<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 Rule
14a-6(e)(2))
/X/ Definitive Proxy Statements
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240-14a-12
OPTION CARE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies: N/A
-----------------------------------------------------------------------
(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): N/A
4) Proposed maximum aggregate value of transaction: N/A
5) Total fee paid: N/A
/ / 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: N/A
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.: N/A
-----------------------------------------------------------------------
(3) Filing Party: N/A
-----------------------------------------------------------------------
(4) Date Filed: N/A
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<PAGE>
[LOGO]
NOTICE OF 1999 ANNUAL SHAREHOLDERS MEETING AND
PROXY STATEMENT
TO BE HELD MAY 4, 1999
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Shareholders Meeting of Option Care,
Inc., a Delaware corporation (the "Company"), will be held at The Northern Trust
Bank, 265 E. Deerpath Road, Lake Forest, Illinois, on Tuesday, May 4, 1999, at
10:00 a.m. (CST) for the purpose of considering and acting upon the following:
(1) The election of two directors for terms expiring in 2002;
(2) The ratification and approval of bonus awards for fiscal 1998 to certain
members of the Company's management;
(3) The transaction of such other business as may properly be brought before
the meeting or any adjournment thereof.
Only shareholders of record at the close of business on March 19, 1999, are
entitled to notice of and to vote at the Annual Shareholders Meeting.
We encourage you to read the attached Proxy Statement carefully. Even if you
expect to be present at the meeting, please sign, date and return the enclosed
Proxy as promptly as possible in the accompanying return envelope, for which no
postage is required if mailed in the United States. The mailing of an executed
Proxy will not affect your right to vote in person should you later decide to
attend the Annual Shareholders Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
CATHY BELLEHUMEUR
Senior Vice President, General Counsel
and Secretary
April 2, 1999
<PAGE>
OPTION CARE, INC.
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
Voting Procedures...................................................................... 1
Proposal No. 1--Election of Directors.................................................. 2
Information about the Board of Directors............................................... 2
Information about Executive Officers................................................... 4
Security Ownership of Certain Beneficial Owners and Management......................... 4
Report of Compensation Committee on Executive Compensation............................. 5
Executive Compensation................................................................. 8
Report of Compensation Committee on Option Repricing................................... 9
Proposal No. 2--Ratification of Bonus Awards........................................... 10
Stock Performance Graph................................................................ 11
General Information.................................................................... 13
</TABLE>
<PAGE>
[LOGO]
100 CORPORATE NORTH, SUITE 212
BANNOCKBURN, ILLINOIS 60015
PROXY STATEMENT
ANNUAL SHAREHOLDERS MEETING
TO BE HELD MAY 4, 1999
This Proxy Statement contains information related to the Annual Shareholders
Meeting of Option Care, Inc. ("the Annual Meeting") to be held Tuesday, May 4,
1999, beginning at 10:00 a.m., at The Northern Trust Company, 265 Deerpath Road,
Lake Forest, Illinois. The enclosed Proxy is solicited by the Board of Directors
of Option Care, Inc. (the "Company") in connection with the Annual Meeting and
at any and all adjournments thereof. The Company is paying the costs of
solicitation, including the cost of preparing and mailing the Notice of Annual
Shareholders Meeting and this Proxy Statement. In addition, the Company will,
upon the request of brokers, dealers, banks, voting trustees and their nominees
who are holders of record of shares of the Company's Common Stock on the record
date specified below, bear their reasonable expenses for mailing copies of this
material to the beneficial owners of such shares. Officers and other regular
employees of the Company, who will receive no extra compensation for their
services, may solicit Proxies in person or by telephone or facsimile. The Proxy
Statement and accompanying form of Proxy will be first mailed to shareholders on
or about April 2, 1999.
VOTING PROCEDURES
The Proxy may be revoked at any time prior to its exercise by giving written
notice of revocation to an officer of the Company, by executing a Proxy bearing
a later date or by attending the meeting and voting in person. Unless so
revoked, properly executed Proxies will be voted in accordance with the
shareholders' specifications marked thereon. If no specifications are marked
thereon with respect to one or more proposals, duly executed proxies will be
voted as to such proposals in accordance with the recommendations of the Board
of Directors set forth in this Proxy Statement. Except for the election of
Directors, which shall be by plurality vote, the affirmative vote of the holders
of a majority of the shares present or represented by proxy at the meeting and
entitled to vote on the matter is required for approval of any matter which may
properly come before the meeting, except as otherwise provided by law or the
Company's Certificate of Incorporation or By-Laws.
Shareholders of record on March 19, 1999, are the only persons entitled to
notice of and to vote at the Annual Meeting. As of that date, there were issued
and outstanding 11,124,966 shares of Common Stock, the only voting securities of
the Company. Each shareholder is entitled to one vote for each share held.
Shares subject to abstentions will be treated as shares that are present at the
Annual Meeting for purposes of determining the presence of a quorum and as voted
for purposes of determining the base number of shares voting on a particular
proposal. If a broker or other nominee holder indicates on the Proxy Card that
it does not have discretionary authority to vote the shares it holds of record
on a proposal, those shares will not be considered as present for purposes of
determining a quorum (unless they are voted on another proposal brought before
the meeting) or as voted for purposes of determining the approval of the
shareholders on a particular proposal. Shareholders do not have the right to
cumulate votes in the election of Directors.
