UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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OMNICARE, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 17, 2005
The Annual Meeting of Stockholders of Omnicare, Inc. (the “Company”) will be held at The Marriott at RiverCenter, 10 West RiverCenter Boulevard, Covington, Kentucky, on Tuesday, May 17, 2005 at 11:00 a.m. local time. The purpose of the Annual Meeting is to consider and act upon:
(1) | the election of nine Directors; | ||
(2) | the ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for the Company for 2005; and | ||
(3) | any other business as may properly be brought before the meeting. |
Stockholders of record at the close of business on March 30, 2005 are entitled to notice of, and to vote at, the meeting and any adjournments thereof.
Whether or not you plan to attend the meeting, please sign and date the enclosed proxy and mail it in the enclosed envelope at your earliest convenience. No postage is required if it is mailed in the United States.
By Order of the Board of Directors |
CHERYL D. HODGES Secretary |
Covington, Kentucky
April 13, 2005
YOUR VOTE IS IMPORTANT! TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE TAKE A MOMENT TO SIGN, DATE AND PROMPTLY MAIL YOUR PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
TABLE OF CONTENTS
OMNICARE, INC. This Proxy Statement is furnished to stockholders in connection with the solicitation by the Board of Directors of Omnicare, Inc. (the “Company” or “Omnicare”) of proxies to be used at the Annual Meeting of Stockholders of the Company to be held on May 17, 2005, and any postponement or adjournment of the meeting (the “Annual Meeting”). Stockholders of record as of the close of business on March 30, 2005 are entitled to notice of, and to vote at, the Annual Meeting or any postponement or adjournment of the Annual Meeting. As of such date, the Company had outstanding 104,998,900 shares of its common stock, par value $1 per share (“Common Stock”), having one vote per share. Many stockholders may not be able to attend the Annual Meeting and, therefore, need to be represented by proxy. As an alternative to voting in person at the Annual Meeting, stockholders may vote by completing the proxy card and mailing it back in the prepaid envelope. To constitute a quorum at the Annual Meeting, the presence, in person or by proxy, of the holders of a majority of the outstanding shares of Common Stock is necessary. Shares represented by proxies received by the Company will be counted as present at the Annual Meeting for the purpose of determining the existence of a quorum, regardless of how or whether such shares are voted on a specific proposal. Abstentions will be treated as votes cast on a particular proposal as well as shares present at the Annual Meeting. If your shares of Common Stock are held by a broker, the broker will ask you how you want your shares to be voted at the Annual Meeting. If you give the broker instructions, your shares must be voted as you direct. If you do not give instructions, one of two things can happen, depending upon the type of proposal. For some proposals, such as the election of Directors and the ratification of auditors, the broker may vote your shares at its discretion. But for other proposals, the broker may not vote your shares at all. When that happens, it is called a “Broker Nonvote.” Broker Nonvotes will be treated as not present at the meeting for purposes of calculating the results of the vote on the specific issue. Accordingly, abstentions and Broker Nonvotes have the effect of a negative vote on any proposal where the vote required to pass the proposal is a percentage of the outstanding shares, but only abstentions have the effect of a negative vote when the vote required to pass a proposal is a percentage of the shares present at the Annual Meeting. Shares represented by properly executed proxies received in the accompanying form will be voted in accordance with the instructions contained therein. In the absence of contrary instructions, such shares will be voted (1) to elect as Directors the nine persons named below; and (2) to ratify the selection of PricewaterhouseCoopers LLP as independent registered public accounting firm for the Company for 2005. This Proxy Statement and the accompanying proxy were first mailed to stockholders on or about April 13, 2005. A proxy may be revoked at any time before it is voted by sending written notice of revocation to the Secretary of the Company at the address set forth above, by delivering a duly executed proxy bearing a later date or by voting in person at the Annual Meeting.
100 East RiverCenter Boulevard
Covington, Kentucky 41011
PROXY STATEMENT FOR 2005 ANNUAL MEETING OF STOCKHOLDERS
GENERAL INFORMATION
In accordance with the Company's Second Amended and Restated By-Laws (“By-Laws”), by resolution the Board of Directors has set the size of the Board at nine members. Directors are elected to serve until the next Annual Meeting or until their respective successors are duly elected and qualified. Upon the recommendation of the Nominating and Governance Committee, the Board has nominated for election as Directors at the Annual Meeting the nine persons named below. Set forth below is a description of each nominee's principal occupation during at least the past five years and other pertinent information. Each of the nominees for election as a Director is currently a Director of the Company. A stockholder may nominate a candidate for election as a Director if the stockholder provides timely proper written notice of the nomination to the Secretary of the Company in advance of the meeting, as more fully set forth below under the caption 'Stockholder Proposals.' The Board of Directors will also consider candidates recommended by stockholders if the recommendation is made in accordance with the procedures set forth below under the caption 'Governance of the Company and Board Matters—Selection of Nominees for the Board of Directors.' Unless authority is withheld for individual nominees or all nominees, it is intended that the shares represented by each proxy will be voted for the nominees listed below. The Company anticipates that all nominees listed in this Proxy Statement will be candidates when the election is held. However, if for any reason any nominee is not a candidate at that time, proxies will be voted for a substitute nominee designated by the Board of Directors and for the remaining nominees (except where a proxy withholds authority with respect to the election of Directors). The nine nominees receiving the greatest number of votes at the Annual Meeting will be elected Directors. 2Edward L. Hutton
Director since 1981
Age: 85 Mr. Hutton has been Chairman of the Board of the Company since May 2003. In May 2003, the Company amended its By-Laws to create the non-executive position of Chairman of the Board. Prior to May 2003, Mr. Hutton served in an executive position, as Chairman of the Company, from 1981. He is also Chairman of the Board and a Director of Chemed Corporation (which was named Roto-Rooter, Inc.), Cincinnati, Ohio (a diversified public corporation with interests in plumbing, drain cleaning and hospice services) (“Chemed”) and has held these positions since May 2004 and April 1970, respectively. Prior to May 2004, Mr. Hutton had served as executive Chairman of Chemed since November 1993. Previously, he was President and Chief Executive Officer of Chemed, positions he had held from April 1970 to November 1993, and was Chairman and Chief Executive Officer of Chemed from November 1993 until May 2001. Joel F. Gemunder
Director since 1981
Age: 65 Mr. Gemunder is President and Chief Executive Officer of the Company and has held these positions since May 1981 and May 2001, respectively. Mr. Gemunder was an Executive Vice President of Chemed and Group Executive of its Health Care Group from May 1981 through July 1981 and a Vice President of Chemed from 1977 until May 1981. Mr. Gemunder is a Director of Chemed and Ultratech, Inc. (a manufacturer of photolithography equipment for the computer industry).
3John T. Crotty
Director since 2004
Age: 67 Mr. Crotty is Managing Partner of CroBern Management Partnership LLP, Lake Bluff, Illinois (a healthcare investment and advisory firm) and retired President and Chief Executive Officer of CroBern Inc. (a healthcare consulting and advisory firm), both firms he co-founded in 1986. Previously, he held several senior management positions during 19 years with American Hospital Supply Corporation. Mr. Crotty is a Director of Owens and Minor, Inc., (a distributor of medical and surgical supplies). Charles H. Erhart, Jr.
Director since 1981
Age: 79 Mr. Erhart retired as President of W.R. Grace & Co., Columbia, Maryland (an international specialty chemicals, construction and packaging company) (“Grace”) in August 1990. He had served as President since July 1989. From November 1986 to July 1989, he was Chairman of the Executive Committee of Grace. From May 1981 to November 1986, he served as Vice Chairman and Chief Administrative Officer of Grace. Mr. Erhart is a Director of Chemed. David W. Froesel, Jr.
