shares
which Mr. Parker has the right to acquire pursuant to stock options
exercisable within 60 days of the Record Date.
(8) Includes 469,090 shares held through TransAmerica Corp., of which Mr.
Rolle may be deemed an affiliate under federal securities laws. Also
includes 10,516 shares which Mr. Rolle has the right to acquire pursuant
to stock options exercisable within 60 days of the Record Date.
(9) Includes a total of 258,664 shares which the officers, nominees and
directors included in the group have the right to acquire pursuant to
stock options exercisable within 60 days of the Record Date.
3
<PAGE>
The following table also sets forth, as of August 14, 1997, the amount of
Manor Care Common Stock beneficially owned by (1) each current director and
nominee, (2) the chief executive officers and the four other most highly
compensated executive officers of the Company serving during fiscal 1997, and
(3) all officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
MANOR CARE, INC.
COMMON STOCK SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS(1)
- ------------------------ ------------------- ------------------
<S> <C> <C>
Stewart Bainum, Jr....................... 15,269,851(2) 22.9
Gene E. Burleson......................... 0 *
Donald C. Tomasso........................ 143,424(3) *
Donna L. DeNardo......................... 6,466(4) *
Robert W. Horner, III.................... 0 *
Scott T. Macomber........................ 6,032(5) *
Stephen A. Thompson...................... 401(6) *
Essel W. Bailey, Jr...................... 0 *
Joseph R. Buckley.......................... 101,631(7) *
Anil K. Gupta............................ 0 *
James A. MacCutcheon..................... 137,925(8) *
Robert L. Parker......................... 0 *
James H. Rempe........................... 59,958(9) *
Gary U. Rolle............................ 0 *
All directors and officers as a group (14
members)................................ 15,725,688(10) 23.6
</TABLE>
- --------
* Indicates beneficial ownership of less than 1% of the issued and
outstanding Manor Care Common Stock.
(1) Percentages are based on a total of 66,709,912 shares outstanding on
August 14, 1997.
(2) Includes 20,598 shares owned directly by Mr. Bainum, Jr. Also includes
5,417,761 shares owned by Bainum Associates Limited Partnership ("Bainum
Associates") and 4,415,250 shares owned by MC Investments Limited
Partnership ("MC Investments"), in both of which Mr. Bainum, Jr. is
managing general partner with the sole right to dispose of the shares.
Authority to vote such shares is held by the voting general partner, Mr.
B. Houston McCeney. Also includes 1,779,628 shares owned by Mid Pines
Associates Limited Partnership ("Mid Pines"), in which Mr. Bainum, Jr. is
managing general partner and has shared voting authority, and 3,567,869
shares held by Realty Investment, in which Mr. Bainum, Jr. has shared
voting authority. Also includes 88,000 shares which Mr. Bainum, Jr. has
the right to acquire pursuant to stock options that are presently
exercisable or which become exercisable within 60 days after August 14,
1997, and 350 shares and 993 shares, respectively, which Mr. Bainum, Jr.
has the right to receive upon termination of his employment with the Manor
Care, Inc. pursuant to the terms of the Manor Care, Inc. Retirement
Savings and Investment Plan (the "401(k) Plan") and the Manor Care, Inc.
Non-Qualified Retirement Savings and Investment Plan (the "Non-Qualified
Savings Plan.") (based upon a report of each plan's trustee for June
1997).
(3) Includes 40 shares held by adult children of Mr. Tomasso who share the
same household. Beneficial ownership of such shares is disclaimed. Also
includes 135,984 shares which Mr. Tomasso has the right to acquire
pursuant to stock options that are presently exercisable or become
exercisable within 60 days after August 14, 1997, and 326 shares and 574
shares, respectively, which Mr. Tomasso has the right to receive upon
termination of his employment with the Company pursuant to the terms of
the 401(k) Plan and the Non-Qualified Savings Plan.
(4) Includes 439 and 405 shares, respectively, which Ms. DeNardo has the right
to receive upon termination of her employment with the Company pursuant to
the terms of the 401(k) Plan and the Non-Qualified Savings Plan.
(5) Includes 4,500 shares Mr. Macomber has the right to acquire pursuant to
stock options that are exercisable within 60 days after August 14, 1997
and 439 and 393 shares, respectively, which Mr. Macomber has the right to
receive upon termination of his employment with the Company pursuant to
the terms of the 401(k) Plan and the Non-Qualified Savings Plan.
4
<PAGE>
(6) Includes 247 and 154 shares, respectively, which Mr. Thompson has the
right to receive upon termination of his employment with the Company
pursuant to the terms of the 401(k) plan and the Non-Qualified Savings
Plan.
(7) Includes 100,423 shares Mr. Buckley has the right to acquire pursuant to
stock options that are exercisable within 60 days after August 14, 1997
and 668 and 540 shares, respectively, which Mr. Buckley has the right to
receive upon termination of his employment with Manor Care pursuant to the
terms of the 401(k) Plan and the Non-Qualified Savings Plan.
(8) Includes 91,362 shares which Mr. MacCutcheon has the right to acquire
pursuant to stock options that are presently exercisable or become
exercisable within 60 days after August 14, 1997.
(9) Includes 3,552 shares which Mr. Rempe has the right to acquire pursuant to
stock options that are exercisable within 60 days after the Record Date.
(10) Includes a total of 423,821 shares which the officers, nominees, and
directors included in the group have the right to acquire pursuant to
stock options that are presently exercisable or become exercisable within
60 days after August 14, 1997, and a total of 2,469 and 3,059 shares,
respectively, which such directors and officers have the right to receive
upon the termination of their employment pursuant to the terms of the
401(k) Plan and the Non-Qualified Savings Plan.
CHANGE IN CONTROL
On February 12, 1997, the Company, an approximately 82% owned subsidiary of
Manor Care, acquired the institutional pharmacy business of GranCare through
the merger of GranCare with and into the Company, with the Company surviving
the GranCare Merger. In order to facilitate the GranCare Merger, GranCare's
skilled nursing, home healthcare, assisted living and contract management
businesses and related assets (the "Skilled Nursing Business") were
transferred to New GranCare, Inc. ("New GranCare"), a wholly owned subsidiary
of GranCare, and all of the issued and outstanding common stock of New
GranCare was distributed to the shareholders of GranCare. GranCare's only
remaining business, its institutional pharmacy business, was acquired by the
Company in the GranCare Merger and is operated by TeamCare, Inc. ("TeamCare"),
a wholly owned subsidiary of the Company. As a consequence of the GranCare
Merger, each GranCare shareholder received 0.478 of a share of the Company's
Common Stock for each share of GranCare common stock owned as of the effective
time of the GranCare Merger. The Company also assumed certain items of
GranCare's consolidated indebtedness, including existing long-term
indebtedness of GranCare associated with the operation of its institutional
pharmacy business. In addition, the Company incurred indebtedness under a $200
million revolving credit facility executed prior to the effective time of the
GranCare Merger among the Company, certain of its subsidiaries and The Chase
Manhattan Bank, as agent, and the lenders party thereto to finance the
repurchase of $98.2 million aggregate principal amount of GranCare's 9-3/8%
senior subordinated notes due 2005. Approximately $1.8 million principal
amount of such notes remained outstanding after the repurchase and the Company
assumed GranCare's rights and obligations thereunder. The GranCare 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,
the acquired business, have been included in the Company's consolidated
financial statements since February 1, 1997.
Immediately following the completion of the GranCare Merger, Manor Care's
beneficial ownership of the Company was reduced to approximately 45% of the
outstanding Common Stock of the Company. Pursuant to the terms and conditions
set forth in its Offer to Purchase dated April 24, 1997, Manor Care purchased
1,500,000 shares of Common Stock of the Company from other stockholders of the
Company at a price of $20.00 per share on May 21, 1997. As a result, as of the
Record Date, Manor Care owned beneficially 13,000,000 shares of Common Stock
of the Company, comprising 50.5% of the Company's Common Stock.
5
<PAGE>
PROPOSAL ONE
THE NOMINATION AND ELECTION OF DIRECTORS
The Company's By-laws permit the Board of Directors to determine from time
to time the aggregate number of directors constituting the entire Board, which
may not be less than three nor more than eight. Accordingly, at the Annual
Meeting of Stockholders, six directors will be elected to serve until the next
Annual Meeting of Stockholders of the Company and/or until their successors
are duly elected and qualified.
If any nominee is unable to serve for any reason, the proxy will be voted
for a substitute nominee selected by the Board of Directors.
The following table sets forth information with respect to each nominee for
election as a director of the Company.
<TABLE>
<CAPTION>
SERVED AS
DIRECTOR POSITIONS WITH THE COMPANY; BUSINESS
NAME AGE SINCE EXPERIENCE; OTHER DIRECTORSHIPS
---- --- --------- -------------------------------------------
<C> <C> <C> <S>
Essel W. Bailey, Jr. 53 1997 Chief Executive Officer and Director of
Omega Healthcare Investors, Inc. since
1992; Managing Director of Principal
Healthcare Finance, Limited since 1995;
Director of Evergreen Healthcare from 1988
through 1995; Managing Director of Omega
Capital, Ltd. from 1986 to 1992.
Stewart Bainum, Jr. 51 1991 Chairman of the Board of Directors since
February 1997; Vice Chairman of the Board
of the Company from December 1994 to
February 1997; Chief Executive Officer from
March 1989 to December 1994; President from
March 1987 to September 1991; also Chairman
of the Board and Chief Executive Officer of
Manor Care since March 1987; President of
Manor Care since June 1989; Director of
ManorCare Health Services, Inc. since 1976.
Joseph R. Buckley 50 1996 Executive Vice President, Manor Care since
March 1996; President, Assisting Living
Division of ManorCare Health Services, Inc.
from June 1995 to March 1996; Senior Vice
President, Manor Care from June 1990 to
March 1996; Director of In Home Health,
Inc. since October 1995.
Anil K. Gupta 47 * Professor of Strategy, Organization and
International Business, University of
Maryland, College of Business and
Management, since 1986.
James A. MacCutcheon 45 1994 Treasurer from 1992 to December 1996;
Executive Vice President, Chief Financial
Officer and Treasurer of Choice Hotels
International, Inc. since October 1996;
Senior Vice President--Finance, Chief
Financial Officer and Treasurer of Manor
Care from October 1987 to October 1996.
James H. Rempe 67 1994 Secretary from 1991 through January 1997;
Senior Vice President, General Counsel and
Secretary of Manor Care since December
1980; Director of In Home Health, Inc.
since October 1995.
</TABLE>
- --------
* Served as a director from 1992 to February 1997.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE DIRECTOR NOMINEES
LISTED ABOVE. PROXIES RECEIVED BY THE BOARD OF DIRECTORS WILL BE VOTED IN
FAVOR OF EACH OF THE LISTED NOMINEES UNLESS A CONTRARY INDICATION IS MADE.
6
<PAGE>
STRUCTURE AND FUNCTIONING OF THE BOARD OF DIRECTORS
The Board of Directors held six meetings during the fiscal year ended May
31, 1997. During such fiscal year, all of the then-current directors attended
75% or more of the aggregate of (1) the total number of meetings of the Board
of Directors and (2) the total number of meetings of all committees on which
such director served. The standing committees of the Board include the Audit
Committee, the Compensation Committee, the Nominating Committee and the
Finance Committee, the current members of which are as follows:
<TABLE>
<CAPTION>
COMPENSATION
COMMITTEE NOMINATING COMMITTEE AUDIT COMMITTEE FINANCE COMMITTEE
------------ -------------------- --------------------- --------------------
<S> <C> <C> <C>
James H. Rempe James H. Rempe* James A. MacCutcheon* Joseph R. Buckley*
Stewart Bainum, Jr. Essel W. Bailey, Jr. Robert L. Parker Gary U. Rolle
Robert L. Parker James A. MacCutcheon
</TABLE>
- --------
*Chairman
The Compensation Committee, which held three meetings during the 1997 fiscal
year, administers the Company's benefit plans and grants stock options and
appreciation rights thereunder.
The Audit Committee, which held two meetings during the 1997 fiscal year,
reviews the scope and results of the annual audit, reviews and approves the
services and related fees of the Company's independent public accountants, and
reviews the Company's internal accounting controls.
The Nominating Committee, which did not hold any meetings during the 1997
fiscal year, recommends to the Board of Directors the members to serve on the
Board of Directors during the ensuing year. The Committee does not consider
nominees recommended by stockholders.
The Finance Committee, which did not hold any meetings during the 1997
fiscal year, among other things, (i) reviews the capital needs of the Company
and the various financing alternatives available to the Company and makes
recommendations to the Board of Directors of the Company as to which financing
options the Company should pursue; (ii) consults with and advises management
regarding significant expenditure requests or other major financial
transactions; and (iii) reviews the terms of all securities to be issued by
the Company.