1
<PAGE>
PROPOSAL NO. 1: ELECTION OF DIRECTORS
The Company's By-Laws authorize the Board of Directors to fix the number of
directors and currently, the number is fixed at five. The members of the Board
of Directors are divided into three classes with the term of one class expiring
each year. There are two directors to be elected for terms expiring at the
Company's Annual Meeting in 2002 or until their successor has been duly elected
and qualified. It is intended that the names of James G. Andress and Michael A.
Rusnak, both current Directors, be placed in nomination and that those persons
named in the Proxy will vote for their election. Each nominee has indicated his
willingness to serve as a member of the Board of Directors if elected; however,
in case either of the nominees shall become unavailable for election to the
Board of Directors for any reason not presently known or contemplated, the Proxy
holders will have discretionary authority in that instance to vote the Proxy for
a substitute nominee designated by the Board of Directors.
The nominees are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
TERM EXPIRING IN 2002
James G. Andress (1) (2) (3) (4)................. 60 Director (Director since 1991)
Michael A. Rusnak................................ 43 President, Chief Executive Officer and Director
(Director since 1998)
The present Directors of the Company whose terms will expire after 1999 are as follows:
TERM EXPIRING IN 2000
John N. Kapoor, Ph.D............................. 55 Chairman of the Board and Director (Director since
1990)
Roger W. Stone (1) (2) (3) (4)................... 64 Director (Director since 1991)
TERM EXPIRING IN 2001
Jerome F. Sheldon (1) (2) (3) (4)................ 63 Director (Director since 1991)
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Stock Incentive Plan Committee.
(4) Member of the Corporate Compliance Committee.
INFORMATION ABOUT THE BOARD OF DIRECTORS
- James G. Andress has been a member of the Board of Directors since
November 1991. Mr. Andress is currently Chairman and Chief Executive
Officer of Warner-Chilcott PLC, a pharmaceutical company, since November
1996. From November 1989 until November 1995, Mr. Andress served as
President, Chief Executive Officer and Chief Operating Officer of
Information Resources, Inc., a software and information services company.
He currently serves as a Director of the following companies: Information
Resources, Inc.; Allstate Corporation; The Liposome Company, Inc.;
Sepracor, Inc.; Xoma Corporation; Favorite Brands International, and
Warner-Chilcott, PLC.
- John N. Kapoor, Ph.D., is currently the Company's Chairman of the Board.
He has been Chairman of the Board of Directors since October 1990. He
served as the Company's CEO from August 1993 to April 1996 and served as
President from August 1993 through October 1993 and from January, 1995
through February, 1996. Dr. Kapoor also served as Chief Executive Officer
and President from March 1991 to May 1991. In addition, Dr. Kapoor is
President of E. J. Financial Enterprises, Inc., a position he has held
since April 1990. From June 1982 to April 1990, Dr. Kapoor held several
positions with Lyphomed, Inc., including Chairman, Chief Executive Officer
and President.
2
<PAGE>
Dr. Kapoor is a Director of Integrated Surgical Systems, Inc. and the
Chairman of the Board and Director for each of the following companies:
Akorn, Inc., NeoPharm, Inc. and UniMed, Inc. Dr. Kapoor received his Ph.D.
in medicinal chemistry from the State University of New York and a B.S. in
pharmacy from Bombay University.
- Michael A. Rusnak has been the Company's President and Chief Executive
Officer and a member of the Board of Directors since October 1998. From
June 1998 to October 1998, Mr. Rusnak was Executive Vice President and
Chief Operating Officer. Prior to that he was Senior Vice President of the
Company and President of Option Care Enterprises, Inc. from May 1998 to
June 1998. Mr. Rusnak was also the Company's Vice President-Franchise
Services from November 1997 to May 1998. Prior to joining the Company, he
was employed by Columbia Home Care Group, a division of Columbia HCA, from
October 1996 to October 1997, as the Senior Vice President of Operations.
From 1992 to 1997 he was the Vice President of Operations for Staff
Builders Services, Inc. From 1982 to 1992 he was the Operations Manager
for Interim Systems Corporation. He has a B.S. degree from St. Francis
University and a Nursing and Respiratory degree from Northwestern
University/Wesley Passavant School of Nursing.
- Jerome F. Sheldon has been a member of the Board of Directors since
November 1991. Mr. Sheldon was President and Chief Executive Officer of
Medicine Shoppe International, Inc., a franchisor of retail pharmacies,
from March 1980 to June 1990, a Director of such company from March 1980
to February 1991 and a consultant to such company from July 1990 to June
1991. Mr. Sheldon is also a Director of the International Franchise
Association and a trustee of the St. Louis College of Pharmacy.
- Roger W. Stone has been a member of the Company's Board of Directors since
November 1991. Mr. Stone was the Chairman of the Board of Directors,
President and Chief Executive Officer of Stone Container Corporation, from
1983 until it's merger with Jefferson Smurfit Corporation in November,
1998. From November, 1998 through March, 1999, Mr. Stone was a member of
the Board of Directors, President and Chief Executive Officer of
Smurfit-Stone Container Corporation. Mr. Stone is also a Director of
Morton International, Inc., McDonald's Corporation and Autoliv, Inc.
