<PAGE>
FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1998
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number 0-19820
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VITALINK PHARMACY SERVICES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 23-2963282
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
101 East State Street
Kennett Square, Pennsylvania 19348
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(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code (610) 444-6350
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.01 Per Share
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(Title of Class)
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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
<PAGE>
The aggregate market value of the voting stock held by non-affiliates was
$286,391,308 as of August 28, 1998 based upon a closing price of $22 7/16 per
share.
The number of shares of Vitalink's Common Stock outstanding at August
28,1998 was 26,235,973.
<PAGE>
INTRODUCTION
On April 26, 1998, Genesis Health Ventures, Inc. ("Genesis"), Vitalink
Pharmacy Services, Inc. ("Vitalink" or the "Company") and V Acquisition
Corporation, a Delaware corporation ("V Acq") and a wholly-owned subsidiary of
Genesis, entered into an Agreement and Plan of Merger (as amended, the "Merger
Agreement"). On August 28, 1998, Vitalink was merged with and into V Acq, with
V Acq surviving the merger (the "Merger"). Upon consummation of the Merger,
Vitalink became a wholly-owned subsidiary of Genesis.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
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EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The following table sets forth information with respect to the current
executive officers and directors of the Company each of whom was appointed to
his position with the Company upon the consummation of the Merger.
MICHAEL G. BRONFEIN (age 43) is President of the Company, and also serves
as President of Genesis. He joined Genesis in June 1996 as the President and
Chief Executive Officer of NeighborCare Pharmacies, Inc. which was acquired by
Genesis in June 1996. Prior to joining NeighborCare in 1991, Mr. Bronfein held
the position of Senior Vice President and Head of Commercial Finance Lending for
Signet Banking Corporation in Maryland, Virginia and Washington, D.C. In
addition to his position with Genesis, Mr. Bronfein serves as the Chairman
of the Board of Health Objects Corporation and on the National Board of
Advisors-University of Maryland School of Pharmacy. Mr. Bronfein received a
Bachelors of Science Degree in Accounting from the University of Baltimore. He
is a Certified Public Accountant and is a member of the AICPA and MACPA.
GEORGE V. HAGER, JR. (age 42) is Senior Vice President and Chief Financial
Officer of the Company, and also serves as Senior Vice President and Chief
Financial Officer of Genesis. He has served Genesis as Senior Vice President
and Chief Financial Officer since February 1994. Mr. Hager joined Genesis in
July 1992 as Vice President and Chief Financial Officer. Mr. Hager was
previously partner in charge of the healthcare practice for KPMG Peat Marwick
LLP in the Philadelphia office. Mr. Hager began his career at KPMG Peat Marwick
LLP in 1979 and has over 15 years of experience in the healthcare industry. Mr.
Hager received a Bachelor of Arts degree in Economics from Dickinson College in
1978 and a Master of Business Administration degree from Rutgers Graduate School
of Management. He is a certified public accountant and a member of the AICPA and
PICPA.
JAMES V. MCKEON (age 34) is Vice President and Corporate Controller of the
Company, and also serves as Vice President and Corporate Controller of Genesis.
He has served as Vice President and Corporate Controller of Genesis since April
1997. Mr. McKeon joined Genesis in June 1994 as Director of Financial Reporting
and Investor Relations and served as Vice President of Finance
<PAGE>
and Investor Relations from November 1995 to April 1997. From September 1986
until June 1994, Mr. McKeon was employed by KPMG Peat Marwick LLP, most recently
as Senior Manager. He received a Bachelor of Science degree in Accountancy from
Villanova University in 1986. Mr McKeon is a certified public accountant and a
member of the AICPA and PICPA.
MICHAEL R. WALKER (age 50) is a director of the Company and is the founder
of Genesis and has served as Chairman and Chief Executive Officer of Genesis
since its inception. In 1981, Mr. Walker co-founded Health Group Care Centers
("HGCC"). At HGCC, he served as Chief Financial Officer and, later, as
President and Chief Operating Officer. Prior to its sale in 1985, HGCC operated
nursing homes with 4,500 nursing beds in 12 states. From 1978 to 1981, Mr.
Walker was the Vice President and Treasurer of AID Healthcare Centers, Inc.
("AID"). AID, which owned and operated 20 nursing centers, was co-founded in
1977 by Mr. Walker as the nursing home division of Hospital Affiliates
International. Mr. Walker holds a Master of Business Administration degree from
Temple University and a Bachelor of Arts in Business Administration from
Franklin and Marshall College. Mr. Walker serves on the Board of Directors of
Renal Treatment Centers, Inc. and the Board of Trustees of Universal Health
Realty & Income Trust.