Director since 2000
Age: 53 Mr. Froesel is Senior Vice President and Chief Financial Officer of the Company and has held these positions since March 1996. From May 1993 to February 1996, Mr. Froesel was Vice President of Finance and Administration at Mallinckrodt Veterinary, Inc., a subsidiary of Mallinckrodt, Inc. From July 1989 to April 1993, he was worldwide Corporate Controller of Mallinckrodt Medical, Inc., a subsidiary of Mallinckrodt, Inc. Sandra E. Laney
Director since 1987
Age: 61 Ms. Laney is Chairman and Chief Executive Officer of Cadre Computer Resources Co., Cincinnati, Ohio (a network security services company), positions she has held since September 2001. Previously she served as Executive Vice President and Chief Administrative Officer of Chemed from May 2001 and May 1991, respectively, until March 2003. From November 1993 until May 2001, she held the position of Senior Vice President of Chemed. From May 1984 to November 1993, she was a Vice President of Chemed. Ms. Laney is a Director of Chemed. Andrea R. Lindell,
DNSc, RN
Director since 1992
Age: 61 Dr. Lindell is Dean and a Professor of the College of Nursing at the University of Cincinnati, a position she has held since December 1990. Dr. Lindell is also Associate Senior Vice President of the Medical Center at the University of Cincinnati, a position she has held since July 1998. From September 1994 to June 2002, she also held an additional position as Interim Dean of the College of Allied Health Sciences at the University of Cincinnati. From August 1981 to August 1990, Dr. Lindell served as Dean and a Professor of the School of Nursing at Oakland University, Rochester, Michigan. In addition, from September 1977 until August 1981, Dr. Lindell also held the position of Chair, Department of Nursing, of the University of New Hampshire, Durham, New Hampshire.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE PERSONS NOMINATED BY THE BOARD. GOVERNANCE OF THE COMPANY AND BOARD MATTERS Corporate Governance Guidelines The Board of Directors (the “Board”) first adopted the Omnicare, Inc. Corporate Governance Guidelines (the “Guidelines”) in May, 2004. The Guidelines reflect the principles by which the Company will operate. The Guidelines provide that the Board is elected by the stockholders to provide oversight and guidance to senior management with a view to increasing stockholder value over the long term and that the core responsibility of the Board is to exercise its fiduciary duties to act in the best interests of Omnicare and its stockholders. The Guidelines cover various topics, including, but not limited to, Director independence, Board and committee composition, Board operations, Director compensation and leadership development. The Nominating and Governance Committee of the Board is responsible for overseeing and reviewing the Guidelines and reporting and recommending to the Board any changes to the Guidelines. A copy of the Guidelines is available at the Company's Web site (www.omnicare.com) and may also be obtained upon request from the Company's Corporate Secretary. The Guidelines provide that a majority of the members of the Board must be “independent” under the criteria set forth in the New York Stock Exchange (“NYSE”) listing standards and require the Board to affirmatively determine on an annual basis as to each Board member whether he or she is independent. The criteria for determining independence set forth in the NYSE listing standards are the same categorical standards the Board and the Nominating and Governance Committee will use in determining independence. Pursuant to the NYSE listing standards for determining those Directors that are independent, no Director qualifies as “independent” unless the Board of Directors affirmatively determines that the Director has no material relationship with the listed company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company). In addition:John H. Timoney
Director since 2000
Age: 71 Mr. Timoney is a retired executive of Applied Bioscience International Inc. (a contract research organization serving the pharmaceutical and biotechnology industries that was acquired by Pharmaceutical Product Development in 1996) (“Applied Bioscience”), where he held a number of senior positions from 1986 through 1996, including Vice President, Chief Financial Officer and Treasurer. He was also a Director of Applied Bioscience from September 1986 through June 1995. Mr. Timoney has also held financial and executive positions with IMS Health Incorporated (a market research firm serving the pharmaceutical and healthcare industries), Chemed and Grace. Amy Wallman
Director since 2004
Age: 55 Ms. Wallman is a retired audit partner with Ernst & Young International (a public accounting and professional services firm), a position she held from 1984 to July 2001. From 1995 to 2001, she also served as Health Care Industry Leader in Ernst & Young's healthcare practice based in New York, New York. (i) A Director who is an employee, or whose immediate family member is an executive officer, of the Company is not “independent” until three years after the end of such employment relationship. Employment as an interim Chairman or CEO shall not disqualify a Director from being considered independent following that employment.
(ii) A Director who receives, or whose immediate family member receives, more than $100,000 per year in direct compensation from the Company, other than Director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is |
4
not contingent in any way on continued service), is not “independent” until three years after he or she ceases to receive more than $100,000 per year in such compensation. Compensation received by a Director for former service as an interim Chairman or CEO need not be considered in determining independence under this test. Compensation received by an immediate family member for service as a non-executive employee of the Company need not be considered in determining independence under this test.
(iii) A Director who is or whose immediate family member is a current partner of a present or former internal or external auditor of the Company; a Director who is a current employee of such firm; or a Director who has an immediate family member who is a current employee of such firm and who participates in the firm's audit, assurance or tax compliance (but not tax planning) practice is not “independent”. Also, a Director who was or whose immediate family member was a partner or employee of such firm and personally worked on the Company's audit, but is no longer a partner or employee, is not “independent” until three years after the end of such affiliation or employment has ended. |
(iv) A Director who is employed, or whose immediate family member is employed, as an executive officer of another company where any of the Company's present executives serve on that company's compensation committee is not “independent” until three years after the end of such service or the employment relationship. |
(v) A Director who is an executive officer or an employee, or whose immediate family member is an executive officer, of a company that makes payments to, or receives payments from, the Company for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million, or 2% of such other company's consolidated gross revenues, is not “independent” until three years after falling below such threshold. |
An “immediate family member” includes a person's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person's home.
The Board and the Nominating and Governance Committee of the Board undertook an annual review of Director independence. During the review, the Board and the Nominating and Governance Committee considered transactions and relationships between each Director or any member of his or her immediate family and the Company and its subsidiaries and affiliates, including those reported under the caption 'Certain Relationships and Related Transactions' below. The Board and the Nominating and Governance Committee also examined transactions and relationships between Directors or their affiliates and members of the Company's senior management or their affiliates. The purpose of this review was to determine whether any such relationships or transactions were inconsistent with a determination that the Director is independent.
As a result of this review, the Board and the Nominating and Governance Committee have affirmatively determined that, under the Guidelines and the NYSE listing standards, the following Directors, constituting a majority of the Directors nominated for election at the Annual Meeting, are independent of the Company and its management: Messrs. Crotty, Erhart and Timoney, Dr. Lindell and Ms. Wallman. Messrs. Hutton, Gemunder and Froesel are not considered independent because of their employment by the Company. Ms. Laney is not considered independent because of her spouse's employment by the Company. See 'Certain Relationships and Related Transactions.'
5
Committees of the Board, Committee Charters and Meetings In 2004, the Board of Directors had standing the Audit Committee, the Compensation and Incentive Committee, the Nominating and Governance Committee and the Executive Committee. With the exception of the Executive Committee, all of the committees were comprised in 2004 (and continue to be comprised) solely of Directors who are independent within the meaning of the Guidelines and the NYSE listing standards. The Charters for each of the Company's committees are available at the Company's Web site (www.omnicare.com) and copies may also be obtained upon request from the Company's Corporate Secretary. The table below shows current membership for each of the committees of the Board of Directors. Audit Committee. Under its Charter, the Audit Committee has sole and direct authority to engage, appoint, evaluate, compensate and replace the independent auditors. The Audit Committee reviews and approves in advance all audit, audit-related and non-audit services performed by the independent auditors (to the extent those services are permitted by the Securities Exchange Act of 1934, as amended). The Audit Committee meets with the Company's management regularly to consider the adequacy of the Company's internal controls and financial reporting process and the reliability of the Company's financial reports to the public. The Audit Committee also meets with the independent auditors and with the Company's financial personnel and internal auditors regarding these matters. Both the Company's independent auditors and the internal auditors meet regularly with the Audit Committee in private and have unrestricted access to the Audit Committee. The Audit Committee examines the independence and performance of the Company's independent auditors as well as the performance of the Company's internal audit function. In addition, among its other responsibilities, the Audit Committee reviews the Company's critical accounting policies and the Company's annual and quarterly reports on Forms 10-K and 10-Q, respectively. See ‘Report of Audit Committee of the Board' for additional information. Compensation and Incentive Committee. Under its Charter, the Compensation and Incentive Committee's principal responsibilities are to administer the Company's compensation plans under which stock may be issued to Directors and executive officers, to review and approve corporate goals and objectives relevant to the compensation of the Chief Executive Officer, to approve the Chief Executive Officer's compensation, to review and approve recommendations of the Chief Executive Officer with respect to the compensation of other executive officers, and to report on executive compensation in the Company's proxy statement. 6 Director Audit Compensation
and Incentive Nominating and
Governance Executive Edward L. Hutton Chair Joel F. Gemunder ü John T. Crotty ü ü Charles H. Erhart ü(a) ü Chair ü David W. Froesel, Jr. ü Sandra E. Laney Andrea R. Lindell ü Chair John H. Timoney Chair ü Amy Wallman ü (a) The Board of Directors has determined that Mr. Erhart is qualified and has been designated as an audit committee financial expert within the meaning of the regulations of the United States Securities and Exchange Commission (the “SEC”), and the Board has determined that he has relevant accounting and related financial management expertise within the meaning of the listing standards of the NYSE.