BOARD MEETINGS
The Company's Board of Directors met four times during 1998. Each Director
attended all 1998 Board and Committee meetings, either in person or through
telecommunications means.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has standing Audit, Compensation, Stock Incentive Plan and
Corporate Compliance Committees of the Board of Directors. The members of these
Committees have been identified above. The Company does not have a nominating
committee.
- AUDIT COMMITTEE--recommends the selection of independent accountants to
the Board of Directors, reviews the methods used and audits made by the
auditors in connection with the Company's published financial statements,
and reviews with the auditors the Company's financial and operating
controls. The Audit Committee also reviews the Company's financial
disclosure documents, material litigation and regulatory proceedings and
other issues relating to potentially significant corporate liability. The
Audit Committee met two times in 1998.
- COMPENSATION COMMITTEE--determines the annual salary, bonus and other
benefits of selected senior officers of the Company and establishes and
reviews, as appropriate, performance standards under compensation programs
for senior officers. The Compensation Committee met two times in 1998.
3
<PAGE>
- STOCK INCENTIVE PLAN COMMITTEE--grants stock options under the Company's
Amended and Restated Stock Incentive Plan (1997), as amended. The Stock
Incentive Plan Committee met two times in 1998.
- CORPORATE COMPLIANCE COMMITTEE--monitors the Company's adherence to
general corporate policies. The Corporate Compliance Committee met three
times in 1998.
DIRECTOR COMPENSATION
Directors are reimbursed for out-of-pocket expenses incurred in connection
with attendance at Board of Directors and Committee meetings. Upon becoming
Directors, each of Messrs. Andress, Sheldon and Stone received an option to
purchase 24,000 shares of Common Stock of the Company at an exercise price of
$3.75 per share pursuant to the Company's Stock Incentive Plan. An additional
grant of options to purchase 20,000 shares at an exercise price of $4.38 was
made to Messrs. Andress, Sheldon and Stone in November 1995. In March, 1996, the
annual granting of options to purchase 7,500 shares to Messrs. Andress, Sheldon
and Stone was approved at an exercise price equal to the closing price on the
date of grant.
INFORMATION ABOUT EXECUTIVE OFFICERS
The current executive officers of the Company include Dr. Kapoor and Mr.
Rusnak, whose information is provided for in the section entitled "INFORMATION
ABOUT THE BOARD OF DIRECTORS", and Ms. Bellehumeur and Mr. Siri.
- Cathy Bellehumeur, age 48, has been General Counsel and Secretary since
February, 1994, a Vice President since March 1994 and Senior Vice
President since January 1997. Prior to joining the Company, Ms.
Bellehumeur was an attorney in private practice specializing in corporate
law and health law. Ms. Bellehumeur graduated magna cum laude from
Marquette University Law School and also has a Masters Degree in
Education.
- Michael A. Siri, age 44, has been Vice President and Chief Financial
Officer since October, 1998. Prior to that, Mr. Siri was the Company's
Vice President--Finance from July 1998 to October 1998. From November 1986
to January 1998, Mr. Siri was employed by Culligan Water Technologies,
Inc., where he was their Executive Director Finance and Treasurer. Mr.
Siri has a B.S. in Accounting from Indiana University and a M.B.A. in
Finance from the University of Chicago.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities Exchange Act of 1934 requires all executive officers,
directors and beneficial owners of more than 10% of the Company's Common Stock
to report any changes in the ownership of common stock of the Company to the
Securities and Exchange Commission, the Nasdaq Stock Market, Inc. and the
Company.
Based solely upon a review of these reports and written representations that
no additional reports were required to be filed in fiscal 1998, the Company
believes that all reports were filed on a timely basis.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock of the Company, by (i) each Director of
the Company, (ii) each executive officer of the Company named in the Summary
Compensation Table, (iii) all Directors and executive officers of the Company as
a group, and (iv) each person known by the Company to be the beneficial owner of
more than 5% of the Common Stock of the Company. The information shown assumes
the exercise by each person (or all Directors and executive officers as a group)
of stock options owned by such person which are
4
<PAGE>
currently exercisable or are exercisable within 60 days after the date of this
Proxy Statement and the exercise by no other person of stock options or exchange
rights. Except as otherwise noted, the indicated owners have sole voting and
investment power with respect to all shares shown to be beneficially owned by
them.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED PERCENT
NAME OF BENEFICIAL OWNER (1) OF CLASS
- --------------------------------------------------------------------------------- -------------------- -----------
<S> <C> <C>
James G. Andress................................................................. 46,500 *
Cathy Bellehumeur................................................................ 56,765 *
John N. Kapoor, Ph.D. (2)........................................................ 6,241,495 56.2
Michael A. Rusnak................................................................ 104,229 *
Jerome F. Sheldon................................................................ 46,500 *
Roger W. Stone................................................................... 66,500 *
All Directors and executive officers as a group (7 persons)(3)................... 6,595,371 57.7
</TABLE>
- ------------------------
(1) Table includes shares issuable pursuant to options which are exercisable
currently or within 60 days after the date of this Proxy of 46,500 each for
Messrs. Andress, Sheldon and Stone and 45,000 and 25,000 for Ms. Bellehumeur
and Mr. Rusnak, respectively. Also, the table includes 11,765, 79,229 and
20,000 shares owned, or shares to be issued pursuant to the 1998 Bonus Award
program, for Ms. Bellehumeur, Mr. Rusnak and Mr. Stone, respectively.