The remuneration of all non-employee directors is currently $10,000 per
annum, payable quarterly, $1,500 per Board meeting attended and $1,500 per
committee meeting attended. Directors are reimbursed for travel expenses and
other out-of-pocket costs incurred in attending meetings. Effective February
26, 1997, each non-employee director of the Company received, subject to
shareholder approval of the Directors Plan and the 1996 Plan Proposal, an
initial grant of 450 shares of restricted Common Stock under the Directors
Plan and an option to purchase 5,000 shares of the Company's Common Stock at
an exercise price equal to the fair market value of the Common Stock on the
date of grant in accordance with the terms of the 1996 Plan. Effective August
1, 1997, a newly elected non-employee director received an initial grant of
450 shares of restricted stock and an option to purchase 5,000 shares of
Common Stock as described above. Upon subsequent re-election as a non-employee
director at an annual meeting of the Company's stockholders (including re-
election at the 1997 Annual Meeting of Stockholders), each non-employee
director shall, in addition to any retainer and attendance fees, be granted an
additional 450 shares of Restricted Stock on the date of such annual meeting
and an option to purchase 2,000 shares of the Company's Common Stock at an
exercise price equal to the fair market value of the Common Stock on the date
of grant in accordance with the terms of the 1996 Plan. Directors who are
newly elected at or after the 1997 Annual Meeting of Stockholders will receive
initial grants of 450 shares of restricted stock and an option to purchase
5,000 shares of Common Stock at an exercise price equal to the fair market
value of the Common Stock on the date of grant in accordance with the terms of
the 1996 Plan, subject to Board approval and effective immediately upon such
approval, and will receive additional shares of restricted stock and options
upon their re-election as described above. All options granted under the 1996
Plan vest on the first through fifth anniversaries of the date of the option
grant and all restricted Common Stock granted under the Directors Plan vests
on the first to occur of the second anniversary of the date of grant or the
recipient's death, disability, attainment of age 65 or failure to be re-
elected to the Board at subsequent annual meetings of the Company's
stockholders.
7
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information concerning the annual and
long-term compensation for services in all capacities to the Company for the
fiscal years ended May 31, 1997, 1996 and 1995, of the two persons serving as
the Company's Chief Executive Officer in fiscal 1997 and the only other
executive officers of the Company who received a combined payment of salary
and bonus in excess of $100,000 for services rendered to the Company during
the fiscal year ended May 31, 1997 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- ------------
AWARDS
------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS OTHER OPTIONS COMPENSATION(1)
------------------ ---- -------- -------- ----- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Gene E. Burleson........ 1997 $148,566 $ 0 (3) 0 $ 0
Chief Executive Officer 1996 -- -- -- -- --
February 1997 to 1995 -- -- -- -- --
August 1997(2)
Donald C. Tomasso....... 1997 $ 0 $ 0 (3) 0 $ 0
Chief Executive Officer 1996 0 0 (3) 0 0
December 1994 to 1995 0 0 (3) 0 0
February 1997(4)
Donna L. DeNardo........ 1997 $233,250 $186,600 (3) 18,300 $12,327
President and Chief 1996 186,101 82,815 (3) 20,000 10,924
Operating Officer 1995 169,762 83,523 (3) 30,000 9,000
Robert W. Horner, III... 1997 $ 77,115 $ 46,269 (3) 6,000 $53,342(6)
Senior Vice President, 1996 -- -- -- -- --
General Counsel and 1995 -- -- -- -- --
Secretary(5)
Scott T. Macomber....... 1997 $147,671 $103,370 (3) 8,700 $ 8,044
Senior Vice President, 1996 127,067 46,634 (3) 10,000 7,409
Chief Financial 1995 118,885 47,435 (3) 15,000 7,197
Officer and
Treasurer(7)
Stephen A. Thompson..... 1997 $118,135 $ 70,881 (3) 5,900 $ 4,402
Senior Vice President, 1996 105,447 $ 36,906 (3) 10,500 4,024
Human Resources and 1995 -- -- -- -- --
Administration(8)
</TABLE>
- --------
(1) Includes amounts contributed by the Company for fiscal 1997, 1996, and
1995, for the Named Officers under the 401(k) Plan and the Non-Qualified
Savings Plan, which provide retirement and other benefits to eligible
employees, including the above Named Officers. During fiscal 1997, the
Company contributed $0 for Mr. Burleson, $0 for Mr. Tomasso, $4,109 for
Ms. DeNardo, $0 for Mr. Horner, $2,697 for Mr. Macomber and $2,201 for Mr.
Thompson under the 401(k) Plan; and, $0 for Mr. Burleson, $0 for Mr.
Tomasso, $8,218 for Ms. DeNardo, $0 for Mr. Horner, $5,347 for Mr.
Macomber and $2,201 for Mr. Thompson under the Non-Qualified Savings Plan.
(2) Mr. Burleson was appointed Chief Executive Officer of the Company on
February 12, 1997 and resigned August 1, 1997.
(3) The value of perquisites and other compensation does not exceed the lesser
of $50,000 or 10% of the amount of annual salary and bonus paid to each of
the Named Officers.
(4) Due to Mr. Tomasso's status as an employee of Manor Care, the Company's
parent, Mr. Tomasso received no compensation from the Company during his
tenure as Chief Executive Officer.
(5) Mr. Horner was hired as General Counsel in November 1996, elected
Secretary on January 17, 1997 and promoted to Senior Vice President on
April 9, 1997.
8
<PAGE>
(6) Pertains to expenses incurred by the Company in connection with two
relocations by Mr. Horner during fiscal 1997.
(7) Mr. Macomber was promoted to Senior Vice President on April 9, 1997.
(8) Mr. Thompson was promoted to Senior Vice President Human Resources and
Administration on July 14, 1997.
The Company's Board of Directors and stockholders adopted the 1996 Plan in
October 1996. Under the 1996 Plan 493,900 shares of Common Stock have been
reserved for issuance in connection with awards to be made thereunder.
The Company's Board of Directors and stockholders adopted the Company's Key
Executive Stock Option and Appreciation Rights Plan (the "Stock Option Plan")
in September 1991. Under the Stock Option Plan, 1,000,000 shares of Common
Stock have been reserved for issuance upon exercise of options granted
thereunder and 506,100 shares have been granted to date. No additional shares
have been granted pursuant to the Stock Option Plan.
The following tables set forth certain information at May 31, 1997, and for
the fiscal year then ended, concerning stock options granted to the Named
Officers. Two of the Named Officers exercised stock options pertaining to the
Common Stock of the Company during fiscal 1997. All Common Stock figures and
exercise prices have been adjusted to reflect stock dividends and stock splits
effective in prior fiscal years.
STOCK OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATE OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (1)
----------------------------------------------- ---------------------
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO ALL EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED IN FISCAL 1997 PER SHARE DATE 5%(2) 10%(3)
---- ---------- -------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gene E. Burleson 0(4) -- -- -- -- --
Donald C. Tomasso 0(4) -- -- -- -- --
Donna L. DeNardo 18,300(4) 33.33% $23.75 07/10/06 $273,402 $692,655
Robert W. Horner, III 6,000(4) 10.91% $23.37 12/20/06 $ 88,200 $223,500
Scott T. Macomber 8,700(4) 15.82% $23.75 07/10/06 $129,978 $329,295
Stephen A. Thompson 5,900(4) 10.73% $23.75 07/10/06 $ 88,146 $223,315
</TABLE>
- --------
(1) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission and
therefore are not intended to forecast future possible appreciation, if
any, of the price of the Company's Common Stock. Since options are granted
at market price, a zero percent gain in the stock price will result in no
realizable value to the option holders.
(2) A 5% per year appreciation in the stock price from $23.75 per share yields
$38.69 on the expiration date. A 5% per year appreciation in the stock
price from $23.37 per share yields $38.07 on the expiration date.
(3) A 10% per year appreciation in the stock price from $23.75 per share
yields $61.60 on the expiration date. A 10% per year appreciation in the
stock price from $23.37 per share yields $60.62 on the expiration date.
(4) The options granted vest at a rate of 20% per year commencing on the first
through the fifth anniversaries of the date of the stock option grant.
9
<PAGE>
AGGREGATED OPTION EXERCISES
IN FISCAL 1997 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ON EXERCISE REALIZED OPTIONS AT MAY 31, 1997 MAY 31, 1997(1)
----------- -------- ------------------------- -------------------------
NAME # $ EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gene E. Burleson........ -- -- 140,895 0 $314,781 $ 0
Donald C. Tomasso....... -- -- 0 0 $ 0 $ 0
Donna L. DeNardo........ 20,000 $115,000 42,170 111,130 $194,923 $425,452
Robert W. Horner, III... -- -- 0 6,000 $ 0 $ 0
Scott T. Macomber....... 15,000 $ 58,200 20,250 58,450 $ 78,847 $221,803
Stephen A. Thompson..... -- -- 2,100 19,300 $ 9,563 $ 41,550
</TABLE>
- --------
(1) The closing price of the Company's Common Stock, as reported by the New
York Stock Exchange on May 30, 1997 was $19.125 per share. The value is
calculated on the basis of the difference between the option per share
exercise price and $19.125 per share, multiplied by the number of shares
of Common Stock underlying the option.
EMPLOYMENT AGREEMENTS
Mr. Burleson resigned his position as Chief Executive Officer of the Company
as of August 1, 1997. Under the agreement formerly existing between Gene E.
Burleson and the Company, his annual salary was $450,000. In connection with
Mr. Burleson's resignation, Mr. Burleson and the Company have entered into a
Separation Agreement and Mutual General Release dated July 24, 1997 (the
"Separation Agreement"). The Separation Agreement provides for payment of
$2,340,000, as well as certain attorneys' fees and insurance premiums in
exchange for a complete release of any and all claims against the Company, a
prohibition against solicitation of Company employees by Mr. Burleson and a
commitment by Mr. Burleson to maintain the confidentiality of Company
information, among other commitments.
Under the terms of an agreement between Donna L. DeNardo and the Company,
her annual salary is presently $275,000. The agreement currently extends
through December 1, 1999. Ms. DeNardo is entitled to an annual bonus of up to
103% of her base compensation based on the performance of the Company.
Under the terms of an agreement between Robert W. Horner, III and the
Company, his annual salary is presently $165,000. Under the terms of the
Agreement, Mr. Horner's base salary will increase to $175,000 effective upon
his pending relocation from Atlanta, Georgia to Naperville, Illinois. The
Agreement currently extends through January 23, 2000. Mr. Horner is entitled
to an annual bonus of up to 84.5% of his base compensation based on the
performance of the Company.
Under the terms of an agreement between Scott T. Macomber and the Company,
his annual salary is presently $175,000. The Agreement currently extends
through January 23, 2000. Mr. Macomber is entitled to an annual bonus of up to
84.5% of his base compensation based on the performance of the Company.
Under the terms of an agreement between Stephen A. Thompson and the Company,
his annual salary is presently $135,000. The Agreement currently extends
through January 23, 2000. Mr. Thompson is entitled to an annual bonus of up to
84.5% of his base compensation based on the performance of the Company.
RETIREMENT PLANS
Effective January 1, 1992, the Company adopted the Manor Care, Inc.
Retirement Savings and Investment Plan (the "401(k) Plan"), a defined
contribution retirement, saving and investment plan maintained by Manor Care
for its employees and the employees of its participating affiliated companies.
The 401(k) Plan is qualified under Section 401(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and includes a cash or
10
<PAGE>
deferred arrangement under Section 401(k) of the Code. All employees age 21 or
over with at least one year of service, and who have worked at least 1,000
hours during the year, are eligible to participate. Subject to certain non-
discrimination requirements, each employee may contribute an amount to the
401(k) Plan on a pre-tax basis up to 15% of the employee's salary, but not
more than the current federal limit of $9,500. The Company will match
contributions made by its employees subject to certain limitations described
in greater detail below. The amount of the match will be equal to a percentage
of the amount of salary reduction contribution made on behalf of a participant
during the plan year based upon a formula that involves the profits of Manor
Care for the year and the number of years of service of the participant. In no
event will the Company make a matching contribution which exceeds 6% of a
participant's salary. Amounts contributed by the Company pursuant to the
401(k) Plan for the fiscal years ended May 31, 1997, 1996, and 1995 for the
Named Officers are included in the Summary Compensation Table under the column
headed "All Other Compensation."
Effective January 1, 1992, the Company adopted the Manor Care, Inc. Non-
Qualified Retirement Savings and Investment Plan (the "Non-Qualified Savings
Plan") maintained by Manor Care for its employees and the employees of its
participating affiliated companies. Certain select highly compensated members
of the management of the Company are eligible to participate in the Non-
Qualified Savings Plan. The Non-Qualified Savings Plan mirrors the provisions
of the 401(k) Plan, to the extent feasible, and is intended to provide the
participants with a pre-tax savings vehicle to the extent that pre-tax savings
are not permissible under the 401(k) Plan as a result of various governmental
regulations, such as non-discrimination testing. With the exception of Messrs.
Burleson and Horner, all of the Named Officers have elected to participate in
the Non-Qualified Savings Plan. Amounts contributed by the Company pursuant to
the Non-Qualified Savings Plan for the fiscal years ended May 31, 1997, 1996,
and 1995, for the Named Officers are included in the Summary Compensation
Table under the column headed "All Other Compensation."
The Company match under the 401(k) Plan and the Non-Qualified Savings Plan
is limited to a maximum aggregate of 6% of the annual salary of a participant.
Likewise, participant contributions under the two plans may not exceed the
aggregate of 15% of the annual salary of a participant.
Effective February 15, 1997, the Company adopted the Vitalink Pharmacy
Services, Inc. 401(k) Profit Sharing Plan (the "New 401(k) Plan"), a defined
contribution retirement, saving and investment plan maintained by Vitalink
Pharmacy Services, Inc. for its new employees joining the Company following
the GranCare Merger. The Company adopted a resolution effective October 1,
1997 to amend and restate the New 401(k) Plan to be renamed the Vitalink
Pharmacy Services, Inc. Retirement Savings and Investment Plan (the "Restated
401(k) Plan"). The Restated 401(k) Plan is qualified under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), and includes a
cash or deferred arrangement under Section 401(k) of the Code. All pre-merger
employees currently on the 401(k) Plan will transfer to the Restated 401(k)
Plan. Employees (pre and post merger) age 21 or over with at least six months
of service, are eligible to participate. Subject to certain non-discrimination
requirements, each employee may contribute an amount to the Restated 401(k)
Plan on a pre-tax basis of up to 15% of the employee's salary, but not more
than the current federal limit of $9,500. The Company will match contributions
made by its employees subject to certain limitations described in greater
detail below. The amount of the match will be equal to a percentage of the
amount of salary reduction contribution made on behalf of a participant during
the plan year for the year and the number of years of service of the
participant. In no event will the Company make a matching contribution which
exceeds 6% of a participant's salary. Amounts contributed by the Company
pursuant to the 401(k) Plan for the fiscal year years ended May 31, 1997,
1996, and 1995 for the Named Officers are included in the Summary Compensation
Table under the column headed "All Other Compensation." The Company has not
made any contributions to the New 401(k) Plan to date.