Nominating and Governance Committee. Under its Charter, the Nominating and Governance Committee's principal responsibilities are to identify individuals qualified to become Directors, to recommend to the Board nominees for election as Directors by stockholders or to fill vacancies in the Board, to recommend to the Board the appointment of Directors to Board committees, to develop and recommend to the Board a set of Corporate Governance Guidelines and to review the Guidelines annually to ensure that they are appropriate for the Company and comply with applicable laws, regulations and listing standards, to recommend any desirable changes in the Guidelines to the Board, to recommend other activities to the Board relating to corporate governance and to develop and recommend to the Board, and to oversee the administration of, an annual self-evaluation process for the Board and its committees. Executive Committee. The Executive Committee is empowered to act for the full Board in intervals between Board meetings, with the exception of certain matters that by law or under the By-Laws may not be delegated. The Executive Committee meets as necessary, and all actions by the Executive Committee are reported at the next Board meeting. Attendance at Board, Committee and Annual Meeting. In 2004, the Board of Directors met 14 times, the Audit Committee met 13 times, the Compensation and Incentive Committee met nine times, the Nominating and Governance Committee met seven times and the Executive Committee met five times. In 2004, each Director, other than Mr. Crotty, attended more than 75% of the meetings of the Board of Directors and of the Committees on which he or she served. Mr. Crotty joined the Board in August 2004; since his appointment there have been four meetings of the Board and three meetings of the Compensation and Incentive Committee. Mr. Crotty has attended two of the meetings of each of the Board and Compensation and Incentive Committee. All members of the Board of Directors are strongly encouraged, but not required, to attend the Annual Meeting of Stockholders of the Company. Eight of nine Directors attended the Company's Annual Meeting in 2004. Selection of Nominees for the Board of Directors The Board believes that it should be comprised of Directors with varied, complementary backgrounds, and that Directors should, at a minimum, have expertise that may be useful to the Company, such as an understanding of the healthcare industry and practices, the needs of the elderly, technology, finance, accounting, marketing or international matters—all in the context of an assessment of the needs of the Board at a particular time. Directors should be willing and able to devote the required amount of time to Company affairs. When seeking candidates for Director, the Nominating and Governance Committee may solicit suggestions from incumbent Directors, management and others. After conducting an initial evaluation of a candidate and depending upon the needs of the Board, the Committee may interview the candidate if it believes the candidate might be a valuable addition to the Board. The Committee may also require the candidate to meet with management. If, based on, among other things, the needs of the Board and the experience and other qualities of other prospective candidates, the Committee believes a candidate would be a valuable addition to the Board, it may recommend to the Board that candidate's nomination. Pursuant to its policy regarding the consideration of any Director candidates recommended by stockholders, the Nominating and Governance Committee will consider candidates for Director recommended by stockholders applying the criteria for candidates described above and considering the additional information referred to in this paragraph. Stockholders wishing to recommend a candidate for Director should write the Company's Corporate Secretary and include the following: a statement that the writer is a stockholder (accompanied by appropriate confirmation of such stock ownership) and is proposing a candidate for consideration by the Committee; the name of and contact information for the candidate; a statement of the candidate's business and educational experience; information regarding each of the factors listed in the first paragraph of this subsection sufficient to enable the Committee to evaluate the candidate; a statement detailing any relationship between the candidate and any customer, supplier or competitor of the Company; detailed information about any relationship or 7
understanding between the proposing stockholder and the candidate; and a statement that the candidate is willing to be considered and willing to serve as a Director if nominated and elected. In connection with the addition of new Board members, the Company engages a third-party executive search firm. The Board considers candidates such firm deems suitable to serve on the Board, as well as candidates identified by Directors and officers of the Company or others. The third-party executive search firm also assists the Board in the initial screening of candidates by, among other things, conducting personal interviews and background checks. Mr. Crotty was initially recommended to the Nominating and Governance Committee by Mr. Gemunder as a potentially suitable candidate for nomination as a Director, particularly in view of his experience and expertise in the healthcare industry as well as his experience in serving as a Director of a public company. Prior to his appointment, Mr. Crotty met with the members of the Nominating and Governance Committee. After such meeting, the Nominating and Governance Committee recommended his nomination to the full Board. Mr. Crotty met with the full Board and on August 5, 2004 he was elected as a Director of Omnicare. The Board of Directors has adopted the Company's Code of Business Conduct and Ethics that applies to Directors, officers and employees of Omnicare and its subsidiaries. The Code complies with the requirements of the NYSE and SEC. In addition, the Board has also adopted the Company's Code of Ethics for the Chief Executive Officer and Senior Financial Officers, which supplements the Code of Business Conduct and Ethics and is intended to promote honest and ethical conduct, full and accurate reporting and compliance with laws and other matters. A copy of both the Code of Business Conduct and Ethics and the Code of Ethics for the Chief Executive Officer and Senior Financial Officers can be found at the Company's Web site (www.omnicare.com) and a copy may also be obtained upon request from the Company's Corporate Secretary. Executive Sessions of Non-Management Directors As required by the Guidelines, non-management Directors meet in executive sessions without management. “Non-management” Directors are all of those Directors who are not Company employees and may include Directors, if any, who are not “independent” by virtue of the existence of a material relationship with the Company. Executive sessions are led by a “Presiding Director” who is chosen by the Non-management Directors at each executive session by a plurality vote of the Directors present. An executive session will be held in conjunction with the regularly scheduled Board meetings in February and August and at other times as may be determined by the Non-management Directors. If any Non-management Director is determined not to be an independent Director, then, at least annually, an executive session of only independent Directors will be held. Contacting the Board of Directors The Board has a process by which stockholders can send communications to the Board. Stockholders can send written communications to one or more members of the Board, addressed to: All such communications will be forwarded to the relevant Director(s) except for communications unrelated to the Company. Each non-employee Director is paid a $30,000 annual retainer fee (payable at the Director's election in cash or restricted stock). Each non-employee Director is also granted an annual restricted stock award having a value of $100,000 that vests in one installment on the third anniversary of the date of grant. Mr. McNamara, Director Emeritus of the Company, is paid a $30,000 annual retainer fee and 8 Corporate Secretary
Omnicare, Inc.
100 East RiverCenter Boulevard
Covington, Kentucky 41011
will be entitled to receive $100,000 in cash, which shall be paid in full in May 2007. Mr. Hutton, the Chairman of the Board, receives a $60,000 annual Board Chairman retainer fee and an annual restricted stock award of $200,000, which also vests in one installment on the third anniversary of the date of grant. In addition, the Chairmen of the Audit and Compensation and Incentive Committees are each paid a $30,000 annual retainer fee and members of the Audit and Compensation and Incentive Committees are each paid a $15,000 annual retainer fee (in each case payable at the Director's election in cash or restricted stock that vests as described above). The Chairman of the Nominating and Governance Committee is paid a $20,000 annual retainer fee and members of the Nominating and Governance Committee are each paid a $10,000 annual retainer fee (in each case payable at the Director's election in cash or restricted stock that vests as described above). During 2004, each member of the Board of Directors was granted an annual unrestricted stock award covering 400 shares of Common Stock. During 2004, Mr. Erhart received an additional annual fee of $8,000. Such fee was paid in lieu of stock options granted to Directors in previous years. Mr. Erhart was a member of the Compensation and Incentive Committee of either the Company or an affiliated company on the dates of such grants and thus was ineligible to participate. The following table sets forth information concerning the compensation of the Company's most highly compensated executive officers (the “named executives”) for services to the Company and its subsidiaries during 2004, 2003 and 2002. SUMMARY COMPENSATION TABLE J.F. Gemunder P.E. Keefe D.W. Froesel, Jr. C.D. Hodges T.E. Bien (footnotes continued on next page) 9 Annual Compensation Long-Term
Compensation Awards Name and Principal Positions Year Salary Bonus(1) Other Annual
Compensation(2) Restricted
Stock
Award(s)(4) # of Shares
Underlying
Options All Other
Compensation(5)
President and Chief
Executive Officer 2004
2003
2002 $ 1,400,000
1,254,167
1,133,333 $ 88,800
2,089,749
2,289,407 $127,261
71,265
81,991(3) $ 7,432,002
14,167,756
5,500,006 465,050
279,854
555,682 $366,747
117,536
97,167
Executive Vice President–
Operations 2004
2003
2002 402,000
381,583
363,500 14,267
229,178
354,067 11,187
11,117
13,050 1,217,445
2,681,744
1,314,263 70,000
50,000
120,000 66,872
26,572
32,316
Senior Vice President and
Chief Financial Officer 2004
2003
2002 412,000
377,000
348,500 8,221
278,169
408,114 6,446
6,406
7,527 1,466,836
2,965,121
1,177,685 100,000
60,000
120,000 166,150
114,474
91,070
Senior Vice President and
Secretary 2004
2003
2002 330,000
303,750
282,083 5,316
185,293
265,265 4,168
4,151
4,884 1,126,291
2,423,032
1,026,791 84,992
50,990
101,192 47,721
23,008
24,172
Senior Vice President–
Professional Services and Purchasing 2004
2003
2002 305,000
274,083
250,167 8,386
188,337
268,277 6,576
6,537
7,679 908,646
1,892,889
758,409 70,732
40,708
72,852 30,269
18,878
20,277 (1) Includes payments to Messrs. Gemunder, Keefe, Froesel and Bien and Ms. Hodges as reimbursement for employee premiums under split-dollar life insurance policies. For 2004, the entire amount is comprised of these payments. (2) These amounts represent payments made to Messrs. Gemunder, Keefe, Froesel and Bien and Ms. Hodges as required to offset the tax liability associated with the payments made in connection with the split-dollar life insurance policies referred to in Note 1 above. (3) In addition to amounts described in Note 2 above, this amount includes Mr. Gemunder's personal use of corporate aircraft ($23,088) and personal financial services ($20,000) and tax planning services ($15,810) provided to Mr. Gemunder. By resolution of the Board, Mr. Gemunder is required for security purposes to use the corporate aircraft for all air travel. (4) Under the Company's stock award program, restricted shares of Common Stock were issued as incentive compensation for services rendered during 2004 to the named executives and other key
(footnotes continued from previous page) 10 employees. Restricted shares vest based on the continued service of the executive generally in seven annual installments as determined by the Compensation and Incentive Committee with a greater proportion vesting in the latter years or ratably over 10 years. If the recipient's employment terminates due to death, disability or retirement under a retirement plan of the Company, or a change in control of the Company occurs, the restrictions terminate. The restrictions also terminate upon the recipient's termination without cause following the attainment of the age of 65 and at least 10 years of service with the Company. Otherwise, in the event of termination of employment, unvested shares are generally forfeited. Recipients receive dividends on the awarded shares. Restricted stock awards were granted in November 2004 and March 2005 for services rendered during 2004 as incentive compensation having a grant date value in the amount shown on the table. The number of restricted shares granted for 2004 services to the named executives was as follows: Mr. Gemunder—224,886 shares; Mr. Keefe—37,069 shares; Mr. Froesel—44,649 shares; Ms. Hodges—34,502 shares; and Mr. Bien—27,816 shares. As of December 31, 2004, the number and value of the aggregate restricted stock holdings of the named executives were: Mr. Gemunder— 1,060,227 shares or $36,705,059; Mr. Keefe—258,035 shares or $8,933,172; Mr. Froesel—237,959 shares or $8,238,141; Ms. Hodges—207,608 shares or $7,187,389; and Mr. Bien—154,658 shares or $5,354,260. (5) This amount includes the dollar value of shares of Common Stock of the Company allocated to the “named executives” accounts in the Company's Employee Savings and Investment Plan (the “S&I Plan”) that are attributable to the Company's contributions to the S&I Plan. Participants are entitled to receive the fully vested shares allocated to their accounts upon death, disability, retirement or termination of employment. To the extent benefits under the S&I Plan are otherwise limited by provisions of the Internal Revenue Code of 1986, as amended, the Company's Excess Benefits Plan provides that the Company will provide from its general funds a benefit to an employee equal to the benefit which would have been provided but for the limitations of the Internal Revenue Code. The benefits shown include those provided under the Excess Benefits Plan. For 2004, the number of shares attributable to these plans and the dollar values thereof included in the table for each named executive was as follows: Mr. Gemunder—8,888 shares or $366,657; Mr. Keefe—1,655 shares or $65,072; Mr. Froesel—961 shares or $36,026; Ms. Hodges—1,201 shares or $45,923 and Mr. Bien—762 shares or $28,518. This column also includes (a) life insurance premiums paid by the Company (Mr. Gemunder—$90; Mr. Keefe— $1,800; Mr. Froesel—$1,800; Ms. Hodges—$1,798 and Mr. Bien $1,751) and (b) as to Mr. Froesel, also includes $128,324 which the Company credited to a deferred account established for him in lieu of his participation in the Company's pension plan.