(2) Includes 1,125,584 shares owned by the John N. Kapoor Trust dated September
20, 1989 (the "Kapoor Trust") of which Dr. Kapoor is the sole trustee and
sole current beneficiary, 1,200,000 shares owned by the EJ Financial
Investments II L.P., of which Dr. Kapoor is the managing general partner,
271,746 shares owned by the Editha Kapoor Trust dated September 20, 1989, of
which Editha Kapoor, Dr. Kapoor's wife, is the sole trustee and sole current
beneficiary, 507,937 shares owned by the Kapoor Family Partnership, L.P., of
which Dr. Kapoor is the sole general partner and 3,136,228 shares owned by
EJ Financial/OCI Management, L.P., of which Dr. Kapoor is the managing
general partner.
(3) Includes 209,500 shares issuable pursuant to options which are exercisable
currently or within 60 days after the date of this Proxy Statement and
102,941 shares issuable pursuant to the 1998 Bonus Award program.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors was comprised during
fiscal 1998 of Messrs. Andress, Sheldon and Stone. All Committee members are
non-employee Directors of the Company. All decisions by the Compensation
Committee relating to the compensation of the Company's executive officers are
reviewed by the full Board. In accordance with Commission rules designed to
enhance disclosure of companies' policies toward executive compensation, the
following is a report submitted by the above-listed committee members in their
capacity as the Board's Compensation Committee, addressing the Company's
compensation policy as it related to the named executive officers for fiscal
1998.
This report by the Compensation Committee, the Stock Performance Graph and
the Ten-Year Option/SAR Repricings Table contained in this Proxy Statement shall
not be deemed to be incorporated by reference by any general statement which
incorporates by reference this Proxy Statement into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, and they shall
not otherwise be deemed filed under such Acts.
COMPENSATION POLICY
The goal of the Company's executive compensation policy is to ensure that an
appropriate relationship exists between executive pay and the creation of
shareholder value, while at the same time motivating
5
<PAGE>
and retaining key employees. To achieve this goal, the Company's executive
compensation policies integrate annual base compensation with cash and stock
bonuses based upon corporate performance and individual initiatives and
performance and stock options granted under the Company's Amended and Restated
Incentive Plan (1997), as amended. Measurement of corporate performance is
primarily based on Company goals and industry performance levels. Accordingly,
in years in which performance goals and industry levels are achieved or
exceeded, executive compensation would be higher than in years in which
performance is below expectations. Annual compensation is designed to attract
and retain qualified executives. All executive officers and management in
general, are also eligible for and participate in an incentive compensation plan
that consists of cash bonuses and stock options.
CEO COMPENSATION
On October 1, 1998 the Company entered into an employment agreement with Mr.
Rusnak which provides for a base salary of $210,000, an annual discretionary
incentive bonus plan of potentially 40% of his base salary and the granting of
options to purchase 100,000 shares of the Company Common Stock at $0.75 per
share, which represented the fair market value of the Company's Common Stock on
the date of the grant. The amount of bonus, if any, shall be determined by the
Board of Directors based on the achievement by the Company of certain strategic
plans and goals as established by the Board. On an annual basis, these goals
will be reviewed and reestablished by the Compensation Committee.
Based on the positive results realized by the Company at the operating level
in 1998, the generation of significant positive operating cash flow, the
completion of the management team, the progress made in reshaping the Company
and the successful negotiations concerning the Company's debt facility, the
Compensation Committee has recommended the payment of a bonus for 1998 to Mr.
Rusnak, consisting of 75,294 shares of the Company and a cash component of
$54,341, which represents the amount of withholding taxes related to the receipt
of shares.
PERFORMANCE MEASURES
In evaluating annual bonuses, the Committee examines earnings per share,
sales growth and operating results as well as subjective factors relating to
performance of management objectives. No specific weight is assigned to any of
these factors. The earnings factors are compared with designated Company
performance goals, prior years' performance and performance of other companies
in the industry. Accordingly, the Company believes it is important that its
performance be compared to that of other home healthcare companies in order to
demonstrate the impact of management's objectives and performance, although the
Company considers itself primarily an infusion therapy company.
FISCAL 1998 COMPENSATION
For fiscal 1998, the Company's executive compensation program consisted of
base salary, a bonus pool consisting of both a stock and a cash portion based
upon the performance measurements described above, and stock options which are
granted from time to time to members of management. Options are granted based
primarily on each such person's potential contribution to the Company's growth
and profitability. The Committee believes that options and other stock-based
performance compensation arrangements are an effective incentive for managers to
create value for shareholders since the value of an option bears a direct
relationship to the Company's stock price.