Effective October 1, 1997, the Company adopted the Vitalink Pharmacy
Services, Inc. Non-Qualified Retirement Savings and Investment Plan (the "New
Non-Qualified Savings Plan") maintained by the Company for its employees.
Certain select highly compensated members of the management of the Company are
eligible to participate in the New Non-Qualified Savings Plan. The New Non-
Qualified Savings Plan mirrors the provisions of the Restated 401(k) Plan, to
the extent feasible, and is intended to provide the participants with a pre-
tax savings vehicle to the extent that pre-tax savings are not permissible
under the Restated 401(k) Plan as a result of various governmental
regulations, such as non-discrimination testing.
11
<PAGE>
The Company match under the Restated 401(k) Plan and the Non-Qualified
Savings Plan is limited to a maximum aggregate of 6% of the annual salary of a
participant. Likewise, participant contributions under the two plans may not
exceed the aggregate of 15% of the annual salary of a participant.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation philosophy of the Company is to be competitive with the
leading service companies and selected direct competitors in the marketplace,
to attract, retain and motivate a highly qualified workforce, and to provide
competitive career opportunities. The Company uses various compensation
surveys, primarily conducted and evaluated by independent consultants, to
provide data to support the development of competitive compensation plans
which reinforce this philosophy. Summary data on service companies of similar
size participating in each survey are utilized as the basis for the
evaluations. This philosophy is applied by the Compensation Committee of the
Board of Directors (the "Committee") in determining compensation for the Chief
Executive Officer ("CEO"), the Chief Operating Officer ("COO") and executive
officers. In evaluating the CEO's and the COO's performance, the Committee, in
addition to financial performance, considers factors important to the Company
such as ethical business conduct, progress against the Company's strategic
plan objectives, management succession planning, customer service satisfaction
and the general overall perception of the Company by financial leaders and
customers. Donna L. DeNardo is COO of the Company. The Company is in the
process of selecting a CEO. Ms. DeNardo's base salary paid in fiscal 1997 is
shown under the heading "Salary" in the Summary Compensation Table above.
The Committee is responsible for setting and administering the policies
which govern executive compensation and the stock-based programs of the
Company. The members of the Committee are Messrs. Bainum, Parker and Rempe.
Compensation of the Company's officers is reviewed annually by the
Committee. Changes proposed for these employees are evaluated and approved by
the Committee on an individual basis.
There are three components in the Company's executive compensation program:
1. Base salary
2. Cash bonus
3. Long-term incentive compensation (stock options and stock appreciation
rights)
The Committee continues to believe that compensation for the CEO and COO and
other executive officers should be weighted in favor of more "pay at risk" or
"variable pay."
BASE SALARY
Base salary is the only component that is not variable. Scope and complexity
of the position as well as external market factors are used to determine base
salary levels. Salary changes are based on guidelines established for all
employees using individual performance to determine the change.
CASH BONUS
A cash bonus based on meeting certain earnings per share targets is used to
focus management attention on this area.
LONG-TERM INCENTIVE COMPENSATION (STOCK OPTIONS AND STOCK APPRECIATION RIGHTS)
Long-term compensation comprised of stock options and tandem stock
appreciation rights ("SARs") have been established to focus attention on the
Company's and stockholders' long-term goals and to increase ownership and
retention of the Company's stock by its officers.
12
<PAGE>
The Committee has granted stock options and SARs with a vesting schedule of
up to eight years in order to retain management and focus option holders on
the long-term goals of the Company and to cause the interests of such holders
to be more closely aligned with the interests of stockholders. Under the 1996
Plan, the Committee has the discretion to grant restricted shares, incentive
stock options, non-qualified stock options, stock appreciation rights or
performance shares as it may determine to be desirable in order to recruit and
retain management, to focus the optionees on the long-term goals of the
Company and to more closely align their interests with the interests of the
stockholders.
The Committee believes the Company has an overall compensation plan which
fulfills the Company's current compensation philosophy and, in addition,
promotes increased stockholder value through performance-based compensation.
IMPACT OF INTERNAL REVENUE CODE SECTION 162(M)
The Omnibus Budget Reconciliation Act of 1993 disallows, effective January
1, 1994, a federal income tax deduction for compensation, other than certain
performance-based compensation, in excess of $1 million annually paid by the
Company to any currently-serving Named Officer identified in the Summary
Compensation Table. The Company intends to take steps to qualify equity-based
awards to any Named Officer as performance-based compensation and thus be
exempt from consideration for purposes of calculating the $1 million limit. No
individual named in the Summary Compensation Table is likely to receive
compensation in fiscal 1998 which would exceed such amount. The Committee
intends to monitor the Company's compensation programs with respect to such
laws.
COMPENSATION COMMITTEE
Stewart Bainum, Jr.
Robert L. Parker
James H. Rempe
13
<PAGE>
PROPOSAL TWO
PROPOSED ADOPTION OF VITALINK PHARMACY SERVICES, INC.
AMENDED AND RESTATED 1996 LONG-TERM INCENTIVE PLAN
INTRODUCTION
The 1996 Plan currently permits key employees (excluding directors) to
purchase up to 493,900 shares of Common Stock of the Company. The 1996 Plan
has been an effective means of attracting and retaining highly talented
employees. The continued growth and development and financial success of the
Company and its subsidiaries are dependent upon ensuring the best possible
management. The Board of Directors believes the 1996 Plan is an important aid
to the Company in attracting and retaining individuals of outstanding
abilities and in rewarding them for the continued profitable performance of
the Company and its subsidiaries.
In order to allow continued participation by the employees in the 1996 Plan,
the Board of Directors of the Company has determined that it is advisable to
increase the number of shares authorized for issuance under such plan by
1,000,000 (bringing the total number of shares authorized for issuance under
the 1996 Plan to 1,493,900). The Board of Directors has also determined that
it would be in the best interest of the Company to more closely align the
interests of the non-employee directors of the Company with the interests of
stockholders by increasing the amount of equity-based compensation awarded to
such directors. As a result, the Board of Directors determined that it was
desirable to expand the class of persons eligible to participate in the 1996
Plan to include non-employee directors.
The Board of Directors has approved an amendment to the Company's 1996 Plan
to (i) expand the class of persons eligible to participate in the 1996 Plan to
include non-employee directors and (ii) increase the number of shares
authorized for issuance under the plan by 1,000,000 (bringing the total number
of shares authorized for issuance under the 1996 Plan to 1,493,900), subject
to approval by the Company's stockholders. The material features of the 1996
Plan are outlined below. The following description of the 1996 Plan is
qualified in its entirety by reference to the First Amended and Restated
Vitalink Pharmacy Services, Inc. 1996 Long-Term Incentive Plan (the "Amended
1996 Plan"), a copy of which is attached as Appendix A to this Proxy
Statement.
GENERAL
On July 10, 1996, the Board adopted, and the stockholders at their
subsequent Annual Meeting approved, the 1996 Plan for key employees (including
officers but excluding non-employee directors) of the Company and its
subsidiaries. The 1996 Plan presently authorizes the awarding of a maximum of
493,900 shares (subject to adjustment for stock splits and similar capital
changes) of Common Stock to eligible employees as described in greater detail
below. If the 1996 Plan Proposal is approved by the stockholders at the Annual
Meeting, there will be (i) an increase in shares available for issuance
pursuant to the 1996 Plan by 1,000,000 shares (bringing the total number of
shares authorized for issuance under the 1996 Plan to 1,493,900); and (ii) an
expansion of the class of persons eligible to participate in the 1996 Plan to
include non-employee directors.
The types of awards that may be granted under the Amended 1996 Plan are
restricted shares, incentive stock options, non-qualified stock options, stock
appreciation rights and performance shares. The Amended 1996 Plan provides
that over the next ten years restricted shares, incentive stock options, non-
qualified stock options, stock appreciation rights, and/or performance shares
involving up to 1,493,900 shares (subject to adjustment for stock splits, and
similar capital changes) of Common Stock may be granted. Common Stock issued
under the Amended 1996 Plan may be authorized and unissued stock, treasury
stock or stock purchased on the open market (including private transactions).
To the extent that an award lapses or the rights of a participant to whom it
was granted terminate, any shares of Common Stock subject to the award will
again be available for awards under the Amended 1996 Plan. The amount of
compensation that will accrue to the participants pursuant to the Amended 1996
Plan is not currently determinable.
14
<PAGE>
The 1996 Plan was drafted to obtain the benefits of the exemption from
Section 16(b) of the Exchange Act provided by Rule 16b-3. Section 16(b) of the
Exchange Act provides, among other things, that an officer who purchases and
sells the stock of the corporation which employs him or her within a six month
period is liable to the corporation for the difference between the purchase
price and sale price. Rule 16b-3 promulgated under the Exchange Act provides
that the acquisition of stock by an officer of the corporation under an
incentive plan, pursuant to certain requirements, does not constitute a
"transaction" subject to Section 16(b) of the Exchange Act.
ADMINISTRATION
The Amended 1996 Plan is to be administered by the Committee, which will
establish the conditions of each grant made under the Amended 1996 Plan and
determine which key employees and non-employee directors will receive awards
as well as the type and amount of each award.
ELIGIBILITY
Currently, key employees of the Company and its subsidiaries who, in the
opinion of the Committee, are mainly responsible for the continued growth and
development and financial success of the business of the Company or one of its
subsidiaries are eligible to be granted awards under the 1996 Plan. Under the
current version of the 1996 Plan, directors who are not employees of the
Company are not eligible to participate in such plan. Subject to the
provisions of the Amended 1996 Plan, the Committee shall from time to time
select from such eligible key employees and non-employee directors those to
whom awards shall be granted and determine the number of shares to be granted.
Because awards made to key employees are determined by these subjective
criteria, it is not possible at this time to determine either the number of
employees eligible to participate in the Amended 1996 Plan or the number,
nature or terms of awards which will be made. Directors of the Company will
receive awards under the Amended 1996 Plan as described under "Structure and
Functioning of the Board of Directors" above.
RESTRICTED SHARES
Restricted share awards are shares of Common Stock bearing restrictive
legends prohibiting their sale, transfer, pledge or hypothecation until the
expiration of a restriction period of not more than ten years set at the time
of grant. In addition to or in lieu of a restriction period, the Committee may
establish a performance goal which must be achieved as a condition to
retention of the award. The recipient of an award is entitled to receive
dividends and vote the restricted shares, unless forfeited.
STOCK OPTIONS
Options granted under the Amended 1996 Plan may be either Incentive Stock
Options, as defined in the Code, or options which do not so qualify ("Non-
Qualified Options"). At the time an option is granted, the Committee
determines the number of shares of Common Stock subject to each stock option,
the manner and time of exercise, and the vesting schedule. No options granted
under the Amended 1996 Plan may be exercised more than 10 years after the date
of grant; however, Incentive Stock Options granted to a Ten Percent
Shareholder (as defined) may not be exercised more than five years after the
date of grant. The option price per share for stock options will be set at the
time of the grant, but will be equal to or greater than the fair market value
of a share of Common Stock on the date of grant, except that with respect to
an Incentive Stock Option granted to a Ten Percent Shareholder (as defined)
shall be at least 110% of the fair market value on the date of grant. The
option exercise price may be paid with cash and/or shares of Common Stock.
Options will be evidenced by stock option agreements in a form approved by the
Committee and are not transferable except by will or descent. Under the
Amended 1996 Plan, no Covered Employee (as defined in Section 162(m)(3) of the
Code) may be granted more than 100,000 stock options during any calendar year.
With respect to Incentive Stock Options granted to any employee, the aggregate
fair market value determined on the date of grant with respect to which any
Incentive Stock Option is first exercisable shall not exceed $100,000.
15
<PAGE>
The granting of an option does not entitle the participant to any dividends,
voting or other rights of a stockholder, unless and until the participant
receives stock upon exercise of the option. The Committee may limit an option
by restricting its exercise in whole or in part for specified periods.
Incentive Stock Options are not transferable except by will or the laws of
descent and distribution. With respect to Non-Qualified Options, the Committee
may impose such restrictions on transferability as it may determine.
During 1997, the Board granted the non-employee directors of the Company
options to purchase a total of 40,000 shares of Common Stock subject to
stockholder approval of the 1996 Plan Proposal and will grant options to
purchase an additional 15,000 shares of Common Stock to the non-employee
directors elected at the 1997 Annual Meeting of Stockholders. The exercise
price of all options will be equal to the fair market value of the Common
Stock on the date of grant.
STOCK APPRECIATION RIGHTS
SARs are the right to receive payment for the appreciation in value of one
share of Common Stock over a specified price. An SAR may be granted either in
tandem with a stock option award or independently. If the SAR is granted in
tandem with a stock option award, the payment is measured by the excess of the
fair market value of the Common Stock at the time of exercise over the option
price (which can not be less than the fair market value of the underlying
security at the time of grant). If an SAR is granted independent of a stock
option, the Committee will specify whether the award is a "regular" SAR or
whether the award is a "book value" SAR. If the award is a "regular" SAR, the
payment is measured by the excess of the fair market value of the stock at the
time of exercise over the fair market value at the time of grant. If the award
is a "book value" SAR, the payment is measured by the excess of the book value
of the Common Stock at the time of exercise over the book value of the Common
Stock at the time of grant.
