<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(z))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
HOME HEALTH CORPORATION OF AMERICA, INC.
................................................................................
(Name of Registrant as Specified In Its Charter)
................................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined.):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC.
2200 Renaissance Boulevard, Suite 300
King of Prussia, PA 19406
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held February 16, 1998
-------------------------
To the Shareholders of Home Health Corporation of America, Inc.:
The 1997 Annual Meeting of Shareholders of Home Health Corporation of
America, Inc. (the "Company" or "HHCA") will be held on Monday, February 16,
1998, at 9:00 a.m., prevailing time, at the Marriott, 111 Crawford Avenue, West
Conshohocken, Pennsylvania, for the purpose of considering and acting upon the
following:
1. To elect one Class B director to hold office for a term of three
years and until his successor is duly elected and qualified, as described
in the accompanying Proxy Statement;
2. Consider and act upon a proposal to approve amendments to HHCA's
1995 Employee and Consultant Equity Plan; and
3. To transact such other business as may properly come before the
Annual Meeting.
Only shareholders of record at the close of business on January 7, 1998,
are entitled to notice of, and to vote at, the Annual Meeting or any adjournment
or postponement thereof.
If the Annual Meeting is adjourned for one or more periods aggregating at
least 15 days because of the absence of a quorum, those shareholders entitled to
vote who attend the reconvened Annual Meeting, if less than a quorum as
determined under applicable law, shall nevertheless constitute a quorum for the
purpose of acting upon any matter set forth in this Notice of Annual Meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE URGED TO SIGN,
DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD. A SELF-ADDRESSED ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE; NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
By Order of the Board of Directors
Bruce J. Feldman
President and Chief Executive Officer
King of Prussia, Pennsylvania
January 14, 1998
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC.
2200 Renaissance Boulevard, Suite 300
King of Prussia, PA 19406
(610) 272-1717
-------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
-------------------------
The accompanying proxy is solicited by the Board of Directors of Home
Health Corporation of America, Inc. (the "Company" or "HHCA") for use at the
1997 Annual Meeting of Shareholders (the "Meeting") to be held on Monday,
February 16, 1998, at 9:00 a.m., prevailing time, at the Marriott, 111 Crawford
Avenue, West Conshohocken, Pennsylvania, and any adjournments or postponements
thereof. This Proxy Statement and accompanying proxy card are first being mailed
to shareholders on or about January 14, 1998.
The cost of this solicitation will be borne by the Company. In addition
to solicitation by mail, proxies may be solicited in person or by telephone,
facsimile, telegraph or teletype by officers, directors or employees of the
Company, without additional compensation. Upon request, the Company will pay the
reasonable expenses incurred by record holders of the Company's Common Stock who
are brokers, dealers, banks or voting trustees, or their nominees, for mailing
proxy material and annual shareholder reports to the beneficial owners of the
shares they hold of record.
Only shareholders of record, as shown on the transfer books of the
Company, at the close of business on January 7, 1998 (the "Record Date") are
entitled to notice of, and to vote at, the Meeting. On the Record Date, there
were 9,250,261 shares of Common Stock outstanding.
Proxies in the form enclosed, if properly executed and received in time
for voting, and not revoked, will be voted as directed on the proxies. If no
directions to the contrary are indicated, the persons named in the enclosed
proxy will vote all shares of Common Stock "for" the election of all nominees
for directors hereinafter named and "for" the proposal to consider and approve
amendments to HHCA's 1995 Employee and Consultant Equity Plan (the "Plan").
Sending in a signed proxy will not affect a shareholder's right to attend the
Meeting and vote in person since the proxy is revocable. Any shareholder who
submits a proxy has the power to revoke it by, among other methods, giving
written notice to the Secretary of the Company at any time before the proxy is
voted.
The presence, in person or represented by proxy, of the holders of a
majority of the outstanding shares of Common Stock will constitute a quorum for
the transaction of business at the Meeting. All shares of the Company's Common
Stock present in person or represented by proxy and entitled to vote at the
Meeting, no matter how they are voted or whether they abstain from voting, will
be counted in determining the presence of a quorum. If the Meeting is adjourned
because of the absence of a quorum, those shareholders entitled to vote who
attend the adjourned meeting, although constituting less than a quorum as
provided herein, shall nevertheless constitute a quorum for the purpose of
electing directors. If the Meeting is adjourned for one or more periods
aggregating at least 15 days because of the absence of a quorum, those
shareholders entitled to vote who attend the reconvened Meeting, if less than a
quorum as determined under applicable law, shall nevertheless constitute a
quorum for the purpose of acting upon any matter set forth in the Notice of
Annual Meeting.
1
<PAGE>
Each share of Common Stock is entitled to one vote on each matter which
may be brought before the Meeting. The election of directors will be determined
by a plurality vote and the nominee receiving the most "for" votes will be
elected. The affirmative vote, either in person or by proxy, of a majority of
shares cast on the proposal to amend the Plan is required to approve the
amendments. Approval of any other proposal will require the affirmative vote of
a majority of the shares cast on the proposal. Under the Pennsylvania Business
Corporation Law, an abstention, withholding of authority to vote or broker
non-vote will not have the same legal effect as an "against" vote and will not
be counted in determining whether the proposal has received the required
shareholder vote.
ELECTION OF DIRECTOR
HHCA's Bylaws provide that the board of directors shall consist of not
fewer than three nor more than nine directors, with the exact number to be fixed
by the board of directors. The board of directors has fixed the number of
directors at four. Pursuant to the Bylaws of HHCA, the directors are divided
into three classes, which is required to be as nearly equal in number as
possible. One class of directors is to be elected annually for a term of three
years. The board of directors is currently comprised of two classes (Class A and
Class B) of one director each and one class (Class C) of two directors.
At the HHCA Annual Meeting shareholders will elect one Class B director
to serve for a term of three years and until his successor is elected and
qualified. Unless directed otherwise, the persons named in the enclosed Proxy
intend to vote such Proxy "for" the election of the listed nominee or, in the
event of inability of the nominee to serve for any reason, for the election of
such other person as the board of directors may designate to fill the vacancy.
The board has no reason to believe that the nominee will not be a candidate or
will be unable to serve.
The board of directors has nominated G. Michael Bellenghi to serve as the
Class B director. Mr. Bellenghi currently serves as a director. The nominee has
consented to being named in the Proxy Statement and to serve if elected. The
following table sets forth information, as of the Record Date, concerning HHCA's
directors and nominee for election to the board of directors:
<TABLE>
<CAPTION>
Director Term
Name Age Position Since Expires
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bruce J. Feldman/(1)/ 48 Chairman of the Board, 1982 1998 Annual Meeting
President and Chief Executive
Officer
G. Michael Bellenghi/(1)(2)(3)/ 49 Director 1994 1997 Annual Meeting
Harvey Machaver/(1)(2)/ 72 Director 1985 1998 Annual Meeting
Joseph F. Trustey/(2)/ 35 Director 1995 1999 Annual Meeting
</TABLE>
- --------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Nominee for Director.
The following information about HHCA's directors and nominee for director
is based, in part, upon information supplied by such persons.
2
<PAGE>
Bruce J. Feldman, the founder of HHCA, has served as President, Chief
Executive Officer and Chairman of HHCA since it was founded in December 1982.
Prior to founding HHCA, Mr. Feldman owned a Medicare-certified home health
agency, which became a subsidiary of HHCA in 1982.
G. Michael Bellenghi has been a director of HHCA since October 1994.
Since January 1996, he has been the Chairman and Chief Executive Officer of
Recordex Services, Inc., a medical records retrieval company located in Malvern,
Pennsylvania. Mr. Bellenghi also serves as a director of F.Y.I. Incorporated,
the parent company of Recordex Services, Inc., a company with a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934. From 1990 to 1996, Mr. Bellenghi was the Chief Executive Officer of
Paragon Management Group, Inc., a health care consulting company located in
Malvern, Pennsylvania.
Harvey Machaver has been a director of HHCA since December 1985. Since
1990, Mr. Machaver has been President of Scopus Evaluation Services ("Scopus"),
a health care consulting firm located in New York, New York. Mr. Machaver is a
fellow of the American College of Health Care Executives and a fellow of the New
York Academy of Medicine.
Joseph F. Trustey has been a director of HHCA since April 1995. From 1992
to the present, Mr. Trustey has been employed by Summit Partners, L.P., a
venture capital firm, and currently serves as a general partner of that firm.
From 1990 to 1992, Mr. Trustey was employed as a strategy consultant with the
consulting firm of Bain & Company, Inc. Mr. Trustey is a director of Suburban
Ostomy Supply Co., Inc., a company with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
Shareholder Nominations
Pursuant to HHCA's Bylaws, no shareholder is permitted to nominate a
candidate for election as a director unless the shareholder is present in person
at the annual meeting and provides, in writing, to the Secretary of HHCA (a)
information about the candidate that is equivalent to the information concerning
the candidates nominated by the board of directors that was contained in HHCA's
proxy statement for the immediately preceding meeting at which directors were
elected if HHCA distributed a proxy statement to its shareholders in connection
with such election of directors, or (b) if HHCA did not distribute a proxy
statement, the following information about such candidate: (i) name, age,
business and residence address of such candidate; (ii) any position, office or
arrangement held with HHCA by such candidate and a description thereof; (iii) a
description of any arrangement between the candidate and any other person(s)
(naming such person(s)) pursuant to which he was nominated as a director; (iv)
the candidate's principal occupation for the five years prior to the election;
(v) the number of shares of HHCA's stock beneficially owned by the candidate;
(vi) a description of any commercial transaction or series of transactions
involving the candidate in which HHCA (or any of its affiliates) has a direct or
indirect material interest in the transaction, including the amount of the
transaction and the amount of the candidate's interest in the transaction; and
(vii) evidence of the consent of such candidate to serve as a director if
elected. The Bylaws also require that the nominating shareholder provide HHCA
with the following information: (a) the name and address as they appear on
HHCA's stock transfer books of such nominating shareholder and of the beneficial
owners (if any) of HHCA's capital stock registered in such shareholder's name
and name and address of other shareholders known by the nominating shareholder
to be supporting such candidate; (b) the class and number of shares of HHCA's
capital stock which are held of record, beneficially owned or represented by
proxy by such nominating shareholder and any other shareholders known to such
nominating shareholder to be supporting such candidate as of the record date for
the annual meeting in question (if such the shareholders of HHCA have then been
given notice of such date) and as of the date of the nominating
3
<PAGE>
shareholder's notice. This information is required to be provided in writing at
least four (4) months prior to the annual meeting of shareholders.
