PMC Pharmerica Corp. (delisted)

SCHEDULE 14A INFORMATION

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PHARMERICA CORPORATION
1901 Campus Place
Louisville, KY 40299

TABLE OF CONTENTS

PHARMERICA CORPORATION
1901 Campus Place
Louisville, KY 40299

Required Vote

Every holder of record of shares of common stock entitled to vote at a meeting of stockholders will be entitled to one vote for each share outstanding in his or her name on the books of the Company at the close of business on the Record Date. Votes cast by proxy or in person at the Annual Meeting will be tabulated by one or more inspectors of election, appointed for the Annual Meeting, who will also determine whether a quorum is present for the transaction of business.

With respect to the election of directors, a nominee for director will be elected to the Board by a vote of the majority of the votes cast. In other words, if the votes cast for the nominee’s election exceed the votes cast against the nominee’s election then that nominee will be elected as a director. However, the directors will be elected by a plurality of the votes cast at any stockholder meeting where (i) the Secretary of the Company receives a notice that a stockholder has nominated a person for election to the Board in compliance with the advance notice requirements for stockholder nominees for director and (ii) such nomination has not been withdrawn by such stockholder on or prior to the day next preceding the date the Company first mails its notice of meeting for the Annual Meeting to the stockholders. For the Annual Meeting, none of the nominees were nominated by stockholders.

The affirmative vote of at least a majority of the votes of the shares of common stock present, in person or by proxy, at the Annual Meeting and entitled to vote on the matter is required to approve all other matters to be voted upon at the Annual Meeting.

How Abstentions will be Treated

Abstentions will have no effect on the election of directors. For all other proposals, abstentions will have the same effect as votes against a proposal.

How Broker-Non Votes will be Treated

Your shares may be voted if they are held in the name of a brokerage firm or bank (a “Broker”), even if you do not provide the Broker with voting instructions. Brokers have the authority, under applicable rules, to vote shares on certain “routine” matters for which their customers do not provide voting instructions. The ratification of the appointment of the independent registered public accounting firm of the Company is considered a routine matter. The election of directors, the Say on Pay proposal, the Say on Frequency proposal, and the stockholder proposal regarding simple majority vote are not considered routine matters. Broker non-votes are shares held by brokers or nominees for which instructions have not been received from the beneficial owners, or persons entitled to vote, and the Broker is barred from exercising its discretionary authority to vote the shares because the proposal is a non-routine matter. With respect to the election of directors, the Say on Pay proposal, the Say on Frequency proposal, and the stockholder proposal regarding simple majority vote, Broker non-votes will not be counted as votes for or against these proposals. Broker non-votes also will not be counted in the determination of whether the total votes cast on a proposal represents over 50% of the outstanding common stock entitled to vote on the proposal.

Advisory Proposals

Because the votes on the Say on Pay proposal, the Say on Frequency proposal and the stockholder proposal regarding simple majority vote are advisory, they will not be binding on the Board of Directors or the Company. However, the Compensation Committee will take into account the outcome of the Say on Pay vote when considering future executive compensation arrangements and the outcome of the Say on Frequency vote when determining the frequency of Say on Pay advisory votes, and the Board will take into account the outcome of the vote on the stockholder proposal regarding simple majority vote when considering if, and the proper terms upon which, amending the Company’s charter and bylaws to eliminate simply majority vote is in the best interests of the Company and its stockholders.

W. Robert Dahl, Jr. Mr. Dahl has served as a director since July 24, 2008. Mr. Dahl serves as a member of the Audit Committee. Mr. Dahl is currently a private investor. He was the Chief Operating Officer of Arrowhawk Capital Partners, an investment company, from September 2009 until March 2012. Previously, from May 2007 to November 2009 he was the Vice President of Strategic Business Development and Vice Chairman of the Board of Directors of Golden Pond Healthcare, Inc. From April 1999 until June 2006, Mr. Dahl served as the head of Global Healthcare for the Carlyle Group (“Carlyle”), a leading private equity firm, where he was responsible for the firm’s investments in the healthcare field. Prior to Carlyle, Mr. Dahl served as co-head of healthcare investment banking in North America at Credit Suisse First Boston. Mr. Dahl is also a director of CertiScan Technologies, Pharm Blue Holdings, Remedy Partners, RJ Health Systems, HealthPrize Technologies and Virtual Office Works, all of which are private companies. Mr. Dahl received a BA from Middlebury College and an MBA from the Harvard Graduate School of Business Administration.

Mr. Dahl’s experience as a certified public accountant, investment banker, financial advisor and healthcare private equity investor provides him with financial literacy and expertise and knowledge of the healthcare industry, along with expertise in mergers and acquisitions.

Marjorie W. Dorr. Ms. Dorr has served as a director since January 22, 2009. Ms. Dorr serves as a member of the Audit Committee and served on the Compensation Committee between 2010 and 2013. Ms. Dorr served as Executive Vice President and Chief Strategy Officer for WellPoint, Inc. (“WellPoint”) from 2005 to 2007. Ms. Dorr held various executive positions while at WellPoint including President and Chief Executive Officer of WellPoint’s Northeast Region SBU, where she was responsible for operations in several states. Ms. Dorr joined WellPoint through the merger in 2004 of WellPoint and Anthem, Inc. At the time of the merger, Ms. Dorr served as President of Anthem Blue Cross and Blue Shield’s East region. Ms. Dorr received her bachelor of business administration degree from the University of Iowa and her master of business administration degree from the University of Chicago Graduate School of Business.

Ms. Dorr’s experience as a senior executive of a large health benefits company equips her with expertise in pharmacy reimbursement practices and strategic planning.

Patrick G. LePore. Mr. LePore was appointed to the Board on January 14, 2013. Mr. LePore serves as a Member of the Compensation Committee. He has been Chairman of the Board of AgeneBio, Inc since July 2014 and currently serves as a Director of Innoviva, Inc. From 2007 to 2012, Mr. LePore served as the Chairman of the Board of Par Pharmaceutical Companies, Inc. He was also their Chief Executive Officer until its acquisition by private equity investor TPG, in 2012. Mr. LePore was President of Cardinal Health, Inc.’s healthcare marketing group prior to joining Par Pharmaceutical Companies Inc. Mr. LePore earned a B.A. degree from Villanova University, where he is also a trustee. Mr. LePore earned his MBA degree from Fairleigh Dickinson University.

