<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1998
-----------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
VITALINK PHARMACY SERVICES, INC.
--------------------------------
COMMISSION FILE NUMBER 0-19820
------------------------------
Incorporated in Delaware E.I. 37-0903482
- ------------------------ ---------------
1250 E. Diehl Road, Suite 208, Naperville, Illinois 60563
- ---------------------------------------------------------
Telephone: (630) 245-4800
- ---------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
26,127,886 Common Shares were outstanding as of April 14, 1998.
This report contains 12 pages.
<PAGE>
VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
FINANCIAL STATEMENTS
The consolidated balance sheet as of February 28, 1998, the consolidated income
statements for the three and nine month periods ended February 28, 1998 and
1997, and the consolidated statements of cash flows for the nine month periods
ended February 28, 1998 and 1997, have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
position, results of operations and cash flows at February 28, 1998 and for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's May 31, 1997 Annual Report to Shareholders,
previously filed with the Commission. The results of operations for the three
and nine month periods ended February 28, 1998 and 1997, and cash flows for the
nine months ended February 28, 1998 and 1997, are not necessarily indicative of
the operating results or cash flows for the full year.
2
<PAGE>
Vitalink Pharmacy Services, Inc. and Subsidiaries
Consolidated Income Statements
(unaudited)
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28 February 28
1998 1997 1998 1997
--------------------- -----------------------
<S> <C> <C>
NET REVENUES $ 129,715 $ 69,772 $ 371,230 $ 152,492
COST OF GOODS SOLD 67,960 36,351 193,303 78,510
--------------------- -----------------------
GROSS PROFIT 61,755 33,421 177,927 73,982
--------------------- -----------------------
OPERATING EXPENSES
Payroll expenses 30,082 15,446 86,802 33,031
Selling general & administrative expenses 11,030 6,007 32,017 12,815
Provision for doubtful accounts 2,443 1,090 6,947 2,441
Unusual item -- -- 3,087 --
Depreciation and amortization 4,543 2,404 13,602 4,999
--------------------- -----------------------
Total operating expenses 48,098 24,947 142,455 53,286
--------------------- -----------------------
INCOME FROM OPERATIONS 13,657 8,474 35,472 20,696
INTEREST INCOME AND OTHER, NET 271 257 789 802
INTEREST EXPENSE (1,603) (340) (5,155) (393)
--------------------- -----------------------
INCOME BEFORE INCOME TAXES 12,325 8,391 31,106 21,105
INCOME TAXES 5,653 3,644 14,318 8,760
--------------------- -----------------------
NET INCOME $ 6,672 $ 4,747 $ 16,788 $ 12,345
===================== =======================
AVERAGE SHARES OUTSTANDING - BASIC 25,865 17,511 25,781 15,140
===================== =======================
AVERAGE SHARES OUTSTANDING - DILUTED 26,410 17,803 26,236 15,392
===================== =======================
EARNINGS PER SHARE - BASIC $ 0.26 $ 0.27 $ 0.65 $ 0.82
===================== =======================
EARNINGS PER SHARE - DILUTED $ 0.25 $ 0.27 $ 0.64 $ 0.80
===================== =======================
</TABLE>
<PAGE>
Vitalink Pharmacy Services, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
February 28 May 31
1998 1997
=======================
(unaudited) (note)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 7,073 $ 3,660
Receivables (net of allowances of $9,553 and $4,872) 91,064 79,745
Inventories 27,104 25,193
Deferred income taxes 8,842 9,590
Other 3,300 1,829
-----------------------
Total current assets 137,383 120,017
Property and equipment, at cost (net of accumulated depreciation) 24,346 22,908
Due from affiliate -- 1,053
Pharmacy contracts (net of amortization of $6,810 and $4,579) 15,329 39,313
Goodwill (net of amortization of $11,892 and $5,705) 346,480 326,884
Other assets (net of amortization of $5,703 and $4,689) 5,430 6,630
-----------------------
Total assets $528,968 $516,805
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 18,503 $ 22,867
Accrued expenses 23,752 20,979
Current portion of long-term debt 2,386 2,165
-----------------------
Total current liabilities 44,641 46,011
-----------------------
Long-term debt 87,806 104,873
-----------------------
Deferred income taxes and other long-term liabilities 20,781 17,390
-----------------------
Stockholders' equity
Common stock (80,000,000 shares authorized, 25,949,531 and
25,402,510 shares issued and outstanding $.01 par value) 259 254
Contributed capital 292,372 281,956
Retained earnings 83,109 66,321
-----------------------
Total stockholders' equity 375,740 348,531
-----------------------
Total liabilities and stockholders' equity $528,968 $516,805
=======================
</TABLE>
NOTE: The balance sheet at May 31, 1997 has been taken from the audited
financial statements at that date.