If the board of directors or a designated committee thereof determines
that any shareholder nomination was not timely made in accordance with the terms
of the Bylaws or that the information provided by the nominating shareholder
does not satisfy the informational requirements of the Bylaws in any material
respect, then such nomination will not be considered at the annual meeting in
question. If neither the board of directors nor such committee makes such a
determination as to the nominating shareholder's compliance with the Bylaws, the
judge(s) of election for the annual meeting, or if same have not been appointed
pursuant to the Bylaws, the Chairman of the annual meeting is required to
determine whether a nomination was made in accordance with these provisions. If
the board of directors, a designated committee thereof, the judge(s) of election
or the Chairman of the annual meeting, as the case may be, determines that a
nomination was made in accordance with the Bylaws, the Chairman will so declare
at the annual meeting and ballots will be provided for use at the meeting with
respect to such candidate.
Board of Directors, Committees and Attendance at Meetings
The board of directors of HHCA held four meetings during fiscal 1997.
Each director attended 75% or more of the meetings of the board and committees
of he was a member during fiscal 1997.
The board of directors of HHCA has appointed a Compensation Committee to
review and make recommendations to the board of directors regarding the
salaries, bonuses and other forms of compensation for executive officers of HHCA
and to administer various compensation and benefit plans. During fiscal 1997,
the Compensation Committee held two meetings.
The board of directors also has appointed an Audit Committee to, among
other things, review HHCA's accounting practices, internal accounting controls
and financial results and to oversee the engagement of HHCA's independent
auditors. The Audit Committee held one meeting during fiscal 1997.
The board of directors has not appointed a standing Nominating Committee.
Director Compensation
Directors' Fees. Each director of HHCA who is not also an officer or
employee of HHCA receives a fee of $1,000 for each meeting of the board of
directors or any committee of the board of directors attended.
Consulting Arrangements. HHCA has a consulting arrangement with Scopus,
of which Mr. Machaver is the principal stockholder. In fiscal 1996, 1995 and
1994, HHCA paid consulting fees of approximately $44,000, $40,000 and $40,000,
respectively, to Scopus.
Stock Options. Under the Plan, each non-employee director was granted on
November 13, 1995 an option to purchase 10,000 shares of Common Stock at an
exercise price of $7.50 (the "Directors' Options"). The Directors Options are
currently exercisable.
4
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of December 1, 1997, certain
information with respect to the beneficial ownership of the Common Stock (i) by
each person who is known by HHCA to be the beneficial owner of more than 5% of
the Common Stock, (ii) by each director of HHCA, (iii) by each executive officer
of HHCA named in the Summary Compensation Table and (iv) by all directors and
executive officers of HHCA as a group. Except as otherwise indicated, all
information is as of the Record Date and the beneficial owners of the Common
Stock listed below have sole investment and voting power with respect to such
shares.
<TABLE>
<CAPTION>
Shares Beneficially Owned (2)
------------------------------------
Name and Address of Beneficial Owner(1) Number Percent
- ------------------------------------------------------- ----------- -----------------
<S> <C> <C>
Bruce J. Feldman (3)................................... 890,853 9.6%
Fred J. Nicholas(4).................................... 71,833 0.8%
Bruce Colburn(5)....................................... 18,166 *
Joseph Sterensis....................................... - -
Joseph J. Grilli(6).................................... 18,333 *
Joseph F. Trustey(7)................................... 10,000 *
G. Michael Bellenghi(7)................................ 10,000 *
Harvey Machaver(8)..................................... 37,591 *
Wasatch Advisors, Inc.(9) ............................. 868,975 9.4%
920,000 9.9%
RCM Capital Management, L.L.C. (10)....................
800,800 8.7%
Wellington Management Co., L.L.P. (11).................
All Directors and Executive
Officers as a group (15 persons)(12)................
1,074,131 11.6%
</TABLE>
- ------------------------------------
* Denotes less than 1.0%
(1) Except as otherwise shown, the address of each person listed above is in
care of HHCA, 2200 Renaissance Boulevard, Suite 300, King of Prussia, PA
19406.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and includes voting
or investment power with respect to the shares. Shares of HHCA Common Stock
subject to securities exercisable within 60 days following December 1,
1997, are deemed outstanding for computing the share ownership and
percentage ownership of the person holding such securities, but are not
deemed outstanding for computing the percentage of any other person.
(3) Includes 95,238 shares of HHCA Common Stock held by HHCA's Profit Sharing
Plan, of which Mr. Feldman is sole voting trustee, 256,250 shares of HHCA
Common Stock which may be acquired upon the exercise of
5
<PAGE>
stock options, and 5,000 shares of HHCA Common Stock which may be acquired
upon the exercise of warrants.
(4) Includes 70,833 shares of HHCA Common Stock which may be acquired upon the
exercise of options.
(5) Includes 16,666 shares of HHCA Common Stock which may be acquired upon the
exercise of options.
(6) Includes 8,333 shares of HHCA Common Stock which may be acquired upon the
exercise of options.
(7) Represents shares of HHCA Common Stock which may be acquired upon the
exercise of options.
(8) Consists of 20,000 shares of HHCA Common Stock which may be acquired upon
the exercise of warrants, 10,000 shares of HHCA Common Stock which may be
acquired upon the exercise of options and 7,591 shares held jointly with
Mr. Machaver's spouse.
(9) The shares of HHCA Common Stock are owned by a variety of investment
advisory clients of Wasatch Advisors, Inc. ("Wasatch"), which clients
receive dividends with respect to and proceeds from the sale of such
shares. No such client is known to beneficially own more than 5% of the
HHCA Common Stock. Wasatch has sole dispositive and voting power with
respect to all 868,975 of the shares of HHCA Common Stock. The information
set forth herein with respect to the beneficial ownership of the HHCA
Common Stock is as of December 31, 1996 and is derived from a Schedule
13-G/A, filed August 25, 1997 by Wasatch with the Commission. The address
of such beneficial owner is 68 S. Main Street, Suite 400, Salt Lake City,
UT 84101.
(10) The shares of HHCA Common Stock are owned by a variety of investment
advisory clients of RCM Capital Management, L.L.C. ("RCM"), which clients
receive dividends with respect to and proceeds from the sale of such
shares. No such client is known to beneficially own more than 5% of the
HHCA Common Stock. RCM has sole dispositive power with respect to all
920,000 of the shares of HHCA Common Stock and sole voting power with
respect to 820,000 of the shares of HHCA Common Stock. The information set
forth herein with respect to the beneficial ownership of the HHCA Common
Stock is as of October 1, 1997 and is derived from information supplied to
HHCA by RCM. The address of such beneficial owner is 4 Embaracadero Center,
Suite 3000, San Francisco, CA 94111.
(11) The shares of HHCA Common Stock are owned by a variety of investment
advisory clients of Wellington Management Company ("Wellington"), which
clients receive dividends with respect to and proceeds from the sale of
such shares. No such client is known to beneficially own more than 5% of
the HHCA Common Stock. Wellington has shared dispositive power with respect
to all 800,800 of the shares of HHCA Common Stock and shared voting power
with respect to 335,000 of the shares of HHCA Common Stock. The information
set forth herein with respect to the beneficial ownership of the HHCA
Common Stock is as of June 30, 1997 and is derived from information
supplied to HHCA by Wellington. The address of such beneficial owner is 75
State Street, Boston, MA 02109.
(12) Includes 25,000 shares of HHCA Common Stock which may be acquired upon the
exercise of warrants and 392,081 shares of HHCA Common Stock which may be
acquired upon the exercise of options.
6
<PAGE>
Executive Compensation
Compensation Committee Report
The Compensation Committee of HHCA's board of directors establishes
HHCA's general compensation policies, compensation plans and specific
compensation levels of HHCA's most highly compensated executive officers, and
reviews the design, administration and effectiveness of compensation programs
for other key executives. The Compensation Committee's executive compensation
policies are designed to provide competitive levels of compensation, integrate
pay with HHCA's annual and long-term performance goals, reward above-average
corporate performance, recognize individual initiative and achievements, and
assist HHCA in attracting and retaining qualified executives.
HHCA's executive officer compensation program is comprised of base
salary, annual cash incentive compensation, long term incentive compensation in
the form of stock options and various benefits generally available to full-time
employees of HHCA, including participating in group medical and life insurance
plans. HHCA seeks to be competitive with Compensation programs offered by
companies of a similar size within the health care industry based on formal and
informal surveys conducted by HHCA.
Decisions with respect to the compensation of Bruce Feldman, the
Chairman, President and Chief Executive Officer of HHCA, Fred Nicholas, Chief
Operating Officer of HHCA and Bruce Colburn, Chief Financial Officer of HHCA for
fiscal 1997 were made by the Compensation Committee. Decisions with respect to
the compensation of all other executive officers of HHCA are made by Mr. Feldman
within the guidelines established by the Compensation Committee.
Base Salary. Prior to the beginning of each fiscal year, financial and
other goals are established for HHCA. Each executive officer is responsible for
accomplishing the goals pertaining to his area of responsibility. At the end of
each fiscal year, a performance review takes place with each executive officer
to measure performance against those objectives. Base salary decisions are made
based on the results of the performance review as well as other considerations
such as the executive officer's level of responsibility, years of service with
HHCA and professional background.
Annual Incentive Compensation. For fiscal 1997 HHCA established a
performance based bonus plan which awarded to executive officers bonus
compensation up to 10% of base salary if certain financial goals were achieved.
Information concerning bonus compensation paid to certain executive officers
with respect to fiscal 1997 is set forth in the Summary Compensation Table.
Stock Options. HHCA uses its Plan as a long-term incentive plan for
executive officers and lay employees. The objectives of the Plan with respect to
executive officers are to align the long-term interests of executive officers
and shareholders by creating a direct link between executive compensation and
shareholder return and to enable executives to develop and maintain a
significant long-term equity interest in HHCA. The Plan authorizes the
Compensation Committee to award stock options to officers and key employees.