Mr. LePore’s experience as a former Chairman of the Board, and as a Chief Executive Officer at a successful pharmaceutical company provides him with expertise and knowledge, especially with respect to pharmaceutical distribution. By virtue of his management experience, Mr. LePore brings important insight to the Board.

Geoffrey G. Meyers. Mr. Meyers has served as a director since November 17, 2009 and as Chairman of the Board since January 1, 2011. On February 1, 2010, Mr. Meyers became a member of the Nominating and Governance Committee. Mr. Meyers is the retired Chief Financial Officer and Executive Vice President and Treasurer for Manor Care, Inc. where he had responsibility for administration and financial management from 1988 until 2006 and was a director of Health Care and Retirement Corp., a predecessor of Manor Care, Inc., from 1991 to 1998. Mr. Meyers has been a director of HCA Holdings, Inc. and Chairman of is audit committee since March 2011; and he is a director of Welltower Inc. (NYSE: HCN) since 2014 and is a member of its Audit and Nominating and Goverance Committees. Mr. Meyers is also a Board member of the Trust Company of Toledo, a northwestern Ohio trust bank. He received his BA from Northwestern University and his MBA from The Ohio State University.

Mr. Meyers has over two decades of experience in the long term care industry, which provides us with valuable insight into the needs and operations of our customer base. Having served as the Chief Financial Officer of a large public company he also has expertise in finance and accounting matters, investor relations, human resources, information technologies, purchasing, corporate communications, risk management, reimbursement, strategic planning and development and acquisitions.

Robert A. Oakley, Ph.D. Mr. Oakley has served as a director since March 24, 2008. Mr. Oakley serves as the Chairman of the Audit Committee. In 2003, Mr. Oakley retired as Executive Vice President–Finance/CFO after more

than 25 years of service with the Columbus, Ohio-based Nationwide Companies, one of the largest diversified insurance and financial services organizations in the world. Mr. Oakley served on the boards of Ohio Casualty Corporation from March 2003 to September 2008, First Mercury Financial Corporation from January 2008 to August 2009 and the Physicians Assurance Corporation from January 2008 to August 2009. He received his BS from Purdue University and both an MBA and Ph.D. in Finance from The Ohio State University.

Mr. Oakley possesses financial literacy and expertise from his experiences as a former Chief Financial Officer and chair of audit committees at leading insurance and financial services companies, along with expertise in investor relations, risk management and strategic planning.

Gregory S. Weishar. Mr. Weishar has served as our Chief Executive Officer since January 14, 2007. He has over 30 years’ experience in the pharmacy services industry. Prior to joining the Company, he was Chief Executive Officer and President of PharmaCare Management Services, a prescription benefit management firm and a wholly-owned subsidiary of CVS Health, since 1994.

Mr. Weishar has substantial senior executive experience in the pharmacy services industry and as Chief Executive Officer of the Company has intimate knowledge of our industry and business.

Recommendation of Our Board of Directors

Our Board recommends a vote FOR the seven directors listed above to hold office until the 2018 Annual Meeting of Stockholders and until their successors have been duly elected and qualified.

Required Vote

A nominee for director will be elected to the Board by a vote of the majority of the votes cast.

CORPORATE GOVERNANCE

Meetings

During 2016, the Board held a total of six meetings. Each director attended at least 75% of the aggregate of (i) the total number of meetings of the Board during the period which he/she was a director and (ii) the total number of meetings of all Board Committees on which he/she served during the period which he/she was a director. The non-management members of the Board, all of whom satisfy the independence requirements of the New York Stock Exchange (the “NYSE”), met in executive session at all of the regularly scheduled meetings of the Board. The non-executive Chairman of the Board presides at meetings of the non-management directors and independent directors to the extent that he is present at the meetings.

It is the policy of the Board to encourage its members to attend the Company’s Annual Meeting of Stockholders. Except for Messrs. Gerrity, LePore and Mac Mahon, all of the Company’s directors attended the Company’s 2016 Annual Meeting of Stockholders in person.

Board Committees

The Board has three standing Committees: the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. Copies of the charters of each of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee setting forth the responsibilities of the committees can be found under the “For Investors—Corporate Governance” section of our website at www.pharmerica.com and such information is also available in print to any stockholder who requests it through our Investor Relations department. We periodically review and revise the committee charters. A summary of the composition of each committee, and its responsibilities is set forth below.

Audit Committee

The Company has a standing Audit Committee established by the Board for the purpose of overseeing the Company’s accounting and financial reporting processes and audits of the Company’s financial statements. The Audit Committee held a total of ten meetings in 2016. The Board has determined that Mr. Dahl, Ms. Dorr and Mr. Oakley are each qualified as an “audit committee financial expert” as such term is defined in Item 407(d)(5) of Regulation S-K and that they are “independent” within the meaning of the listing standards of the NYSE and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) relating to directors serving on audit committees.

Compensation Committee

The Compensation Committee is responsible for administering the Company’s executive and director compensation programs, including executive base salaries, bonuses, performance based awards and other equity awards, and for administering the Company’s equity compensation plans. Pursuant to its charter, the Compensation

Committee has authority to delegate any of its responsibilities to subcommittees as the Compensation Committee may deem appropriate. The Compensation Committee held a total of four meetings in 2016. The Compensation Committee reviews periodic reports from the CEO and other officers as to the performance and compensation of the officers, employees and directors. The Board will elect a new Chairman of the Compensation Committee following the Annual Meeting.

Pursuant to its charter, the Compensation Committee has the sole authority, at the Company’s expense, to retain, oversee, and terminate a consulting firm to assist in the evaluation of director, CEO or executive officer compensation, and in furtherance thereof to retain legal counsel and other advisors.