Stock appreciation payments, at the election of the Company, may be made in
cash or Common Stock or a combination of both. The Committee must approve any
election to receive cash.
An SAR issued in tandem with an option cannot be exercised less than six
months after the grant; an SAR issued independently is subject to the terms
and conditions established on grant. SARs are deemed to be exercised on the
last day of the applicable exercise period, if not previously exercised, which
may not extend more than ten years beyond the date of grant. The Committee may
impose such restrictions on transferability of SARs as it may determine.
The granting of an SAR does not entitle the participant to any dividend,
voting or other rights of a stockholder, unless and until the participant
receives stock upon the exercise of an SAR. SARs which are not exercisable
immediately upon being granted may be made immediately exercisable upon the
occurrence of retirement or disability, as determined by the Committee in its
sole discretion. Under the Amended 1996 Plan, no Covered Employee (as defined
in Section 162(m)(3) of the Code) may be granted more than 100,000 SARs during
any calendar year.
PERFORMANCE SHARES
A performance share award involves the grant of a right to receive a
specified number of shares of the Common Stock upon satisfaction of certain
performance-related objectives specified in the granting instrument. The
performance related objectives may relate to the individual, the Company, a
department or a division of the Company and/or a group or class of
participants. The measuring period used to establish the performance criteria
will be specified by the Committee at the time of grant and may be
subsequently waived or reduced, or the performance criteria may be adjusted,
upon the occurrence of events determined by the Committee in its sole
discretion to justify such waiver, reduction or adjustment. Under the Amended
1996 Plan, no Covered Employee (as defined in Section 162(m)(3) of the Code)
may be granted more than 100,000 Performance Shares during any calendar year.
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RETIREMENT OR DISABILITY
The Committee may, in its discretion, waive the forfeiture, termination or
lapse of an award in the event of retirement or disability of the participant.
INCOME TAX CONSEQUENCES
The federal income tax consequences of an award under the Amended 1996 Plan
depend on the type of award, as discussed below. The grant of a restricted
share award or a performance share award does not immediately produce taxable
income to a recipient or a tax deduction to the Company. However, at the time
the restrictions expire or the performance objectives have been achieved, as
the case may be, a recipient will recognize taxable ordinary income in an
amount equal to the fair market value of the stock on the date the
restrictions expire or the performance criteria are achieved and the Company
will be entitled to a corresponding income tax deduction. In the case of a
restricted share award, during the restriction period, a recipient will be
taxed on the dividends received from the restricted shares as additional
compensation, and the Company will be entitled to a corresponding compensation
deduction.
Generally, a recipient of an incentive stock option will not recognize
taxable income at the time of grant or exercise and the Company will not be
entitled to an income tax deduction. Provided the minimum holding periods are
satisfied, any gain on a disposition of stock acquired through an incentive
stock option will be taxable to a recipient as long-term capital gain. If the
minimum holding periods are not satisfied, a recipient will recognize ordinary
income in the amount of the excess of the fair market value of the stock on
the date the option is exercised over the option price, and the Company will
be entitled to a corresponding income tax deduction.
A recipient of a stock appreciation right will not recognize taxable income
at the time the right is granted, and the Company will not be entitled to a
tax deduction. However, ordinary taxable income will be recognized by a
recipient and a corresponding deduction will be taken by the Company, at the
time of exercise, in an amount equal to the cash and the fair market value of
the stock received.
AMENDMENT AND TERMINATION
The Board of Directors may at any time and from time to time alter, amend,
suspend or terminate the Amended 1996 Plan in whole or in part, except (i) any
such action affecting options granted or to be granted under the Amended 1996
Plan which are intended to qualify as Incentive Stock Options shall be subject
to stockholder approval to the extent such stockholder approval is required
pursuant to Section 422 of the Code and (ii) no such action may be taken
without the consent of the participant to whom any award has been granted,
which adversely affects the rights of such participant concerning such award,
except as such termination or amendment of the Amended 1996 Plan is required
by statute, or rules and regulations promulgated thereunder.
The Amended 1996 Plan terminates on February 26, 2007. Awards may be granted
under the Amended 1996 Plan at any time and from time to time prior to the
termination of the Amended 1996 Plan. Any award outstanding at the time the
Amended 1996 Plan is terminated shall remain in effect until said award is
exercised or expires.
CHANGE IN CONTROL
If there is a change in control, as defined in the 1996 Plan, while awards
issued pursuant to the 1996 Plan are outstanding, all of the options and SARs
shall become immediately vested and exercisable, all Performance Periods, as
defined in the 1996 Plan, shall be deemed to have been attained and each
outstanding award granted to each participant for all outstanding Performance
Periods shall become payable. Pursuant to the 1996 Plan, a change in control
occurs when any person acquires 30% or more of the Company's voting
securities, or when the Company's stockholders accept a tender offer or
approve a merger, consolidation, liquidation, a sale, disposition of
substantially all of the Company's assets or stock. In the event a change in
control occurs by merger, consolidation or sale or disposition of the
Company's stock or assets, the participant shall be paid the
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value of his or her options in cash by the Company. In the event any part of
the award paid is subject to taxes imposed by Section 4999 of the Code, the
Company is obligated to pay to the participant in cash an amount equal to any
excise tax liability and any other federal, state or local tax liability
resulting from such excise tax compensation payment.
VOTE REQUIRED
Approval of the 1996 Plan Proposal requires approval by the holders of a
majority of the shares of Common Stock present in person or by proxy and
voting at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE 1996 PLAN PROPOSAL. PROXIES
RECEIVED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS
SPECIFY A CONTRARY CHOICE.
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<PAGE>
PROPOSAL THREE
PROPOSED ADOPTION OF VITALINK PHARMACY SERVICES, INC.
1997 NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN
INTRODUCTION
The Board of Directors has unanimously adopted a resolution approving and
recommending to the Company's stockholders for their approval the Company's
1997 Non-Employee Director Stock Compensation Plan (the "Directors Plan"). The
Directors Plan is designed to advance the interests of the Company and
strengthen the Company's long-term performance by more closely aligning the
interests of the non-employee directors of the Company with those of the
Company's stockholders. There are 20,000 shares of Common Stock authorized for
issuance pursuant to awards made under the Directors Plan. All non-employee
directors are eligible to receive awards of restricted stock under the
Directors Plan.
The Board of Directors has approved the Directors Plan, subject to
stockholder approval. The material features of the Directors Plan are outlined
below. This summary is qualified in its entirety by reference to the Directors
Plan, which is attached hereto as Appendix B.
ADMINISTRATION
The Board of Directors shall administer the Directors Plan and shall have
the final and conclusive power to construe the Directors Plan, to determine
all questions arising thereunder, and to adopt and amend rules and regulations
for the administration of the Directors Plan.
COMPENSATION IN COMMON STOCK
Subject to approval by the Board of Directors and effective immediately upon
such approval, non-employee directors will receive initial grants of 450
shares of restricted Common Stock. Upon subsequent re-election as a non-
employee director at an annual meeting of the Company's stockholders, each
non-employee director shall, in addition to any retainer and attendance fees,
be granted an additional 450 shares of Restricted Stock on the date of such
annual meeting. During 1997, the Board granted the non-employee directors of
the Company a total of 3,600 shares of restricted stock subject to stockholder
approval of the Directors Plan and will grant an additional 2,700 shares of
restricted stock to the non-employee directors elected at the 1997 Annual
Meeting of Stockholders.
ELIGIBILITY
Each non-employee director is eligible to receive awards under the Directors
Plan. All awards granted under the Directors Plan must be evidenced by a
written agreement.
SHARES ELIGIBLE FOR GRANTS
The Directors Plan reserves 20,000 shares of Common Stock for issuance
pursuant to the terms thereof. The Board of Directors may increase the maximum
number of shares authorized for issuance under the Directors Plan from time to
time as deemed necessary in their discretion.
AMENDMENT AND TERMINATION
This Plan may be terminated or amended at any time and from time to time by
the Board of Directors as the Board of Directors shall deem advisable;
provided, however, that (a) no such amendment shall be effective without
approval of the stockholders of the Company, if stockholder approval of the
amendment is then required pursuant to Rule 16b-3 under the Exchange Act or
any successor provision thereto, or the applicable rules of any securities
exchange, and (b) to the extent prohibited by Rule 16b-3 or any successor
provision thereto, the Plan may not be amended more than once every six
months, other than to comport with changes in the Code or the
19
<PAGE>
regulations thereunder, or the Employee Retirement Income Security Act of
1974, as amended, or the regulations thereunder. No modification or amendment
of this plan shall, without the written consent of the relevant participant,
materially and adversely affect such participant's rights under such plan.
NO ASSIGNMENT
The shares granted under the Directors Plan, while held by the Company
pursuant to a Custodial Account (as such term is defined in the Directors
Plan), shall not be transferred, assigned, pledged, or hypothecated in any way
(whether by operation of law or otherwise), and shall not be subject to
execution, attachment, or similar process. Any attempt to transfer shares
granted under the Directors Plan in violation of such plan's terms shall
result in the forfeiture of such shares and their reversion back to the
Company.
DEATH, DISABILITY AND BOARD RETIREMENT
Awards made to any participant in the Directors Plan who ceases to serve on
the Board of Directors by reason of death, disability, or retirement, shall
become fully vested at such time.
CHANGES IN CAPITAL STRUCTURE
Upon the occurrence of certain transactions or business combinations (such
as, among others, mergers, reorganizations, reclassifications, stock splits or
stock dividends) or certain other changes in the capital structure of the
Company, the Board of Directors, in its discretion, is entitled to make
adjustments as to the number and kind of securities subject to the Directors
Plan and as to the number and kind of securities covered by each outstanding
award and the price per share thereunder.
VOTE REQUIRED
Approval of the Directors Plan requires approval by the holders of a
majority of the shares of Common Stock present in person or by proxy and
voting at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO ADOPT THE
VITALINK PHARMACY SERVICES, INC. 1997 NON-EMPLOYEE DIRECTOR STOCK COMPENSATION
PLAN. PROXIES RECEIVED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS
STOCKHOLDERS SPECIFY A CONTRARY CHOICE.
20
<PAGE>
PERFORMANCE GRAPH-SHAREHOLDER RETURN
The following Performance Graph compares the yearly percentage change in the
cumulative total stockholder return on the Company's Common Stock against the
cumulative total return on the S&P 500 Stock Index and the S&P Health Care
Composite Index for the fiscal years ended May 31, 1997, 1996, 1995, 1994 and
1993. The Performance Graph assumes reinvestment of dividends, where
applicable.
COMPARISON OF FIVE YEAR CUMULATIVE RETURN AMONG
VITALINK PHARMACY SERVICES, INC., S&P 500 AND S&P HEALTH CARE COMPOSITE
LOGO
[PERFORMANCE GRAPH OF VITALINK PHARMACY SERVICES, INC. APPEARS HERE]
Assumes $100 invested on May 31, 1992, in the Common Stock of Vitalink
Pharmacy Services, Inc., the S&P 500 Index and the S&P Health Care Composite.
Total return assumes reinvestment of dividends, where applicable.
<TABLE>
<CAPTION>
MAY 31, 1992 MAY 31, 1993 MAY 31, 1994 MAY 31, 1995 MAY 31, 1996 MAY 31, 1997
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Vitalink Pharmacy Serv-
ices, Inc. $100 $ 78 $ 69 $116 $159 $132
S&P 500 $100 $112 $116 $140 $180 $232
S&P Health Care Compos-
ite $100 $ 87 $ 86 $117 $167 $229
</TABLE>
- --------
Prior to fiscal year 1995, the Company selected a peer group for comparison
purposes which consisted of Omnicare, Inc., Choice Drug Systems, Inc.,
Medisys, Inc. and Synetic, Inc. Due to the acquisition of Medisys and Synetic
by others during fiscal year 1995, the Company has elected to use a published
industry index, the S&P Health Care Composite, in place of a peer group.
CERTAIN TRANSACTIONS
AGREEMENTS WITH MANOR CARE
Pursuant to four agreements with Manor Care initially entered into on June
1, 1991, and which were amended on September 19, 1997, the Company may provide
pharmaceutical products and services, enteral and parenteral therapy supplies
and services, urological and ostomy products, intravenous products and
services and pharmacy consulting services to all facilities operated by Manor
Care. The Company is not restricted from providing similar services to non-
Manor Care facilities. Each master agreement for pharmacy services, infusion
therapy services and pharmacy consulting services has an initial term of 11
years and four months with an automatic accrual of one additional year as of
each October 1 during the remaining term of such agreement. The automatic
accrual may be terminated by either party upon written notice to the other at
least 90 days prior to each October 1 during the remaining term of the
agreement. The pharmacy services consultant agreement has an initial term of
ten years only. Sales of pharmaceutical and infusion therapy products and
services to Manor Care's facilities are made at prices based on the level of
service provided. Revenues from sales to Manor Care facilities and patients
were $76,526,000 in fiscal year 1997. Fees from consulting services to Manor
Care and Manor Care facilities were charged in fiscal year 1997 on a per bed
basis and amounted to $3,342,000.