Stock options granted to executive officers are based upon the level and degree
of responsibility of the positions they hold. In general under the Plan, options
are granted with an exercise price equal to the fair market value of the HHCA
Common Stock on the date of grant and are exercisable according to a vesting
schedule determined by the Compensation Committee at the time of grant. In
fiscal 1997, the Compensation Committee granted options to purchase an aggregate
of 348,833 shares of HHCA Common Stock under the Plan. Information concerning
the option grants to certain executive officers is set forth in the Summary
Compensation Table.
7
<PAGE>
Determination of Compensation of Chief Executive Officer. The
Compensation Committee based Mr. Feldman's compensation for fiscal 1997 in part
on a survey of compensation paid to the chief executive officers of companies
comparable to HHCA. The Compensation Committee also considered Mr. Feldman's
role in developing acquisition opportunities for HHCA, the achievement by HHCA
of certain financial goals and the performance of the HHCA Common Stock.
Policy with Respect to Section 162(m) of the Internal Revenue Code.
Generally, Section 162(m) of the Internal Revenue Code of 1986, and the
regulations promulgated thereunder (collectively, "Section 162(m)"), denies a
deduction to any publicly held corporation, such as HHCA, for certain
compensation exceeding $1,000,000 paid during a taxable year to the chief
executive officer and the four other highest paid executive officers, excluding,
among other things, certain performance-based compensation. Where appropriate,
the Compensation Committee has taken action to reduce the impact of this
provision. For example, the Compensation Committee intends that the Employee and
Consultant Equity Plan qualify for the performance-based exclusion. The
Compensation Committee continually evaluates to what extent Section 162(m) will
apply to its other compensation programs.
THE COMPENSATION COMMITTEE
Harvey Machaver, Chairman
G. Michael Bellenghi
Joseph F. Trustey
8
<PAGE>
Summary Compensation Table
The following table sets forth certain information regarding the
compensation paid to the Chief Executive Officer and each of the four other
most highly compensated executive officers of HHCA for services rendered in
all capacities to HHCA for fiscal 1997, 1996 and 1995 (collectively the
"named executive officers"):
<TABLE>
<CAPTION>
Annual Long Term
Compensation(1) Compensation
------------------------ ------------
Securities
Name and Fiscal Underlying All Other
Principal Position Year Salary Bonus Options Compensation
- ------------------------------ ------ -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Bruce J. Feldman, 1997 $300,000 $ - 100,000 33,792/(2)/
President and Chief 1996 254,000 43,600 75,000 33,792/(2)/
Executive Officer 1995 244,869 25,000 - 58,573/(3)/
Fred J. Nicholas 1997 165,000 - 50,000 -
Chief Operating Officer, 1996 155,000 15,500 50,000 -
Corporate 1995 127,728 14,000 5,000 14,000/(4)/
Bruce Colburn 1997 150,000 - 150,000 -
Chief Financial Officer/(5)/ 1996 30,850 - - -
Joseph Sterensis 1997 140,000 - 20,000 -
Area Vice President, 1996 92,035 33,333 - -
Florida Region/(6)/
Joseph J. Grilli 1997 125,000 - 15,000 -
Area Vice President, 1996 110,000 11,000 10,000 -
Northeast Region 1995 108,769 10,500 5,000 10,500/(4)/
</TABLE>
- -----------------
/(1)/ Does not include the value of perquisites provided to certain executive
officers which in the aggregate did not exceed the lesser of $50,000 or
10% of such officer's salary and bonus.
/(2)/ Consists of $15,460 of premiums on a split-dollar life insurance policy
and $18,324 relating to indebtedness to HHCA that was forgiven upon the
attainment of certain operating results.
/(3)/ Consists of $25,000 contributed to HHCA's pension and profit sharing plan,
$15,000 of premiums on a split-dollar life insurance policy and $18,573
relating to indebtedness to HHCA that was forgiven upon the attainment of
certain performance criteria.
/(4)/ Represents contributions to HHCA's pension and profit sharing plan.
/(5)/ Mr. Colburn became Chief Financial Officer in April 1996. Mr. Colburn
resigned as Chief Financial Officer effective December 3, 1997.
/(6)/ Mr. Sterensis started with HHCA in October 1995 as the Director of
Operations for HHCA's product locations in the Tampa, Florida area. He
became Area Vice President, Florida Region, in April 1997.
9
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning stock
options granted during fiscal 1997 to the named executive officers. The
following table also sets forth the potential realizable value over the term of
the options (the period from grant date to the expiration date), based on
assumed rates of stock appreciation of 5% and 10%, compounded annually. These
amounts do not represent HHCA's estimate of future stock price. Actual
realizable values, if any, of stock options will depend on the future
performance of HHCA's common stock.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual
Rates of Stock Price
Appreciation For
Individual Grants Option Term (1)
-------------------------------------------------------- -----------------------
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees In Exercise Expiration
Name Granted Fiscal Year Price Date 5% 10%
- -------------------------- ---------- ------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bruce J. Feldman.......... 100,000 28.7% $11.00 7/15/06 $691,784 $1,753,117
Fred J. Nicholas.......... 50,000 14.3% 10.00 7/15/06 314,447 796,871
Bruce Colburn............. 150,000 43.0% 9.00 4/8/06 849,008 2,151,552
Joseph Sterensis.......... 20,000 5.7% 8.94 5/1/07 112,446 284,961
Joseph J. Grilli.......... 15,000 4.3% 10.00 7/15/06 94,334 239,061
</TABLE>
- ----------------------------
(1) Represents the difference between the market value of HHCA's common stock
for which the option may be exercised, assuming that the market value of
the common stock appreciates in value from the date of grant to the end of
the option term at annualized rates of 5% and 10%, respectively, and the
exercise price of the option. The rates of appreciation used in this table
are prescribed by regulations of the Securities and Exchange Commission and
are not intended to forecast future appreciation of the market value of the
common stock.
10
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values
The following table sets forth certain information concerning the
exercise of stock options during fiscal 1997 and the number and value of
unexercised options held at the end of fiscal 1997 by the named executive
officers.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Year-end Fiscal Year-End(2)
--------------------------- ---------------------------
Shares
Acquired on Value
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce J. Feldman......... - - 106,250 68,750 $112,500 $37,500
Fred J. Nicholas......... 8,333 $93,746 52,083 49,584 41,667 35,003
Bruce Colburn............ - - 16,666 133,334 8,333 6,667
Joseph Sterensis......... - - - 20,000 - 11,200
Joseph J. Grilli......... 5,000 56,250 6,666 23,334 34,997 27,504
</TABLE>
- ---------------------------
(1) Calculated by determining the difference between the last reported
sales price of the common stock underlying the exercised Options on the
date of exercise and the exercise price.
(2) Calculated by determining the difference between the last reported
sales price of the common stock underlying the Options on June 30, 1997
and the exercise price for those Options where the exercise price of
the Options exceeded the last reported sales price of the common stock.
Employment Agreements
Bruce J. Feldman. On September 1, 1995, HHCA entered into an employment
agreement with Bruce J. Feldman, President and Chief Executive Officer of HHCA,
for an initial term of three years, subject to automatic annual extensions of
one year on August 31, 1996 and each anniversary thereafter. Pursuant to the
terms of Mr. Feldman's employment agreement, Mr. Feldman is entitled to receive
(i) an annual base salary of $284,000, or such higher amount as the Compensation
Committee may determine (the "Base Salary"), (ii) an annual cash bonus based on
HHCA's achievement of specified levels of net income as determined by the
Compensation Committee and (iii) a deferred annuity program of $15,000 per year
and other benefits at least equivalent to those provided to HHCA's other
executive officers. The Base Salary will be reviewed by the Compensation
Committee on not less than an annual basis. Pursuant to the employment
agreement, Mr. Feldman is also entitled to receive a car allowance of $9,000 per
year and received a non-qualified stock option grant to purchase 100,000 shares
of HHCA Common Stock at a per share exercise price of $11.00. Of the shares
subject to this option, 50% vested immediately upon grant.
Mr. Feldman's employment agreement may be terminated by HHCA with or
without cause, which is defined to include, among other things, the material
breach of the employment agreement by Mr. Feldman, gross negligence in the
performance of his duties, conviction of a felony or commission of a material
act of dishonesty or breach of trust with respect to HHCA. The employment
agreement may also be terminated by Mr. Feldman for good reason, which includes,
among other things, the demotion or removal of Mr. Feldman, a material
diminishment of his responsibilities, a reduction in his Base Salary, failure to
be re-elected to the Board or upon a change in control of HHCA. In the event of
termination for good reason (including HHCA's failure to renew the term of the
employment agreement) by Mr. Feldman, or without cause by HHCA, Mr. Feldman will
be entitled to receive, among other things, regular payments of his Base
11
<PAGE>
Salary for three years and have any unvested stock options and awards accelerate
and become fully exercisable. In the event of termination by HHCA for cause or
for any other reason, Mr. Feldman will be entitled to receive any unpaid salary
and benefits through the date of termination. Under the employment agreement,
Mr. Feldman is prohibited from disclosing confidential information during and
after the term of the agreement. In addition, Mr. Feldman is prohibited from
soliciting employees or customers of HHCA or engaging or participating in any
business which competes with HHCA within a 100-mile radius of any of HHCA's
branch offices while he is employed by HHCA and for one year thereafter or, in
the event of termination by Mr. Feldman for good reason (including HHCA's
failure to renew the term of the employment agreement) or by HHCA without cause,
for three years thereafter.
Fred J. Nicholas. HHCA entered into an employment agreement, dated as
of January 1, 1995, with Fred J. Nicholas, Chief Operating Officer of HHCA, for
a term of three and one-half years. Pursuant to the terms of Mr. Nicholas's
employment agreement, Mr. Nicholas is entitled to receive (i) a base salary of
at least $140,000 per year, (ii) incentive compensation as determined by the
Compensation Committee and (iii) other benefits similar to those provided to
HHCA's other officers. Mr. Nicholas's employment agreement may be terminated
with or without cause by either party. In the event of termination by HHCA
without cause, Mr. Nicholas will be entitled, under certain circumstances, to
continue to receive regular payments of his base salary for a period of six
months after the date of his termination. In all other cases, in the event that
Mr. Nicholas's employment agreement is terminated, he is entitled to receive
unpaid salary and benefits earned up to the date of termination. In the event
that Mr. Nicholas's employment is terminated for any reason other than without
cause by HHCA, he is prohibited from competing with HHCA for a period of two
years after such termination.