Since April 2008, the Compensation Committee has retained Frederic W. Cook & Co. (“FW Cook”) to serve as the Company’s outside compensation consultant with respect to setting each year’s executive compensation. See the discussion under “Compensation Discussion and Analysis” for more information on FW Cook’s role in assisting the Company with its compensation policies and programs.

FW Cook is retained only by the Compensation Committee to assist in the determination, amount and form of executive and non-employee director compensation. Neither FW Cook nor any of its affiliates provides any additional services to the Company or its affiliates. The Compensation Committee has determined that the work of FW Cook did not raise any conflicts of interest in 2016. In making this assessment, the Compensation Committee considered the independence factors enumerated in Rule 10C-1(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including the fact that FW Cook does not provide any other services to the Corporation, the level of fees received from the Corporation as a percentage of FW Cook’s total revenue, policies and procedures employed by FW Cook to prevent conflicts of interest, and whether the individual FW Cook advisers to Compensation Committee own any stock of the Corporation or have any business or personal relationships with members of the Compensation Committee or our executive officers.

Nominating and Corporate Governance Committee

The purpose of the Nominating and Corporate Governance Committee of the Board is to (i) identify individuals qualified to become members of the Board (consistent with criteria approved by the Board); (ii) select, or recommend that the Board select, the director nominees for the next annual meeting of stockholders and nominees to fill vacancies on the Board; (iii) develop and recommend to the Board a set of corporate governance guidelines applicable to the Company; (iv) oversee the evaluation of the Board, its committees and management; and (v) oversee, in concert with the Audit Committee, compliance rules, regulations and ethical standards for the Company’s directors, officers and employees, including corporate governance issues and practices. While the Nominating and Corporate Governance Committee has no formal process for identifying nominees, if it is deemed appropriate, the Nominating and Corporate Governance Committee may consider candidates recommended by any other source, including stockholders and business and other organizational networks. The Nominating and Corporate Governance Committee may retain and compensate third parties, including executive search firms, to identify or evaluate candidates for consideration. The Nominating and Corporate Governance Committee held five meetings in 2016.

The Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders. Stockholders wishing to suggest a candidate for director for inclusion in the Company’s proxy statement must submit a written notice to the Company’s Corporate Secretary at PharMerica Corporation, 1901 Campus Place, Louisville, Kentucky 40299. The written notice must include:

In considering candidates recommended by stockholders, the Nominating and Corporate Governance Committee will use the same evaluation criteria and process as that used by the Nominating and Corporate Governance Committee for other candidates. The Nominating and Corporate Governance Committee evaluates the candidates in accordance with its Policy for Evaluation for Nominees to the Board of Directors, which sets forth the following factors to be considered:

The Policy for Evaluation for Nominees to the Board of Directors specifies that diversity of experiences and expertise is a factor to be considered by the Nominating and Governance Committee in the director identification and nomination process. The Nominating and Governance Committee seeks nominees with a broad diversity of experience, professions, skills, geographic representation and backgrounds. The Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. The Company believes that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow the Board to fulfill its responsibilities. Nominees are not discriminated against on the basis of race, religion, national origin, sexual orientation, disability or any other basis proscribed by law.

The Committee has the authority under its charter to hire and pay a fee to consultants or search firms to assist in the process of identifying and evaluating candidates.

In addition, our By-Laws permit certain of our stockholders who have beneficially owned 3% or more of our outstanding common stock continuously for at least the previous three years to submit director nominees to be included in our proxy materials for up to the greater of 2 individuals or 25% (rounded down to the closest whole number below 25%) of the total number of directors then serving. Notice of proxy access director nominations for the 2018 annual meeting of stockholders must be delivered to our Corporate Secretary at our principal executive offices no earlier than November 29, 2017 and no later than December 29, 2017. The notice must set forth the information required by our By-Laws with respect to each proxy access director nomination that an eligible stockholder or stockholders intend to present at the 2018 annual meeting of stockholders and must otherwise be in compliance with our By-Laws.

Board Independence

Our Corporate Governance Guidelines provide for director independence standards consistent with those of the NYSE and the federal securities laws. These standards require the Board to affirmatively determine that each “independent” director has no material relationship with the Company (directly or as a partner, stockholder or officer of an organization that has a relationship with the Company) other than as a director. The Board has determined that the following directors are “independent” as required by the NYSE listing standards and the Company’s Corporate Governance Guidelines: Mr. Collins, Mr. Dahl, Ms. Dorr, Mr. Gerrity, Mr. LePore, Mr. Mac Mahon, Mr. Meyers and Mr. Oakley.

All members of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee are independent directors as defined in the NYSE listing standards and in the standards in the Company’s Corporate Governance Guidelines.

Chairman of the Board is responsible for leading the Board in the execution of its fiduciary duties. The Chairman presides over meetings of the full Board. Effective as of the Annual Meeting, the Board has fixed the number of directors at seven. Following the Annual Meeting, the Board will determine the composition of the Board committees.

The full Board is responsible for the Company’s risk oversight process. The Board delegates to appropriate committees the oversight of particular subject areas of risk that are under the purview of those committees. For example, financial risk is overseen by the Audit Committee, while utilizing compensation strategies addressing Section 162(m) of the Internal Revenue Code is within the purview of the Compensation Committee. Strategic risks are overseen by the full Board. The Board (or appropriate Committee) receives regular reports from senior management on areas of material risk to the Company, including operational, financial, legal and regulatory compliance, and strategic risk. The chairman of each Committee reports to the full Board during the Committee reports portion of the next Board meeting each of the material matters considered by the Committee. This reporting process enables the Board and its Committees to coordinate the risk oversight role, particularly with respect to risk interrelationships. As part of the Board’s risk oversight responsibilities it has established an enterprise risk management program, which at the management level, is overseen by the Company’s Chief Financial Officer. Enterprise risks are identified and prioritized by management and the Board and a mitigation plan is developed. Management regularly reports on risk mitigation to the relevant Committee or the Board. Additional review or reporting on enterprise risks is conducted as needed or as requested by the Board or Committee.