The following table sets forth information regarding stock options granted to the named executives during 2004. OPTION GRANTS IN 2004 J.F. Gemunder P.E. Keefe D.W. Froesel, Jr. C.D. Hodges T.E. Bien The following table sets forth information regarding stock options exercised by the named executives during 2004 and the value of unexercised options held by the named executives as of December 31, 2004. AGGREGATED OPTION EXERCISES IN 2004 AND J.F. Gemunder P.E. Keefe D.W. Froesel, Jr. C.D. Hodges T.E. Bien 11 Individual Grants Name Number of
Shares
Underlying
Options
Granted Percent of
Total
Options
Granted to
Employees
in Fiscal
Year Exercise
Price
($/Share) Expiration
Date Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
for Option Term ($) 5% 10% 460,000
1,568
1,460
1,032
990(1)
(2)
(2)
(2)
(2) 34.0
0.1
0.1
0.1
0.1% $27.60
26.78
28.05
40.33
42.68 11/3/14
8/6/14
11/5/14
5/7/14
2/6/14 $8,149,290
26,408
26,968
26,175
26,573 $20,496,641
66,923
67,200
66,332
67,341 70,000 (1) 5.2 27.60 11/3/14 1,240,109 3,119,054 100,000 (1) 7.4 27.60 11/3/14 1,771,585 4,455,792 84,000
308
286
204
194(1)
(2)
(2)
(2)
(2) 6.2
—
—
—
— 27.60
26.78
28.05
40.33
42.68 11/3/14
8/6/14
11/5/14
5/7/14
2/6/14 1,488,131
5,187
5,283
5,174
5,207 3,742,865
13,146
13,164
13,112
13,196 70,000
226
212
152
142(1)
(2)
(2)
(2)
(2) 5.2
—
—
—
— 27.60
26.78
28.05
40.33
42.68 11/3/14
8/6/14
11/5/14
5/7/14
2/6/14 177,158
3,907
3,990
3,855
3,973 445,579
9,902
9,942
9,770
10,067 (1) All such options were granted on November 4, 2004 in connection with the 2004 Stock and Incentive Plan, become exercisable on June 1, 2005 and expire 10 years after the date of the grant. All such options provide for the purchase of shares of Common Stock at a price equal to the fair market value on the date of the grant. (2) Such options were granted on February 6, May 7, August 6, and November 5, 2004 and were granted in connection with the Company's StockPlus Plan, a broad-based stock purchase and stock option program for employees and Directors. Options granted on February 6 and May 7 were granted from the 1992 Long-Term Incentive Plan for executive officers and Directors and from the 1998 Long-Term Employee Incentive Plan for all other employees. All other options were granted from the 2004 Stock and Incentive Plan. These options provide for the purchase of shares of Common Stock at a price equal to the fair market value on the date of the grant, become exercisable in full four years from the date of the grant based on the continued service of the employee (provided the optionee has held certain related shares of Common Stock purchased under the program for a minimum of two years), and expire 10 years from the date of the grant unless previously exercised.
FISCAL YEAR-END OPTION VALUES Number of Shares
Underlying
Unexercised Options at
Fiscal Year-End Value of Unexercised
In-The-Money Options
at Fiscal Year-End($)(1)Name Number of
Shares
Acquired on
Exercise Value
Realized ($) Exercisable Unexercisable Exercisable Unexercisable — — 2,455,930 850,294 $ 40,802,617 $ 6,945,957 — — 187,500 156,250 2,023,973 1,335,638 — — 171,750 186,250 1,867,442 1,546,238 — — 209,299 158,992 2,547,780 1,323,215 — — 77,264 124,954 897,505 1,033,765 (footnote on next page)
(footnote from previous page) (1) In accordance with SEC rules, values are calculated by subtracting the exercise price from the fair market value of the underlying Common Stock. For purposes of this table, fair market value is deemed to be $34.62 per share, the closing price of a share of Common Stock on December 31, 2004, the final day of the Company's fiscal year. The Company has a pension plan in which the named executives, other than Mr. Froesel, participate. Retirement benefits under the pension plan are calculated on the basis of the executive's compensation during the highest consecutive 60-month period during the executive's last 120 months of employment (“Final Average Compensation”) and years of service. Benefits payable under the pension plan are reduced for payments under a prior Company pension plan and are partially reduced for social security benefits. The following table shows the estimated maximum annual retirement benefits that would be payable upon retirement at or after age 65 under the pension plan at selected compensation levels after various years of service. Amounts are shown on a 10-year certain and life form, after the applicable reduction for social security benefits. PENSION PLAN TABLE The Company's 2002 Supplemental Benefit Plan provides for a fixed annual benefit, payable in the form of a straight life annuity, to each of the named executives, commencing at the later of the participant's 65th birthday or seven years of credited service after January 1, 2001. The annual benefit for each named executive, assuming seven years of credited service, is: Mr. Gemunder—$287,298; Mr. Keefe—$91,415; Mr. Froesel—$160,113; Mr. Bien—$28,072 and Ms. Hodges—$100,940. The annual benefit would be reduced by approximately 14.29% for each year of service less than seven. At December 31, 2004, each named executive had four years of credited service under the plan. Mr. Gemunder. The Company entered into an employment agreement with Mr. Gemunder in August 1988. The agreement, as amended, is currently effective through August 3, 2010. The agreement has generally been extended annually by one year. The agreement provides that Mr. Gemunder's compensation may be increased annually by the Company and that he is entitled to receive annual incentive compensation and bonuses as determined by the Board, as well as participate in benefit programs and receive certain fringe benefits. Mr. Gemunder's continued nomination to the Board during his employment is provided for in the agreement. The agreement provides that if Mr. Gemunder is terminated without cause (as defined in the agreement), including, among other things, the 12Final Average
Compensation(1) Years of Service(2) 10 15 20 25 30 35 40 45 50 $ 600,000 $ 84,313 $ 128,021 $ 171,435 $ 214,295 $ 257,154 $ 302,154 $ 347,154 $ 392,154 $ 437,154 800,000 114,313 173,021 231,435 289,295 347,154 407,154 467,154 527,154 587,154 1,000,000 144,313 218,021 291,435 364,295 437,154 512,154 587,154 662,154 737,154 1,500,000 219,313 330,521 441,435 551,795 662,154 774,654 887,154 999,654 1,112,154 2,000,000 294,313 443,021 591,435 739,295 887,154 1,037,154 1,187,154 1,337,154 1,487,154 3,000,000 444,313 668,021 891,435 1,114,295 1,337,154 1,562,154 1,787,154 2,012,154 2,237,154 4,000,000 594,313 893,021 1,191,435 1,489,295 1,787,154 2,087,154 2,387,154 2,687,154 2,987,154 5,000,000 744,313 1,118,021 1,491,435 1,864,295 2,237,154 2,612,154 2,987,154 3,362,154 3,737,154 6,000,000 894,313 1,343,021 1,791,435 2,239,295 2,687,154 3,137,154 3,587,154 4,037,154 4,487,154 7,000,000 1,044,313 1,568,021 2,091,435 2,614,295 3,137,154 3,662,154 4,187,154 4,712,154 5,237,154 (1) For purposes of the pension plan, such Final Average Compensation generally includes base salary and incentive compensation, which for the named executives are set forth in the “Salary” and “Bonus” columns of the Summary Compensation Table for 2002 through 2004, as well as the value of stock awards vesting during each year. As of December 31, 2004, Final Average Compensation for Messrs. Gemunder, Keefe and Bien and Ms. Hodges was $5,205,000, $1,400,000, $825,000 and $1,055,000, respectively. (2) As of December 31, 2004, Messrs. Gemunder, Keefe and Bien and Ms. Hodges had 41, 24, 16 and 25 years of service, respectively.