Joseph J. Grilli. HHCA entered into an employment agreement, dated as
of July 1, 1996, with Joseph J. Grilli, Area Vice President, Northeast Region,
for a term of three years. Pursuant to the terms of Mr. Grilli's employment
agreement, Mr. Grilli is entitled to receive (i) a base salary of at least
$125,000 per year, (ii) incentive compensation as determined by the Board of
Directors, and (iii) other benefits similar to those provided to HHCA's other
officers. Mr. Grilli's employment agreement may be terminated with or without
cause by either party. In the event of termination by HHCA without cause, Mr.
Grilli will be entitled, under certain circumstances, to continue to receive
regular payments of his base salary for a period of 12 months after the date of
his termination. In all other cases, in the event that Mr. Grilli's employment
agreement is terminated, he is entitled to receive unpaid salary and benefits
earned up to the date of termination. In the event Mr. Grilli's employment is
terminated for any reason other than without cause by HHCA, he is prohibited
from competing with HHCA for a period of one year.
Certain Relationships and Related Transactions
On June 30, 1992, HHCA loaned the principal sum of approximately
$95,000 to Bruce J. Feldman, its President and Chief Executive Officer. The loan
matured on June 30, 1997 and was payable annually with interest at the rate of
8% per annum until paid in full. This note was forgiven in its entirety over a
five-year period through June 30, 1997 as a result of HHCA achieving certain
annual performance criteria.
12
<PAGE>
Stock Performance Graph
The graph which follows indicates the cumulative total return on HHCA
Common Stock since November 8, 1995, the date the HHCA Common Stock began
trading on the Nasdaq National Market, compared with the cumulative total return
of companies on the Nasdaq National Market (U.S. Companies) and shares of all
healthcare institutions tracked by Standard and Poors ("S&P Health Care").
Cumulative total return on the HHCA Common Stock or the index equals the total
increase in value since November 8, 1995, assuming reinvestment of all HHCA
Common Stock. The graph assumes that $100 was invested on November 8, 1995 in
HHCA Common Stock and in each of the indexes.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
November 8, 1995 June 30, 1996 June 30, 1997
-------------------- ------------------- ------------------
<S> <C> <C> <C>
HHCA $100 $181 $127
Nasdaq National Market (U.S.) 100 114 139
S&P Health Care 100 119 182
</TABLE>
13
<PAGE>
APPROVAL OF AMENDMENTS TO THE
HOME HEALTH CORPORATION OF AMERICA, INC.
1995 EMPLOYEE AND CONSULTANT EQUITY PLAN
Background
In September 1995, HHCA's shareholders approved the Plan, which
replaced the amended and restated 1985 Incentive Compensation Plan. The Plan
provides for the granting of options, among other awards, to purchase shares of
HHCA's Common Stock to officers, directors, employees and consultants of HHCA or
its subsidiaries. Options may be issued under the Plan which qualify as
"incentive stock options" as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), as well as options that do not qualify as
incentive stock options ("non-qualified options"). The Plan provides that up to
600,000 shares of HHCA's Common Stock may be issued under the Plan. HHCA has
granted options exercisable for all of the shares available for issuance under
the Plan.
HHCA's board of directors has approved amending the Plan to increase
the aggregate number of shares which may be issued under the Plan by 750,000
shares, from 600,000 shares to 1,350,000 shares. The amendment to the Plan is
subject to approval by the shareholders of HHCA. The affirmative vote, either in
person or by proxy, of a majority of shares cast on the proposal is required to
approve the amendment to the Plan. The Board of Directors of HHCA unanimously
recommends that shareholders vote "for" approval of the amendment to the Plan
because it believes that the amendment to the Plan will advance the interest of
HHCA and its shareholders by strengthening the ability of HHCA and its
subsidiary corporations to attract, retain and motivate their respective
officers, directors, employees and consultants.
Set forth below is a summary of the provisions of the Plan as amended
by the Board of Directors. This summary is qualified in its entirety by the
detailed provisions of the Plan, as amended, set forth as Appendix "A" to this
Proxy Statement.
Purpose of the Plan
The purpose of the Plan is to promote the long term success of HHCA and
its subsidiaries by encouraging employees and consultants to focus on critical
long range objectives, attracting and retaining employees and consultants with
exceptional qualifications, and linking employees and consultants directly to
stockholder interests through the granting of awards under the Plan. The Board
of Directors believes that stock options are an important aid in attracting,
retaining and compensating, officers, directors, employees and consultants of
the respective Boards of HHCA and its subsidiary corporations.
Awards
The following types of awards or any combination of the following types
of awards may be granted under the Plan: (i) "Options" (both incentive stock
options and non-qualified options) to acquire HHCA Common Stock; (ii) "Stock
Appreciation Rights" which entitle the grantee to receive an amount in cash,
HHCA Common Stock, or a combination of cash and HHCA Common Stock, determined in
whole or in part by reference to appreciation in HHCA Common Stock value; (iii)
"Restricted Stock Awards," which entitle the grantee to acquire shares of HHCA
Common Stock which generally may not be transferred; (iv) "Unrestricted Stock
Awards," which entitle the grantee to acquire shares of HHCA Common Stock for a
purchase price; (v) "Deferred Stock Awards" which award HHCA Common Stock to be
delivered in the future; (vi) "Performance Awards," which entitle the grantee to
receive, without payment, an award following the attainment of performance goals
established by the committee administering the Plan; (vii) "Loans" either in
connection with the purchase of HHCA Common Stock pursuant to an award under the
14
<PAGE>
Plan or the payment of any federal, state or local income tax with respect to
income recognized as a result of an award under the Plan; and (viii)
"Supplemental Grants," which are cash awards in connection with an award under
the Plan.
The following table sets forth the number of Options granted pursuant
to the Plan to each of the persons and groups of persons set forth in the table:
<TABLE>
<CAPTION>
Number of
Options Granted Under the
Name and Position Plan
- ----------------------------------------------------------------------------- ------------------------
<S> <C>
Bruce J. Feldman, President and Chief Executive Officer and
Chairman of the Board............................................ 175,000
Fred J. Nicholas, Chief Operating Officer................................. 101,667
Bruce Colburn, Chief Financial Officer.................................... 150,000
Joseph Sterensis, Area Vice President, Florida Region..................... 20,000
Joseph J. Grilli, Area Vice President, Northeast Region................... 25,000
All executive officers ................................................... 546,667
All directors who are not executive officers.............................. 30,000
Nominee for reelection as director........................................ 10,000
All employees including officers who are not executive officers........... 23,333
- ---------------------------------------------------------------------------- ------------------------
</TABLE>
Eligibility and Administration
Employees of HHCA or any of its subsidiaries and all persons performing
advisory or other services for HHCA or any of its subsidiaries ("Consultants")
are eligible to receive awards under the Plan. Members of the Board of Directors
of HHCA who are not employees of HHCA or any of its subsidiaries are eligible to
receive awards of non-qualified stock options only. As of June 30, 1997, HHCA
and its subsidiaries had approximately 3,100 employees.
The Plan is administered by a committee (the "Committee") consisting of
two or more directors of HHCA, each of whom is a "Non-Employee Director" within
the meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Committee has the full authority to, among
other things: (1) select the participants to whom awards under the Plan may be
granted, (2) determine the type, number, vesting requirements and other terms
and conditions of awards under the Plan, (3) waive compliance by a participant
with any obligation, (4) prescribe the form of instrument evidencing each award
under the Plan, (5) amend or cancel any award under the Plan (except, without
the consent of a holder or if authorized by the award under the Plan, such
amendment or cancellation as would adversely effect the rights of a holder), (6)
interpret and construe the Plan, (7) implement and amend rules and regulations
to administer the Plan, and (8) make all other determinations necessary or
advisable for the administration of the Plan. The Committee may delegate to
HHCA's Chief Executive Officer the authority to grant awards under the Plan to
participants who are not officers or directors of HHCA. Members of the Committee
and the HHCA Board of Directors are entitled to indemnification for costs,
liabilities or expenses incurred in connection with their actions or the failure
to take action under the Plan.
15
<PAGE>
The granting of an award under the Plan is entirely within the
discretion of the Committee and no employee or consultant has any implied right
to participate in the Plan. In determining whether to make an award under the
Plan, the Committee considers the positions and responsibilities of the employee
or consultant, their past performance and contribution to HHCA's growth and
expansion, the value of their services to HHCA, the difficulty of finding
qualified replacements, and such other factors as the Committee deems pertinent.
Aggregate Number of Shares and Adjustment
The aggregate number of shares of HHCA Common Stock for which awards
may be granted under the Plan is 1,350,000. Among other things, the aggregate
number of shares issuable under the Plan, the number of shares issuable under
each outstanding award under the Plan and the exercise price under each
outstanding award under the Plan are subject to adjustment as deemed appropriate
by the Committee to reflect a subdivision of the outstanding shares of HHCA
Common Stock declaration of a stock dividend, declaration of a dividend payable
in a form other than the HHCA Common Stock in an amount that has a material
effect upon the price of the HHCA Common Stock, a combination of the outstanding
HHCA Common Stock, a recapitalization, spinoff, stock split or other similar
occurrence. The number of shares and the exercise price under the outstanding
awards under the Plan may also be adjusted for material changes in accounting
practices or principles, mergers, consolidations, acquisitions or dispositions
of stock or any other event determined by the Committee as it deems appropriate
to avoid distortion in the operation of the Plan, except that no such adjustment
may be made with respect to any Incentive Option if it would constitute a
modification, extension or renewal of the Incentive Option within Section 425(h)
of the Code. In the event of a merger or other reorganization, outstanding
awards under the Plan will be subject to the terms of the agreement of merger or
reorganization which may provide for assumption thereof by the surviving
corporation or its parent. No fractional shares will be issued under the Plan.
No Shareholder Rights Regarding Awards
Except for certain rights associated with Restricted Stock (see
"Restricted Stock" below), no award under the Plan confers on any participant
any of the rights of a shareholder of HHCA unless and until shares of HHCA
Common Stock are duly issued or transferred to the participant in accordance
with the terms of the award under the Plan.