Communication with the Board of Directors

It is the policy of the Company to facilitate communications of stockholders with the Board. Communications to the directors must be in writing and sent Certified Mail to the Board of Directors c/o the Chief Financial Officer to the Company’s headquarters at PharMerica Corporation, 1901 Campus Place, Louisville, Kentucky 40299. All communications must be accompanied by all of the following information:

The following types of communications are not appropriate for delivery to Directors under the Company’s policy:

Upon receipt, each communication will be entered into an intake record maintained for this purpose, including the name of the person submitting the communication, the date and time of receipt of the communication, the information concerning the person submitting the communication required to accompany the communication and a brief statement of the subject matter of the communication. The record will also indicate the action taken with respect to the communication. The personnel responsible for receiving and processing the communications will review each communication to determine whether the communication satisfies the procedural requirements for submission under the Policy and Procedures for Stockholder Communication with Directors and the substance of the communication is of a type that is appropriate for delivery to the directors under the criteria set forth above. Communications determined to be appropriate for delivery to directors will be assembled by the responsible personnel for delivery and delivered to the directors on a periodic basis, generally in advance of each regularly scheduled meeting of the Board. Communications directed to the Board as a whole, but relating to the area of competence of one of the Board’s committees, will be delivered to that committee, with a copy to the Chairman of the Board.

Proxy Access

On March 24, 2017, the Board adopted an amendment to the By-Laws to implement proxy access. Article 1, Section 14 was added to the By-Laws to permit an eligible stockholder, or a group of up to 20 stockholders, that owns 3% or more of the Company’s outstanding common stock continuously for at least the previous 3 years to nominate and include in the Company’s proxy materials one or more independent candidates for election as directors of the Company. Such eligible stockholder(s) or group(s) of stockholders may nominate up to the greater of 2 individuals or 25% (rounded down to the closest whole number below 25%) of the Board, provided that the eligible stockholder(s) and the nominee(s) satisfy the eligibility, notice and other requirements specified in the By-Laws. Stockholders may utilize proxy access beginning with the Company’s 2018 Annual Meeting of Stockholders.

Our compensation program for non-employee members of the Board is as follows:

Annual Retainer —Each director receives an annual retainer of $50,000. Directors may, in their discretion, elect to receive the annual retainer, in whole or in part, in cash or shares of the Company’s common stock.

Chairman Retainer —The Chairman of the Board currently receives an additional retainer of $75,000 per year.

Committee Chair Retainer —The Chairman of the Nominating and Governance Committee and the Chairman of the Compensation Committee each currently receive an additional annual retainer of $10,000. The Chairman of the Audit Committee currently receives an additional annual retainer of $15,000.

Board Meeting Fee —Directors receive $2,000 for each meeting of the Board attended.

Committee Meeting Fee —Committee members receive $1,500 for each committee meeting attended.

Annual Restricted Stock Unit Grant —Each director receives an annual award of restricted stock units valued at approximately $125,000. The restricted stock units vest the earlier of the first anniversary of the grant date or the next annual stockholder meeting.

Exceptions —Gregory Weishar, as a member of management, does not receive separate compensation for service on the Board.

Deferred Compensation —In 2008, we adopted the PharMerica Corporation Deferred Fee Plan for Directors. Under the plan, directors may elect to defer up to 100% of their cash fees and their stock fees in any one year. If a director elects to defer his/her restricted stock units, the stock will be deferred as it vests. The minimum deferral period for an “in-service” distribution of any deferred amount is five years from the end of the year to which each such deferred fee agreement relates. Cash and stock deferred pursuant to the plan may, at the director’s election in his/her deferred fee agreement, be distributed in a lump-sum or in up to ten annual installments. Notwithstanding the foregoing, in each deferred fee agreement, a director may elect to commence distributions of all deferred cash and stock earlier, in the event of a separation from service, the death or disability of the director, or upon a change in control of the Company.

Deferred amounts are recorded in the form of bookkeeping entries only. Deferred cash bookkeeping accounts will be adjusted for gains or losses based on investment elections made by the director. A director may choose to “invest” their deferred cash amounts in the same general investments offered under the PharMerica Corporation 401(k) Retirement Savings Plan. Directors may change their investment elections at any time. Deferred stock fees will be paid out of the plan in the form of shares of stock, which shall remain issued and outstanding until distributed to the director pursuant to his deferred fee agreement. Deferred amounts are unfunded and the directors would be unsecured creditors of the Company if the Company became insolvent or otherwise unable to pay the balances due under the plan.

Stock Ownership Guidelines —We encourage our directors to own stock in the Company. The Compensation Committee adopted stock ownership guidelines to align long-term interests of directors with those of our stockholders and provide a continuing incentive to foster the Company’s success. The stock ownership guidelines became effective July 1, 2008 and were updated in September 2015 for directors. Under the stock ownership guidelines, directors are expected to own Company stock in the amount of 500% of their annual retainer (exclusive of board meeting fees), or $250,000. There is no required time period within which directors must attain the applicable stock ownership level under the guidelines, whether joining the Board before or after the adoption of the guidelines. The following count towards meeting the stock ownership guidelines: all shares and vested options held but not unvested and unearned restricted stock/restricted stock units/performance shares and unvested stock options. Shares are valued at fair market value and options are valued at the spread between the exercise price and the fair market value of the underlying shares. As of April 19, 2017, all directors own shares of the Company and the value of the directors’ ownership in the Company is as follows: Frank Collins - $1,342,077; Robert Dahl - $1,189,033; Marjorie Dorr - $1,233,669; Thomas Gerrity - $1,220,845; Patrick G. LePore - $566,844; Thomas Mac Mahon - $1,342,077; Geoffrey Meyers - $1,246,287; and Robert Oakley - $1,201,288.

COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

Our executive compensation program is primarily structured to be competitive within our peer group and focus our executives on enhancing revenues and increasing profitability by providing quality services, managing costs and making appropriate acquisitions. The Compensation Committee has adopted a compensation strategy in which total direct compensation is generally targeted at the 40th percentile to median of market practice and is expected to be achieved through a combination of below median base salary and median to above-median annual and long-term incentive opportunities. This approach supports the Company’s pay-for-performance philosophy by providing a compensation package that is generally weighted toward variable, performance-based incentives, thus ensuring a high degree of accountability at the senior levels of the organization. Approximately seventy-nine percent (79%) of the CEO’s pay is at risk and the at risk pay for the remaining Named Executives ranges from approximately 52% to 72%.

In 2016, the Company continued to execute its strategy of diversifying its pharmacy services business, with the diversified pharmacy services segment revenues growing to approximately 40% in 2016. The Company’s Adjusted EBITDA of $129.2 million in 2016 was slightly below the target that had been set for the Company’s 2016 short-term incentive program, and funded an annual bonus pool of 86.5% of target for the Company’s EBITDA component of the plan. The Company’s adjusted diluted earnings per share (“Adjusted Diluted EPS”) of $1.94 funded an annual bonus pool of 82.1% of target for the Company’s Adjusted Diluted EPS component of the 2016 short-term incentive program. Adjusted Diluted EPS is the net income for the applicable full year period and adding to net income the net of tax effect of certain amounts as reported in the Corporation’s disclosures in its Form 10-K as of and for the year ended December 31, 2016, divided by the weighted average of outstanding common stock shares and diluted equivalents on the last day of the applicable year. The performance share unit component of our 2014-2016 long-term incentive program vested at 67.8% of target for Adjusted EBITDA and 0% for Adjusted Diluted EPS.

The 2016 long-term incentives were delivered in a combination of performance shares and restricted stock unit awards (weighted 50%/50%) to focus executives on long-term operating performance and support executive retention.

The Compensation Committee is composed solely of independent directors. Over the years, the Company has adopted many contemporary “best practices”. These include the following:

The total direct compensation our Named Executives received in fiscal year 2016 set forth in the Summary Compensation Table on page 24 is consistent with and reflects our compensation objectives.

Introduction

The Compensation Committee of the Board of Directors is principally responsible for reviewing, administering and approving the Company’s compensation policies and practices regarding the executive officers. The Compensation Committee is composed of three members, each of whom is (i) an independent director, (ii) qualified as a “non-employee director,” as defined under Section 16 of the Securities Exchange Act of 1934, as amended, and (iii) qualified as an “outside director” under Section 162(m) of the Internal Revenue Code. Pursuant to the terms of the Compensation Committee’s written charter, which has been approved by the Board and is reviewed annually to ensure that it properly reflects the Compensation Committee’s responsibilities, the Compensation Committee has the responsibility for establishing the compensation structure for the Company’s executive officers. The Compensation Committee makes its decisions after extensive review and consideration, including an annual review of our peer compensation practices.

This Compensation Discussion and Analysis provides information on our executive compensation philosophy, how and why compensation decisions are made and how the decisions align with the Company’s and individual performance.

FW Cook has served as the Compensation Committee’s outside Compensation Consultant since April 2008. FW Cook assisted the Compensation Committee in setting 2016 compensation levels and developing the structure of various incentive plans, providing the Committee with information on emerging trends and regulatory developments in executive and non-employee director compensation. FW Cook has recently provided input to the Company in establishing its 2017 Compensation program. In its role as outside consultant, FW Cook provides the Compensation Committee with objective analyses, advice and information with respect to CEO and other executive compensation. FW Cook maintains no other direct or indirect business relationships with the Company.

Our 2016 named executive officers (referred to herein as the “Named Executives”) are the following executives: Mr. Weishar, our Chief Executive Officer; Mr. Tomassetti, our Senior Vice President and Chief Accounting Officer who served as interim principal financial officer of the Company for a brief time during 2016, Mr. Vishnubhatla, Executive Vice President of Long-Term Care Operations; Mr. McKay, our Senior Vice President of Purchasing and Trade Relations; Mr. Caneris, our Senior Vice President, General Counsel and Secretary; and Mr. Froesel, our former Executive Vice President, Chief Financial Officer and Treasurer, who retired on September 30, 2016.

For 2016 compensation planning purposes, the Compensation Committee approved the use of a peer group composed of 15 companies that are relatively comparable in size as measured by annual revenue, operate within the same general industry space, or are competitors for customers and/or executive talent. The 2016 peer group consists of the following companies:

Acadia Healthcare
Amedisys, Inc.
Bioscript, Inc.
Chemed
Fred’s, Inc.
Integra Lifesciences Holdings
Magellan Health Services
Masimo Corporation
MedAssets, Inc
Steris Corporation
Surgical Care Affiliates, Inc.
Team Health Holdings
Triple-S Management Corporation
Universal American Corp
VCA

In 2017, the Company retained the same peer group. Our revenues approximate the median to 75 ^th percentile of the peer companies; our EBITDA is between the 25 ^th percentile and the mean; and our enterprise value and market capitalization are near the 25 ^th percentile.

Components of the Executive Compensation Program

Our Named Executive compensation program consists of base salary, annual cash incentives and long-term incentives. For our Named Executives, our program is structured so that variable, or “at risk,” compensation is targeted to range from approximately 50% to 80% of total compensation. This ensures that the executives with the highest degree of responsibility to stockholders are held most accountable for results and changes in stockholder value.

Base Salary

Base salaries for our Named Executives were generally targeted to below the median range for equivalent positions at the peer group companies. Actual salary for individual executives is positioned to reflect differences in job content, performance and experience. Competitive base salaries are essential to attracting and retaining executive management talent, and also serve to mitigate pressure that might otherwise exist to support high-risk business strategies if base salary was set materially below market rates.

The Compensation Committee reviews base salaries at least annually and more frequently when promotions or changes in responsibility occur within our executive management. Salary increases are generally based on factors such as competitive market data, assessment of individual performance, promotions, level of responsibility, skill set relative to external counterparts, general economic conditions and input from our CEO for Named Executives other than himself. Messrs Vishnubhatla and Tomassetti received merit increases of 7.5% and 11.7%, respectively to reflect their assumption of greater duties within the Corporation. Mr. Tomassetti also received an additional $10,000 for each month he served as the interim Chief Financial Officer. A merit increase budget of 2 percent was adopted for 2016 for the remaining executives and employees.