Base salary, maximum annual bonus, and annual stock option grants for the
Chief Executive Officer and all other executive officers were established by a
combination of objective and subjective factors. Actual bonus payout is
determined by a combination of objective factors, relating to the Company's
performance relative to targets and comparative companies, and subjective
factors, relating to the completion of specific management objectives.
6
<PAGE>
The Company's objective is to obtain a financial performance that achieves
several goals over time including earnings-per-share growth. In fiscal 1998, the
Company achieved a 14.4% growth rate in revenues while reporting a net loss for
the year of $691,000. The 1998 results included a charge of $739,000 due to tax
adjustments and changes in reserves related to the settlement of an IRS audit of
prior years (1992-1995). Without this charge, the Company would have reported
net income for the year. In addition, the Company reported operating income of
$1.5 million, compared to an operating loss of $2.2 million for 1997.
Base salaries are believed to be within the range of those persons holding
comparably responsible positions at other companies, both regionally and
nationally. In addition, other factors are taken into consideration, such as
cost of living increases, competitors' performance, as well as the individual's
past performance and potential with the Company. Bonus compensation is also tied
to performance goals.
The Committee believes that linking executive compensation to corporate
performance results in a better alignment of compensation with corporate goals
and shareholder interest. If performance goals are met or exceeded, resulting in
increased value to shareholders, executives are rewarded commensurately. The
Committee believes that compensation levels during fiscal 1998 adequately
reflect the Company's compensation goals and policies.
James G. Andress
Jerome F. Sheldon
Roger W. Stone
7
<PAGE>
EXECUTIVE COMPENSATION
The following table shows the total compensation paid to Michael Rusnak,
President and Chief Executive Officer and certain of the Company's executive
officers and former executive officers who were employed by the Company during
the year ended December 31, 1998, for services rendered for each of the last
three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
FISCAL ----------------------- OPTIONS/SARS ALL OTHER
NAME & PRINCIPAL POSITIONS YEAR SALARY ($) BONUS ($) (SHARES) COMPENSATION ($)(1)
- --------------------------------------------- ----------- ---------- ----------- ---------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Cathy Bellehumeur (5)........................ 1998 $ 155,750 $ -- -- / -- $ 3,296
Sr. Vice President and 1997 149,060 21,094 55,000 / -- 5,584
General Counsel 1996 129,767 17,500 5,000 / -- 1,919
Erick E. Hanson(2)........................... 1998 209,157 5,000 -- / -- 54,820
President and 1997 242,934 69,300 50,000 / -- 4,800
Chief Executive Officer 1996 220,269 45,000 125,000 / -- 4,500
James A. Hodges, Jr. (3)..................... 1998 68,011 -- -- / -- 82,510
Vice President and Chief Financial Officer
Michael A. Rusnak (4), (5)................... 1998 188,083 -- 150,000 / -- 810
President and Chief Executive Officer
</TABLE>
- ------------------------
(1) Amounts represent Company contributions to the Company's 401(k) plan and
with respect to Messrs. Hanson and Hodges, severance payments of $50,020 and
$82,510, respectively, paid to such person in 1998.
(2) Mr. Hanson resigned as President, Chief Executive Officer and Director and
his employment terminated on September 30, 1998
(3) Mr. Hodges resigned as Vice President and Chief Financial Officer and his
employment terminated on April 29, 1998.
(4) Mr. Rusnak became an executive officer of the Company in fiscal 1998.
(5) The table does not include the proposed bonus awards for Ms. Bellehumeur and
Mr. Rusnak for fiscal 1998. See Proposal No. 2: Ratification and approval of
fiscal 1998 Bonus Awards.
8
<PAGE>
AGGREGATED OPTION EXERCISES IN 1998 AND FISCAL YEAR END
OPTION VALUES
The following table sets forth certain information concerning the value of
stock option exercises during the year ended December 31, 1998 and of stock
options held as of December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS HELD AT FISCAL VALUE OF UNEXERCISED
YEAR END (#) IN-THE-MONEY OPTIONS
-------------------------- FISCAL YEAR END($)(1)
SHARES ACQUIRED VALUE --------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ------------------- ------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cathy Bellehumeur................ -- -- 45,000 31,250 $ 28,140 $ 28,140
Michael A. Rusnak................ -- -- 25,000 175,000 $ 23,450 $ 70,350
</TABLE>
- ------------------------
(1) Based upon the closing price of the Company's common stock of $1.688 per
share on December 31, 1998, as reported by the Nasdaq National Market.
GRANTS OF STOCK OPTIONS
The following table sets forth certain information with respect to
individual grants of stock options to the Company's executive officers named in
the Summary Compensation Table during the year ended December 31, 1998. No SARs
were granted during 1998.
OPTION GRANTS DURING LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
RATES OF
STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS EXERCISE OPTION TERM (2)
UNDERLYING OPTIONS TO EMPLOYEES BASE EXPIRATION ---------------------
NAME GRANTED(#)(1) IN FISCAL YEAR PRICE($/SH) DATE 5% 10%
- ---------------------------------------- ------------------ --------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Rusnak....................... 50,000 5.4% $ 0.75 05/13/08 $ 23,584 $ 59,765
Michael A. Rusnak....................... 100,000 10.8% $ 0.75 10/12/08 $ 47,167 $ 119,531
</TABLE>
- ------------------------
(1) These options were granted under the Company's Amended and Restated Stock
Incentive Plan (1997), as amended. These options are non-qualified and vest
25% each year on the first four anniversaries of the grant date. The options
shall not be exercisable subsequent to the date 10 years after the date of
grant.