<PAGE>
Vitalink Pharmacy Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
February 28
1998 1997
=======================
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 16,788 $ 12,345
Reconciliation of net income to cash provided by operating activities:
Depreciation and amortization 13,602 4,999
Provision for doubtful accounts 6,947 2,441
Change in net deferred income taxes, net of acquisitions 5,486 428
Changes in assets and liabilities, net of acquisitions:
Change in receivables (18,822) (10,067)
Change in inventories (1,324) (1,356)
Change in other current assets (2,302) (279)
Change in accounts payable and accrued expenses (7,619) 7,285
-----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,756 15,796
-----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,620) (3,406)
Decrease in due from affiliate 1,053 7,140
Acquisition of pharmacy businesses, net of cash acquired (5,550) (102,691)
Deferred payments on previous acquisitions (2,019) (1,856)
Payments for termination of Non-Competition Agreement 18,500 --
Other items, net (1,379) (1,305)
-----------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 3,985 (102,118)
-----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt (1,878) (1,337)
Proceeds from long-term borrowings 1,029 --
Net (repayments) borrowings under revolving credit facility (15,900) 97,400
Issuance of common stock 3,421 --
-----------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (13,328) 96,063
-----------------------
NET INCREASE IN CASH 3,413 9,741
CASH AT BEGINNING OF PERIOD 3,660 889
-----------------------
CASH AT END OF PERIOD $ 7,073 $ 10,630
=======================
</TABLE>
<PAGE>
Vitalink Pharmacy Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended February 28, 1998
(unaudited)
(dollars in thousands)
Reclassifications
- -----------------
Certain reclassifications have been made in prior year financial statements to
conform to the current year presentation.
Mergers and Acquisitions
- ------------------------
Fiscal 1998
On September 30, 1997, Vitalink Pharmacy Services, Inc., (the "Company"),
acquired Home Care Medical Equipment, Inc. ("Home Care") located in Oklahoma
City, Oklahoma in exchange for 351,318 shares of the Company's common stock.
Additional shares of the Company's common stock may be issued contingent on a
yet to be determined closing balance sheet adjustment.
On July 11, 1997, the Company acquired certain assets of the institutional
pharmacy and medical supply businesses of Nationwide Pharmacies, Inc., located
in Upper Marlboro, Maryland, for $5,550 in cash plus the assumption of $30 in
liabilities and future contingent payments not to exceed $400 based on the
achievement of certain future profitability objectives.
Fiscal 1997
TeamCare Acquisition
- --------------------
On February 12, 1997, the Company merged with TeamCare, Inc. ("TeamCare"),
GranCare, Inc.'s ("GranCare") institutional pharmacy business, by acquiring all
of the outstanding shares of GranCare after the spin-off of its skilled nursing
business (the "TeamCare Merger"). The Company issued approximately 11,400,000
shares of common stock and funded the redemption of approximately $100,000 face
value of GranCare senior subordinated notes. The merger was accounted for
using the purchase method of accounting with an effective date of February 1,
1997 and, accordingly, the results of operations of TeamCare have been included
in the Company's consolidated financial statements since February 1, 1997. The
purchase price of $332,500 was allocated to the net assets acquired based on
their estimated fair values at the date of the merger. The excess of the
purchase price over the fair value of net assets acquired was approximately
$303,638 and has been recorded as goodwill, which is being amortized on a
straight-line basis over 40 years.
In September 1997, the Company reached a settlement in its lawsuit against
GranCare to enforce a Non-Competition Agreement that the parties entered into as
part of the Company's acquisition of TeamCare. Under the terms of a Termination
and Release Agreement by and between the Company, GranCare, Manor Care, Inc.,
Apollo Management L.P. and Living Centers of America, Inc., GranCare agreed to
pay $18,500 to Vitalink in consideration for the cancellation of and termination
of the Non-Competition Agreement.
6
<PAGE>
Vitalink Pharmacy Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended February 28, 1998
(unaudited)
(dollars in thousands)
In November 1997, Vitalink received the $18,500 payment from GranCare. In
addition, on November 24, 1997, the Company received a notice of non-renewal
from GranCare which effectively terminates the pharmaceutical supply agreement
between Vitalink and GranCare on February 28, 2002. The Company was also
notified that it has been released from its limited guarantee to Health
Retirement Properties Trust that was entered into in connection with the
TeamCare acquisition. Accordingly, Vitalink reduced the amount of the purchase
price previously allocated to the GranCare relationship (pharmaceutical supply
agreement) from $34,262 to $11,400 and reduced the amortization period from 20
years to 6 years.