Annual Cash Incentives

Pursuant to the Company’s annual incentive program, our Named Executives have the opportunity to earn annual cash incentives for meeting annual performance goals. The Company utilizes cash incentives as a method of tying a portion of annual compensation to our annual financial performance, as well as non-financial objectives that are designed to lead to increases in long-term stockholder value. The specific objective performance criteria that must be obtained in order for bonuses to be paid are approved each year by the Compensation Committee and are subject to change from year to year to reflect changes in strategic priorities.

Mr. Weishar

In 2016, the incentive opportunity for Mr. Weishar was based upon an incentive formula tied to our Adjusted EBITDA which is equal to our earnings before interest, taxes, depreciation and amortization, and other amounts as reported in the Corporation’s disclosures in its Form 10-K as of and for the year ended December 31, 2016; and Adjusted Diluted EPS. Adjusted EBITDA and Adjusted Diluted EPS were selected as the objective performance criterion because it is critical to focus our Named Executives on earnings and the achievement of cost savings.

Mr. Weishar’s incentive formula was 2.2% of Adjusted EBITDA for 2016, provided that Adjusted EBITDA was at least $108.24 million for the year (but in no event could the incentive exceed $2 million). The minimum EBITDA level was set to correspond to the threshold level of Adjusted EBITDA under the annual bonus program described below. The EBITDA incentive formula, which was adopted to enable tax deductibility for Mr. Weishar’s annual bonus, established the maximum amount payable to Mr. Weishar for 2016; but he was not assured of earning this maximum amount. Based on 2016 actual Adjusted EBITDA of $129.2 million, Mr. Weishar’s maximum incentive award was $2,000,000. The Compensation Committee reduced the size of the award under the EBITDA incentive formula to the amount payable under the short-term incentive program, as described below. The annual short-term incentive program rewards Company and individual performance.

Annual Cash Incentive

The Compensation Committee established target award opportunities for the Named Executives under the 2016 annual bonus program, which were expressed as a percentage of base salary. These target award opportunities were individually negotiated with our Named Executives prior to their accepting employment with our Company, and in certain cases have been adjusted by the Compensation Committee in prior years. The combination of base salary and target bonus was intended to generally align target annual compensation with the 40th percentile to median range.

Annual bonuses are paid based on a combination of Company financial performance and individual performance relative to pre-established financial and non-financial objectives. For Messrs Weishar, Vishnubhatla and Froesel, financial performance is measured by Adjusted EBITDA and Adjusted Diluted EPS, because by virtue of their roles and responsibilities they have the greatest accountability for the Company’s financial results, including financing and tax decisions. For Messrs Caneris, McKay and Tomassetti, Company financial performance is measured solely by Adjusted EBITDA. The Company must at least meet the threshold level of Adjusted EBITDA in order for any payment to be made under the individual/group performance-based components.

For the Named Executives, the threshold performance level for Adjusted EBITDA was set at 80% of the target performance and the maximum performance level was set at 120% of target performance; the same as in 2015. For the Named Executives, the threshold performance level for Adjusted Diluted EPS was set at 85% of the target performance and the maximum performance level was set at 115% of target performance. The target was based the amounts that the Board set for 2016 Adjusted EBITDA and Adjusted Diluted EPS during the annual budgeting process. The target for 2015 was set in a similar manner.

For the Named Executives, the performance and payout levels for the Company Adjusted EBITDA goals were as follows; with actual bonus amounts interpolated between the percentages set forth in the chart based on actual results if performance was above the threshold:

For the Named Executives, the performance and payout levels for the Company Adjusted Diluted EPS goals were as follows; with actual bonus amounts interpolated between the percentages set forth in the chart based on actual results if performance was above the threshold:

The thresholds and maximum payouts for Adjusted EBITDA and Adjusted Diluted EPS were different to reflect the Company’s primary focus on EBITDA, rather than EPS as measure of performance. Individual goals were established at the beginning of 2016 and were tailored to reflect priorities for each executive for 2016.

For 2016, the Company achieved Adjusted EBITDA of $129.2 million, which resulted in a 86.5% payout for the Adjusted EBITDA financial component and Adjusted Diluted EPS of $1.94, which resulted in a 82.1% payout for the Adjusted Diluted EPS financial component of the award opportunities. Payouts for the individual components for the Named Executives ranged from 70% to 130% of target, resulting in total bonus payments of 74.3% to 92.4% of target. During the year, the Named Executive Officers’ accomplishments were improvements in profitability, the creation of an assisted living product offering and reducing costs of goods sold, amongst other things.

No discretion was used in funding the bonus pool or in allocating the bonus pool.

For more information on the 2016 annual incentive opportunities for our Named Executives, please refer to the “Grants of Plan-Based Awards in 2016” section of this proxy statement on page 27 .

Long-Term Incentives

The Company’s 2016 Long-Term Incentive Grants

Long-term target incentive opportunities are expressed as a percentage of base salary and vary among our Named Executives. Fiscal year 2016, long-term incentive opportunities for Messrs Weishar, Tomassetti, Vishnubhatla, McKay, Caneris and Froesel were set to generally bring each executive’s total direct compensation to be within the range of the 40th percentile to median of market practice.

The long-term incentive opportunities are in the 75th percentile to median range when compared to the peer group.

In fiscal year 2016, the long-term component of our executive compensation program for the Named Executives consisted of a combination of restricted stock units and performance share units. The Compensation Committee used performance share units to focus executives on longer-term operating performance expected to drive long-term stockholder value creation. Restricted stock units were granted to bolster the retention features of the executive compensation plan and further the goals of the Company’s stock ownership guidelines. These restricted stock units, and all prior restricted stock awards granted to the Named Executives vest in three equal annual installments. All restricted stock units which have been granted to the Named Executives under the Company’s Omnibus Incentive

Plans ¹ have had a requirement that no restricted stock units may vest sooner than one year from the date of the grant. The performance shares vest at the end of a three year performance period subject to achievement of pre-established financial goals. The long-term incentive awards were granted in the following amounts as a percentage of each of the Named Executive’s long-term incentive target award: 50% restricted stock units and 50% performance share units to balance executive retention with a focus on long-term stock price and operating performance.