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<PAGE>
The Company and Manor Care have entered into an Administrative Services
Agreement. The agreement is terminable upon 180 days prior notice by either
party. Manor Care provides various services to the Company, including among
others, cash management, payroll and payables processing, employee benefit
plans, insurance, legal, accounting, tax, information systems, and
administrative services as required. Substantially all cash received by the
Company is immediately deposited in and combined with Manor Care's corporate
funds through its cash management system, with the exception of cash received
by the TeamCare pharmacies acquired in the GranCare Merger. Under this
agreement, Vitalink has agreed to reimburse Manor Care for the direct costs of
rendering services to Vitalink. Where such direct costs cannot be separately
measured, Vitalink will pay a portion of the total cost based on Manor Care's
current practices for allocating those costs among its subsidiaries. For the
year ended May 31, 1997, administrative fees of $640,000 were charged to
Vitalink. It is anticipated that the Administrative Services Agreement will be
terminated during fiscal 1998 as the Company will be assuming direct in-house
responsibility for the services provided by Manor Care thereunder.
Prior to February 12, 1997, Manor Care provided insurance coverage for group
health, auto, general liability, property, casualty and workers compensation.
Manor Care, through its self-insurance and outside insurance programs, charged
the Company based on the relative percentage of insurance costs incurred by
Manor Care on the Company's behalf. Total insurance costs allocated were
$2,051,000 in fiscal 1997. Management believes that the foregoing charge is a
reasonable allocation of the costs incurred by Manor Care on the Company's
behalf. After the GranCare Merger, all insurance coverage with the exception
of certain group health coverage was independently obtained by Vitalink.
Prior to the GranCare Merger, the Company and Manor Care were parties to an
Intercompany Debt and Credit Agreement whereby Manor Care provided the Company
with a Line of Credit of $10,000,000 (the "Line of Credit"), as well as cash
management services. The Intercompany Debt and Credit Agreement was amended on
February 12, 1997 and the Line of Credit was terminated. Pursuant to the
agreement, the Company is required to loan to Manor Care its excess cash, with
the exception of the cash received by the pharmacies operated by the Company's
TeamCare subsidiary. Manor Care credited the Company with interest income of
$922,000 in fiscal 1997 relating to the average balance "Due from Affiliate."
Interest earned was based on an average three month Treasury bill rate of
5.08% plus 100 basis points in fiscal year 1997. At May 31, 1997, the balance
"Due from Affiliate" was $1,053,000. The Company anticipates terminating the
Intercompany Debt and Credit Agreement during fiscal 1998.
In prior years, a tax agreement existed whereby the Company joined with
Manor Care in the filing of a consolidated federal income tax return and had
reached agreement with Manor Care with respect to: (i) the conduct of tax
audits and the handling of tax controversies; (ii) the allocation of
responsibility for the filing of tax returns; and (iii) various other matters.
The consolidated provision of Manor Care, which was computed in accordance
with the provisions of SFAS No. 109, was allocated among its subsidiaries on a
separate company basis. Up to January 31, 1997, the Company accrued taxes
payable to or benefits receivable from Manor Care in the "Due from Affiliate"
account, based on the statutory rate applied to income before taxes after
considering appropriate tax credits. Deferred taxes are recorded for the tax
effect of temporary differences between book and tax income. Effective
February 1, 1997, the Company will file its tax return on a separate company
basis, starting with a short period return for the period February 1, 1997
through May 31, 1997.
The Company leases a portion of its Monticello, Illinois, pharmacy from
Manor Care under an annual lease which currently expires on March 31, 1998.
The annual rental payable under the lease is currently $8,000.
AGREEMENTS WITH GRANCARE
As contemplated by the GranCare Merger, the Company and GranCare are parties
to an interim services arrangement which establishes a framework for GranCare
to provide to Vitalink, as the successor to GranCare's institutional pharmacy
business following the GranCare Merger, certain services as may be requested
by the Company in order to ensure an orderly transition following the GranCare
Merger. The contemplated services are generally those that were historically
provided by GranCare on a centralized basis to its institutional pharmacy
business such as corporate tax and information systems services. No written
agreement has been executed as of the date hereof, however, the term of the
contemplated Interim Services Agreement (the "Interim Services
22
<PAGE>
Agreement") is for one year from the time of the GranCare Merger. Under this
contemplated Interim Services Agreement, GranCare is to be reimbursed for all
direct and indirect costs and expenses incurred in connection with providing
any services, as well as the allocated portion of the base salaries of
GranCare employees actually providing services to the Company. In fiscal 1997,
no payments were made by the Company in connection with this contemplated
Interim Services Agreement.
Pursuant to pharmaceutical supply agreements with GranCare facilities, the
Company may provide pharmaceutical supplies and services to all GranCare
skilled nursing facilities as of the date of the GranCare Merger. Each
agreement has an initial term of five years with an automatic accrual of one
additional year as of each March 1 during the remaining term of such
agreement. The automatic accrual may be terminated by either party upon
written notice to the other no less than 90 and no more than 120 days prior to
each March 1 during the remaining term of the agreement. Depending upon the
payor source, either the Company will bill the payor source directly or the
skilled nursing facility will bill the payor source and then pay the Company.
Revenues from sales to GranCare skilled nursing facilities and patients were
$20,369,000 in fiscal 1997.
OTHER AGREEMENTS
The Company has agreed to indemnify, defend and hold harmless the present
and former officers of the predecessor to GranCare (including the four members
of the Company's Board of Directors originally designated by the predecessor
to GranCare) against all losses, claims, damages, expenses or liabilities
arising out of actions or omissions or alleged actions or omissions occurring
at or prior to the effective time of the GranCare Merger to the extent
permitted or required under applicable law and the corporate governance
documents of the predecessor to GranCare.
In December 1992, the Company entered into an agreement to lease an
operating facility from Harold Blumenkrantz, a former director and current
employee of the Company, and Mark Blumenkrantz, his son and also an employee
of the Company. Rental expenses under the non-cancelable operating lease were
$290,000 per year in the three years ended May 31, 1997. Future minimum lease
payments for the lease, which expires in 2002, are $1,616,000 at May 31, 1997.
As a result of the GranCare Merger, the Company assumed several agreements
to lease operating facilities which were entered into between GranCare, Inc.
and current Company employees.
Under a leasing agreement between GranCare, Inc. and Company employee Diane
Schlapper, rental expenses were $26,952 in the four months ended May 31, 1997.
Future minimum payments for the lease, which expires in 2005, are $646,840 at
September 30, 2005.
Under two leasing agreements between GranCare, Inc. and Company employee
Charles Cooper, rental expenses were $21,180 and $8,705 respectively in the
four months ended May 31, 1997. Future minimum payments for the leases, which
both expire in 1998, are $70,367 and $28,927 respectively at June 30, 1998.
Under a leasing agreement between GranCare, Inc. and Company employee Peter
Emery, rental expenses were $6,000 in the four months ended May 31, 1997.
Future minimum payments for the lease, which expires in 2001, is $54,000 at
June 30, 2001.
In the opinion of management, the foregoing transactions were on terms at
least as advantageous to the Company as could have been obtained from non-
affiliated persons.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has been the Company's independent public accountants
since 1981. In the Spring of 1998, the Board of Directors will select the
Company's independent public accountants to audit the accounts of the Company
for the current fiscal year. Representatives of Arthur Andersen LLP are
expected to be present at the Annual Meeting, and will have an opportunity, if
they so desire, to make a statement and will be available to respond to
appropriate questions.
STOCKHOLDER PROPOSALS
Stockholder proposals for the 1998 Annual Meeting of Stockholders must be
submitted to the Secretary of the Company no later than July 3, 1998, in order
to be eligible for inclusion in the Company's proxy materials for such
meetings.
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<PAGE>
OTHER BUSINESS
As of the date of the Proxy Statement, management does not know of any
business other than that mentioned above which will be presented for
consideration. However, if any other matters should properly come before the
meeting, it is the intention of the persons named in the accompanying form of
proxy to vote the proxies in accordance with their judgment on such matters.
After the business session and a report to the stockholders on the progress
of the Company, a discussion period will take place during which stockholders
will have an opportunity to discuss matters of interest concerning the
Company.
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A COPY OF THE COMPANY'S 1997 FORM 10-K (EXCLUDING EXHIBITS) FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION WILL BE MADE AVAILABLE TO STOCKHOLDERS,
WITHOUT CHARGE, UPON WRITTEN REQUEST TO THE SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER OF VITALINK PHARMACY SERVICES, INC., 1250 EAST DIEHL ROAD,
SUITE 208, NAPERVILLE, ILLINOIS 60563. A REPRODUCTION COST OF UP TO 25c PER
PAGE WILL BE CHARGED IF EXHIBITS ARE REQUESTED.
24
<PAGE>
APPENDIX A
AMENDED AND RESTATED
VITALINK PHARMACY SERVICES, INC.
1996 LONG-TERM INCENTIVE PLAN
SECTION ONE
DESIGNATION AND PURPOSE OF PLAN
The purpose of the Amended and Restated Vitalink Pharmacy Services, Inc.
1996 Long-Term Incentive Plan (the "Plan") is to increase the ownership of
Company Stock by those officers, non-employee directors, professional staff
and other key employees who are mainly responsible for the continued growth
and development and financial success of Vitalink Pharmacy Services, Inc. (the
"Company") and its subsidiaries. Such stock ownership gives such employees and
non-employee directors a proprietary interest in the Company which induces
them to continue in its employ and/or aligns their interests with the
interests of the Company's stockholders. The Plan also enables the Company to
attract and retain such employees and non-employee directors and reward them
for the continued profitable performance of Vitalink Pharmacy Services, Inc.
SECTION TWO
DEFINITIONS
The following definitions are applicable herein:
A. "Award"--Individually or collectively, Options, Stock Appreciation
Rights, Performance Shares or Restricted Stock granted hereunder.
B. "Award Period"--the period of time during which a Stock Appreciation
Right which has not been granted pursuant to an Option may be exercised. The
Award Period shall be set forth in the document issuing the Stock Appreciation
Right to the selected Eligible Participant.
C. "Board"--the Board of Directors of the Company.
D. "Book Value"--the book value of a share of Stock determined in accordance
with the Company's regular accounting practices as of the last business day of
the month immediately preceding the month in which a Stock Appreciation Right
is exercised as provided in Section Nine D.
E. "Code"--the Internal Revenue Code of 1986, as amended. Reference in the
Plan to any section of the Code shall be deemed to include any amendments or
successor provisions to such section and any regulations promulgated
thereunder.
F. "Committee"--the Committee appointed to administer the Plan pursuant to
Section Four.
G. "Company"--Vitalink Pharmacy Services, Inc., including any present or
future "subsidiary corporation" as such term is defined in Section 424(f) of
the 1986 Internal Revenue Code, as amended.
H. "Covered Employee"--an individual described in Section 162(m)(3) of the
Code.
I. "Date of Grant"--the date on which the granting of an Award is authorized
by the Committee or such later date as may be specified by the Committee in
such authorization.
J. "Eligible Participant"--any person employed by the Company or a
Subsidiary on a regularly scheduled basis who satisfies all of the
requirements of Section Six or any non-employee director of the Company (a
non-employee director shall include those directors of the Company who are not
otherwise employees of the Company or a Subsidiary).
K. "Exercise Period"--the period or periods during which a Stock
Appreciation Right is exercisable as described in Section Nine B.
L. "Fair Market Value"--the fair market value of the Stock as determined in
accordance with Section Eight D.
<PAGE>
M. "Incentive Stock Option"--an incentive stock option within the meaning of
Section 422 of the Code.
N. "Option" or "Stock Option"--either a nonqualified stock option or an
Incentive Stock Option granted under Section Eight. It also means any Option
which remains after a Participant has exercised his Option with respect to
part of the shares covered by a Stock Option Agreement as described in Section
Eight B.
O. "Option Period" or "Option Periods"--the period or periods during which
an Option is exercisable as described in Section Eight E.
P. "Option Price"--the price, expressed on a per share basis, for which the
Company Stock can be acquired by the holder of an Option pursuant to the
exercise of such Option.
Q. "Participant"--an Eligible Employee of the Company or a Subsidiary who
has been granted an Option, a Stock Appreciation Right, a Performance Share
Award or a Restricted Stock Award under this Plan.
R. "Performance Share"--an Award granted under Section Ten.
S. "Restricted Stock"--an Award granted under Section Seven.
T. "Stock" and "Company Stock"--the common stock of the Company.
U. "Stock Appreciation Right"--an Award granted under Section Nine.
V. "Subsidiary"--any corporation of which fifty percent (50%) or more of its
outstanding voting stock or voting power is beneficially owned, directly or
indirectly, by the Company.
W. "Ten Percent Shareholder"--a Participant who, at the Date of Grant, owns
directly or indirectly (within the meaning of Section 424(d) of the Internal
Revenue Code) stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or a subsidiary
thereof.
X. Wherever appropriate, words used in this Plan in the singular may mean
the plural, the plural may mean the singular and the masculine may mean the
feminine.
SECTION THREE
EFFECTIVE DATE, DURATION AND STOCKHOLDER APPROVAL
A. Effective Date and Stockholder Approval. Subject to the approval of the
Plan by a majority of the outstanding shares of Stock voted at the 1996 Annual
Meeting of Stockholders, the Plan shall be effective as of February 26, 1997.
B. Period for Grant of Awards. Awards may be made as provided herein for a
period of ten (10) years after February 26, 1997.
SECTION FOUR
ADMINISTRATION
A. Appointment of Committee. The Board of Directors shall maintain a
Compensation Committee which shall consist of not less than two (2) members of
such Board of Directors and which members shall be Non-Employee Directors as
defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(or such greater number of members which may be required by said Rule 16b-3)
and Outside Directors as defined in Treas. Reg. (S) 1.162-27(e) as promulgated
by the Internal Revenue Service. In addition, such Board of Directors shall
designate a member of the Committee to act as Chairman of the Committee, and
such Board of Directors may remove any member of the Committee at any time and
appoint any director to fill any vacancy on the Committee.