Termination of Service; Death
Upon termination of employment or the consulting, service or other
relationship of a participant by reason of death or permanent disability (as
determined by the Committee) (a "Status Change"), all Options and Stock
Appreciation Rights held by the participant, to the extent then exercisable,
will continue to be exercisable by the participant's heirs, executor,
administrator or other legal representative for a period of one year (but in no
event later than the expiration date) after which time the Option or Stock
Appreciation Rights will terminate. All Options and Stock Appreciation Rights
held by a participant at the time of a Status Change by reason of death or
permanent disability which are not exercisable will terminate. All Restricted
Stock held by a participant at the time of termination of employment or the
consulting, service or other relationship by reason of death or disability will
become free of all restrictions and conditions. Payments or benefits pursuant to
a Deferred Stock Award, Performance Award or Supplemental Grant to which a
participant was not irrevocably entitled at such time will be forfeited and such
award will be canceled.
Upon termination of employment or the consulting, service or other
relationship of a participant by reason other than death or permanent
disability, all Options and Stock Appreciation Rights held by a participant at
such time, to the extent exercisable, will continue to be exercisable for a
period of three months
16
<PAGE>
(but in no event later than the expiration date). Thereafter, all such Options
and Stock Appreciation Rights will terminate. All Options and Stock Appreciation
Rights held by a participant at the time of a Status Change by reason other than
death or permanent disability which are not exercisable will terminate. All
Restricted Stock held by a participant at the time of a Status Change or by
reason other than death or permanent disability will become free of restrictions
and conditions unless such termination was for Cause (as defined in the Plan),
in which event such Restricted Stock will be transferred to HHCA. Payments or
benefits under a Deferred Stock Award, Performance Award or Supplemental Grant
to which a participant was not irrevocably entitled at the time of such
termination of employment will be forfeited.
Transfer Restrictions Under the Plan; Conditions of Issuance
No right or interest of a participant in any award under the Plan or
under the Plan may be assigned or transferred by a participant otherwise than by
will or pursuant to the laws of descent and distribution.
Exercise of Awards
under the Plan are not exercisable until at least six months
after the date of grant.
Regulatory Requirements
HHCA is not required to deliver any shares until, in the opinion of
Company counsel, all applicable federal, state and foreign laws and regulations
have been complied with, including registration under the Securities Act of
1933.
Payment of Shares
Except for Incentive Options, with respect to which payment may be made
only as provided in the Stock Option Agreement, the exercise price of shares
issued upon exercise of an award under the Plan may be made in cash, certified
check, bank draft or money order, or, at the discretion of the Committee, HHCA
Common Stock which has been owned by the participant for more than six months
(which will be valued at their fair market value on the date of purchase),
full-recourse promissory note, delivery of an irrevocable direction to a broker
to sell HHCA Common Stock and deliver the proceeds to HHCA, pledge of stock or
other means approved by the Committee.
Under the terms of the Plan, the Board of Directors could interpret the
provision of the Plan which allows payment of the option price in shares of HHCA
Common Stock to permit the "pyramiding" of shares in successive, simultaneous
exercises. As a result, a participant could initially exercise an award under
the Plan in part, acquiring a small number of shares of Common Stock and
immediately thereafter effect further exercises of the award, using the shares
of HHCA Common Stock acquired upon earlier exercises to pay for an increasingly
greater number of shares received on each successive exercise. This procedure
could permit participant to pay the exercise price by using a single share of
HHCA Common Stock or a small number of shares of HHCA Common Stock and to
acquire a number of shares of HHCA Common Stock having an aggregate fair market
value equal to the excess of (a) the fair market value of all shares to which
the award relates over (b) the aggregate exercise price under the award.
Determination of Fair Market Value
For purposes of determining the fair market value of HHCA Common Stock
under the Plan, the fair market value of HHCA Common Stock on any particular day
means the closing price of a share of HHCA's Common Stock on a stock exchange on
which such shares are then traded, or the last transaction price quoted
17
<PAGE>
on the Nasdaq National Market System, or, if the common stock is traded on the
over-the-counter but is not classified as a national market issue, then the
closing bid price as quoted on the Nasdaq System, or, if none of the foregoing
is applicable, a price determined by the Committee.
Options
The Committee is authorized to grant to participants awards consisting
of Options evidenced by a Stock Option Agreement exercisable for such number of
shares of HHCA Common Stock as the Committee shall determine. Each Stock Option
Agreement shall specify, among other things: (i) whether the option is an
Incentive Option or Non-Qualified Option; (ii) the number of shares subject to
the option (subject to adjustment as described above); (iii) the exercise price
per share (provided, however, that the exercise price of Incentive Options shall
not be less than the fair market value of a share of HHCA Common Stock on the
date of grant of such Incentive Option or 110% in the case of an employee who at
the time of grant is deemed to own stock possessing more than ten percent (10%)
of the total combined voting power of all classes of HHCA Common Stock (a "Ten
Percent Shareholder"); (iv) the date when all or part of the Option becomes
exercisable; (v) the term of each Option (provided, however, that the term of
each Incentive Option shall not exceed a period of ten years from the date of
grant or five years in the case of a Ten Percent Shareholder); (vi) and the
method by which the exercise price may be paid.
No Option granted under the Plan is transferable other than by will or
by the laws of descent and distribution. No Option may be assigned, pledged, or
hypothecated.
Except as described above, an Option may be exercised during the
lifetime of an optionee only by such person or his legal guardian or
representative in the event of mental incapacity.
Within the limitations of the Plan, the Committee may modify, extend,
grant replacement options, waive compliance with obligations or waive conditions
or provisions of an Option. Notwithstanding the foregoing, no modification may
materially adversely affect an optionee's rights, and certain limitations exist
with respect to modification of Incentive Options.
Outside Director's Options
Upon the consummation of HHCA's initial public offering in November
1995, members of the Board of Directors who were not employees of HHCA ("Outside
Directors") received a one-time grant of a Non-Qualified Option to purchase
10,000 shares of HHCA Common Stock at an exercise price of $7.50. Thereafter,
when an Outside Director first becomes a member of HHCA's Board of Directors,
such Outside Director automatically receives a one-time grant of a Non-Qualified
Option to purchase 10,000 shares of Common Stock with an exercise price equal to
the fair market value of the HHCA Common Stock on the date of grant.
Non-Qualified Options granted to Directors become exercisable six months after
the grant date and are 50% vested as of the grant date, 75% vested one year
after the date of grant and 100% vested two years after the date of grant. All
Non-Qualified Options granted to Outside Directors under the Plan become
exercisable in full in the event of termination of such Outside Directors'
service because of death, total and permanent disability or voluntary retirement
at or after age 65. Non-Qualified Options granted to Outside Directors terminate
on the earlier of (i) the fifth anniversary of the date of grant; (ii) three
months after termination of service for reason other than death or total and
permanent disability or (iii) six months after termination of service because of
death or total and permanent disability.
18
<PAGE>
Stock Appreciation Rights
The Committee is authorized to grant awards consisting of Stock
Appreciation Rights to participants on the following terms and conditions.
Each Stock Appreciation Right, in general, entitles a participant to
receive, with respect to each share of HHCA Common Stock as to which the right
is exercised, the excess of (i) the shares' fair market value on the date of
exercise, over (ii) the fair market value on the date of the grant. The
Committee determines (A) the time or times at which a Stock Appreciation Right
may be exercised in whole or in part; (B) the method of exercise, settlement,
and form of consideration payable in settlement; (C) the method by which HHCA
Common Stock will be delivered or deemed to be delivered; and (D) whether or not
a Stock Appreciation Right shall be in tandem with any other award.
The Committee may provide at the time of grant for adjustments in the
amount to be received upon exercise of the Stock Appreciation Right based upon
rules established by the Committee to take into account the relative performance
of HHCA Common Stock. The Committee may also grant Stock Appreciation Rights
which entitle the holder to receive upon a Change in Control (as defined in the
Plan) an amount equal to the difference in value of the HHCA Common Stock during
a period preceding the Change in Control and the fair market value of the HHCA
Common Stock on the date of grant.
Stock Appreciation Rights may be granted either alone or in tandem with
Options granted under the Plan. A Stock Appreciation Right granted in tandem
with a Non-Qualified Option may be granted either at or after the time the
Option is granted, whereas a Stock Appreciation Right granted in tandem with
Incentive Options may be granted only at the time the Option is granted.
Stock Appreciation Rights granted in tandem with Options are
exercisable only at such time and to the extent that the related Option is
exercisable and in accordance with procedures for exercise of the related
Option. Stock Appreciation Rights granted in tandem with Options terminate upon
the termination or exercise of the related Option (unless the Stock Appreciation
Right is for less than the full number of shares subject to the Option), are
transferable only with the related Option and, with respect to Stock
Appreciation Rights granted in tandem with an Incentive Option, may be exercised
only when the market price of the HHCA Common Stock exceeds the exercise price
of such Option. Options with respect to which a Stock Appreciation Right has
been granted in tandem terminate upon exercise of the Stock Appreciation Right.
Stock Appreciation Rights not granted in tandem with an Option become
exercisable at such times and upon such terms and conditions as specified by the
Committee. Exercise of such Stock Appreciation Right's must be in writing
delivered to HHCA.
Restricted Stock
The Committee is authorized to grant awards consisting of Restricted
Stock, which are subject to restrictions the Committee may impose. A participant
who is granted a Restricted Stock Award has no rights with respect to such award
unless the participant accepts the award by written instrument delivered to HHCA
accompanied by payment in full of the purchase price, if any. Except to the
extent restricted under the terms of the Plan, a participant granted Restricted
Stock has all of the rights of a shareholder including, without limitation, the
right to vote Restricted Stock or the right to receive dividends thereon. Unless
the Committee determines otherwise, certificates representing shares of
Restricted Stock remain in the possession of HHCA until the restrictions have
lapsed. Except as otherwise provided, if a participant's employment or
relationship as a consultant terminates for any reason, such Restricted Stock
must be offered to HHCA for
19
<PAGE>
purchase for the amount paid (or forfeited if no cash was paid). Restrictions
lapse at such time and upon such conditions as determined by the Committee.
Unrestricted Stock
The Committee may approve the sale of shares of HHCA Common Stock
without restrictions for any price not less than par value.
Deferred Stock
The Committee is authorized to grant awards consisting of Deferred
Stock which generally confer upon the participant the right to receive delivery
of the shares at such time, and on such terms and conditions specified by the
Committee.
Performance Awards
The Committee is authorized to grant to participants Performance Awards
based upon attainment of goals set by the Committee.