Adjusted EBITDA was selected as the performance measure for the 2016 performance share units to reinforce the importance of achievement of cost savings and earnings in the creation of long-term stockholder value. Adjusted Diluted EPS is used because we believe that in addition to Adjusted EBITDA, our stockholders use EPS to assess the Company’s performance. We believe the combination of Adjusted EBITDA and Adjusted Diluted EPS ensures that executives consider the impact on margins in executing strategies to fuel the Company’s profitable growth.

The 2016 performance share units granted to our Named Executives except Mr. Tomassetti, were based 70% on the achievement of an Adjusted EBITDA target and 30% on the achievement of an Adjusted Diluted EPS target. The 2016 performance share units granted to Mr. Tomassetti were based 100% on the achievement of an Adjusted EBITDA target. For the 2016 performance share unit grants, performance will be measured based on 2018 Adjusted EBITDA, as reported in the Company’s Annual Report on Form 10-K, and for all Named Executives except Mr. Tomassetti, Adjusted Diluted EPS performance. The Adjusted EBITDA and Adjusted Diluted EPS performance objectives were set based on the Company’s longer-range plan, and at the time of grant were viewed to be challenging, but achievable. The actual number of performance share units earned can range from 50% at threshold performance to 150% of the target award at maximum performance, depending upon performance relative to the predetermined Adjusted EBITDA and/or Adjusted Diluted EPS goals.

The 2014-2016 Performance Share Units

In fiscal year 2014, the long-term component of our executive compensation program for Messrs. Weishar, Tomassetti, Vishnubhatla, Caneris, McKay and Froesel consisted of a combination of restricted stock units and performance share units, with performance share units consisting of 50% of the grant date fair value at target performance. The Compensation Committee used Adjusted EBITDA for Mr. Tomassetti, and used Adjusted EBITDA and Adjusted Diluted EPS (70%/30%) split for the remaining Named Executives, as of December 31, 2016 as the performance measures for the 2014-2016 long-term performance share unit awards.

As the Company’s 2016 Adjusted EBITDA was $129.2 million, the payouts under the 2014-2016 long-term incentive program were made at 67.8% of the target for Adjusted EBITDA. For Adjusted Diluted EPS, the Company reported in its Annual Report on Form 10-K for the year-ended December 2016 Adjusted Diluted EPS of $1.94 per share; however for purposes of the definition of Adjusted Diluted EPS under the 2014-2016 long-term incentive program, the Company was required to deduct the amortization for intangible assets. This had the effect of reducing Adjusted Diluted EPS as defined under the 2014-2016 long-term incentive program to $1.25 per share. As a result there was no payout under the Adjusted Diluted EPS component of the long-term incentive program.

Treatment of Equity Incentives in the Event of Change in Control

As provided in the Company’s 2015 Omnibus Incentive Plan or the award agreements related thereto, unvested equity awards granted to our Named Executives (with the exception of equity awards held by Mr. McKay, Senior Vice President of Purchasing and Trade Relations) may automatically vest upon certain terminations of a Named Executive’s employment following a change in control. We believe that such a “double trigger” provision will encourage our executive officers to assess takeover bids objectively without regard to the potential impact on their job security while maintaining the retention power of the compensation program following a change in control. Unvested equity awards granted to our Senior Vice President of Purchasing and Trade Relations automatically vest

upon a change in control as provided under terms of his employment agreement, which was entered into in 2007 prior to the development of our overall executive compensation program and the decision to provide for “double trigger” vesting with respect to our executive officers generally.

Benefits and Perquisites

Our Named Executives are eligible to participate in our 401(k) plan and certain payments are made on their behalf in connection with life insurance premiums. Otherwise, they receive the same health, life and disability benefits available to our employees generally. We do not offer a defined benefit pension plan or a supplemental executive retirement plan.

Voluntary Deferred Compensation Plan

The Company offers certain management and “highly compensated employees,” including our Named Executives the ability to elect to defer up to 50% of their base salary and up to 100% of such participant’s annual short-term incentive program cash bonus into a non-qualified deferred compensation plan. We believe the deferred compensation plan motivates and retains our executive officers by providing a tax-effective opportunity to save for their retirement and enabling them to take a more active role in structuring the timing of certain compensation payments. Participant account balances are unsecured and the participants would be unsecured creditors of the Company if the Company became insolvent or was otherwise unable to pay the balances to the participants.

Stock Ownership Guidelines

We encourage our executive officers and other key employees to own stock in the Company. The Nominating and Governance Committee adopted stock ownership guidelines to align long-term interests of management with those of our stockholders and provide a continuing incentive to foster the Company’s success. The stock ownership guidelines became effective December 1, 2012 for certain key executive officers, including our Named Executives. Under the stock ownership guidelines, the CEO, Executive Vice Presidents, and Senior Vice Presidents are expected to own Company stock in the amount of 400%, 200%, and 100% of their annual base salary, respectively. Company Executives are expected to retain 50% of after-tax profit shares earned from the equity compensation program until the guidelines are achieved. Shares owned outright, held in a trust or other estate planning, and credited as deferred stock units or held in 401(k), and vested stock options count towards meeting the guidelines.

Each of the Named Executives exceed the ownership levels, as established under the guidelines. As of April 19, 2017, the value of the Named Executives’ ownership in the Company is as follows: Gregory Weishar – $25,099,635 (665.1% of target); Suresh Vishnubhatla - $1,346,821 (170.5% of target); Robert McKay - $1,621,922 (517.0% of target); and Thomas Caneris - $1,812,109 (531.0% of target). Mr. Froesel retired on September 30, 2016, and, therefore, he is no longer subject to the Company’s stock ownership guidelines. Mr. Tomassetti was not subject to the guidelines in 2016.