The TeamCare purchase price has been allocated to the net assets purchased and
liabilities assumed as presented below as of February 28, 1998:
<TABLE>
<S> <C>
Working capital $ 21,066
Property and equipment 12,832
Pharmaceutical Supply Agreement 11,400
Other assets 2,240
Goodwill 303,638
Other liabilities (18,676)
--------
Purchase price $332,500
========
</TABLE>
The following unaudited pro forma information for the three and nine months
ended February 28, 1997 presents a summary of the consolidated results of
operations of the Company and TeamCare as if the merger had occurred at the
beginning of fiscal 1997 after giving effect to goodwill amortization,
acquisition debt interest expense and related income tax effects:
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
------------ ------------
<S> <C> <C>
Net revenues $119,124 $336,496
-------- --------
Net income $ 5,908 $ 17,035
-------- --------
Earnings per share - basic $0.23 $0.66
-------- --------
Earnings per share - diluted $0.22 $0.65
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</TABLE>
This pro forma information is presented for informational purposes only and is
not necessarily indicative of results that would have occurred had the merger
been effective at the beginning of fiscal 1997, nor is the pro forma information
indicative of results that will be obtained in the future.
7
<PAGE>
Vitalink Pharmacy Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended February 28, 1998
(unaudited)
(dollars in thousands)
Other Acquisitions
- ------------------
On July 31, 1996, the Company acquired Medisco Pharmacies, Inc., located in San
Bernardino, California for $5,291 in cash plus the assumption of $2,510 in
liabilities and future payments totaling $1,150.
The above acquisitions are accounted for under the purchase method of accounting
with the assets recorded at their estimated fair market values at the date of
acquisition. The estimated fair market values of pharmacy contracts acquired
are amortized over the expected remaining lives not to exceed 10 years including
estimated contract renewals. Goodwill, representing the excess of acquisition
costs over the fair market value of acquired assets, is amortized over 40 years.
Earnings Per Share
- ------------------
The following table illustrates the reconciliation of weighted average shares
used in computing basic and diluted earnings per share (in thousands, except per
share data).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28 February 28
1998 1997 1998 1997
------------------ -----------------
<S> <C> <C> <C> <C>
Basic EPS Computation
Net Income $ 6,672 $ 4,747 $16,788 $12,345
================== =================
Shares:
Weighted average shares outstanding 25,865 17,511 25,781 15,140
================== =================
Basic EPS $ 0.26 $ 0.27 $ 0.65 $ 0.82
================== =================
Diluted EPS Computation
Net Income $ 6,672 $ 4,747 $16,788 $12,345
================== =================
Shares:
Weighted shares outstanding 25,865 17,511 25,781 15,140
Dilutive stock options 545 292 455 252
------------------ -----------------
Weighted shares assuming dilution 26,410 17,803 26,236 15,392
================== =================
Diluted EPS $ 0.25 $ 0.27 $ 0.64 $ 0.80
================== =================
</TABLE>
8
<PAGE>
Vitalink Pharmacy Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended February 28, 1998
(unaudited)
(dollars in thousands)
The effect of the dilutive securities was computed using the treasury stock
method and average market prices during the periods presented. Stock options to
purchase 73 shares of the Company's common stock during the three months ended
February 28, 1998 and 1997 and options to purchase 297 and 77 shares,
respectively, for the nine months ended February 28, 1998 and 1997 were excluded
in the computation of diluted earnings per share because the exercise price of
the options exceeded the average market price of the common shares for the
period.
Liquidity and Capital Resources
- -------------------------------
The Company meets its ongoing capital requirements and operating needs from
operating cash flows. Cash flows provided by operating activities were $12,756
in the nine month period ended February 28, 1998 compared with $15,796 in the
prior year period. Effective October 1, 1997, the Company assumed
responsibility of managing all of its cash activities through the implementation
of an integrated cash management program. Previously, the Company's cash
activities, except for the activities of the TeamCare pharmacies, were managed
through an arrangement with ManorCare Health Services, Inc. ("ManorCare").
As ManorCare no longer manages the Company's cash activities, the Company now
receives direct payment from ManorCare for the delivery of products and services
to ManorCare and certain patients in ManorCare operated facilities. As a
result, receivables representing approximately $4,147 of amounts billed in the
last month of the quarter ended February 28, 1998 are included in the
consolidated balance sheet and classified as "Receivables". Additionally,
ManorCare pays certain tax amounts on the Company's behalf and the Company
subsequently reimburses ManorCare. At February 28, 1998, approximately $1,659
of state tax payments that ManorCare remitted on the Company's behalf are
classified as "Accounts Payable".
Except for the issuance of the Company's common stock for certain acquisitions,
previously acquired businesses were financed with operating cash flows or
borrowings under the Company's revolving credit facility. The purchase
contracts for acquisitions generally stipulate future payments contingent upon
achievement of future profitability objectives.