RICHARD R. HOWARD (age 49) is a director of the Company and has served as a
director of Genesis since its inception and as Chief Operating Officer from June
1986 through March 1997. He joined Genesis in September 1985 as Vice President
of Development. Mr. Howard's background in healthcare includes two years as the
Chief Financial Officer of HGCC. Mr. Howard's experience also includes over ten
years with Fidelity Bank, Philadelphia, Pennsylvania and one year with Equibank,
Pittsburgh, Pennsylvania. Mr. Howard is a graduate of the Wharton School,
University of Pennsylvania, where he received a Bachelor of Science degree in
Economics in 1971.
DAVID C. BARR (age 48) is a director of the Company and has served as
Executive Vice President of Genesis since October 1988 and Chief Operating
Officer since March 1997. Prior to joining Genesis, Mr. Barr was a principal of
a private consulting firm, Kane Maiwurm Barr, Inc., which provided management
consulting for small and medium-sized firms. Prior to forming this firm, he
served as Executive Vice President of Allegheny Beverage Corporation, a service
conglomerate. During 1984 and 1985, Mr. Barr served with Equibank, Pittsburgh,
Pennsylvania, where he held several positions including Executive Vice President
of Corporate Banking. Mr. Barr graduated in 1972 from the University of Miami
with a Bachelor of Science degree in Accounting.
<PAGE>
ITEM 11. Executive Compensation.
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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, 1998, 1997, and 1996, of the only executive officers
who received compensation from the Company during the fiscal year ended May 31,
1998 (the "Named Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation
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Name and Principal Position Year Salary Bonus Other Securities All Other
Underlying Compensation
Options (1)
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<S> <C> <C> <C> <C> <C> <C>
Gene E. Burleson 1998 $ 77,885 $-0- (3) -0- $-0-
Chief Executive Officer 1997 $148,566 $-0- (3) -0- $-0-
February 1997 to August 1997 (2)
1996 $ -0- $-0- n/a n/a n/a
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Donna L. DeNardo 1998 $285,000 $160,000 (3) 55,000 $ 11,568
President and Chief 1997 $233,250 $186,600 (3) 18,300 $ 12,327
Operating Officer
1996 $186,101 $ 82,815 (3) 20,000 $ 10,924
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Robert W. Horner, III 1998 $168,333 $ 85,000 (3) 20,000 $67,737 (5)
Senior Vice President, 1997 $ 77,115 $ 46,269 (3) 6,000 $ 53,342
General Counsel and Secretary
1996 $ -0- $ -0- n/a n/a n/a
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Scott T. Macomber 1998 $186,667 $101,000 (3) 21,000 $ 12,645
Senior Vice President, Chief 1997 $147,671 $103,370 (3) 8,700 $ 8,044
Financial Officer and Treasurer
1996 $127,067 $ 46,634 (3) 10,000 $ 7,409
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Stephen A. Thompson 1998 $139,333 $ 72,000 (3) 16,500 $ 5,841
Senior Vice President, 1997 $118,135 $ 70,881 (3) 5,900 $ 4,402
Human Resources Administration (4)
1996 $105,447 $ 36,906 (3) 10,500 $ 4,024
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</TABLE>
(1) Includes amounts contributed by the Company for fiscal 1997 and 1996, for
the Named Officers under the Manor Care, Inc. Retirement Savings (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 1998, the Company contributed $-0- for Mr.
Burleson, $8,537 for Ms. DeNardo, $2,375 for Mr. Horner, $5,353 for Mr.
Macomber and $4,198 for Mr. Thompson under the 401(k) Plan; and, $-0-for
Mr. Burleson, $3,031 for Ms. DeNardo, $32 for Mr. Horner, $7,292 for Mr.
Macomber and $1,643 for Mr. Thompson under the Vitalink Pharmacy Services,
Inc. Non-Qualified Retirement Savings and Investment Plan (the "New 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 the
Named Officers.
(4) Mr. Thompson was promoted to Senior Vice President Human Resources and
Administration on July 14, 1997.
(5) Includes $65,330 of expenses reimbursed to Mr. Horner in connection with a
relocation during fiscal 1998.
<PAGE>
The Company's Board of Directors and stockholders adopted the Incentive
Plan in October 1996. Under the Incentive Plan 493,900 shares of Common Stock
have been reserved for issuance in connection with grants of the Company's
equity securities made thereunder and 232,193 share have been granted to date.
The Company's Board of Directors and stockholders adopted the Stock Option
Plan in September 1991. Under the Stock Option Plan, 1,000,000 shares of Common
Stock had 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.