Company's continuing material breach of the agreement, a material reduction in responsibilities, and, following a change of control (as defined in the agreement), assignment to the executive of duties inconsistent with his/her position or a relocation of the Company's offices, the Company will pay him monthly severance payments at an annual rate equal to 150% of the sum of (i) his then-current base salary, (ii) his annual incentive bonus most recently paid or approved to be paid in respect of the previous year and (iii) the fair market value of all of his stock awards that have vested during the 12 months prior to the termination. Such payments will be made for the remaining term of the agreement. Under the agreement, Mr. Gemunder may voluntarily terminate his employment within 120 days after a change of control and such termination will be treated as without cause (each as defined in the agreement). To the extent that any payment to Mr. Gemunder would be subject to excise taxes under Section 4999 of the Internal Revenue Code, he will receive “gross-up” payments to make him whole with respect to such taxes. Other employment agreements. The Company has entered into employment agreements with each of Messrs. Keefe, Froesel and Bien and Ms. Hodges. The employment agreement of Ms. Hodges is currently effective through August 3, 2010 and the employment agreement of Mr. Keefe is currently effective through May 31, 2010. Each of these agreements has generally been extended annually by one year. Mr. Froesel's employment agreement is currently effective through March 3, 2008 and Mr. Bien's employment agreement is currently effective through May 31, 2008, following which Messrs. Froesel and Bien's employment agreements will be automatically extended for successive three-year terms unless either party provides prior written notice of non-renewal. The agreements of Mr. Keefe and Ms. Hodges provide that each executive's current base compensation may be increased by the Company. Mr. Froesel's agreement provides that his base salary may be adjusted at the Company's discretion. Messrs. Keefe, Froesel and Bien and Ms. Hodges are entitled to participate in incentive compensation and bonus programs generally available to executives of the Company. Each executive is entitled to participate in benefit programs and receive fringe benefits generally available to executives of the Company. The employment agreements of Mr. Keefe and Ms. Hodges provide that if the executive is terminated without cause (as defined in the agreements), including, among other things, the Company's continuing material breach of the agreement, a material reduction in responsibilities, and, following a change of control (as defined in the agreements), assignment to the executive of duties inconsistent with his/her position or a relocation of the Company's offices, the Company will pay the executive monthly severance payments at an annual rate equal to 150%, in the case of Ms. Hodges, and 100%, in the case of Mr. Keefe, of the sum of (i) his/her then-current base salary; (ii) his/her annual incentive bonus most recently paid or approved to be paid in respect of the previous year; and (iii) the fair market value of all of his/her stock awards that have vested during the 12 months prior to the termination. These payments will be made for the remaining terms of the agreements. Mr. Froesel's agreement provides that if he is terminated without cause (as defined in the agreement), then the Company will pay Mr. Froesel his then-current base salary for two years and any restricted stock, stock options and rabbi trust contributions will immediately vest. If the Company terminates Mr. Froesel upon a change of control (as defined in the agreement), Mr. Froesel will be entitled to receive his base salary and cash bonus for the remaining term of the agreement plus two years, and any restricted stock, stock options and rabbi trust contributions will immediately vest. Mr. Bien's agreement provides that if he is terminated without cause (as defined in the agreement), then the Company will pay Mr. Bien his then current base salary for the remainder of the term of the agreement or for 18 months, whichever is greater, and bonus based on the most recent full-year bonus paid. The employment agreements of Messrs. Froesel, Keefe and Bien and Ms. Hodges provide that the executives may voluntarily terminate employment within 120 days after a change of control and that such termination will be treated as without cause, resulting in the payments described above. Each employment agreement also provides that to the extent any payment to the executive would be subject to excise taxes under Section 4999 of the Internal Revenue Code, the executive will receive “gross-up” payments to make them whole with respect to such taxes. Upon a change of control, the Company is required to continue to make premium payments under split-dollar life insurance arrangements with Messrs. Gemunder, Keefe, Froesel and Bien and Ms. Hodges until the end of the term of his/her employment agreement, and is required to make a 13
contribution to a rabbi trust in an amount equal to the present value of the company's premium payment obligations until the executive reaches age 65 (or, in the case of Mr. Gemunder, age 69). In addition, Mr. Gemunder may, during his employment or following any termination due to disability or without cause, elect to (i) convert an existing key-man life insurance policy covering him into an insurance arrangement substantially equivalent to a split-dollar life insurance arrangement for his benefit and (ii) purchase from the Company certain other existing key-man life insurance policies covering him at a purchase price equal to the then-current cash value of such policies. These rights are conditioned upon the Compensation and Incentive Committee's prior approval. Pursuant to the terms of the Company's equity incentive plans, all stock options, restricted stock and other equity awards will become fully vested upon a change of control. Pursuant to the Company's Excess Benefit Plan and 2002 Supplemental Benefit Plan, all benefits become fully vested upon a change of control. REPORT OF THE COMPENSATION AND INCENTIVE The Compensation and Incentive Committee believes that executive compensation should be directly and materially linked to the financial and operating performance of the Company and increases in stockholder value. The Company's executive compensation program includes base salary, annual incentive compensation, and long-term incentive compensation (in the form of stock options and restricted stock awards) and various benefit plans (including pension plans, savings plans and medical benefits). The executive compensation program is administered by the Compensation and Incentive Committee of the Board of Directors. The Committee is comprised solely of independent Directors. Pursuant to the Charter of the Compensation and Incentive Committee, which was effective May 18, 2004, the Committee is responsible for approval of the Chief Executive Officer's annual base salary level, annual incentive compensation, long-term incentive compensation and special or supplemental benefits and any action so taken by the Committee is not subject to the full Board's approval. With respect to executive officers other than the Chief Executive Officer, the Committee is responsible for reviewing and approving the recommendations of the Chief Executive Officer with respect to their annual base salary level, annual incentive compensation, long-term incentive compensation and special or supplemental benefits and any action so taken by the Committee also is not subject to the full Board's approval. The Committee has full and final authority in connection with the administration of all plans of the Company under which Common Stock or other equity securities of the Company may be issued to Directors or executive officers, except as they apply to members of the Committee, in which case the full Board is responsible for making the necessary determinations. During 2004, the Committee retained Compensation Strategies, Inc. (“Compensation Strategies”), independent professional compensation consultants, to assist the Committee in its evaluation of the Company's executive compensation practices, including overall compensation and each component thereof. Compensation Strategies analyzed factors relevant to the Committee in determining executive compensation, including the performance of the Company, the compensation of the Company's executive officers in prior years, the compensation practices of comparable companies and the compensation levels of similarly situated executives. Compensation Strategies identified a group of companies for comparison that are broadly representative of those that the Company competes with for executive talent. Included in the group are direct competitors within each area in which the Company competes, suppliers, and customers. Based on the comparison of the Company's compensation practices to comparable companies, Compensation Strategies determined that total 2004 base and incentive compensation was appropriate and that it was also representative of the marketplace in which the Company competes for executive talent. The executive officers listed in the Summary Compensation Table (the “named executives”) have each entered into employment agreements with the Company which provide for a base salary, which may be increased from time to time by the Committee. In determining base salary levels, the Committee considers the executive's responsibilities, experience, performance and other factors particular to the Company. The Committee also considers the compensation practices and performances 14
COMMITTEE ON EXECUTIVE COMPENSATION
of other companies that are likely to compete with the Company for executive talent. In general, base salaries are set at levels believed by the Committee to be sufficient to attract and retain qualified executives when considered with other components of the Company's compensation program. Base salary for each of the named executives was last increased in August 2003. Annual incentive compensation provides a direct financial incentive to executives to achieve the Company's annual business goals and strategic objectives. The Committee believes that bonuses should represent a significant portion of an executive's annual compensation to provide an incentive for achieving these goals and objectives. At the beginning of each fiscal year, including 2004, financial and operational goals are established, which generally take into account such measures of performance as sales and earnings growth, profitability and cash flow. Non-financial measures of performance used by the Committee in determining the annual cash bonus award include organizational development, product or service expansion and strategic positioning of the Company's assets. Specific relative weights are not assigned to each performance factor, since the relative importance of each factor varies depending upon the executive's specific job responsibilities. Each individual compensation decision is made on a case-by-case basis and will ultimately depend upon the judgment of the Committee. When determining the annual bonus of the named executives, the Committee acts within the parameters provided for in the Annual Incentive Plan for Senior Executives, which has been approved by stockholders. Under that plan, the maximum amount of the annual cash bonus that could be paid to any participant for 2004 was dependent on