B. Committee Meetings. The Committee shall hold its meetings at such times
and places as specified by the Committee Chairman. A majority of the Committee
shall constitute a quorum. All actions of the Committee shall be taken by all
of the members of the meeting duly called by its Chairman; provided, however,
any action taken by a written document signed by a majority of the members of
the Committee shall be as effective as action taken by the Committee at a
meeting duly called and held.
A-2
<PAGE>
C. Committee Powers. Subject to the provisions of this Plan, the Committee
shall have full authority in its discretion to (i) designate the Participants
to whom Awards shall be granted, (ii) determine the number of shares to be
made available under each such Award, (iii) determine the period or periods in
which the Participant may exercise such Award (iv) determine the date when
such Award expires, (v) determine the price for Stock under such Award, and
(vi) determine the grounds for forfeiture of an Award. The Committee shall
have all powers necessary to administer the Plan in accordance with its terms,
including the power to interpret this Plan and resolve all questions arising
thereunder. The Committee may prescribe such rules and regulations for
administering this Plan as the Committee deems appropriate.
SECTION FIVE
GRANT OF AWARDS AND
LIMITATION OF NUMBER OF SHARES SUBJECT TO AWARD
The Committee may, from time to time, grant Awards to one or more Eligible
Participants, provided that (i) subject to any adjustment pursuant to Section
Eleven, the aggregate number of shares of Stock subject to Stock Options,
Stock Appreciation Rights, Performance Share Awards or Restricted Stock Awards
under this Plan may not exceed 1,493,900 shares; (ii) to the extent that a
Stock Option, Stock Appreciation Right, Performance Share Award or Restricted
Stock Award lapses or the rights of the Participant to whom it was granted
terminate, expire or are cancelled for any other reason, in whole or in part,
shares of Stock (or remaining shares) subject to such Award shall again be
available for the grant of an Award under the Plan; and (iii) Shares delivered
by the Company under the Plan may be authorized and unissued Stock, Stock held
in the treasury of the Company or Stock purchased on the open market
(including private purchases) in accordance with applicable securities laws.
In determining the size of Awards, the Committee shall take into account the
responsibility level, performance, potential, and cash compensation level of a
Participant, and the Fair Market Value of the Stock at the time of Awards, as
well as such other considerations it deems appropriate.
SECTION SIX
ELIGIBILITY
Key employees of the Company and its Subsidiaries who, in the opinion of the
Committee, are mainly responsible for the continued growth and development and
financial success of the business of the Company or one or more of its
Subsidiaries, and non-employee directors of the Company, shall be eligible to
be granted Awards under the Plan. Subject to the provisions of the Plan, the
Committee may from time to time select from such Eligible Participants those
to whom Awards shall be granted and determine the nature and amount of each
Award. No employee of the Company or its Subsidiaries shall have any right to
be granted an Award under this Plan.
SECTION SEVEN
RESTRICTED STOCK AWARDS
A. Grants of Shares of Restricted Stock. An Award made pursuant to this
Section Seven shall be granted in the form of shares of Stock, restricted as
provided in this Section Seven. Shares of the Restricted Stock shall be issued
to the Participant without the payment of consideration by the Participant.
The shares of Restricted Stock shall be issued in the name of the Participant
and shall bear a restrictive legend prohibiting sale, transfer, pledge or
hypothecation of the shares of Restricted Stock until the expiration of the
restriction period.
The Committee may also impose such other restrictions and conditions on the
shares of Restricted Stock as it deems appropriate.
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B. Restriction Period. At the time a Restricted Stock Award is made, the
Committee may establish a restriction period applicable to such Award which
shall not be more than ten (10) years. Each Restricted Stock Award may have a
different restriction period, at the discretion of the Committee. In addition
to or in lieu of a restriction period, the Committee may establish a
performance goal which must be achieved as a condition to the retention of the
Restricted Stock. The performance goal may be based on the attainment of
specified types of performance measurement criteria, which may differ as to
various Participants or classes or categories of Participants. Such criteria
may include, without limitation, the attainment of certain performance levels
by the individual Participant, the Company, a department or division of the
Company and/or a group or class of participants. Any such performance goals,
together with the ranges of Restricted Stock Awards for which the Participants
may be eligible shall be set from time to time by the Committee and shall be
timely communicated to the Eligible Participants in advance of the
commencement of the performance of services to which such performance goals
relate. The total number of shares of Restricted Stock which may be granted to
any single Covered Employee under this Plan during any calendar year shall be
limited to 100,000.
C. Forfeiture or Payout of Award. In the event a Participant ceases
employment during a restriction period, or in the event performance goals
attributable to a Restricted Stock Award are not achieved, subject to the
terms of each particular Restricted Stock Award, and subject to discretionary
action by the Committee as set forth below in Section Thirteen, a Restricted
Stock Award is subject to forfeiture of the shares of stock which had not
previously been removed from restriction under the terms of the Award.
Any shares of Restricted Stock which are forfeited will be transferred to
the Company.
Upon completion of the restriction period and satisfaction of any
performance-goal criteria, all restrictions upon the Award will expire and new
certificates representing the Award will be issued without the restrictive
legend described in Section Seven A. As a condition precedent to receipt of
the new certificates, the Participant (or the designated beneficiary or
personal representative of the Participant) will agree to make payment to the
Company in the amount of any taxes, payable by the Participant, which are
required to be withheld with respect to such shares of Stock.
SECTION EIGHT
STOCK OPTIONS
A. Grant of Option. One or more Options may be granted to any Eligible
Participant; provided that only Eligible Participants who are employees of the
Company or a Subsidiary may be granted Incentive Stock Options. Upon the grant
of an Option to an Employee, the Committee shall specify whether the Option is
intended to constitute a non-qualified stock option or an Incentive Stock
Option. The total number of shares of Stock subject to Options which may be
granted to any single Covered Employee under this Plan during any calendar
year shall be limited to 100,000.
B. Stock Option Agreement. Each Option granted under the Plan shall be
evidenced by a written "Stock Option Agreement" between the Company and the
Participant containing such terms and conditions as the Committee determines,
including, without limitation, provisions to qualify Incentive Stock Options
as such under Section 422 of the Code. Such agreements shall incorporate the
provisions of this Plan by reference. The date of granting an Option is the
date specified in the written Stock Option Agreement which is signed by the
Participant and the Company.
C. Determination of Option Price. The Option price for Stock shall be not
less than 100% of the fair market value of the Stock on the date of grant.
Notwithstanding the foregoing, in the case of an Option which is designed to
qualify as an Incentive Stock Option (as defined in Section 422 of the Code)
which is granted to a Ten Percent Shareholder, the Option Price shall not be
less than 110% of such fair market value.
D. Determination of Fair Market Value. The fair market value of the Stock on
the date of granting an Option shall be the mean of the high and low prices at
which the Stock was sold on the market on such date. In the event no such
sales of Stock occurred on such date, the fair market value of the Stock shall
be determined by the Committee in accordance with applicable Regulations of
the Internal Revenue Service.
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E. Term of Option. The term of an Option may vary within the Committee's
discretion; provided, however, that the term of an Option shall not exceed ten
(10) years from the date of granting the Option to the Participant, and, to
this end, all Options granted pursuant to this Plan must provide that each
such Option cannot be exercised after the expiration of ten (10) years from
the date each such Option is granted. Notwithstanding the foregoing, in the
case of any Option which is designed to qualify as an Incentive Stock Option
(as defined in Section 422 of the Code) which is granted to a Ten Percent
Shareholder, the term of such Option may not exceed five (5) years from the
date of grant of such Option.
F. Limitation on Exercise of Option. The Committee may limit an Option by
restricting its exercise in whole or in part for specified periods.
G. Method of Exercising an Option. Subject to the terms of a particular
Option, a Participant may exercise it in whole or in part by written notice to
the Secretary of the Company stating in such written notice the number of
shares of Stock such Participant elects to purchase under his Option.
H. No Obligation to Exercise Option. A Participant is under no obligation to
exercise an Option or any part thereof.
I. Payment for Option Stock. Stock purchased pursuant to an Option shall be
paid in full at the time of purchase. Payment may be made (a) in cash, (b)
with the approval of the Committee, by delivery to the Company of shares of
Stock having an aggregate fair market value equal to the exercise price, or
(c) a combination of (a) and (b). Payment may also be made, in the discretion
of the Committee, by delivery (including by facsimile transmission) to the
Company or its designated agent of an executed irrevocable Option exercise
form together with irrevocable instructions to a broker-dealer to sell (or
margin) a sufficient portion of the shares and deliver the sale (or margin
loan) proceeds directly to the Company to pay for the exercise price. Upon
receipt of payment and subject to paragraph J of this Section Eight, the
Company shall, without transfer or issue tax to the Participant or other
person entitled to exercise the Option, deliver to the Participant (or other
person entitled to exercise the Option) a certificate or certificates for such
shares.
J. Delivery of Stock to Participant. The Company shall undertake and follow
all necessary procedures to make prompt delivery of the number of shares of
Stock which the Participant elects to purchase upon exercise of an Option
granted under this Plan. Such delivery, however, may be postponed, at the sole
discretion of the Company, to enable the Company to comply with any applicable
procedures, regulations or listing requirements of any government agency,
stock exchange or regulatory authority.
K. Failure to Accept Delivery of Stock. If a Participant refuses to pay for
Stock which he has elected to purchase under his Option, in accordance with
the terms of payment, which had previously been agreed upon, his Option shall
thereupon, at the sole discretion of the Committee, terminate, and such funds
previously paid for unissued Stock shall be refunded. Stock which has been
previously issued to the Participant and been fully paid for shall remain the
property of the Participant and shall be unaffected by such termination.
L. Non-Transferability of Options. During the lifetime of a Participant, an
Incentive Stock Option granted to him may be exercised only by him. It may not
be sold, assigned, pledged or otherwise transferred except by will or by the
laws of descent and distribution. In the case of Options which are not
Incentive Stock Options, the Committee may impose such restrictions on
transferability, if any, as it may in its sole discretion determine.
M. Purchase for Investment
(a) Written Agreement by Participants. Unless a registration statement
under the Securities Act of 1933 is then in effect with respect to the
Stock a Participant receives upon exercise of his Option, a Participant
shall acquire the Stock he receives upon exercise of his Option for
investment and not for resale or distribution and he shall furnish the
Company with a written statement to that effect when he exercises his
Option and a reference to such investment warranty shall be inscribed on
the Stock certificate(s).
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(b) Registration Requirement. Each Option shall be subject to the
requirement that, if at any time the Board determines that the listing,
registration or qualification of the shares subject to the Option upon any
securities exchange or under any state or Federal law is necessary or
desirable as a condition of, or in connection with, the issuance of shares
thereunder, the Option may not be exercised in whole or in part unless such
listing, registration or qualification shall have been effected or obtained
(and the same shall have been free of any conditions not acceptable to the
Board).
N. Special Limitations on Exercise of Incentive Stock Options. The aggregate
fair market value (determined at the time the Incentive Stock Option is
granted) of the Stock with respect to which any Incentive Stock Option is
first exercisable during any calendar year shall not exceed $100,000.
SECTION NINE
STOCK APPRECIATION RIGHTS
A. Grant of Stock Appreciation Rights. Stock Appreciation Rights may be
granted under the Plan in conjunction with an Option either at the time of
grant or by amendment or may be separately awarded. Stock Appreciation Rights
shall be subject to such terms and conditions not inconsistent with the Plan
as the Committee shall impose. However, the total number of Stock Appreciation
Rights which may be granted to a single Covered Employee under this Plan
during any calendar year shall be limited to 100,000.
B. Right to Exercise; Exercise Period. A Stock Appreciation Right issued
pursuant to an Option shall be exercisable to the extent the Option is
exercisable. A Stock Appreciation Right issued independent of an Option shall
be exercisable pursuant to such terms and conditions established in the grant.
C. Automatic Redemption of Unexercised Stock Appreciation Rights. If on the
last day of the Option Period, in the case of a Stock Appreciation Right
granted pursuant to an Option, or the specified Award Period, in the case of a
Stock Appreciation Right issued independent of an Option, the Participant has
not exercised such Stock Appreciation Right, then such Stock Appreciation
Right shall be automatically redeemed by the Company for an amount equal to
the payment that would otherwise have been made to the Participant if the
Participant had chosen to exercise the Stock Appreciation Right on the last
day of the Option Period or the specified Award Period, as the case may be.
D. Rights Upon Exercise. An exercisable Stock Appreciation Right granted
pursuant to an Option shall entitle the Participant to surrender unexercised
the Option or any portion thereof to which the Stock Appreciation Right is
attached, and to receive in exchange for the Stock Appreciation Right a
payment (in cash or Stock or a combination thereof as described below) equal
to the Fair Market Value of one share of Stock at the date of exercise minus
the Option Price times the number of shares called for by the Stock
Appreciation Right (or portion thereof) which is so exercised. With respect to
the issuance of Stock Appreciation Rights which are not granted pursuant to an
Option, the Committee shall specify upon the Date of Grant of the Stock
Appreciation Right whether the Stock Appreciation Right is a "regular" Stock
Appreciation Right or a "book value" Stock Appreciation Right. Upon the
exercise of a regular Stock Appreciation Right, the Participant will receive a
payment equal to the Fair Market Value of one share of Stock at the date of
exercise minus the Fair Market Value of one share of Stock as of the Date of
Grant of the Stock Appreciation Right times the number of shares called for by
the Stock Appreciation Right (or portion thereof) which is so exercised. Upon
the exercise of a book value Stock Appreciation Right, the Participant will
receive a payment equal to the Book Value of one share of Stock at the date of
exercise minus the Book Value of one share of Stock as of the Date of Grant of
the Stock Appreciation Right times the number of shares called for by the
Stock Appreciation Right (or portion thereof) which is so exercised.