Loans and Supplemental Grants
In connection with any award under the Plan, the Committee may, in its
sole discretion, make Loans and Supplemental Grants and determine their terms
and conditions. Supplemental Grants may not exceed the amount of any federal,
state or local income tax for which a participant may be liable with respect to
an award, plus an additional amount intended to make the participant whole on an
after-tax basis.
Applicability of ERISA
The Plan is not qualified under Section 401(a) of the Code, and is not
subject to the requirements of the Employee Retirement Income Security Act of
1974 ("ERISA").
Tax Withholding
The recipient of an award is required to make arrangements satisfactory
to HHCA for the satisfaction of any tax withholding obligations that arise by
reason of receipt or vesting of payment or property. HHCA is not required to
issue any HHCA Common Stock or make any cash payment until such obligation is
satisfied. The Committee may permit a recipient to satisfy withholding
obligations by having HHCA withhold shares or surrendering a portion of HHCA
Common Stock previously issued, which will be valued at fair market value on the
date when taxes would otherwise be withheld in cash, subject to such
restrictions as HHCA may determine including restrictions under the Exchange
Act.
Amendment or Termination
Under the Plan, the Board of Directors of HHCA may, at any time and for
any reason, amend or terminate the Plan, except that the provisions relating to
Outside Directors may not be amended more than once in any six month period. An
amendment of the Plan is subject to approval of HHCA's shareholders only to the
extent required by applicable law. The termination or amendment of the Plan will
not affect any awards previously granted.
20
<PAGE>
Federal Income Tax Consequences
The following information is not intended to be a complete discussion
of the federal income tax consequences of participation in the Plans and is
qualified in its entirety by references to the Code, and the regulations adopted
pursuant thereto. The provisions of the Code described in this section include
current tax law only and do not reflect any proposals to revise current tax law.
Each participant who acquires shares of HHCA Common Stock under the Plan should
consult his or her own tax advisor with respect to his or her individual tax
position and the effect of any legislative revisions on such position.
The federal income tax consequences applicable to officers, directors,
and other persons subject to potential liability under Section 16(b) of the
Exchange Act may be different than the federal income tax consequences
applicable to persons who are not subject to Section 16(b). The federal income
tax consequences to such persons are described below with respect to awards made
if and after shareholder approval is obtained, as set forth hereunder. However,
such description is not intended to be complete and persons subject to Section
16(b) should consult their own tax advisors for more specific information, and
particularly as it relates to awards made prior to the date of such shareholder
approval.
Incentive Stock Options. Generally, under the Code, an optionee will
not realize taxable income by reason of the grant or exercise of an Incentive
Stock Option (see, however, discussion of alternative minimum tax below) granted
pursuant to the Plan. If an optionee exercises an Incentive Stock Option and
does not dispose of the shares until the later of (i) two years from the date
the option was granted and (ii) one year from the date of exercise, the entire
gain, if any, realized upon disposition of such shares will be taxable to the
optionee as long-term capital gain, and HHCA will not be entitled to any
deduction. The reduced rate of tax (20%) on certain net capital gains added to
the Code by the Taxpayer Relief Act of 1997 requires a holding period of more
than 18 months. If an optionee disposes of the shares within the period of two
years from the date of grant or one year from the date of exercise (a
"disqualifying disposition"), the optionee generally will realize ordinary
income in the year of disposition and HHCA will receive a corresponding
deduction, in an amount equal to the excess of (i) the lesser of (a) the amount,
if any, realized on the disposition and (b) the fair market value of the shares
on the date the option was exercised over (ii) the option price. Any additional
gain realized on the disposition will be long-term or short-term capital gain
and any loss will be long-term or short-term capital loss. The optionee will be
considered to have disposed of a share if he sells, exchanges, makes a gift of
or transfers legal title to the share (except transfers, among others, by
pledge, on death or to a spouse). If the disposition is by sale or exchange, the
optionee's tax basis will equal the amount paid for the share plus any ordinary
income realized as a result of the disqualifying disposition.
The exercise of an Incentive Stock Option may subject the optionee to
the alternative minimum tax. The amount by which the fair market value of the
shares purchased at the time of the exercise exceeds the option exercise price
is an adjustment for purposes of computing the so-called alternative minimum
tax. In the event of a disqualifying disposition of the shares in the same
taxable year as exercise of the Incentive Stock Option, no adjustment is then
required for purposes of the alternative minimum tax, but regular income tax, as
described above, may result from such disqualifying disposition. Effective
January 1, 1994, the Revenue Reconciliation Act of 1994 replaced the 24%
alternative minimum tax rate on individuals with a two-tier alternative minimum
tax rate having an initial rate of 26% and a second-tier rate of 28% on
alternative minimum taxable income over $175,000.
An optionee who surrenders shares as payment of the exercise price of
his Incentive Stock Option generally will not recognize gain or loss on his
surrender of such shares. The surrender of shares previously acquired upon
exercise of an Incentive Stock Option in payment of the exercise price of
another Incentive Stock Option, is, however, a "disposition" of such stock. If
the incentive stock option holding period
21
<PAGE>
requirements described above have not been satisfied with respect to such stock,
such disposition will be a disqualifying disposition that may cause the optionee
to recognize ordinary income as discussed above.
Under the Code, all of the shares received by an optionee upon exercise
of an Incentive Stock Option by surrendering shares will be subject to the
incentive stock option holding period requirements. Of those shares, a number of
shares (the "Exchange Shares") equal to the number of shares surrendered by the
optionee will have the same tax basis for capital gains purposes (increased by
any ordinary income recognized as a result of a disqualifying disposition of the
surrendered shares if they were incentive stock option shares) and the same
capital gains holding period as the shares surrendered. For purposes of
determining ordinary income upon a subsequent disqualifying disposition of the
Exchange Shares, the amount paid for such shares will be deemed to be the fair
market value of the shares surrendered. The balance of the shares received by
the optionee will have a tax basis (and a deemed purchase price) of zero and a
capital gains holding period beginning on the date of exercise. The Incentive
Stock Option holding period for all shares will be the same as if the option had
been exercised for cash.
Non-Qualified Stock Options. Generally, there will be no federal income
tax consequences to either the optionee or HHCA on the grant of Non-Qualified
Stock Options pursuant to the Plan. On the exercise of a Non-Qualified Stock
Option, the optionee has taxable ordinary income equal to the excess of the fair
market value of the shares acquired on the exercise date over the option price
of the shares. HHCA will be entitled to a federal income tax deduction (subject
to the limitations contained in Section 162(m)) in an amount equal to such
excess, provided that HHCA complies with applicable reporting rules.
Upon the sale of stock acquired by exercise of a Non-Qualified Stock
Option, optionees will realize long-term or short-term capital gain or loss
depending upon their holding period for such stock. Under current law, net
capital gains (net long term capital gain less net short term capital loss) is
subject to a maximum rate of 28%. The reduced rate of tax on certain net capital
gains added to the Code by the Taxpayer Relief Act of 1997 requires a holding
period of more than 18 months. Capital losses are deductible only to the extent
of capital gains for the year plus $3,000 for individuals.
An optionee who surrenders shares in payment of the exercise price of a
Non-Qualified Stock Option will not recognize gain or loss with respect to the
shares so delivered unless such shares were acquired pursuant to the exercise of
an Incentive Stock Option and the delivery of such shares is a disqualifying
disposition. See "Incentive Stock Options." The optionee will recognize ordinary
income on the exercise of the Non-Qualified Stock Option as described above. Of
the shares received in such an exchange, that number of shares equal to the
number of shares surrendered have the same tax basis and capital gains holding
period as the shares surrendered. The balance of shares received will have a tax
basis equal to their fair market value on the date of exercise and the capital
gains holding period will begin on the date of exercise.
Stock Appreciation Rights ("SARs"). A participant who is awarded a SAR
will not have taxable income upon the grant of such SAR and HHCA will not be
entitled to a tax deduction by reason of such grant. Upon the exercise of a SAR,
a participant will recognize fully taxable ordinary income equal to the amount
of cash and the fair market value of any shares received. HHCA may generally
claim a deduction at that time equal to the amount recognized as ordinary income
by the participant.
Restricted Stock. Unless an election is made as described below, a
participant who is awarded Restricted Stock will not recognize any taxable
income as of the date such award is granted. At such time or times as shares of
Restricted Stock become transferable or not subject to a substantial risk of
forfeiture, a participant will recognize ordinary income in an amount equal to
the fair market value of such shares of Common Stock, without regard to any
applicable restrictions on resale. To the extent dividends are paid on
22
<PAGE>
shares of Restricted Stock prior to their becoming transferable or not subject
to a substantial risk of forfeiture, such dividend payments will be treated as
additional compensation and not as dividend income.
Within thirty (30) days after receipt of an award of Restricted Stock,
a participant may elect to include in taxable income an amount equal to the fair
market value of the shares subject to the award at the time of receipt
determined without regard to any applicable restrictions on resale. In such
event, any subsequent appreciation in the value of such shares will not be
taxable as compensation to a participant upon the vesting of shares subject to
the award. However, if shares subject to the award are forfeited subsequent to
such an election, a participant will not be entitled to a tax deduction. An
election may not be revoked without the consent of the Internal Revenue Service.
Compensation income received in respect of a Restricted Stock Award will
constitute ordinary income. For purposes of determining the amount of taxable
gain or loss upon a subsequent distribution of shares issued pursuant to such an
award, the amount recognized as compensation income to a participant will be
treated as the cost basis for such shares. Shares must be held for more than one
year after vesting (or in the event of an election as described above, after
receipt of Restricted Stock) to qualify generally for long-term capital gain
treatment, and more than eighteen (18) months) to be eligible for the reduced
rate of tax (20%) adopted by the Taxpayer Relief Act of 1997 for certain
long-term capital gains. HHCA will be entitled to a deduction in the year of
vesting (or if a participant makes the election described above, in the year in
which the award is granted) in an amount equal to the compensation income
recognized by a participant.
Deferred Stock. On such dates shares are delivered to participants upon
the expiration of the deferral period specified for Deferred Stock under the
applicable award, a participant will recognize taxable compensation income in an
amount equal to the fair market value of shares delivered as of such date. HHCA
will be entitled to a deduction in the year during which shares are delivered
pursuant to a Deferred Stock Award in an amount equal to the compensation income
recognized by a participant.