the Company's pre-tax income for 2004, before adjustments for the cumulative effect of accounting changes and special charges, reaching certain target levels established at the beginning of the year. For 2004, the Committee sought to grant incentive compensation that reflected performance for 2004, but also put in place incentives to achieve improved results in 2005 and beyond. In so doing, the Committee decided that, rather than pay cash bonuses for 2004, incentive compensation should be granted entirely in the form of longer-term restricted stock or stock options for Mr. Gemunder, the other senior executives and key employees, which is discussed below. The Committee believed that much was accomplished in 2004 and that executive performance was strong, particularly given the industry pressures management faced, but that an emphasis should be placed on the successful execution of actions begun in 2004 that can, over time, enhance shareholder value. Thus, longer-term incentive awards would be better aligned with the objective of positioning the Company to enhance shareholder value in the future. Long-Term Incentive Compensation The stock option and restricted stock program forms the basis of the Company's long-term incentive plan for executives. This program seeks to align executive and long-term stockholder interests by creating a strong and direct link between executive compensation and stockholder return. Stock options are granted at or above fair market value and generally become exercisable over four years; and restricted stock awards have vesting restrictions based on continued employment that generally lapse over seven-year periods, with the greater portion vesting in the latter years, or ratably over ten years. Both the amounts of restricted stock awards and the proportion of stock options increase as a function of higher salary and position of responsibility within the Company. In 2004, the Committee took into account the advice of Compensation Strategies on the benefits of shifting incentive compensation for the Company's executives more toward equity-based compensation, particularly restricted stock awards, to provide significant incentives for the achievement of the long-term goals of the Company. As noted above, in 2004 the portion of an executive's compensation that is comprised of stock options and restricted stock generally increases as a function of higher salary and position of responsibility within the Company. For the named executives, the restricted stock awards for 2004 under the 2004 Stock and Incentive Plan were dependent upon the growth of the Company's earnings per share, before the cumulative 15
effect of accounting changes and special charges, for fiscal year 2004 meeting certain thresholds established at the beginning of the year. Policy On Deductibility of Compensation Section 162(m) of the Internal Revenue Code limits to $1,000,000 the amount that may be deducted by a publicly held company for compensation paid each year to each of its five most highly paid executive officers. Section 162(m) excludes compensation that qualifies as “performance-based compensation” under Section 162(m). The Company's Annual Incentive Plan for Senior Executive Officers and the Company's 2004 Stock and Incentive Plan, each approved by the Company's stockholders, permit the award of exempt performance-based compensation. However, the Committee also recognizes the need to retain flexibility to make compensation decisions that may not meet Section 162(m) standards when necessary to enable the Company to meet its overall objectives, even if the Company may not deduct all of the compensation. Historically, the Company has encouraged the ownership of stock of the Company in a number of ways. For example, a broad group of employees, including all members of senior management, are paid a significant portion of their incentive compensation in the form of restricted stock. In addition, periodic stock option grants are made to key employees, including senior management. Non-employee Directors of the Company are paid a substantial portion of their Director compensation in the form of restricted stock with the option to receive all such fees in Common Stock, and all Directors receive annual unrestricted stock awards. Employees of the Company generally are provided the opportunity to own Company stock through various benefit programs, such as the Company's S&I Plan and the Omnicare StockPlus Plan, a broad-based stock purchase and stock option program for employees and Directors. In order to further encourage executive stock ownership, the Company adopted stock ownership guidelines in February 2002 to encourage each executive to achieve and maintain an appropriate ownership stake in the Company. The ownership levels are based on a multiple of base salary, ranging from a goal of five times base salary for the President and Chief Executive Officer and from one to three and one-half times for other officers. Messrs. Gemunder, Keefe, Froesel and Bien and Ms. Hodges have met the established guidelines. Until an executive has reached his or her target ownership, he or she will be required to hold 50%, in the case of officers other than vice presidents, and 20%, in the case of vice presidents, of the after-tax number of shares acquired by the executive upon the exercise of stock options or the vesting of restricted stock awards. Compensation of the Company's President and Chief Executive Officer For 2004, Mr. Gemunder's base salary was $1,400,000. His base salary was last increased on August 1, 2003 from the $1,150,000 that had been his base salary since February 1, 2002. This 2003 increase was based on the Committee's evaluation of Mr. Gemunder's performance, generally applying the same principles outlined above for executive officers of the Company, taking into account the President and Chief Executive Officer's responsibility for the total enterprise, as well as Mr. Gemunder's individual performance. The Committee determined based on an evaluation of Mr. Gemunder's performance that his base salary should be in the upper range of industry peers, using a survey prepared by Compensation Strategies. In determining Mr. Gemunder's compensation for the year, the Committee acknowledged that during 2004, sales reached a record level of $4.1 billion, up 18% versus 2003, owing largely to the continued successful execution of the Company's acquisition program as well as growth in clinical and other service programs, drug price inflation and in market penetration of branded drugs, offset in part by increased use of generic medications. As the year progressed, however, the Company experienced intense competitive pricing pressures and reimbursement reductions under certain State Medicaid programs in its institutional pharmacy business resulting in a shortfall from expected earnings for the year. As a consequence, full year diluted earnings per share, (excluding special items and an accounting change related to dilution from the Company's contingent convertible securities), while up 14.9%, were below the Company's expectations. 16
The Committee also noted that Mr. Gemunder and the other senior executives had, in the face of these industry pressures, undertaken several important initiatives to re-engineer the Company's cost structure, to further leverage the Company's top line growth and to meet the long-term need to maintain its position as a cost-efficient provider of healthcare services. The success of these initiatives was essential in significantly limiting the impact of these unfavorable conditions on the Company's results and in preserving shareholder value. In determining Mr. Gemunder's incentive compensation, the Committee took into account their evaluation of his individual performance, data and analysis on Mr. Gemunder's historical incentive compensation trends as well as comparisons to current peer company trends and compensation levels among similarly-situated executives as provided by Compensation Strategies, and the relative importance of Mr. Gemunder's strategic vision and leadership in the accomplishment of the Company's overall goals. As discussed above, the Committee determined that none of the executive officers, including Mr. Gemunder, would receive cash bonuses for 2004 services. This compares with a cash bonus of $2.1 million received by Mr. Gemunder in respect of 2003 services. With respect to stock options, the Committee granted 460,000 shares to Mr. Gemunder in 2004 as compared with 275,000 shares in 2003, all at fair market value on the date of grant. Using the Black-Scholes method of stock option valuation, the Committee noted that the value of the 2004 options on the date of grant was essentially equal to the 2003 option grant. The Committee also granted 224,886 shares of restricted stock to Mr. Gemunder as part of his long-term incentive award for 2004. This is 30.8% lower than the 324,813 share grant to Mr. Gemunder in respect of 2003 services. A portion of the restricted shares will become vested ratably over 10 years while the remaining restricted shares will become vested over a seven-year staggered vesting schedule with the greater portion vesting in the latter years, or earlier upon death, disability, termination without cause, change in control or retirement under a retirement plan of the Company. Taking into account all of the elements of Mr. Gemunder's incentive compensation, the Committee determined that the incentive compensation granted to him in 2004 was appropriate. On a comparative basis, 2003 was one of the strongest in the Company's history, while 2004 accomplishments were muted by industry pricing and reimbursement pressures. The Committee believes the 2004 incentive compensation creates appropriate incentives for Mr. Gemunder to lead the Company through the challenges that lie ahead and to enhance shareholder value. Moreover, Compensation Strategies concluded that Mr. Gemunder's overall compensation for 2004 services was representative of the marketplace in which the Company competes for senior executive talent, placing Mr. Gemunder in the upper-quartile of his peer-group which the Committee believes is an important consideration given his relative importance to the Company's success. Under Mr. Gemunder's leadership, the Company has, since entering the long-term care pharmacy business in 1989, achieved a compound annual increase in shareholder value of 21% as compared with the compound annual increase in the S&P 500 of 11% over the same period. For the last five years, marked by a difficult operating environment in the long-term care and institutional pharmacy industries, the Company has achieved a compound annual increase in shareholder value of 24%, while the S&P 500 has shown a compound annual decline of 2.3%. The Committee therefore, believes that it is key to the Company's success that it motivate and reward Mr. Gemunder for increasing top and bottom line results and for developing and implementing a business and financial strategy that will continue to promote growth and enhance stockholder value. The Committee believes Mr. Gemunder's 2004 compensation program meets these objectives. The Compensation and Incentive Committee: Compensation and Incentive Committee Interlocks and Insider Participation No member of the Compensation Committee: (i) was an officer or employee of the Company or any of its subsidiaries during 2004; (ii) was formerly an officer of the Company or any of its subsidiaries; 17 Andrea R. Lindell, DNSc, RN, Chairperson
John T. Crotty
Charles H. Erhart, Jr.