<PAGE>
The following tables set forth certain information at May 31, 1998, and for
the fiscal year then ended, concerning stock options granted to the Named
Officers. One of the Named Officers exercised stock options pertaining to the
Common Stock of the Company during fiscal 1998. All Common Stock figures and
exercise prices have been adjusted to reflect stock dividends and stock splits
effective in prior fiscal years.
<TABLE>
<CAPTION>
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Potential Realizable
Value at Assumed
INDIVIDUAL GRANTS Annual Rate of Stock
Price Appreciation for
Option Term (1)
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Name Number Percentage of
of Total Options Exercise Expiration 5% (2) 10% (3)
Options Granted to Price Date
Granted all Employees Per Share
in Fiscal 1998
<S> <C> <C> <C> <C> <C> <C>
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Gene E. Burleson -0- -0- -0- -0- $ -0- $ -0-
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Donna L. DeNardo 55,000 22.41% $17.94 7/14/07 620,400 1,572,450
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Robert W. Horner, III 20,000 8.15% $17.94 7/14/07 225,600 571,800
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Scott T. Macomber 21,000 8.56% $17.94 7/14/07 236,880 600,390
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Stephen A. Thompson 16,500 6.72% $17.94 7/14/07 186,120 471,735
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</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 $17.94 per share
yields $29.22 on the expiration date.
(3) A 10% per year appreciation in the stock price from $17.94 per share
yields $46.53 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.
<PAGE>
<TABLE>
<CAPTION>
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AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR-END OPTION VALUES
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Shares Acquired on Number of Unexercised Value of Unexercised
Exercise Options at May 31, 1998 in-the-money Options at
May 31, 1998 (1)
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Name Number Value Exercisable Unexercisable Exercisable Unexercisable
Realized
<S> <C> <C> <C> <C> <C> <C>
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Gene E. Burleson 18,164 $152,487 122,731 -0- $513,182 $-0-
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Donna L. DeNardo -0- -0- 71,160 137,140 475,280 682,140
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Robert W. Horner, III -0- -0- 1,200 24,800 -0- 74,960
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Scott T. Macomber -0- -0- 34,240 65,460 206,535 344,683
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Stephen A. Thompson -0- -0- 6,005 31,895 28,379 122,037
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</TABLE>
(1) The closing price of the Company's Common Stock, as reported by the New
York Stock Exchange on May 29, 1998 was $21 11/16 per share. The value is
calculated on the basis of the difference between the option per share
exercise price and $21 11/16 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 the 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 was $305,000 and Ms. DeNardo was 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 was $175,000 and Mr. Horner was 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 was $210,000 and Mr. Macomber was entitled to an annual bonus
of up to 84.5% of this 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 was $148,000 and Mr. Thompson was entitled to an
annual bonus of up to 84.5% of his base compensation based on the performance of
the Company.
<PAGE>
Under the terms of an agreement between Stephen A. Thompson and the
Company, his annual salary was $148,000 and Mr. Thompson was 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 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 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
$10,000. 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
and 1996 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 Savings 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 Mr.
Burleson, 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 and 1996, 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.
Effective December 1993, participants were given the right to elect to receive
the Company matching contribution either in Manor Care stock or cash or a
combination of the foregoing. 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
<PAGE>
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 $10,000. 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 ended May 31, 1998 for the Named
Officers are included in the Summary Compensation Table under the column headed
"All Other Compensation."
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. Amounts contributed through May, 1998, by the
Company are included in the Summary Compensation Table under the column headed
"All Other Compensation."
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.
<PAGE>
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
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As of September 30, 1998 Genesis was the holder of 100% of the issued and
outstanding Common Stock of the Company. The address of Genesis is 101 East
State Street, Kennett Square, Pennsylvania, 19348.
<PAGE>
ITEM 13. Certain Relationships and Related Transactions.
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AGREEMENTS WITH MANOR CARE
In 1981 Vitalink was acquired by a subsidiary of Manor Care, Inc. (Manor
Care, Inc. or its subsidiary are referred to hereafter as "Manor Care"). As of
May 31, 1998, Manor Care owned approximately 50% of Vitalink's common stock par
value $.01 per share.
Pursuant to four agreements with Manor Care, each having an initial ten-
year term commencing June 1, 1991, which were amended on September 19, 1997 to
extend the term thereof to September 30, 2002, the Company provides
pharmaceutical dispensing, infusion therapy and pharmacy consulting services to
nursing facilities owned and operated by Manor Care and the residents of these
facilities. Sales of pharmaceutical and infusion therapy products and services
to Manor Care's nursing facilities are made at prices based on the level of
service provided. Revenues from sales to Manor Care nursing facilities and
patients were $91,057,000 in fiscal year 1998. Fees from consulting services to
Manor Care and Manor Care facilities were charged in fiscal year 1998 based on
an annual fee per bed and amounted to $3,712,000.