The value of any Stock to be received upon exercise of a Stock Appreciation
Right shall be the Fair Market Value of the Stock on such date of exercise. To
the extent that a Stock Appreciation Right issued pursuant to an Option is
exercised, such Option shall be deemed to have been exercised, and shall not
be deemed to have lapsed.
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E. Transferability. The Committee may impose such restrictions on
transferability of Stock Appreciation Rights, if any, as it may in its sole
discretion determine.
SECTION TEN
PERFORMANCE SHARES
A. Grant of Performance Share Units. Awards made pursuant to this Section
Ten shall be granted in the form of Performance Shares, subject to such terms
and conditions not inconsistent with the Plan as the Committee shall impose.
Performance Shares shall be issued to the Participant without the payment of
consideration by the Participant. Awards shall be based on the attainment of
specified types and combinations of performance measurement criteria, which
may differ as to various Participants or classes or categories of
Participants. Such criteria may include, without limitation, the attainment of
certain performance levels by the individual Participant, the Company, a
department or division of the Company and/or a group or class of Participants.
Such criteria, together with the ranges of Performance Shares from which
employees may be eligible, shall be set from time to time by the Committee and
shall be communicated to the Eligible Participants. The total number of
Performance Shares which may be granted to any single Covered Employee under
this Plan during any calendar year shall be limited to 100,000.
B. Performance Period. The measuring period to establish the performance
criteria set forth in a Performance Share Award shall be determined by the
Committee. A Performance Share Award may initially provide, or the Committee
may at any time thereafter, but no more frequently than once in any six (6)
month period, amend it to provide, for waiver or reduction of the measuring
period and, if appropriate, for adjustment of the performance criteria set
forth in the Performance Share Award, upon the occurrence of events determined
by the Committee in its sole discretion to justify such waiver, reduction or
adjustment.
C. Form of Payment. Upon the completion of the applicable measuring period,
a determination shall be made by the Committee in accordance with the Award as
to the number of shares of Stock to be awarded to the Participant. The
appropriate number of shares of Stock shall thereupon be issued to the
Participant in accordance with the Award in satisfaction of such Performance
Share Award.
ELECTION ELEVEN
CHANGES IN CAPITAL STRUCTURE OR SHARES
In the event any reorganization, merger, consolidation, recapitalization,
liquidation, reclassification, stock dividend, stock split, combination of
shares, rights offering, or extraordinary dividend or divestiture (including a
spin-off), or any other change in the capital structure or shares of the
Company, the Committee shall make adjustments, determined by the Committee in
its discretion to be appropriate, as to the number and kind of securities
subject to this Plan and specified in Section Five of this Plan and as to the
number and kind of securities covered by each outstanding Award and, where
applicable, the price per share thereunder; provided, however, that with
respect to Incentive Stock Options, such adjustments shall be made in
accordance with Section 424(h) of the Code unless the Committee determines
otherwise.
SECTION TWELVE
CORPORATE REORGANIZATION OR DISSOLUTION
A. Discontinuation of the Plan. The Plan shall be discontinued in the event
of the dissolution or liquidation of the Company or in the event of a
Reorganization (as hereinafter defined) in which the Company is not the
surviving or acquiring company, or in which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization and no plan or agreement respecting the Reorganization is
established which specifically provides for the continuation of the Plan and
the change,
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conversion, or exchange of the stock relating to existing Awards under this
Plan for securities of another corporation. Upon the dissolution of the Plan
in connection with an event described in this Paragraph A, all Awards shall
become fully vested and all outstanding Options and Stock Appreciation Rights
shall become immediately exercisable by the holder thereof. Any Options or
Stock Appreciation Rights granted under the Plan may be terminated as of a
date fixed by the Committee, provided that no less than fifteen (15) days
written notice of the date so fixed shall be given to each Participant and
each such Participant shall have the right during such period to exercise all
or any portion of such Options or Stock Appreciation Rights. Any Stock
Appreciation Rights not so exercised shall be redeemed.
B. Continuation of the Plan Upon a Reorganization. In the event of a
Reorganization (as hereinafter defined) (i) in which the Company is not the
surviving or acquiring company, or in which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization, and (ii) with respect to which there is a reorganization
agreement which undertakes to continue the Plan and to provide for the change,
conversion or exchange of the Stock attributable to outstanding Awards for
securities of another corporation, then the Plan shall continue and the
Committee shall adjust the shares under such outstanding Awards (and shall
adjust the shares remaining under the Plan which are then to be available for
the grant of additional Awards under the Plan, if the reorganization agreement
makes specific provisions therefor), in a manner not inconsistent with the
provisions of the reorganization agreement and this Plan for the adjustment,
change, conversion or exchange of such Awards.
The term "Reorganization" as used in this Section Twelve shall mean any
statutory merger, statutory consolidation, sale of all or substantially all of
the assets of the Company, or sale, pursuant to an agreement with the Company,
of securities of the Company pursuant to which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization.
C. Adjustments and Determinations. Adjustments and determinations under this
Section Twelve shall be made by the Committee, whose decisions as to what
adjustments or determinations shall be made, and the extent thereof, shall be
final, binding, and conclusive.
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;
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(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 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.
SECTION THIRTEEN
RETIREMENT AND DISABILITY
The Committee may, in its discretion, waive the forfeiture, termination, or
lapse of an Award in the event of retirement or disability of a Participant
(each as determined by the Committee, in its discretion). Exercise of such
discretion by the Committee in any individual case, however, shall not be
deemed to require, or to establish a precedent suggesting, such exercise in
any other case.
SECTION FOURTEEN
MISCELLANEOUS PROVISIONS
A. Nontransferability. The Committee may impose such restrictions on the
transferability of an Award, if any, as it may in its sole discretion
determine.
B. No Employment Right. Neither this Plan nor any action taken hereunder
shall be construed as giving any right to be retained as an officer or
employee of the Company or any of its Subsidiaries.
C. Tax Withholding. Either the Company or a Subsidiary, as appropriate,
shall have the right to deduct from all Awards paid in cash any federal, state
or local taxes as it deems to be required by law to be withheld with respect
to such cash payments. In the case of Awards paid in Stock, the employee or
other person receiving such Stock may be required to pay to the Company or a
Subsidiary, as appropriate, the amount of any such taxes which the Company or
Subsidiary is required to withhold with respect to such Stock. At the request
of a Participant, or as required by law, such sums as may be required for the
payment of any estimated or accrued income tax liability may be withheld and
paid over to the governmental entity entitled to receive the same. The
Committee may from time to time establish procedures for withholding of Stock.
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D. Fractional Shares. Any fractional shares concerning Awards shall be
eliminated at the time of payment by rounding down for fractions of less than
one-half and rounding up for fractions of equal to or more than one-half. No
cash settlements shall be made with respect to fractional shares eliminated by
rounding.
E. Government and Other Regulations. The obligation of the Company to make
payment of Awards in Stock or otherwise shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any government agencies
as may be required. The Company shall be under no obligation to register under
the Securities Act of 1933, as amended ("Act"), any of the shares of Stock
issued, delivered or paid in settlement under the Plan. If Stock awarded under
the Plan may in certain circumstances be exempt from registration under the
Act, the Company may restrict its transfer in such manner as it deems
advisable to ensure such exempt status.
F. Severance. Subject to the provision of Paragraph B of this Section
Fourteen, in the event a Participant's employment with the Company terminates,
his rights under any Award which constitutes an Option or a Stock Appreciation
Right terminate one (1) month from the date of such termination of employment.
Such rights shall be exercisable only to the extent the Participant was
entitled to exercise such rights under the Award on the date of such
termination of employment.
G. Death. If a Participant dies prior to the full exercise of his Option
and/or Stock Appreciation Right, his Option to purchase Stock under such
Option and/or Stock Appreciation Right may be exercised to the extent, if any,
that Participant would be entitled to exercise it at the date of the death of
the Participant by the person to whom the Option and/or Stock Appreciation
Right shall pass by will or by the laws of descent and distribution within
twelve (12) months of the death of the Participant or the expiration of the
term of the Option and/or Stock Appreciation Right whichever date is sooner.
H. Limitation. In no event may an Option be exercised by anyone after the
expiration date provided for in Section Eight of the Plan.
I. Limits on Discretion. Anything in this Plan to the contrary
notwithstanding, if the Award so provides, the Committee shall not have any
discretion to increase the amount of compensation payable under the Award to
the extent such discretion would cause the Award to lose its qualification as
performance-based compensation for purposes of Section 162(m)(4)(c) of the
Code and the regulations thereunder.
J. Governing Law. All matters relating to the Plan or to Awards granted
hereunder shall be governed by the laws of the State of Maryland, without
regard to its principles of conflict of laws.
K. Titles and Headings. The titles and headings of the sections in the Plan
are for convenience of reference only, and in the event of any conflict, the
text of the Plan, rather than such titles and headings, shall control.
SECTION FIFTEEN
AMENDMENT OF PLAN
A. Discretion of the Board. The Board may at any time and from time to time
alter, amend, suspend or terminate the Plan in whole or in part, except (i)
any such action affecting Options granted or to be granted under this Plan
which are intended to qualify as Incentive Stock Options shall be subject to
stockholder approval to the extent such stockholder approval is required
pursuant to Section 422 of the Internal Revenue Code and (ii) no such action
may be taken without the consent of the Participant to whom any Award shall
theretofore have been granted, which adversely affects the rights of such
Participant concerning such Award, except as such termination or amendment of
the Plan is required by statute, or rules and regulations promulgated
thereunder.
B. Automatic Termination. This Plan shall terminate on February 26, 2007.
Awards may be granted under this Plan at any time and from time to time prior
to the termination of the Plan. Any Award outstanding at the time the Plan is
terminated shall remain in effect until said Award is exercised or expires.
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APPENDIX B
VITALINK PHARMACY SERVICES, INC.
1997 NON-EMPLOYEE DIRECTOR
STOCK COMPENSATION PLAN
Vitalink Pharmacy Services, Inc. has adopted and established a stock
compensation plan for Non-Employee Directors in accordance with the following
terms and conditions.
SECTION ONE
DESIGNATION AND PURPOSE OF THE PLAN
A. Designation. This plan is designated the "Vitalink Pharmacy Services,
Inc. Non-Employee Director Stock Compensation Plan."
B. Purpose. The purpose of this Plan is to implement a stock-based component
of Non-Employee Director compensation so as to encourage stock ownership by
Non-Employee Directors and to further align the interests of Non-Employee
Directors and stockholders.
SECTION TWO
DEFINITIONS
As used in the Plan, the following terms mean:
A. "Award" means restricted stock granted hereunder.
B. "Board" means the Board of Directors of the Company.
C. "Company" means Vitalink Pharmacy Services, Inc.
D. "Custodial Account" means the account described in Section 7(A) herein.
E. "Disability" means a permanent and total disability within the meaning of
Section 22(e)(3) of the Internal Revenue Code of 1986 as amended.
F. "Non-Employee Director" means a member of the Board of the Company who is
not an employee of the Company or any of its subsidiaries.
G. "Participant" means any Non-Employee Director who is granted an Award as
provided in this Plan.
H. "Plan" means this Non-Employee Director Stock Compensation Plan.
I. "Retirement" means termination of service as a Director for either of the
following reasons: (i) after attaining age 65 years of age or (ii) failure to
be re-elected as a Director by the shareholders of the Company as the Annual
Meeting of Stockholders.
J. "Stock" means the common stock of Vitalink Pharmacy Services, Inc.
SECTION THREE
EFFECTIVE DATE, DURATION AND BOARD APPROVAL
The Plan shall be effective upon the approval of the Plan by a majority of
the shareholders of the Company.
SECTION FOUR
ADMINISTRATION OF THIS PLAN
This Plan shall be administered by the Board. The Board shall have all the
powers vested in it by the terms of this Plan, such powers to include
authority (within the limitation described herein) to prescribe the form of
the agreement embodying Awards made under this Plan. Subject to the provisions
of this Plan, the Board shall have the power to construe this Plan, to
determine all questions arising thereunder, and to adopt and amend such rules
and regulations for the administration of this Plan as it may deem desirable.
Any decision of the Board
<PAGE>
regarding the administration of this Plan, as described herein, shall be final
and conclusive. The Board may act only by a majority of its members in office,
except that the members thereof may authorize any one or more of their number
or the Secretary or any other officer of the Company to execute and deliver
documents on behalf of the Board.
SECTION FIVE
GRANT OF AWARDS AND LIMITATION OF
NUMBER OF SHARES SUBJECT TO AWARD
A. Compensation in Common Stock. Subject to the Board Approval and effective
immediately upon such approval, each Non-Employee Director shall be granted
450 shares of restricted stock. Upon election as a Non-Employee Director at
Annual Meeting of Stockholders, each Non-Employee Director shall, in addition
to any Board retainer and attendance fees, be granted 450 of Restricted Stock
on the date of each annual meeting.
B. Total Number of Shares. Subject to any adjustment pursuant to Section 8,
the total number of shares of Stock which may awarded under this Plan is
20,000 shares. The maximum number of shares authorized may be increased from
time to time by approval of the Board and, if required pursuant to Rule 16-3
of the Securities and Exchange Commission or its successor or the applicable
rules of any stock exchange, or the stockholders of the Company.