or (iii) had any relationship requiring disclosure in this proxy statement under Item 404 of SEC regulation S-K. In addition, none of the Company's executive officers served: (i) as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on the Company's Compensation and Incentive Committee; (ii) as a director of another entity, one of whose executive officers served on the Company's Compensation and Incentive Committee; or (iii) as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served as a Director of the Company. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Edward L. Hutton has been Chairman of the Board of the Company since May 2003. In May 2003, the Company amended its By-Laws to create the non-executive position of Chairman of the Board. Prior to May 2003, Mr. Hutton served in an executive position, as Chairman of the Company, from 1981. For services rendered in 2004, the Company paid Mr. Hutton $250,000 as salary in addition to amounts paid to Mr. Hutton in his capacity as a Director of the Company described at ‘Director Compensation.' Mr. Hutton also received $41,125 as reimbursement for employee premiums under a split-dollar life insurance policy, as well as $32,247 required to offset the tax liability associated with the payment made in connection with such split-dollar life insurance policy. Mr. Hutton does not participate in the Company's pension plans; however, Mr. Hutton participates in a deferred compensation arrangement which had been designed to provide him retirement benefits comparable to Company executives. For 2004, Mr. Hutton was credited with a Company contribution of $500,000 under this arrangement. Such deferred amounts accrue interest at market rates and are paid in future years. Mr. Hutton was also paid $407,526, which payment reflects the economic value of the benefit that would have vested in 2004 for his account had he been eligible to participate in the Company's 2002 Supplemental Benefit Plan described at ‘Executive Compensation—Supplemental Benefit Plan.' Joel F. Gemunder is the President, Chief Executive Officer and a Director of the Company. Mr. Gemunder's son, David A. Gemunder, is a shareholder in the law firm of Fowler White Boggs Banker. In 2004, the Company paid $1,124,980 to Fowler White Boggs Banker for legal services the firm performed for the Company. Sandra E. Laney is a Director of the Company. Ms. Laney's spouse, D. Michael Laney, is Vice President—Management Information Systems of the Company. For services rendered in 2004 and pursuant to his employment agreement with the Company, the Company paid Mr. Laney $207,000 as salary and $8,481 in bonus and, under the Company's stock award program, awarded him 6,101 shares of restricted Common Stock with a dollar value of $206,774, of which 1,250 shares vest over seven years with the greater portion vesting in the latter years and 4,851 shares vest ratably over 10 years. Mr. Laney receives dividends on the awarded restricted shares. In addition, in 2004, the Company granted Mr. Laney options to purchase 10,748 shares of Common Stock of the Company at an average exercise price of $27.98 per share. Of these options, 10,448 were granted under the 2004 Stock and Incentive Plan and 300 were granted under the 1998 Long-Term Employee Incentive Plan. The options are for a term of 10 years and become exercisable on June 1, 2005, in the case of 10,000 of such options, and become exercisable in full after four years, in the case of 748 of such options. Mr. Laney is also a participant in the Company's S&I Plan and, as such, was credited with a Company contribution of 165 shares of the Company's Common Stock with a dollar value of $5,775 for 2004. Mr. Laney participates in the Company's split-dollar insurance program. For 2004, the present value of future benefits derived from premium payments made by the Company for the benefit of Mr. Laney under the split-dollar program, which provides for refund of premiums to the Company upon termination of the policy, was $2,513. The Company paid life insurance premiums of $781 for Mr. Laney in 2004. Mr. Laney also participates in the Company's 2002 Supplemental Benefit Plan described at ‘Executive Compensation—Supplemental Benefit Plan.' His annual benefit under the plan, assuming seven years of credited service, is $12,545. 18
The following graph compares the cumulative total return for the last five years on a $100 investment (assuming dividend reinvestment) on December 31, 1999 in each of the Common Stock of the Company, the Standard & Poor's 500 Stock Index and the OCR Peer Group Index. Comparison of 5 Year Cumulative Total Return 400 350 300 250 200 150 100 50 0 1999 2000 2001 2002 2003 2004 Omnicare Inc. S&P 500 Peer Group D Omnicare, Inc. S&P 500 OCR Peer Group The OCR Peer Group Index includes the following companies: AmerisourceBergen Corporation, Beverly Enterprises Inc., Genesis Health Ventures Inc. (until December 1, 2003 and NeighborCare, Inc. thereafter), Manor Care, Inc., Parexel International Corp., Pharmaceutical Product Development Inc., PSS World Medical Inc., and Sunrise Senior Living Inc. The total return calculations reflected in the foregoing graph were performed by Zacks Investment Research, Inc. 19
Assumes Initial Investment of $100
on the Last Business Day of 1999
o
l
l
a
r
s December 31, 1999 2000 2001 2002 2003 2004 $100 $181.43 $209.61 $201.57 $342.62 $294.40 100 90.90 80.10 62.39 80.29 89.02 100 179.32 219.95 176.94 225.21 256.48
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Set forth below is the name, address and stock ownership of each person or group of persons known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock, and is based on information provided by the beneficial owner in public filings made with the SEC: T. Rowe Price Associates, Inc. Ariel Capital Management, LLC FMR Corp. 20Name and
Address of
Beneficial Owners Number of Shares
and Nature
of Beneficial
Ownership(a) Percent of
Class(a)
100 E. Pratt Street
Baltimore, MD 21202 11,048,510 (b) 10.6 %
200 E. Randolph Drive, Suite 2900
Chicago, IL 60601 9,940,921 (c) 9.5 %
82 Devonshire Street
Boston, MA 02109 5,374,800 (d) 5.1 % (a) Under applicable SEC regulations, shares are treated as “beneficially owned” if a person has or shares voting or dispositive power with respect to the shares or has a right to acquire the shares within 60 days of December 31, 2004. Unless otherwise indicated, sole voting power and sole dispositive power are exercised by the named person. In calculating “Percent of Class” for a person, shares which may be acquired by the person within such 60-day period are treated as owned by the person and as outstanding shares. (b) Based on a report on Schedule 13G dated December 31, 2004, T. Rowe Price Associates, Inc. (“Price Associates”) is an investment adviser that has sole dispositive power with respect to 11,048,510 shares and sole voting power with respect to 2,034,940 shares, and neither shared voting nor shared dispositive power with respect to any of the shares. These securities are owned by various individual and institutional investors for which Price Associates serves as investment adviser with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, as amended, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities. (c) Based on a report on Schedule 13G dated December 31, 2004, Ariel Capital Management, LLC (“Ariel Capital”) is an investment advisor that has sole dispositive power with respect to 9,860,651 shares and sole voting power with respect to 8,752,661 shares, and neither shared voting nor shared dispositive power with respect to any of the shares. These securities are owned by investment advisory clients of Ariel Capital. (d) Based on a report on Schedule 13G dated December 31, 2004, by FMR Corp., a parent holding company (“FMR”), and Edward C. Johnson, III and Abigail P. Johnson, each an individual (together, the “Johnsons”). According to FMR, it has sole dispositive power with respect to 5,374,800 shares and sole voting power with respect to 263,600 shares, and neither shared voting nor shared dispositive power with respect to any of the shares. According to the Johnsons, each has sole dispositive power with respect to all such shares. Various persons have the right to receive or the power to direct the receipt of the dividends from, or the proceeds from the sale of, the shares. Fidelity Management & Research Company, an investment advisor and a wholly owned subsidiary of FMR, is the beneficial owner of 5,111,200 shares as a result of acting as investment advisor to various investment companies. The interest of Fidelity Management Trust Company, a bank and investment manager of institutional accounts, amounted to 233,100 shares. In addition, Strategic Advisors, Inc., an investment advisor and wholly owned subsidiary of FMR, is the beneficial owner of 150 shares.
Common Stock Ownership by Directors and Executive Officers The following table sets forth information as of March 30, 2005, with respect to the shares of Common Stock beneficially owned by each of the nominees and Directors, each executive officer named in the Summary Compensation Table, and all Directors and executive officers of the Company as a group: E.L. Hutton J.F. Gemunder T.E. Bien J.T. Crotty C.H. Erhart, Jr. D.W. Froesel, Jr. C.D. Hodges P.E. Keefe S.E. Laney A.R. Lindell, DNSc, RN J.H. Timoney A. Wallman All Directors, nominees, and executive officers as a group 21Individual or Group Number of Shares
and Nature of Ownership Percent of Class(a)(b) 291,018
240,000
3,408(c)
(d)
(e) 1,854,111
2,814,918
10,118(c)
(d)
(f) 4.3 % 197,243
86,962(c)
(d) 8,544 (c) 37,421
5,740(c)
(d) 339,022
259,750(c)
(d) 390,593
285,411(c)
(d) 386,925
287,000(c)
(d) 100,273
121,679(c)
(d) 12,181 (c) 19,186
1,926(c)
(d) 2,906 (c)
(13 persons) 3,654,279
4,103,386
3,408
10,118(c)
(d)
(e)
(f) 7.1 % (a) Under applicable SEC regulations, shares are treated as “beneficially owned” if a person has or shares voting or dispositive power with respect to those shares or has a right to acquire the shares within 60 days of March 30, 2005. Unless otherwise indicated, sole voting power and sole dispositive power are exercised by the named person. In calculating “Percent of Class” for a person, shares which may be acquired within such 60-day period are treated as owned by the person and as outstanding shares. (b) Percent of Class is not shown if less than 1%. (c) Shares held in individual capacity (or together with a member of his or her household) as to which such person has voting and dispositive power (and includes shares allocated as of December 31, 2004 to the account of each named person or member of the group under the Company's Employees' Savings and Investment Plan and, as of March 30, 2005, for its Employee Stock Ownership Plan). (d) Shares subject to outstanding options exercisable within 60 days from March 30, 2005. (e) Mr. Hutton is a trustee of the E.L. Hutton Foundation, which holds 3,408 shares of Common Stock over which he holds both voting and dispositive power. (f) Mr. Gemunder is a trustee of the Joel F. Gemunder Foundation, which holds 10,118 shares of Common Stock over which he holds both voting and dispositive power.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD The Audit Committee is comprised of four members of the Company's Board of Directors. The Board has affirmatively determined that each member of the Audit Committee is an independent Director and qualified to serve as a member of the Audit Committee under the Guidelines, including the applicable NYSE and SEC standards. The Audit Committee operates under a written Charter adopted by the Board. The Audit Committee assists the Board in monitoring: (i) the integrity of the Company's financial statements; (ii) the independent auditors' qualifications, independence and performance; (iii) the performance of the Company's internal audit function; and (iv) the Company's compliance with legal and regulatory requirements. The Audit Committee has met and held discussions with management and the Company's internal auditors and independent auditors, each of whom has unrestricted access to the Audit Committee. Management represented to the Audit Committee that the Company's consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Committee has met and discussed the consolidated financial statements with management and the independent auditors. The Audit Committee discussed with the Company's independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication With Audit Committees). The Audit Committee also has discussed with the independent auditors the auditors' independence from the Company and its management, including the matters in the written disclosures required by Independence Standards Board Statement No. 1 (Independence Discussions with Audit Committees). The Audit Committee has also considered whether the independent auditors' provision of non-audit services to the Company is compatible with the auditors' independence. Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2004 for filing with the SEC. The Report of the Audit Committee of the Board does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent the Company specifically incorporates this Report by reference therein. The Audit Committee: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Audit Committee of the Board of Directors has appointed the firm of PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”) as the independent registered public accounting firm to audit the Company's consolidated financial statements for 2005, subject to stockholders ratifying the appointment at the Annual Meeting. PricewaterhouseCoopers (and its predecessor) has acted as independent auditors for the Company and its consolidated subsidiaries since 1981. Audit Committee Pre-Approval Policies and Procedures The Audit Committee has adopted policies and procedures that require the pre-approval of all audit, audit-related, tax and other services rendered by the Company's independent auditors. Under the policy, an auditor services schedule is prepared at the beginning of each year that describes each type of service to be provided by the independent auditors and the projected fees for each such service. The 22 John H. Timoney, Chairman
Charles H. Erhart, Jr.