In connection with the TeamCare Merger, the Company entered into a credit
facility (the "Credit Facility") with various banks providing for unsecured
borrowings of up to $200,000. Funds used to redeem substantially all of
GranCare's $100,000 face value senior subordinated notes were obtained through
borrowings under the Credit Facility. At February 28, 1998, there were $81,500
in borrowings outstanding under the Credit Facility and the Company was in
compliance with the terms of the Credit Facility.
On February 12, 1998 the Company entered into an interest rate swap agreement
that covers $20,000 of the Credit Facility. The swap agreement fixes the
effective interest rate at 5.95% through the term of the Credit Facility, which
terminates February 12, 2002.
At February 28, 1998, $118,500 was available under the Credit Facility and
$7,073 of cash was available for general corporate working capital, potential
acquisitions of pharmacies, the internal development of additional pharmacies
and capital expenditures.
9
<PAGE>
Vitalink Pharmacy Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Three and Nine Months Ended February 28, 1998
(unaudited)
(dollars in thousands)
The Company believes that its current cash balances, cash generated from
operations and available funds under the Credit Facility will be adequate to
meet the Company's foreseeable capital and other cash requirements.
Results of Operations
- ---------------------
Net revenues for the three months ended February 28, 1998 were $129,715, an
increase of $59,943 over the same period last year. Net revenues in the nine
months ended February 28, 1998 were $371,230, an increase of $218,738 over the
same period last year. The increase in revenues is primarily attributable to
TeamCare revenues of $49,351 and $184,004 for the two and eight month periods
ended January 31, 1997 that were not included in prior period results.
TeamCare's operating results are included in the Company's results as of
February 1, 1997.
Gross profit for the three months ended February 28, 1998 was $61,755, an
increase of $28,334 over the same period last year. Gross profit for the nine
month period ended February 28, 1998 was $177,927, an increase of $103,945 over
the same period last year. The gross profit margin was 47.6%and 47.9%,
respectively, for the three and nine months ended February 28, 1998, compared
with 47.9% and 48.5%, respectively, for the same three and nine month periods
last year. The reduction in gross margin percentage was due to a variety of
pricing related factors, including certain third party reimbursement reductions
and customer base changes.
During the third quarter of 1998, operating expenses increased $23,151 to
$48,098 or 37.1% of net revenues compared with $24,947 or 35.8% of net revenues
in the third quarter of 1997. Included in operating expenses for the nine months
ended February 28, 1998 is an unusual item representing a non-recurring pre-tax
charge of $3,087 relating to costs of the August 1997 resignation of the
Company's Chief Executive Officer ($2,737) and the consolidation of all
corporate functions in Naperville, Illinois ($350). For the nine-month period
ended February 28, 1998, excluding the unusual item, operating expenses
increased $86,082 to $139,368 or 37.5% of net revenues compared with $53,286 or
34.9% of net revenues for the nine-month period ended February 28, 1997.
The increase in operating expenses is primarily attributable to the inclusion of
TeamCare's results effective February 1, 1997. The increase in operating costs
as a percentage of net revenue is mainly attributable to TeamCare's higher
payroll costs as a percentage of revenue, TeamCare's higher selling, general and
administration costs and the amortization of goodwill and pharmacy contracts
arising from the TeamCare Merger ($5,396).
The increase in interest expense is largely attributable to interest expense
incurred under Credit Facility borrowings used to consummate the TeamCare
Merger. The effective income tax rate in the third quarter of 1998 increased
to 45.9% compared with 43.4% in the year earlier period. In the nine-month
period ended February 28, 1998 the effective income tax rate increased to 46.0%
compared with 41.5% in the prior year nine-month period. The increase in the
effective tax rate is primarily due to the non-deductible nature of the TeamCare
Merger goodwill.
Other Matters
- -------------
In October 1997, the Company engaged an investment banking firm to review
strategic business alternatives in connection with ManorCare's announcement to
explore strategic alternatives with respect to its 50.1% ownership interest in
the Company.
10
<PAGE>
VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K.
- ------
There were no reports filed on Form 8-K for the three months ended February 28,
1998.
10.37 Amendment to Employment Agreement Dated October 1, 1997 between
Vitalink Pharmacy Services, Inc. and Donna L. DeNardo.
10.38 Amendment to Employment Agreement Dated October 1, 1997 between
Vitalink Pharmacy Services, Inc. and Scott T. Macomber.
10.39 Amendment to Employment Agreement Dated November 1, 1997 between
Vitalink Pharmacy Services, Inc. and Thomas J. Santoro.
10.40 Amendment to Employment Agreement Dated October 1, 1997 between
Vitalink Pharmacy Services, Inc. and Stephen A. Thompson.
10.41 Amendment to Employment Agreement Dated October 1, 1997 between
Vitalink Pharmacy Services, Inc. and Robert W. Horner, III.
11
<PAGE>
VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VITALINK PHARMACY SERVICES, INC.