In connection with the GranCare Merger, Manor Care entered into a Non-
Competition Agreement, whereby Manor Care and GranCare agreed not to engage in
the institutional pharmacy business within the United States during the three-
year term of such agreement except temporarily in connection with future
acquisitions of skilled nursing businesses that have an established pharmacy
operation embedded in the acquired skilled nursing business. Similarly, Vitalink
has agreed not to engage in the skilled nursing business during the three-year
term of such agreement. In the event that Manor Care or GranCare shall, during
the term of this agreement, acquire a skilled nursing business that has as a
component a pharmacy operation, it must offer to sell such pharmacy operation to
the Company upon the terms described in this agreement. In the event the Company
acquires a skilled nursing business in conjunction with the acquisition of a
pharmacy business, it must use commercially reasonable efforts to divest itself
of such skilled nursing business within one year. Pursuant to the Termination
and Release Agreement, the Non-Competition Agreement will be automatically
terminated and certain payments made upon the consummation of the merger between
Living Centers of America and GranCare.
Manor Care has provided the Company with various administrative services
under an Administrative Services Agreement. Prior to fiscal 1998, Manor Care
provided cash management, payroll and payables processing, employee benefit,
insurance, legal, accounting, tax, information systems and certain other
administrative services. Cash receipts and requirements of the Company, with the
exception of the TeamCare Pharmacies, were processed by Manor Care's cash
management system. In fiscal 1998, under the Administrative Services Agreement,
Manor Care provided insurance, tax and other administrative services.
Administrative fees of $262,000 were charged to the Company based on a time
allocation method, which Manor Care utilized to charge administrative services
to all of its subsidiaries.
<PAGE>
Management believes that the foregoing charges are reasonable allocations of the
costs incurred by Manor Care on the Company's behalf.
Prior to fiscal year 1998, Manor Care obtained and provided insurance
coverage for group health, auto, general liability, property casualty and
workers' compensation through its self-insurance and external insurance programs
and charged the Company based on the relative percentage of insurance costs
incurred by Manor Care on the Company's behalf. In fiscal 1998, Manor Care
provided group health coverage for the four months ended September 30, 1997. As
of October 1, 1997, the Company provided its own group health coverage to all
Company employees. Total insurance costs allocated to the Company by Manor Care
were $538,000 for the fiscal year ended May 31, 1998.
As of October 1, 1997, the Company implemented its own cash management
system and received direct payment for the delivery of products and services to
Manor Care and certain patients in Manor Care operated facilities. As a result,
receivables representing $4,458,000 of amounts billed in the last month of
fiscal 1998 are included in the consolidated balance sheet and classified as
"Receivables". Additionally, Manor Care pays certain tax amounts on the
Company's behalf and the Company subsequently reimburses Manor Care. At May 31,
1998, $1,112,000 of state tax payments had been remitted by Manor Care on the
Company's behalf and are included in the consolidated balance sheet and are
classified as "Accounts Payable".
OTHER AGREEMENTS
The Company has agreed to indemnify, defend and hold harmless the present
and former officers of the predecessor to GranCare (including five former
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.
The Company leases operating facilities from various employees. Rental
expense under the non-cancellable operating leases was approximately $528,000
for the fiscal year ended May 31, 1998. Future minimum lease payments for
leases, which expire through 2005, are $2,510,000 at May 31, 1998.
On April 26, 1998 Robert W. Horner, III, Stephen A. Thompson, Donna L.
DeNardo, Scott T. Macomber and Thomas J. Santoro entered into consulting
agreements with Vitalink pursuant to which each of them will provide consulting
services to Vitalink beginning on the date of such officer's termination of
employment with Vitalink and ending on a date 12-18 months after the Effective
Time. In consideration for providing such services Ms. DeNardo and Messrs.
Horner, Thompson, Macomber and Santoro are entitled to receive $17,917,
$18,750, $16,667, $21,667 and $11,250 per month, respectively. No consulting
agreement will be effective if the officer is terminated after April 30, 1999.
<PAGE>
On May 30, 1998 Manor Care purchased 100,000 shares of Company stock at
$22.30 per share from Essel W. Bailey, Jr., a former director of the Company.
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 Essel W. Bailey,
Jr., Vincent C. DiTrapano, Joel S. Kanter (a former director of the Company),
Arlen B. Reynolds, and Gary U. Rolle filed late certain reports required under
Section 16 of the Exchange Act during the fiscal year ended May 31, 1998. 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, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: October 13, 1998 VITALINK PHARMACY SERVICES, INC.
By: /s/ James V. McKeon
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James V. McKeon
Vice President and Corporate
Controller