Limitation on HHCA's Deduction. In general, HHCA is entitled to a
deduction in such amount and at such time as ordinary income is recognized by a
participant under the Plans. Section 162(m) of the Code will generally limit to
$1,000,000 HHCA's federal income tax deduction for compensation paid in any year
to each of its Chief Executive Officer and its four highest paid executive
officers, to the extent that such compensation is not performance based.
Compensation under the Plan will not qualify as performance based compensation
and therefore may be subject to the $1,000,000 limitation on deduction.
23
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires HHCA's
directors and executive officers, and persons who beneficially own more than ten
percent of HHCA's common stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of HHCA. Officers, directors and
greater than ten-percent shareholders are required by regulation of the
Securities and Exchange Commission to furnish HHCA with copies of all Section
16(a) forms they file.
To HHCA's knowledge, based solely on a review of the copies of such
reports furnished to HHCA during or with respect to HHCA's most recent fiscal
year and written representations that no other reports were required, all
Section 16(a) filing requirements applicable to HHCA's officers, directors and
greater than ten-percent beneficial owners were complied with during fiscal
1997, except that during fiscal 1997, Bruce Colburn failed to timely file one
report of a change in ownership of equity securities of HHCA with respect to one
transaction.
SHAREHOLDER PROPOSALS
Shareholder proposals for the 1998 Annual Meeting of Shareholders must
be submitted to HHCA by September 16, 1998 to receive consideration for
inclusion in HHCA's Proxy Statement.
APPOINTMENT OF AUDITORS
The board of directors has appointed Coopers & Lybrand L.L.P.,
independent accountants, to serve as HHCA's independent auditors for the year
ending June 30, 1998. A representative of Coopers & Lybrand, L.L.P. is expected
to be present at the HHCA Annual Meeting and to be available to respond to
appropriate questions. The representative will have the opportunity to make a
statement if they so desire.
OTHER MATTERS
HHCA is not presently aware of any matters (other than procedural
matters) which will be brought before the HHCA Annual Meeting which are not
reflected in the attached Notice of the Meeting. The enclosed Proxy confers
discretionary authority to vote with respect to any and all of the following
matters that may come before the HHCA Annual Meeting: (i) matters which HHCA
does not know, a reasonable time before the proxy solicitation, are to be
presented at the HHCA Annual Meeting; (ii) approval of the minutes of a prior
meeting of shareholders, if such approval does not amount to ratification of the
action taken at the meeting; (iii) the election of any person to any office for
which a bona fide nominee named in this Proxy Statement is unable to serve or
for good cause will not serve; (iv) any proposal omitted from this Proxy
Statement and the form of proxy pursuant to Rules 14a-8 or 14a-9 under the
Securities Exchange Act of 1934; and (v) matters incident to the conduct of the
HHCA Annual Meeting. In connection with such matters, the persons named in the
enclosed Proxy will vote in accordance with their best judgment.
24
<PAGE>
ANNUAL REPORT TO SHAREHOLDERS AND FORM 10-K
This Proxy Statement is accompanied by HHCA's Annual Report to
Shareholders for fiscal 1997.
EACH PERSON SOLICITED HEREUNDER CAN OBTAIN A COPY OF HHCA'S ANNUAL
REPORT ON FORM 10-K FOR FISCAL 1997 AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, WITHOUT CHARGE EXCEPT FOR EXHIBITS TO THE REPORT, BY SENDING A
WRITTEN REQUEST TO:
HOME HEALTH CORPORATION OF AMERICA, INC.
2200 Renaissance Boulevard
Suite 300
King of Prussia, PA 19406
Attention: Tina Labant
By Order of the Board of Directors
Bruce J. Feldman
President and Chief Executive Officer
King of Prussia, Pennsylvania
January 14, 1998
25
<PAGE>
APPENDIX "A"
HOME HEALTH CORPORATION OF AMERICA, INC.
AMENDED AND RESTATED
1995 EMPLOYEE AND CONSULTANT EQUITY PLAN
----------------------------------------
ARTICLE I. BACKGROUND.
--------- ----------
1.1 Establishment of the Plan. The Company had established this Plan
-------------------------
known as the "1995 Employee and Consultant Equity Plan" on September 15, 1995.
Under this Plan, Options (ISOs, NSO or both), Stock Appreciation Rights,
Restricted, Unrestricted and Deferred Stock Awards, Performance Awards, Loans,
Supplemental Grants, or any combination thereof may be awarded.
1.2 Purpose. The purpose of this Plan is to promote the long term
-------
success of the Company and its Subsidiaries by (i) encouraging Employees and
Consultants to focus on critical long range objectives, (ii) attracting and
retaining Employees and Consultants with exceptional qualifications and (iii)
linking Employees and Consultants directly to stockholder interests through the
granting of Awards.
ARTICLE II. DEFINITIONS.
---------- -----------
2.1 "Award" shall mean an Option, Stock Appreciation Right, Restricted,
-----
Unrestricted or Deferred Stock Award, Performance Award, Loan, Supplemental
Grant, or any combination thereof made under this Plan.
2.2 "Board" shall mean The Company's Board of Directors, as constituted
-----
from time to time.
2.3 "Change in Control" means: (i) the occurrence of an event that
-----------------
would, if known to The Company's management, be required to be reported by The
Company under Item 1(a) of Form 8-K pursuant to the Exchange Act; or (ii) the
acquisition or receipt, in any manner, by any person (as defined for purposes of
the Exchange Act) or any group of persons acting in concert, of direct or
indirect beneficial ownership (as defined for purposes of the Exchange Act) of
50% or more of the combined voting securities ordinarily having the right to
vote for the election of directors of The Company; or (iii) a change in the
constituency of the Board with the result that individuals (the "Incumbent
Directors") who are members of the Board on the Effective Date cease for any
reason to constitute at least a majority of the Board, provided that any
individual who is elected to the Board after the Effective Date and whose
nomination for election was unanimously approved by the Incumbent Directors
shall be considered an Incumbent Director beginning on the date of his or her
election to the Board; or (iv) the sale, exchange or other disposition of all or
a significant portion of The Company's business or assets, or the execution by
The Company of a binding agreement providing for such a transaction; unless in
any such case, at least a majority of the Incumbent Directors determine, prior
to the occurrence of such Change of Control, that no Change of Control has or
will have occurred.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended
----
from time to time, and the regulations thereunder.
2.5 "Committee" shall mean a committee which consists of members of the
---------
Board and which has been designated by the Board to have the general
responsibility for the administration of this Plan.
A-1
<PAGE>
2.6 "Common Shares" shall mean the Common Stock, no par value per
-------------
share of HHCA.
2.7 "Company" shall mean Home Health Corporation of America, Inc., a
-------
Pennsylvania corporation.
2.8 "Consultant" shall mean any person performing advisory or other
----------
services for The Company or any of its Subsidiaries.
2.9 "Deferred Stock Award" shall mean an award of Common Shares to be
--------------------
delivered to the Participant in the future.
2.10 "Effective Date" shall mean the date upon which The Company's
--------------
contemplated initial public offering is consummated.
2.11 "Employees" shall mean common law employees of The Company or any
---------
of its Subsidiaries.
2.12 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, and all rules and regulations promulgated thereunder.
2.13 "Exercise Price" shall mean the amount for which one Common Share
--------------
may be purchased upon exercise of an Award.
2.14 "Fair Market Value" shall mean the market price of the Common
-----------------
Shares, determined by the Committee as follows:
(a) If the Common Shares were traded over-the-counter on the date
in question but were not classified as a national market
issue, then the Fair Market Value shall be equal to the
closing bid price quoted by the NASDAQ system for such date;
(b) If the Common Shares were traded over-the-counter on the date
in question and were classified as a national market issue,
then the Fair Market Value shall be equal to the last-
transaction price quoted by the NASDAQ system for such date;
(c) If the Common Shares were traded on a stock exchange on the
date in question, then the Fair Market Value shall be equal
to the closing price reported by the applicable composite
transactions report for such date; and
(d) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in
good faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on prices reported in the Eastern Edition of the Wall Street Journal.
-------------------
Such determination shall be conclusive and binding on all persons.
2.15 "ISO" shall mean an incentive stock option described in Section
---
422(b) of the Code.
2.16 "Loans" shall mean a loan to a Participant either in connection
-----
with the purchase of Common Shares under an Award or the payment of any federal,
state or local income tax with respect to income recognized as a result of the
Award.
A-2
<PAGE>
2.17 "NSO" shall mean a stock option not described in Sections 422 or
---
423 of the Code.
2.18 "Option" shall mean an ISO or NSO granted under this Plan and
------
entitling the holder to purchase one Common Share.
2.19 "Optionee" shall mean an individual or estate who holds an Option.
--------
2.20 "Outside Director" shall mean a member of the Board who is not a
----------------
common-law employee of The Company or of a Subsidiary.
2.21 "Participants" shall mean those Employees and Consultants who, in
------------
the opinion of the Committee, are in a position to make a significant
contribution to the success of The Company and who receive Awards under this
Plan.
2.22 "Plan" shall mean this Home Health Corporation of America, Inc.
----
1995 Employee and Consultant Equity Plan, as it may be amended from time to
time.
2.23 "Performance Award" shall mean an Award entitling the Participant
-----------------
to receive, without payment, an Award or Awards following the attainment of such
performance goals as the Committee may determine.
2.24 "Restricted Stock Award" shall mean an Award entitling the
----------------------
Participant to acquire, for a purchase price not less than par value, Common
Shares which except as otherwise specifically provided by this Plan or the
Award, may not be sold, assigned, exchanged, pledged, gifted or otherwise
disposed of, or transferred.
2.25 "Stock Appreciation Right" shall mean an Award entitling the
------------------------
Participant to receive an amount in cash, Common Shares or a combination
thereof, determined in whole or in part by reference to appreciation in Common
Share value.
2.26 "Stock Option Agreement" shall mean the agreement among The
----------------------
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to the Optionee's Option.
2.27 "Status Change" shall mean termination of employment of a
-------------
Participant who is an Employee or the termination of the consulting, service or
other relationship of a Participant who is not an Employee.
2.28 "Subsidiary" shall mean any present or future corporation which is
----------
a "subsidiary corporation" of The Company as defined in Code Section 424.