(2) The dollar amounts under these columns are included pursuant to certain
rules promulgated by the Security and Exchange Commission and those amounts
are not intended to forecast future appreciation, if any, in the price of
the Company's Common Stock. Such amounts are based on the assumption that
the executive officer hold the options granted for their full term. Option
holders will not recognize any gain without an increase in the stock price,
and any increase will benefit all shareholders proportionately.
REPORT OF COMPENSATION COMMITTEE ON OPTIONS REPRICING
In October 1998, the Stock Incentive Plan Committee of the Board of
Directors (the "Committee") approved a program under which an aggregate of
certain options to purchase Common Stock granted to employees from 1995 to 1998
having exercise prices above the then-current market price of the Company's
Common Stock ("underwater options") were repriced (the "Repricing") at an
exercise price of $.75 per
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<PAGE>
share, the closing market price of the Common Stock on the date of the
Repricing. Under the Exchange Program, an aggregate of 262,500 shares of Common
Stock at exercise prices ranging from $3.375 to $6.00 per share were repriced.
Pursuant to the Repricing, the stock option agreement for each repriced option
was amended to reflect the lower exercise price. The other substantive terms and
conditions of each repriced options, including the term of the option and
vesting, remained unchanged.
The Stock Incentive Plan Committee believes that the Repricing was necessary
and appropriate in light of conditions affecting the valuation of the stock of
healthcare services companies such as the Company. In considering the Repricing,
the Committee noted that the original exercise prices of the repriced options
ranged from $3.375 to $6.00, well in excess of the market price of the Company's
Common Stock at the time of the Repricing. Beginning in early July, 1998, the
stock price of the Company's Common Stock and the stock prices of other
healthcare services companies generally were negatively impacted by pessimistic
market perception, including the perceived negative effect that pending
regulatory changes would have upon financial performance. The Committee
determined that the disparity between the exercise prices for the options
repriced and current and projected valuations for the Company's Common Stock
substantially diminished the value of such options such that the options were
not fulfilling the intended incentivization and retention objectives on which
such grants were made.
The following table contains certain information concerning the Repricings
with respect to stock options held by the executive officers of the Company:
TEN-YEAR OPTION/SAR REPRICINGS TABLE
<TABLE>
<CAPTION>
SECURITIES LENGTH OF
UNDERLYING ORIGINAL OPTION
NUMBER OF MARKET PRICE OF EXERCISE PRICE TERM REMAINING
OPTIONS STOCK AT TIME OF AT TIME OF AT DATE OF
ORIGINAL AWARD REPRICED REPRICINGS OR REPRICINGS OR NEW EXERCISE REPRICINGS OR
NAME DATE OR AMENDED(#) AMENDMENT(S) AMENDMENT(S) PRICE AMENDMENT
- ------------------------- -------------- --------------- ----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Cathy Bellehumeur........ 2/21/97 55,000 0.75 6.00 0.75 8.5 years
11/6/96 5,000 0.75 5.00 0.75 8 years
Michael Rusnak........... 5/13/98 50,000 0.75 3.375 0.75 9.5 years
12/8/97 50,000 0.75 2.75 0.75 9 years
</TABLE>
James G. Andress
Jerome F. Sheldon
Roger W. Stone
PROPOSAL NO. 2: RATIFICATION AND APPROVAL OF FISCAL 1998 BONUS AWARDS
On February 4, 1999 the Compensation Committee of the Board of Directors
approved, subject to the approval of the Company's shareholders at the Annual
Meeting, stock bonus awards for 1998 to certain management employees of the
Company (the "1998 Bonus Awards") pursuant to which such employees would be
granted an aggregate of 173,324 authorized but unissued shares of the Company's
Common Stock and aggregate cash payments of $110,069 in satisfaction of the
income tax obligations of such employees with respect to such grants. In
connection with the 1998 Bonus Awards, the Compensation Committee established a
cash bonus amount for 1998 for specified management employees after considering
each such employees individual performance during 1998 and objective measures of
the Company's performance and progress toward strategic goals during 1998. Each
such cash bonus was then converted into a number of shares of the Company's
Common Stock by dividing such cash bonus by $1.0625, the closing market price of
the Company's Common Stock on February 4, 1999, the date of the approval by the
Compensation Committee. A separate cash award was then calculated for each such
employee in an
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<PAGE>
amount equal to the income tax obligations of such employee in connection with
the receipt of such stock grant.
The Compensation Committee believes that the 1998 Bonus Awards will advance
the interests of the Company and its shareholders by allowing the Company,
consistent with its bonus compensation policies, to recognize and reward the
performance of its management employees for individual and corporate performance
during 1998 without the payment of such awards in cash. In addition, the
Compensation Committee believes that the award of such bonus amount in the
amount of shares of Common Stock rather than cash will have the added incentive
effect of aligning each such management employee's interests in the Company's
financial performance more directly with that of the shareholders.