Policies with Respect to Speculation in the Company’s Securities

The Company, since its inception, has maintained a policy applicable to all directors, Company’s officers who file reports under Section 16 of the Securities Exchange Act of 1934 and other employees with access to material non-public information which prohibits speculative trading in the Company’s stock and the trading of derivative securities of the Company. Additionally, short sales and buying stock on margin or placing stock in margin accounts are also prohibited.

The Company also maintains an anti-pledging policy and an anti-hedging policy, each of which is applicable to all of Company’s officers who file reports under Section 16 of the Securities Exchange Act of 1934. The anti-pledging policy prohibits such persons from making any pledges of Company securities as collateral for a loan, or otherwise holding Company securities in a margin account. The anti-hedging policy encourages such persons from speculating in the Company’s securities, prohibits such persons from engaging in short sales of the Company’s securities, and prohibits such persons from trading in derivative securities relating to the Company’s securities.

The Prior “Say On Pay” Vote

The Company conducted its fifth advisory vote on executive compensation last year at its 2016 Annual Meeting. While this vote was not binding on the Company, its Board of Directors or its Compensation Committee, the Company believes that it is important for its stockholders to have an opportunity to vote on this proposal on an annual basis as a means to express their views regarding the Company’s executive compensation philosophy, the Company’s

compensation policies and programs, and the Company’s decisions regarding executive compensation, all as disclosed in this proxy statement. The Company’s Board of Directors and its Compensation Committee value the opinions of its stockholders and, to the extent there is any significant vote against the compensation of the Named Executives as disclosed in the proxy statement, the Company will consider its stockholders’ concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns. In addition to the annual advisory vote on executive compensation, the Company discusses with its stockholders executive compensation and corporate governance issues, from time to time, through meetings and telephone calls.

At the 2016 Annual Meeting, 95.9% of the votes cast on the advisory vote on executive compensation proposal (Proposal 3) were in favor of the named executive compensation as disclosed in the proxy statement, and as a result our named executive compensation was approved. The Board of Directors and Compensation Committee reviewed these final vote results and determined that, given the significant level of support, no changes to our executive compensation policies and decisions were necessary at this time based on the vote results.

The Company has determined that its stockholders should vote on a say-on-pay proposal each year, consistent with the preference expressed by its stockholders at the 2012 Annual Meeting. Accordingly, the Company’s Board of Directors recommends that you vote FOR Proposal 3 at the Annual Meeting. For more information, see “Proposal 3—Advisory Vote to Approve the Compensation of the Company’s Named Executives (“Say On Pay”)” in this proxy statement.

Employment Agreements

The Company amended Mr. Weishar’s employment agreement in February, 2014 to extend the agreement for three years and provide for continued vesting of his post-2013 incentive awards for other than for cause terminations occurring on or after December 31, 2016, subject to compliance with restrictive covenants. The Company also amended and restated Mr. Froesel’s employment agreement in May, 2014 to provide for continued vesting of his post-2013 incentive awards for other than for cause terminations occurring on or after August 1, 2016, subject to compliance with restrictive covenants.

Our Board, based upon the recommendation of our Compensation Committee, approved the Company entering into employment agreements with Messrs Froesel, Vishnubhatla, Caneris and McKay at the time of hire. The purpose of these agreements is to attract and retain each of these individuals given their experience and qualifications to serve the Company in their respective capacities. In addition to providing for compensation opportunities described above and in the following tables and narratives, the employment agreements provide our Named Executives with benefits upon certain terminations of employment. The employment agreements also contain change in control benefits for our Named Executives to encourage them to remain focused on their work responsibilities during the uncertainty that accompanies a change in control and to provide benefits for a period of time after termination of employment following a change in control. The employment agreements contain post-employment non-competition and non-solicitation agreements for a period of twenty-four months for Mr. Weishar and Mr. McKay, eighteen months for Messrs Froesel and Caneris and twelve months for Mr. Vishnubhatla, following the date of termination. The Company believes these agreements are an appropriate method of protecting the Company’s business and investment in human capital. The severance levels and benefits were determined through negotiations with the executives. For a description of the material terms of the employment agreements with each of our Named Executives, see “Narrative Disclosure to Summary Compensation Table and Grants of Plan—Based Awards Table” below. Compensation that could potentially be paid to our Named Executives pursuant to the employment agreements upon a change in control is described below in “Potential Payments upon Termination or Change in Control.”

The employment agreement of Mr. Froesel was terminated on September 30, 2016. Mr. Tomassetti does not have an employment agreement; but does have an Agreement to Protect Company Assets that contains a post-employment non-competition and non-solicitation agreement for a period of one year. The Company believes the agreement is an appropriate method of protecting the Company’s business and investment in human capital.

Tax Deductibility of Compensation

Section 162(m) of the Code restricts deductibility for federal income tax purposes of annual individual compensation in excess of $1.0 million to the CEO and the other Named Executives, other than the Principal Financial Officer, if certain conditions are not fully satisfied. To the extent practicable, we have preserved deductibility of compensation paid to our executive officers. However, the Compensation Committee believes that maintaining flexible compensation programs that attract highly-qualified executives is important, and may, if appropriate, award compensation that is not fully deductible under Section 162(m).

For 2016, 2015 and 2014, stock awards to the Named Executives are made up of restricted stock unit awards and performance share unit awards as follows:

For performance share unit awards that are subject to performance conditions, the reported amount is the value at the grant date based upon the probable outcome of such conditions consistent with the estimate of aggregate compensation cost to be recognized over the service period determined as of the grant date under FASB ASC Topic 718, excluding the effect of estimated forfeitures. The maximum potential values of the performance share unit awards granted in 2016 would be as follows: Mr. Weishar $1,734,375; Mr. Tomassetti $100,689; Mr. Vishnubhatla $482,339; Mr. Caneris $346,268; Mr. McKay $265,248; and Mr. Froesel $669,375.