--------------------------------
(Registrant)
Date: April 14, 1998 BY: /s/ Scott T. Macomber
-----------------------------
Scott T. Macomber
Senior Vice President
And Chief Financial Officer
12
<PAGE>
Amendment to Employment Agreement
This Amendment dated this 19th day of February 1998 amends that certain
Employment Agreement dated October 1, 1997, by and between Vitalink Pharmacy
Services, Inc. ("Employer" or "Vitalink") and Donna L. DeNardo ("Employee") (the
"Employment Agreement"), a copy of which is attached hereto as Exhibit A. The
terms of said Employment Agreement are hereby amended as follows:
1. Paragraph 2 is amended and restated as follows:
"2. Term. Subject to the provisions for termination hereinafter
provided, the term of this Agreement shall begin on the date of
this Agreement and shall terminate on December 1, 2000. Upon
expiration of said period, the parties may extend the term if
they mutually agree to do so."
2. Paragraph 3(a) is amended and restated as follows:
"a) Salary. As of February 1, 1998, a base salary of Three Hundred
Five Thousand Dollars ($305,000.00) per annum payable in
accordance with Employer's standard payroll practices from time
to time in effect. Such salary shall be reviewed annually and may
be increased in accordance with Employer's standard practices."
3. The following is added as Paragraph 10(e):
"e) Change of Control. Regardless of any other provision in this
Agreement to the contrary, in the event of a Change in Control
(as that term is defined hereinafter) of Vitalink, Employee shall
be entitled to two (2) years, or the remaining period of this
Agreement (as of the consummation of such Change in Control),
whichever is greater, of the full amount of all potential
compensation and benefits set forth in Paragraph 3 hereof (as are
in effect at the time of the consummation of such Change in
Control), excluding future stock option grants. A lump sum
payment representing the total of such compensation and benefits
shall be made at the time of the consummation of such Change of
Control. This provision, however, is applicable only in the event
that the Employee is not offered a comparable employment contract
(i.e., same compensation, title, duties, authority,
responsibilities, term and location) with the post-Change of
Control entity as of the time of the consummation of such Change
of Control.
For purposes of this Paragraph 10(e), a Change in Control of
Vitalink 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 ("Exchange Act"), as
amended, (other than (1) Vitalink, (2) any trustee or other
<PAGE>
fiduciary holding securities under an employee benefit plan of
Vitalink, or (3) any corporations owned, directly or indirectly,
by the stockholders of Vitalink 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 Vitalink representing 30% or more of the combined voting power
of Vitalink's then outstanding voting securities;
(ii) the stockholders of Vitalink approve a plan of merger,
consolidation, complete liquidation of Vitalink or an agreement
for the sale or disposition by Vitalink of all or substantially
all of the Vitalink stock and/or assets, or accept a tender offer
for substantially all of Vitalink's stock (or any transaction
having a similar effect);
(iii) individuals who were members of the Vitalink Board
immediately prior to a meeting of the stockholders of the Company
involving a contest for the election of Directors do not
constitute a majority of the Vitalink Board immediately following
such election, unless that election of such new Directors was
recommended to the stockholders by Vitalink management.
4. With the exception of the specific amendments set forth above, all
terms and conditions of the Employment Agreement remain in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
Attest: Employer:
VITALINK PHARMACY SERVICES, INC.
/s/ Robert W. Horner, III /s/ Scott T. Macomber
- ---------------------------------- --------------------------------------
Robert W. Horner, III, Secretary By: Scott T. Macomber
Senior Vice President and Chief
Financial Officer
Witness: Employee:
/s/ Robert W. Horner, III /s/ Donna L. DeNardo
- ---------------------------------- --------------------------------------
Donna L. DeNardo, President &
Chief Operating Officer
<PAGE>
Amendment to Employment Agreement
This Amendment dated this 19th day of February 1998 amends that certain
Employment Agreement dated October 1, 1997, by and between Vitalink Pharmacy
Services, Inc. ("Employer" or "Vitalink") and Scott T. Macomber ("Employee")
(the "Employment Agreement"), a copy of which is attached hereto as Exhibit A.
The terms of said Employment Agreement are hereby amended as follows:
1. Paragraph 2 is amended and restated as follows:
"2. Term. Subject to the provisions for termination hereinafter
provided, the term of this Agreement shall begin on the date of
this Agreement and shall terminate on January 23, 2001. Upon
expiration of said period, the parties may extend the term if
they mutually agree to do so."
2. Paragraph 3(a) is amended and restated as follows:
"a) Salary. As of February 1, 1998, a base salary of Two Hundred Ten
Thousand Dollars ($210,000.00) per annum payable in accordance
with Employer's standard payroll practices from time to time in
effect. Such salary shall be reviewed annually and may be
increased in accordance with Employer's standard practices."