The table below details the number of shares and cash amounts to be
distributed under the 1998 Bonus Award plan for executive officers and in total
for other employees of the Company.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
DOLLAR VALUE
NAME AND POSITION SHARES (1)
- -------------------------------------------------------------------------------------- --------- ---------------
<S> <C> <C>
Cathy Bellehumeur, General Counsel and Secretary...................................... 11,765 $ 19,365
Michael A. Rusnak, President and Chief Executive Officer.............................. 75,294 134,341
Michael A. Siri, Vice President and Chief Financial Officer........................... 15,882 26,143
--------- ---------------
Executive Group....................................................................... 102,941 179,849
Non-executive Director group.......................................................... -- --
Non-executive officer employee group.................................................. 70,383 114,377
--------- ---------------
Totals................................................................................ 173,324 $ 294,226
--------- ---------------
--------- ---------------
</TABLE>
- ------------------------
(1) Dollar value based upon $1.0625 closing price of the Company's Common Stock
on February 4, 1999, plus the cash amount paid by the Company for applicable
withholding taxes.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The vote required to approve the 1998 Bonus Awards is a majority of the
shares of Common Stock voting, in person or by proxy, at the Annual Meeting. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE AND RATIFY
THE 1998 BONUS AWARDS.
STOCK PERFORMANCE GRAPH
The graph below sets forth the cumulative total shareholder return on the
Common Stock of the Company for the five-year period ended December 31, 1998,
with the cumulative total return on the Nasdaq National Market Composite Index
and the Nasdaq Healthcare Index over the same period assuming the investment of
$100 in each on December 31, 1993. Past financial performance should not be
considered to be a reliable indicator of future performance and investors should
not use historical trends to anticipate results or trends in future periods.
11
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STOCK PERFORMANCE GRAPH
<S> <C> <C> <C>
Option Care Nasdaq Composite Nasdaq Healthcare
12/31/93 $100.000 $100.000 $100.000
12/31/94 56.667 97.752 107.290
12/31/95 90.133 138.256 136.108
12/31/96 173.333 170.015 135.890
12/31/97 73.333 208.580 138.488
12/31/98 45.013 293.209 118.757
</TABLE>
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Option Care.............................................. 100.000 56.667 90.133 173.333 73.333 45.013
Nasdaq Composite......................................... 100.000 97.752 138.256 170.015 208.580 293.209
Nasdaq Healthcare........................................ 100.000 107.290 136.108 135.890 138.488 118.757
</TABLE>
12
<PAGE>
GENERAL INFORMATION
CERTAIN TRANSACTIONS WITH MANAGEMENT AND DIRECTORS
The Company and EJ Financial Enterprises, Inc., which is 100% owned by Dr.
Kapoor, have entered into a consulting agreement dated as of January 1, 1991
pursuant to which EJ Financial provides independent consulting services to the
Company. EJ Financial receives an annual fee of $100,000 for ongoing consulting
services. Either party may terminate the agreement on any January 1. EJ
Financial will provide consulting principally on strategic corporate objectives
and operations, including sales and marketing strategies, growth strategies, and
acquisition opportunities of the Company.
On February 10, 1999, the Company entered into a Reimbursement and Security
Agreement with the John N. Kapoor Trust dated September 20, 1989 (the "Kapoor
Trust"), for the provision of an irrevocable letter of credit in favor of
BankAmerica Business Credit (the Company's lender) totaling $7,000,000. The
letter of credit provides additional eligible borrowings under the Company's new
debt facility. In exchange for the letter of credit, the Company pays a monthly
administrative fee to the Trust of $13,500 and a monthly monitoring fee of
$4,000 to EJ Financial. The agreement will expire on January 31, 2000. Dr.
Kapoor, the Company's Chairman and majority shareholder, is the sole trustee and
sole current beneficiary of the Kapoor Trust.
In the case of a draw on the letter of credit pledged, the Company may
elect, at its option, to issue to the Trust a Convertible Note (the "Note") for
the amount of such draw. The Trust has the option, at any time up to and
including January 31, 2000 or until the Note has been paid in full, to convert
all or a portion of the unpaid amount of such Note into Common Stock of the
Company, at a price equal to the average closing price per share of the Common
Stock during the five days preceding the receipt of the Note.
INDEPENDENT ACCOUNTANTS
The Company has selected Ernst & Young, LLP to serve as the Company's
independent accountants. Representatives of that firm will be present at the
Annual Meeting with the opportunity to make a statement if they so desire and to
be available to respond to appropriate questions.
As of December 1, 1998, the Board of Directors of Option Care, Inc. (the
"Registrant"), upon recommendation of its Audit Committee, engaged Ernst & Young
LLP ("E&Y") as the Registrant's independent auditors for the year ending
December 31, 1998. The Board of Directors of the Registrant retained E&Y based
upon the Board's determination that the Registrant would benefit from E&Y's
competitive fee structure. The engagement of E&Y arose from the Registrant's
decision to request proposals for audit services from multiple firms, including
KPMG Peat Marwick LLP ("KPMG").