To the extent that an Award lapses or the rights of the Participant to whom
it was granted terminate, expire or are canceled for any other reason, in
whole or in part, shares of Stock (or remaining shares) subject to such Award
shall again be available for the grant of an Award under the Plan. Shares
delivered by the Company under the Plan may be authorized and unissued Stock,
Stock held in the treasury of the Company or Stock purchased on the open
market (including private purchases) in accordance with applicable securities
laws.
C. Insufficient Number of Shares. In the event that the number of shares of
Stock available for future Awards under this Plan is insufficient to make all
Awards required to be made on any date, then all Participants entitled to an
Award on such date shall share ratably in the number of shares of Stock which
may be included in Awards granted to Participants under this Plan.
SECTION SIX
ELIGIBILITY
Each Non-Employee Director shall be eligible to receive an Award in
accordance with Section Five. Each Award granted under this Plan shall be
evidenced by an agreement in such form as the Board shall prescribe from time
to time in accordance with this Plan and shall comply with the terms and
conditions set forth in Section 7. Such an agreement shall incorporate the
provisions of this Plan by reference.
SECTION SEVEN
RESTRICTIONS ON SHARES
A. Custodial Account. The shares shall be held by the Company in a Custodial
Account on behalf of the Participant until such time as the shares have vested
pursuant to the terms of Section 7(B) of this Plan.
B. Vesting. The shares held by the Company shall remain in the Custodial
Account until vesting which shall occur. All such shares granted shall vest
following the expiration of one year from the date of the Award.
Upon vesting, the shares shall be distributed to the Participant within a
reasonable period of time not to exceed ninety (90) days from the date of
vesting and the Custodial Account shall be terminated as to such shares.
C. Forfeiture. Subject to Section 7(E) below, if the Participant ceases to
be a Non-Employee Director for any reason prior to vesting, the Participant
shall forfeit the shares, and the Custodial Account shall be terminated as to
such shares. Ownership of the forfeited shares shall revert back to the
Company.
D. No Assignment. The shares granted under the Plan, while held by the
Company pursuant to the Custodial Account, shall not be transferred, assigned,
pledged, or hypothecated in any way (whether by operation
B-2
<PAGE>
of law or otherwise), and shall not be subject to execution, attachment, or
similar process. Upon any attempt to so transfer, assign, pledge, hypothecate,
or otherwise dispose of the shares, or of any right or privilege conferred
thereby, contrary to the provisions hereof, or upon the levy of any attachment
or similar process upon such rights and privileges, the Participant shall
forfeit the shares and ownership of the forfeited shares shall revert back to
the Company.
E. Death, Disability and Board Retirement. A Participant who ceases to serve
on the Board by reason of (i) death, (ii) Disability, or (iii) Retirement,
shall be vested in his or her entire Award notwithstanding the limitation of
Section 7(B) above.
SECTION EIGHT
CHANGES IN CAPITAL STRUCTURE
In the event of any reorganization, merger, consolidation, recapitalization,
liquidation, reclassification, stock dividend, stock split, combination of
shares, rights offering, or extraordinary dividend or divestiture (including a
spin-off), or any other change in the capital structure or shares of the
Company, the Board shall make adjustments, determined by the Board in its
discretion to be appropriate, as to the number and kind of securities subject
to this Plan and specified in Section 5 of this Plan and as to the number and
kind of securities covered by each outstanding Award and, where applicable,
the price per share thereunder.
SECTION NINE
RIGHTS AS A STOCKHOLDER
The Participant shall be entitled to vote the shares held by the Company in
the Custodial Account. Any cash or non-cash dividend payable with respect to
shares held in the Custodial Account will remain in the Custodial Account
subject to risk of forfeiture until such time as the shares with respect to
which such cash or non-cash dividend, as the case may be, was declared is
either distributed to the Participant or forfeited by the Participant.
Notwithstanding anything to the contrary contained herein, no Stock or cash
dividends shall be transferred by the Company to a Custodial Account prior to
the date of Stockholder Approval, and no Non-Employee Director shall be
entitled to any rights as a stockholder with respect to any Stock granted
hereunder, including, without limitation voting rights until such Stock has
been transferred to a Custodial Account.
SECTION TEN
TITLE
Subject to Section 13 herein, the shares held by the Company in a Custodial
Account shall be held in the name of the Participant until such shares are (a)
distributed to the Participant; (b) forfeited by the Participant; or (c)
transferred to a grantor "Rabbi Trust" in accordance with this Plan.
Notwithstanding anything to the contrary contained herein, no Non-Employee
Director shall be entitled to any rights as a stockholder with respect to any
Stock granted hereunder, including, without limitation voting rights, until
such Stock has been transferred to a Custodial Account.
SECTION ELEVEN
RISK OF LOSS
The Participant agrees to assume all risks in connection with any decrease
in the value of the shares granted to the Participant placed into the
Custodial Account for the benefit of the Participant.
B-3
<PAGE>
SECTION TWELVE
NOTICE TO COMPANY
The Participant shall notify the Company immediately if he or she elects to
make an election under Section 83(b) of the Internal Revenue Code or upon the
occurrence of any other event resulting in the value of the shares being
included in the Participant's gross income prior to vesting.
SECTION THIRTEEN
DEFERRAL
Participant, provided he or she has not made the election referred to in
Section 12 herein, may elect by written notice to defer payment on all or a
portion of the shares held in the Custodial Account prior to any vesting,
subject to the following conditions;
A. Such election shall be irrevocable. An election to defer payment shall be
made at least sixty (60) days prior to any vesting for which the election to
defer payment is made. Participant may elect to defer the receipt of the
shares held in the Custodial Account prior to any vesting for a period of time
which ends no sooner than the earlier of (i) a date at least twenty-four (24)
months from the date of any such vesting or (ii) cessation of service as a
Non-Employee Director. During such deferral period, Participant shall not be
entitled to (i) vote the shares granted to him or her for which a deferral has
been elected, and (ii) currently receive cash dividends or non-cash dividends.
B. The Company shall establish a grantor "Rabbi Trust" and shall establish
thereunder on behalf of the Participant upon a deferral election a liability
account (the "Deferred Compensation Account") which shall be credited with any
shares, cash dividends, and non-cash dividends subject to such deferral
election. Any shares transferred from the Custodial Account to the Deferred
Compensation Account shall be retitled and held in the name of the trustee of
the grantor "Rabbi Trust".
C. There shall be credited to the Deferred Compensation Account an
additional amount with respect to the cash dividends (i.e., in addition to the
items credited pursuant to paragraph (B) hereof) equal to the earnings
generated through the investment of the cash dividends by the trustee of the
grantor trust.
D. The Company will provide an annual statement of the Deferred Compensation
Account to the Participant showing amounts credited to his or her account in
accordance with paragraph (C).
E. Nothing contained in this Plan and no action taken pursuant to the
provisions of this Plan shall create or be construed to create a trust of any
kind other than a grantor "Rabbi Trust", or a fiduciary relationship between
the Company and the Participant, his or her designated beneficiary or any
other person. Any amounts deferred under the provisions of this Plan shall
continue for all purposes to be a part of the general assets of the Company.
To the extent that Participant acquires a right to receive payment from the
Company under this Plan, such right shall be no greater than the right of any
unsecured general creditor of the Company.
F. The right of the Company or any other person to the payment of deferred
compensation or other benefits under this Plan shall not be assigned,
transferred, pledged, or encumbered except by will or by the laws of descent
and distribution.
SECTION FOURTEEN
GENDER
Where applicable, words in the feminine shall include the masculine, words
in the neuter shall include the masculine and feminine, and words in the
singular shall include the plural, and vice versa.
B-4
<PAGE>
SECTION FIFTEEN
SUCCESSORS
This Plan shall be binding upon and inure to the benefit of the Company and
its subsidiaries, its successors and assigns and the Participant and his or
her heirs, executors, administrators and legal representatives.
SECTION SIXTEEN
NO RIGHT TO CONTINUE AS A DIRECTOR
Neither the Plan, nor the granting of an Award, nor any other action taken
pursuant to the Plan, shall constitute or be evidence of any agreement or
understanding, express or implied, that the Company will retain a Non-Employee
Director for any period of time, or at any particular rate of compensation.
Nothing in this Plan shall in any way limit or affect the right of the Board
or the stockholders of the Company to remove any Non-Employee Director or
otherwise terminate his or her service as a director of the Company.
SECTION SEVENTEEN
MISCELLANEOUS PROVISIONS
A. Government and Other Regulations. The obligation of the Company to make
payment of Awards in Stock or otherwise shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any government agencies
as may be required. The Company shall be under no obligation to register under
the Securities Act of 1933, as amended ("Act"), any of the shares of Stock
issued, delivered or paid in settlement under the Plan. If Stock awarded under
the Plan may in certain circumstances be exempt from registration under the
Act, the Company may restrict its transfer in such manner as it deems
advisable to ensure such exempt status.
B. Governing Law. All matters relating to the Plan or to Awards granted
hereunder shall be governed by the laws of the State of Maryland, without
regard to its principles of conflict of laws.
C. Titles and Headings. The titles and headings of the sections in the Plan
are for convenience of reference only, and in the event of any conflict, the
text of the Plan, rather than such titles and headings, shall control.
SECTION EIGHTEEN
AMENDMENT AND TERMINATION
This Plan may be terminated or amended at any time and from time to time by
the Board as the Board shall deem advisable provided, however, that (a) no
such amendment shall be effective without approval of the stockholders of the
Company, if stockholder approval of the amendment is then required pursuant to
Rule 16b-3 under the Securities Exchange Act of 1934 or its successor, or the
applicable rules of any securities exchange, and (b) to the extent prohibited
by such Rule 16b-3 or its successors, the Plan may not be amended more than
once every six months, other than to comport with changes in the Internal
Revenue Code of 1986, as amended, or the regulations thereunder, or the
Employee Retirement Income Security Act of 1974, as amended, or the
regulations thereunder. No modification or amendment of this plan shall,
without the written consent of the Participant, materially and adversely
affect his or her rights under this Plan.
B-5
<PAGE>
VITALINK PHARMACY SERVICES, INC.
Proxy Solicited on behalf of the Board of Directors
for Annual Meeting of Stockholders - November 20,1997
The undersigned stockholder of Vitalink Pharmacy Services, Inc., a
Delaware corporation (the "Company"), acknowledges receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement, each dated November 5, 1997,
and the undersigned revokes all other proxies and appoints Robert L. Parker and
James H. Rempe, each of them, the attorneys and proxies for the undersigned,
each with full power of substitution, to attend and act for the undersigned at
the Company's Annual Meeting of Stockholders at 9:00 a.m., local time, November
20,1997 and at any adjournments or postponements thereof in connection therewith
to vote and represent all of the shares of the Company's Common Stock which the
undersigned would be entitled to vote.
(CONTINUED AND TO BE SIGNED AND DATED ON REVERSE SIDE)
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FOLD AND DETACH HERE
<PAGE>
<TABLE>
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PLEASE MARK
YOUR VOTES AS [X]
INDICATED IN
THIS EXAMPLE
<S> <C>
1. ELECTION OF DIRECTORS: FOR ALL WITHHOLD AUTHORITY 2. TO APPROVE AND ADOPT THE COMPANY'S AMENDED AND RESTATED 1996
NOMINEES TO VOTE FOR ALL LONG-TERM INCENTIVE PLAN (THE "1996 PLAN") (i) INCREASING
S. BAINUM, JR. LISTED TO NOMINEES LISTED BY 1,000,000 THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE
J. R. BUCKLEY THE LEFT TO THE LEFT PURSUANT TO SUCH PLAN (BRINGING THE TOTAL NUMBER OF AUTHORIZED
A. K. GUPTA [ ] [ ] SHARES TO 1,493,900); AND (ii) EXPANDING THE CLASS OF PERSONS
J. A. MACCUTCHEON ELIGIBLE TO PARTICIPATE IN THE 1996 PLAN TO INCLUDE NON-EMPLOYEE
J. H. REMPE (INSTRUCTIONS: TO WITHHOLD DIRECTORS.
E. W. BAILEY, JR. AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE, WRITE FOR AGAINST ABSTAIN
THAT NOMINEE'S NAME IN THE [ ] [ ] [ ]
SPACE PROVIDED BELOW.)
------------------------------------------
3. TO APPROVE AND ADOPT THE COMPANY'S 1997 NON- 4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN. BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. EACH OF THE ABOVE-
REFERENCED PROXIES PRESENT AT SAID MEETING, EITHER IN PERSON OR BY SUBSTITUTE,
FOR AGAINST ABSTAIN SHALL HAVE AND EXERCISE ALL THE POWERS OF SAID PROXIES HEREUNDER. THIS PROXY
[ ] [ ] [ ] WILL BE VOTED IN ACCORDANCE WITH THE CHOICES SPECIFIED BY THE UNDERSIGNED.
(IF NO SPECIFICATIONS TO THE CONTRARY ARE INDICATED HEREON, THIS PROXY WILL
BE TREATED AS A GRANT OF AUTHORITY TO VOTE FOR PROPOSALS 1, 2 AND 3. PLEASE
SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE POSTAGE PREPAID ENVELOPE
PROVIDED.
________
| DATE ,1997
| -------------------------------------
-----------------------------------------------
SIGNATURE
-----------------------------------------------
SIGNATURE
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. WHEN
SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE
OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF SHARES
ARE HELD JOINTLY, EACH HOLDER SHOULD SIGN.
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FOLD AND DETACH HERE
</TABLE>