3. The following is added as Paragraph 10(e):
"e) Change of Control. Regardless of any other provision in this
Agreement to the contrary, in the event of a Change in Control
(as that term is defined hereinafter) of Vitalink, Employee shall
be entitled to two (2) years, or the remaining period of this
Agreement (as of the consummation of such Change in Control),
whichever is greater, of the full amount of all potential
compensation and benefits set forth in Paragraph 3 hereof (as are
in effect at the time of the consummation of such Change in
Control), excluding future stock option grants. A lump sum
payment representing the total of such compensation and benefits
shall be made at the time of the consummation of such Change of
Control. This provision, however, is applicable only in the event
that the Employee is not offered a comparable employment contract
(i.e., same compensation, title, duties, authority,
responsibilities, term and location) with the post-Change of
Control entity as of the time of the consummation of such Change
of Control.
For purposes of this Paragraph 10(e), a Change in Control of
Vitalink 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 ("Exchange Act"), as
<PAGE>
amended, (other than (1) Vitalink, (2) any trustee or other
fiduciary holding securities under an employee benefit plan of
Vitalink, or (3) any corporations owned, directly or indirectly,
by the stockholders of Vitalink 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 Vitalink representing 30% or more of the combined voting power
of Vitalink's then outstanding voting securities;
(ii) the stockholders of Vitalink approve a plan of merger,
consolidation, complete liquidation of Vitalink or an agreement
for the sale or disposition by Vitalink of all or substantially
all of the Vitalink stock and/or assets, or accept a tender offer
for substantially all of Vitalink's stock (or any transaction
having a similar effect);
(iii) individuals who were members of the Vitalink Board
immediately prior to a meeting of the stockholders of the Company
involving a contest for the election of Directors do not
constitute a majority of the Vitalink Board immediately following
such election, unless that election of such new Directors was
recommended to the stockholders by Vitalink management.
4. With the exception of the specific amendments set forth above, all
terms and conditions of the Employment Agreement remain in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
Attest: Employer:
VITALINK PHARMACY SERVICES, INC.
/s/ Robert W. Horner, III /s/ Donna L. DeNardo
- -------------------------------------- ----------------------------------
Robert W. Horner, III, Secretary By: Donna L. DeNardo, President
& Chief Operating Officer
Witness: Employee:
/s/ Robert W. Horner, III /s/ Scott T. Macomber
- -------------------------------------- ----------------------------------
Scott T. Macomber
Senior Vice President
& Chief Financial Officer
<PAGE>
Amendment to Employment Agreement
This Amendment dated this 19th day of February 1998 amends that certain
Employment Agreement dated November 1, 1997, by and between Vitalink Pharmacy
Services, Inc. ("Employer" or "Vitalink") and Thomas J. Santoro ("Employee")
(the "Employment Agreement"), a copy of which is attached hereto as Exhibit A.
The terms of said Employment Agreement are hereby amended as follows:
1. Paragraph 2 is amended and restated as follows:
"2. Term. Subject to the provisions for termination hereinafter
provided, the term of this Agreement shall begin on the date of
this Agreement and shall terminate on April 30, 2000. Upon
expiration of said period, the parties may extend the term if
they mutually agree to do so."
2. Paragraph 3(a) is amended and restated as follows:
"a) Salary. As of February 1, 1998, a base salary of One Hundred
Thirty Thousand Dollars ($130,000.00) per annum payable in
accordance with Employer's standard payroll practices from time
to time in effect. Such salary shall be reviewed annually and may
be increased in accordance with Employer's standard practices."
3. The following is added as Paragraph 10(e):
"e) Change of Control. Regardless of any other provision in this
Agreement to the contrary, in the event of a Change in Control
(as that term is defined hereinafter) of Vitalink, Employee shall
be entitled to two (2) years, or the remaining period of this
Agreement (as of the consummation of such Change in Control),
whichever is greater, of the full amount of all potential
compensation and benefits set forth in Paragraph 3 hereof (as are
in effect at the time of the consummation of such change in
control), excluding future stock option grants. A lump sum
payment representing the total of such compensation and benefits
shall be made at the time of the consummation of such Change of
Control. This provision, however, is applicable only in the event
that the Employee is not offered a comparable employment contract
(i.e., same compensation, title, duties, authority,
responsibilities, term and location) with the post-Change of
Control entity as of the time of the consummation of such Change
of Control.