The KPMG audit reports on the consolidated financial statements of the
Registrant as of and for the two years ended December 31, 1997 did not contain
an adverse opinion or disclaimer of opinion, and were not qualified or modified
as to uncertainty, audit scope or accounting principles. During the two year
period ended December 31, 1997 and through the period ended December 1, 1998,
there were no disagreements between the Registrant and KPMG on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements if not resolved to the satisfaction of
KPMG, would have caused it to make references to the subject matter of such
disagreements in connection with its report.
In its management letter to the audit committee of the Registrant, dated May
13, 1998, KPMG identified two reportable conditions: (1) excessive turnover in
the Registrant's Chief Financial Officer position and (2) a lack of segregation
of duties between the treasury function and the controllership function of the
Registrant. The Registrant believes it has implemented steps to correct the
deficiencies noted, including (1) the hiring of Michael A. Siri as Chief
Financial Officer, who has 22 years experience in accounting and finance and (2)
the Registrant's recent implementation of alternative internal controls to
mitigate the risk of asset misappropriation.
13
<PAGE>
The Registrant has authorized KPMG to respond to any inquiries of E&Y
concerning its audit. During the two years ended December 31, 1997 and through
the dated appointment, E&Y did not provide any consultations to the Registrant
regarding the application of accounting principles to specific transactions or
the type of opinion that they may have rendered on the financial statements.
ANNUAL REPORT
The Company's Annual Report on Form 10-K for the year then ended December
31, 1998 has been mailed simultaneously to the shareholders of the Company.
Additional copies of such report, as filed with the Securities and Exchange
Commission (excluding exhibits), may be obtained by any shareholder, without
charge, upon written request to: Michael A. Siri, Chief Financial Officer,
Option Care, Inc., 100 Corporate North, Suite 212, Bannockburn, Illinois 60015.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of shareholders that are intended to be presented at the company's
2000 Annual Shareholders Meeting must be received no later than December 4, 1999
to be considered for inclusion in the Company's Proxy Statement and Form of
Proxy relating to that meeting. Such proposals should be addressed to Option
Care, Inc., 100 Corporate North, Suite 212, Bannockburn, Illinois 60015, Attn.:
Secretary.
The By-Laws of the Company provide the shareholder proposals which do not
appear in the Proxy Statement may be considered at a meeting of shareholders
only if written notice of the proposal is received by the Secretary of the
Company not less than 60 and not more than 90 days before the anniversary of the
prior years' annual meeting; provided, however, that, in the event the date of
the annual meeting is more than 30 days before or more than 60 days after such
anniversary date, notice by the shareholder to be timely must be delivered not
earlier than the close of business on the 90th day prior to such annual meeting
and not later than the 60(th) day prior to such annual meeting or the close of
business on the 10(th) day following the day on which public announcement of the
date of such meeting is first made by the Company. Any such notice of a
shareholder proposal by a shareholder to the Secretary of the Company must be
accompanied by (a) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (b) the name and address of the shareholder who intends to
present the proposal for a vote, (c) the class and number of shares of Company
Common Stock which are beneficially owned by the shareholder and (d) a
description of any material interest of the shareholder in such business.
DISCRETIONARY VOTING OF PROXIES ON OTHER MATTERS
Management does not now intend to bring before the 1999 Annual Meeting any
matters other than those specified in the notice of the meeting, and it does not
know of any business which persons other than the management intend to present
at the meeting. Should any other matter requiring a vote of the shareholders
properly come before the meeting, the person named in the accompanying Proxy
intends to vote the shares represented by them in accordance with their best
judgment.
By Order of the Board of Directors
Cathy Bellehumeur
Senior Vice President, General Counsel
and Secretary
April 2, 1999
14
<PAGE>
[LOGO]
<PAGE>
OPTION CARE, INC.
100 CORPORATE NORTH
SUITE 212
BANNOCKBURN, ILLINOIS 60015
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael A. Siri as Proxy, with the power to
appoint a substitute, and hereby authorizes him to represent and vote, as
designated below, all of the shares of Common Stock of Option Care, Inc. (the
"Company") held of record by the undersigned, or over which the undersigned had
voting power, at the close of business on March 19, 1999 at the Annual
Shareholders Meeting to be held on May 4, 1999 or any adjournment or
adjournments thereof.
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2 AND 3 AND IN FAVOR OF ANY PROPOSALS TO ADJOURN THE MEETING IN
ORDER TO ALLOW THE COMPANY ADDITIONAL TIME TO OBTAIN SUFFICIENT PROXIES WITH
REGARD THERETO.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS:
1. Election of Directors.
<TABLE>
<S> <C>
/ / FOR the nominees listed below / / WITHHOLD AUTHORITY to vote
(except for the nominees below
marked to the contrary below).
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike such nominee's name from the list below.)
</TABLE>
James G. Andress
Michael A. Rusnak
2. 1998 bonus awards to certain members of Company's management;
3. In his discretion, the Proxy is authorized to vote upon such other business
as may properly come before the meeting.
<PAGE>
Dated:
_________________________________________________________,
1999
_____________________________________________________________________
Signature
_____________________________________________________________________
Signature, if held jointly
Please sign exactly as name appears on stock certificate. When joint tenants
hold shares, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
PLEASE SIGN, DATE AND MAIL PROMPTLY