Andrea R. Lindell, DNSc, RN
Amy Wallman
Audit Committee reviews and approves in advance, as appropriate, each service listed on the auditor services schedule and the projected fees for each such service. On a periodic basis, the independent auditors report to the Audit Committee the actual spending for specified services compared with the approved amounts. Projected fee amounts listed on the auditor services schedule may be updated, as appropriate in the Audit Committee's discretion, at each regularly scheduled meeting of the Audit Committee. The Audit Committee may also pre-approve particular services on a case-by-case basis. The policy allows the Audit Committee to delegate pre-approval authority to one or more members of the Audit Committee. Any decisions made by the designated pre-approval member are reported, for informational purposes only, to the full Audit Committee at its next meeting. Fees and Services of Independent Registered Public Accounting Firm The following table summarizes fees for professional services provided to the Company by PricewaterhouseCoopers for the years ended December 31, 2004 and 2003 (in thousands): Audit Audit-Related Tax All Other Total Audit fees for the years ended December 31, 2004 and 2003, respectively, were for professional services rendered for the integrated audit of the consolidated financial statements, and audit (in 2004) of the controls over financial reporting of the Company as well as statutory audits, issuance of consents, income tax provision procedures and assistance with review of documents and financial statements filed with the SEC. Audit-related fees for the years ended December 31, 2004 and 2003, respectively, were for assurance and related services primarily attributable to acquisition-related financial due diligence and agreed-upon procedures (including those for deferred payments and the Company's restructuring programs), as well as employee benefit plan audits and consultations concerning financial accounting and reporting standards. Audit-related fees for the year ended December 31, 2004 included consultation in connection with the Company's compliance with Section 404 of the Sarbanes-Oxley Act of 2002. All other fees for the year ended December 31, 2004 and 2003, respectively, were permissible services performed by PricewaterhouseCoopers that do not meet the above category descriptions, including investigative services, preparation of excess benefit statements and software licenses. Vote on Ratification of Appointment Although ratification of the appointment of PricewaterhouseCoopers as independent registered public accounting firm for 2005 by stockholders is not required by law or the By-Laws of the Company, the appointment of PricewaterhouseCoopers will be submitted for ratification at the Annual Meeting. The affirmative vote of a majority of the shares represented at the meeting is necessary to ratify the appointment of PricewaterhouseCoopers. If the appointment is not ratified at the meeting, the Audit Committee will reconsider its appointment of independent auditors. In connection with its appointment of PricewaterhouseCoopers as independent registered public accounting firm, the Audit Committee considered whether the provision of non-audit services is compatible with maintaining the independence of PricewaterhouseCoopers. It is expected that a representative of PricewaterhouseCoopers will be present at the Annual Meeting. Such representative will have the opportunity to make a statement if he or she desires to do so and will be available to respond to questions raised at the meeting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO AUDIT THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR 2005. 23Fees 2004 2003 $2,320 $1,599 3,454 4,687 — — 372 212 $6,146 $6,498
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Under Section 16(a) of the Securities Exchange Act of 1934, as amended, persons deemed to be executive officers of the Company, Directors of the Company, and beneficial owners of more than 10% of the Common Stock are required to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. The Company believes that during 2004 all such persons complied with these filing requirements. Stockholder Proposal Intended for Inclusion in the 2006 Proxy Statement Any stockholder proposal intended to be considered for inclusion in the Company's proxy materials for presentation at the 2006 Annual Meeting of Stockholders must be in writing and received by the Corporate Secretary of the Company not later than December 14, 2005. If any stockholder who intends to propose any other matter to be acted on at the 2006 Annual Meeting of Stockholders does not inform the Company of such matter by February 16, 2006, the persons named as proxies for the 2006 Annual Meeting of Stockholders will be permitted to exercise discretionary authority to vote on such matter even if the matter is not discussed in the proxy statement for that meeting. Stockholder Nomination of a Candidate for Election as a Director The Company's By-Laws, a copy of which is available upon request to the Corporate Secretary of the Company, provide that nominations for Director may only be made by the Board of Directors or a stockholder entitled to vote who sends a stockholder notice of the nomination to the Corporate Secretary that is received by the Corporate Secretary not less than 90 days nor more than 120 days prior to the anniversary date of the prior year's annual meeting of stockholders. For a nominee of a stockholder to be eligible for election at the 2006 Annual Meeting, the stockholder's notice of nomination must be received by the Corporate Secretary between January 17, 2006 and February 16, 2006. This advance notice period is intended to allow the Board to have an opportunity to consider persons expected to be nominated at the Annual Meeting. A stockholder's notice of nomination is required to set forth the following: (i) as to each person whom the stockholder proposes to nominate for election or re-election as a Director: (A) the name, age, business address and residence address of such person; (B) the principal occupation or employment of such person; (C) the class and number of shares of capital stock of the Company that are beneficially owned by such person; (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) and between the beneficial owner and such nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of Directors, or is otherwise required, in each case pursuant to Section 14 of the Exchange Act (including, without limitation, such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to Section 1.02(e) of the Company's By-Laws. Advance Notice of Business for 2006 Annual Meeting The Company's By-Laws provide that no business may be brought before an annual meeting unless it is specified in the notice of the meeting or is otherwise brought before the meeting by or at the direction of the Board or by a stockholder entitled to vote who has delivered written notice to the Company's Corporate Secretary (containing certain information specified in the By-Laws about the stockholder and the proposed business) not less than 90 days nor more than 120 days prior to the anniversary date of the prior year's annual meeting of stockholders. For business proposed by a stockholder to be eligible to be brought before the 2006 Annual Meeting, the stockholder's notice of proposed business must be received by the Corporate Secretary between January 17, 2006 and February 16, 2006. 24
CORPORATE SECRETARY ADDRESS FOR NOTICES AND REQUESTS All notices to, or requests from, the Corporate Secretary should be sent to Omnicare, Inc., 1600 RiverCenter II, 100 E. RiverCenter Boulevard, Covington, Kentucky, 41011. As of the date of this Proxy Statement, the Company did not know of any other matter which will be presented for consideration at the Annual Meeting. However, if any other matter should come before the meeting, the persons named in the enclosed proxy (or their substitutes) will have discretionary authority to vote on the matter. The expense of soliciting proxies in the accompanying form will be borne by the Company. The Company will request banks, brokers and other persons holding shares beneficially owned by others to send proxy materials to the beneficial owners and to secure their voting instructions, if any. The Company will reimburse such persons for their expenses in so doing. In addition to solicitation by mail, officers and regular employees of the Company may, without extra remuneration, solicit proxies personally, by telephone, by facsimile or by other electronic means from some stockholders, if such proxies are not promptly received. The Company also expects to retain D. F. King & Co., Inc., a proxy-soliciting firm, to assist in the solicitation of such proxies at a cost that will not exceed $8,000 plus reasonable expenses. April 13, 2005 25 APPENDIX 1 PROXY OMNICARE, INC. 100 E. RiverCenter Boulevard Covington, Kentucky 41011 This Proxy is Solicited by the Board of Directors for the Annual Meeting of Stockholders, May 17, 2005 The undersigned hereby appoints J. F. Gemunder, D.W. Froesel, Jr. and C. D. Hodges as Proxies, each with the power to appoint a substitute, and hereby authorizes them to represent and to vote, as designated below, all the shares of common stock of Omnicare, Inc. held of record by the undersigned as of March 30, 2005 at the Annual Meeting of Stockholders to be held on May 17, 2005, or at any postponement or adjournment thereof. Election of Directors Nominees: (Continued and to be signed on other side) (1) [X] Please mark votes as in this example FOR AGAINST ABSTAIN 1. Election of Directors. 2. To ratify the selection of [ ] [ ] [ ] FOR WITHHELD 3. In their discretion, the FOR [ ] [ ] WITHHELD For all nominees except as written above IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR PROPOSALS (1) and (2). When signed on behalf of a corporation, partnership, estate, trust, or other stockholder, state your title or capacity or otherwise indicate that you are authorized to sign. (Please sign exactly as name(s) appear at left) Please sign this proxy exactly as name(s) appear hereon. When shares are held by joint tenants, both should sign. When signing as attorney, administrator, trustee or guardian, please give full title as such. Signature: Signature: Date: Date: By Order of the Board of Directors CHERYL D. HODGES Secretary Edward L. Hutton Charles H. Erhart, Jr. Andrea R. Lindell, DNSc, RN Joel F. Gemunder David W. Froesel, Jr. John H. Timoney John T. Crotty Sandra E. Laney Amy Wallman
(Please see reverse)
independent registered
public accounting firm.
Proxies are authorized to
vote upon such other
business as may properly
come before the meeting.
ALL
NOMINEES
FROM ALL NOMINEES
[ ]
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.