For purposes of this Paragraph 10(e), a Change in Control of
Vitalink 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 ("Exchange Act"), as
amended, (other than (1) Vitalink, (2) any trustee or other
<PAGE>
fiduciary holding securities under an employee benefit plan of
Vitalink, or (3) any corporations owned, directly or indirectly,
by the stockholders of Vitalink 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 Vitalink representing 30% or more of the combined
voting power of Vitalink's then outstanding voting securities;
(ii) the stockholders of Vitalink approve a plan of merger,
consolidation, complete liquidation of Vitalink or an agreement
for the sale or disposition by Vitalink of all or substantially
all of the Vitalink stock and/or assets, or accept a tender offer
for substantially all of Vitalink's stock (or any transaction
having a similar effect);
(iii) individuals who were members of the Vitalink Board
immediately prior to a meeting of the stockholders of the Company
involving a contest for the election of Directors do not
constitute a majority of the Vitalink Board immediately following
such election, unless that election of such new Directors was
recommended to the stockholders by Vitalink management.
4. With the exception of the specific amendments set forth above, all
terms and conditions of the Employment Agreement remain in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
Attest: Employer:
VITALINK PHARMACY SERVICES, INC.
/s/ Robert W. Horner, III /s/ Donna L. DeNardo
- ---------------------------------- ------------------------------------
Robert W. Horner, III, Secretary By: Donna L. DeNardo, President
& Chief Operating Officer
Witness: Employee:
/s/ Robert W. Horner, III /s/ Thomas J. Santoro
- ---------------------------------- ------------------------------------
Thomas J. Santoro
Vice President and Corporate Controller
<PAGE>
Amendment to Employment Agreement
This Amendment dated this 19th day of February 1998 amends that certain
Employment Agreement dated October 1, 1997, by and between Vitalink Pharmacy
Services, Inc. ("Employer" or "Vitalink") and Stephen A. Thompson ("Employee")
(the "Employment Agreement"), a copy of which is attached hereto as Exhibit A.
The terms of said Employment Agreement are hereby amended as follows:
1. Paragraph 2 is amended and restated as follows:
"2. Term. Subject to the provisions for termination hereinafter
provided, the term of this Agreement shall begin on the date of
this Agreement and shall terminate on January 23, 2001. Upon
expiration of said period, the parties may extend the term if
they mutually agree to do so."
2. Paragraph 3(a) is amended and restated as follows:
"a) Salary. As of February 1, 1998, a base salary of One Hundred
Forty Eight Thousand Dollars ($148,000.00) per annum payable in
accordance with Employer's standard payroll practices from time
to time in effect. Such salary shall be reviewed annually and
may be increased in accordance with Employer's standard
practices."
3. The following is added as Paragraph 10(e):
"e) Change of Control. Regardless of any other provision in this
Agreement to the contrary, in the event of a Change in Control
(as that term is defined hereinafter) of Vitalink, Employee shall
be entitled to two (2) years, or the remaining period of this
Agreement (as of the consummation of such Change in Control),
whichever is greater, of the full amount of all potential
compensation and benefits set forth in Paragraph 3 hereof (as are
in effect at the time of the consummation of such change in
control), excluding future stock option grants. A lump sum
payment representing the total of such compensation and benefits
shall be made at the time of the consummation of such Change of
Control. This provision, however, is applicable only in the
event that the Employee is not offered a comparable employment
contract (i.e., same compensation, title, duties, authority,
responsibilities, term and location) with the post-Change of
Control entity as of the time of the consummation of such Change
of Control.
For purposes of this Paragraph 10(e), a Change in Control of
Vitalink 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 ("Exchange Act"), as
<PAGE>
amended, (other than (1) Vitalink, (2) any trustee or other
fiduciary holding securities under an employee benefit plan of
Vitalink, or (3) any corporations owned, directly or indirectly,
by the stockholders of Vitalink 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 Vitalink representing 30% or more of the combined voting power
of Vitalink's then outstanding voting securities;
(ii) the stockholders of Vitalink approve a plan of merger,
consolidation, complete liquidation of Vitalink or an agreement
for the sale or disposition by Vitalink of all or substantially
all of the Vitalink stock and/or assets, or accept a tender offer
for substantially all of Vitalink's stock (or any transaction
having a similar effect);
(iii) individuals who were members of the Vitalink Board
immediately prior to a meeting of the stockholders of the Company
involving a contest for the election of Directors do not
constitute a majority of the Vitalink Board immediately following
such election, unless that election of such new Directors was
recommended to the stockholders by Vitalink management.
4. With the exception of the specific amendments set forth above, all
terms and conditions of the Employment Agreement remain in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
Attest: Employer:
VITALINK PHARMACY SERVICES, INC.
/s/ Robert W. Horner, III /s/ Donna L. DeNardo
- ---------------------------------- ------------------------------------
Robert W. Horner, III, Secretary By: Donna L. DeNardo, President
& Chief Operating Officer
Witness: Employee:
/s/ Robert W. Horner, III /s/ Stephen A. Thompson
- ---------------------------------- ------------------------------------
Stephen A. Thompson
Senior Vice President
Human Resources
<PAGE>
Amendment to Employment Agreement
This Amendment dated this 19th day of February 1998 amends that certain
Employment Agreement dated October 1, 1997, by and between Vitalink Pharmacy
Services, Inc. ("Employer" or "Vitalink") and Robert W. Horner, III ("Employee")
(the "Employment Agreement"), a copy of which is attached hereto as Exhibit A.
The terms of said Employment Agreement are hereby amended as follows:
1. Paragraph 2 is amended and restated as follows:
"2. Term. Subject to the provisions for termination hereinafter
provided, the term of this Agreement shall begin on the date of
this Agreement and shall terminate on January 23, 2001. Upon
expiration of said period, the parties may extend the term if
they mutually agree to do so."
2. Paragraph 3(a) is amended and restated as follows:
"a) Salary. As of February 1, 1998, a base salary of One Hundred
Forty Eight Thousand Dollars ($175,000.00) per annum payable in
accordance with Employer's standard payroll practices from time
to time in effect. Such salary shall be reviewed annually and
may be increased in accordance with Employer's standard
practices."
3. The following is added as Paragraph 10(e):
"e) Change of Control. Regardless of any other provision in this
Agreement to the contrary, in the event of a Change in Control
(as that term is defined hereinafter) of Vitalink, Employee shall
be entitled to two (2) years, or the remaining period of this
Agreement (as of the consummation of such Change in Control),
whichever is greater, of the full amount of all potential
compensation and benefits set forth in Paragraph 3 hereof (as are
in effect at the time of the consummation of such change in
control), excluding future stock option grants. A lump sum
payment representing the total of such compensation and benefits
shall be made at the time of the consummation of such Change of
Control. This provision, however, is applicable only in the
event that the Employee is not offered a comparable employment
contract (i.e., same compensation, title, duties, authority,
responsibilities, term and location) with the post-Change of
Control entity as of the time of the consummation of such Change
of Control.
For purposes of this Paragraph 10(e), a Change in Control of
Vitalink 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 ("Exchange Act"), as
<PAGE>
amended, (other than (1) Vitalink, (2) any trustee or other
fiduciary holding securities under an employee benefit plan of
Vitalink, or (3) any corporations owned, directly or indirectly,
by the stockholders of Vitalink 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 Vitalink representing 30% or more of the combined
voting power of Vitalink's then outstanding voting securities;
(ii) the stockholders of Vitalink approve a plan of merger,
consolidation, complete liquidation of Vitalink or an agreement
for the sale or disposition by Vitalink of all or substantially
all of the Vitalink stock and/or assets, or accept a tender offer
for substantially all of Vitalink's stock (or any transaction
having a similar effect);
(iii) individuals who were members of the Vitalink Board
immediately prior to a meeting of the stockholders of the Company
involving a contest for the election of Directors do not
constitute a majority of the Vitalink Board immediately following
such election, unless that election of such new Directors was
recommended to the stockholders by Vitalink management.
4. With the exception of the specific amendments set forth above, all
terms and conditions of the Employment Agreement remain in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first set forth above.
Attest: Employer:
VITALINK PHARMACY SERVICES, INC.
/s/ Jeanne M. Barlett /s/ Donna L. DeNardo
- --------------------------------------- ----------------------------------
Jeanne M. Barlett, Assistant Secretary By: Donna L. DeNardo, President
& Chief Operating Officer
Witness: Employee:
/s/ Jeanne M. Barlett /s/ Robert W. Horner, III
- --------------------------------------- ----------------------------------
Robert W. Horner, III
Senior Vice President, General
Counsel & Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAY-31-1998 MAY-31-1998
<PERIOD-START> DEC-01-1997 JUN-01-1997
<PERIOD-END> FEB-28-1998 FEB-28-1998
<CASH> 0 7,073
<SECURITIES> 0 0
<RECEIVABLES> 0 91,064
<ALLOWANCES> 0 9,553
<INVENTORY> 0 27,104
<CURRENT-ASSETS> 0 137,383
<PP&E> 0 24,346
<DEPRECIATION> 0 11,254
<TOTAL-ASSETS> 0 528,968
<CURRENT-LIABILITIES> 0 44,641
<BONDS> 0 87,806
0 0
0 0
<COMMON> 0 259
<OTHER-SE> 0 375,481
<TOTAL-LIABILITY-AND-EQUITY> 0 528,968
<SALES> 129,715 371,230
<TOTAL-REVENUES> 129,715 371,230
<CGS> 67,960 193,303
<TOTAL-COSTS> 116,058 335,758
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 2,443 6,947
<INTEREST-EXPENSE> 1,603 5,155
<INCOME-PRETAX> 12,325 31,106
<INCOME-TAX> 5,653 14,318
<INCOME-CONTINUING> 6,672 16,788
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,672 16,788
<EPS-PRIMARY> 0.26 0.65
<EPS-DILUTED> 0.25 0.64
</TABLE>