2.29 "Ten Percent Shareholder" shall mean any Employee who at the time
-----------------------
of grant owns directly or is deemed to own by reason of attribution set forth in
Section 425(d) of the Code, stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of The Company or any of its
Subsidiaries.
2.30 "Unrestricted Stock Award" shall mean an Award entitling the
------------------------
Participant to acquire for a purchase price of not less than par value, of
Common Shares.
2.31 "Supplemental Grant" shall mean a cash award to a Participant in
------------------
connection with an Award.
A-3
<PAGE>
ARTICLE III. ADMINISTRATION.
----------- --------------
3.1 Administration By Committee. The Plan shall be administered by the
---------------------------
Committee, unless the Board, in its discretion, shall determine otherwise. In
the event that at any time the Board decides to administer this Plan, all
references herein to the Committee shall be deemed to be references to the
Board. The Committee shall have plenary authority in its sole discretion not
inconsistent with the express provisions of this Plan to (a) select the
Participants who are to receive Awards under this Plan, (b) determine the type,
number, vesting requirements and other terms and conditions of such Awards, (c)
prescribe and amend the form or forms of instruments evidencing Awards and any
other instruments required under this Plan, (d) waive compliance by a
Participant with any obligations to be performed by the Participant under an
Award, (e) amend or cancel an Award in whole or in part (except that the
Committee may not, without the consent of the holder of such Award, unless
specifically authorized by the terms of an Award, take any action under this
clause with respect to such Award if such action would adversely affect the
rights of such holder), (f) interpret and construe any and all provisions of
this Plan, (g) implement and amend rules and regulations for administering this
Plan, and (h) make all other determinations necessary or advisable for
administering this Plan. The Committee's determination concerning the foregoing
matters shall be conclusive and binding upon all persons. The Committee may
delegate to The Company's Chief Executive Officer the authority to grant Awards
to Participants who are not officers or directors of The Company.
3.2 Committee Composition. The Committee shall consist of two or more
---------------------
members appointed by the Board. A majority of the members of the Committee shall
constitute a quorum, and all determinations by the Committee under this Plan may
be made without notice or meeting of the Committee signed by a majority of the
Committee members. Each member of the Committee shall be a "Non-Employee
Director" within the meaning of Rule 16b-3 under the Exchange Act.
3.3 Indemnification. Each person who is or who shall be a member of the
---------------
Committee or the Board is hereby indemnified and held harmless by The Company,
to the fullest extent permitted by law, from and against any cost, liability or
expense (including reasonable attorneys' fees) imposed or incurred in connection
with such person's, the Committee's or the Board's, as may be applicable, taking
or failing to take any action under this Plan, excluding such person's wilful
misconduct. Each such person, the Committee and the Board may rely on
information furnished in connection with this Plan's administration by any
appropriate person or persons.
3.4 No Implied Right to Participate. The granting of an Award under this
-------------------------------
Plan shall be entirely within the discretion of the Committee. Nothing contained
in this Plan shall be construed to give any Employee or Consultant any right to
participate in this Plan.
ARTICLE IV. SHARES AVAILABLE FOR GRANT.
---------- --------------------------
4.1 Basic Limitation. Any Common Shares issued pursuant to this Plan may
----------------
be authorized but unissued shares or treasury shares. The aggregate number of
Common Shares for which Awards may be granted under this Plan shall not exceed
One Million Three Hundred Fifty Thousand (1,350,000) shares. The limitation set
forth in this Section 4.1 shall be adjusted pursuant to Article V.
4.2 Additional Shares. If any Awards are forfeited or terminated for any
-----------------
reason prior to being exercised, then the Common Shares subject to such Awards
shall again become available for issuance under this Plan.
4.3 Fractional Shares. No fractional Common Shares shall be delivered
-----------------
under this Plan.
A-4
<PAGE>
ARTICLE V. PROTECTION AGAINST DILUTION.
--------- ---------------------------
5.1 Common Share Adjustments. In the event of a subdivision of the
------------------------
outstanding Common Shares, a declaration of a dividend payable in Common Shares,
a declaration of a dividend payable in a form other than Common Shares in an
amount that has a material effect on the price of Common Shares, a combination
or consolidation of the outstanding Common Shares (by reclassification or
otherwise), a recapitalization, a spinoff, a stock split or other similar
occurrence, the Committee may make appropriate adjustments in one or more of (a)
the number of Common Shares available for future Awards under Article IV, (b)
the number of Options to be granted to Outside Directors under Section 6.2, (c)
the number of Common Shares covered by each outstanding Award or (d) the
Exercise Price under each outstanding Award. Except as provided in this Article
V, a Participant shall have no rights by reason of any issuance by The Company
of stock of any class or securities convertible into stock of any class, any
subdivision or consolidation of shares of stock of any class, the payment of any
stock dividend or any other increase or decrease in the number of shares of
stock of any class.
5.2 Other Adjustments. In the event that The Company is a party to a
-----------------
merger or other reorganization, outstanding Awards shall be subject to the
agreement of merger or reorganization. Subject to Article XII, such agreement
may provide, without limitation, for the assumption of outstanding Awards by the
surviving corporation or its parent, for their continuation by The Company (if
The Company is a surviving corporation), for accelerated vesting or for
settlement in cash. The Committee may also adjust the number of Common Shares
subject to outstanding Awards, the Exercise Price of the outstanding Awards and
the terms of the outstanding Awards, to take into consideration material changes
in accounting practices or principles, consolidations or mergers, acquisitions
or dispositions of stock or property or any other event if it is determined by
the Committee that such adjustment is appropriate to avoid distortion in the
operation of this Plan, provided that no such adjustment shall be made in the
case of an ISO if it would constitute a modification, extension or renewal of
the ISO within the meaning of Section 425(h) of the Code.
ARTICLE VI. ELIGIBILITY.
---------- -----------
6.1 General Rules. Only Employees and Consultants shall be eligible to
-------------
receive Awards by the Committee. In determining whether to make an Award, the
Committee shall consider the positions and responsibilities of the Employee or
Consultant, their past performance and contributions to The Company's growth and
expansion, the value of their services to The Company, the difficulty of finding
qualified replacements, and such other factors as the Committee deems pertinent
in its sole discretion. Outside Directors shall only be eligible for the grant
of the Awards described in Section 6.2.
6.2 Outside Directors. Notwithstanding any provision of this Plan to the
-----------------
contrary, the participation of Outside Directors in this Plan shall be subject
to the following restrictions:
(a) Outside Directors shall not be eligible to receive Awards
except for the NSOs described in this Section 6.2.
(b) On the later of (i) the Effective Date, or (ii) the date when
an Outside Director first becomes a member of the Board, such Outside Director
shall receive a one-time grant of an NSO covering 10,000 Common Shares (subject
to adjustment under Article 5). Such NSO shall become exercisable six months
after the date of grant and shall vest as follows:
A-5
<PAGE>
<TABLE>
<CAPTION>
Percent Vested Date of Vesting
-------------- ---------------
<S> <C>
50% Date of grant
75% One year after date of grant
100% Two years after date of grant
</TABLE>
(c) All NSOs granted to an Outside Director under this Section 6.2
shall also become exercisable in full in the event of the termination of such
Outside Director's service because of death, total and permanent disability or
voluntary retirement at or after age 65.
(d) The Exercise Price under all NSOs granted to an Outside
Director under this Section 6.2 shall be equal to the Fair Market Value of a
Common Share on the date of grant, payable in one of the forms described in
Article VIII. For purposes of the initial NSOs to be issued pursuant to this
Section 6.2, the Exercise Price shall be the initial public offering price.
(e) All NSOs granted to an Outside Director under this Section 6.2
shall terminate on the earliest of (i) the 5th anniversary of the date of grant,
(ii) a date not more than three months after the termination of such Outside
Director's service for any reason other than death or total and permanent
disability or (iii) a date not more than six months after the termination of
such Outside Director's service because of death or total and permanent
disability.
6.3 Ten Percent Shareholders. An Employee who is a Ten Percent
------------------------
Shareholder shall not be eligible for the grant of an ISO unless the
requirements set forth in Code Section 422(c)(6) are satisfied.
ARTICLE VII. OPTIONS.
----------- -------
7.1 Stock Option Agreement. Each grant of an Option under this Plan shall
----------------------
be evidenced by a Stock Option Agreement between the Optionee and The Company.
Such Option shall be subject to all applicable terms of this Plan and may be
subject to any other terms that are not inconsistent with this Plan. The Stock
Option Agreement shall specify whether the Option is an ISO or NSO. The
provisions of the various Stock Option Agreements entered into under this Plan
need not be identical.
7.2 Options Nontransferable. No Option granted under this Plan shall be
-----------------------
transferrable by the Optionee other than by will, by a beneficiary designation
executed by the Optionee and delivered to The Company or by the laws of descent
and distribution. Subject to Article XII, an Option may be exercised during the
lifetime of the Optionee only by him or her or by his or her legal guardian or
representative, in the event that the Optionee has become mentally
incapacitated. No Option or interest therein may be transferred, assigned,
pledged or hypothecated by the Optionee whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
7.3 Number of Shares. Each Stock Option Agreement shall specify the
----------------
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article V.
7.4 Exercise Price. Each Stock Option Agreement shall specify the
--------------
Exercise Price. The Exercise Price under (i) an ISO shall not be less than 100%
(110% in the case of an ISO granted to a Ten Percent Shareholder) of the Fair
Market Value of a Common Share on the date of grant and (ii) any Option shall
not be less than the par value per share of the Common Shares purchasable under
such Option.
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7.5 Exercisability and Term. Each Stock Option Agreement shall specify
-----------------------
the date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option; provided that
the term of an ISO shall in no event exceed ten years (five years in the case of
an ISO granted to a Ten Percent Shareholder) from the date of grant. Subject to
Article XII, a Stock Option Agreement may provide for accelerated exercisability
in the event of the Optionee's death, disability or retirement or other events
and may provide for expiration prior to the end of its term in the event of the
termination of the Optionee's employment, service or death. In the case of an
Option not immediately exercisable in full, the Committee may at any time
accelerate the time at which all or any part of the Option may be exercised.
7.6 Modification of Options. Within the limitations of this Plan, the
-----------------------
Committee shall have the authority, both generally and in particular instances,
to (i) modify, extend or assume outstanding Options, (ii) accept the
cancellation of outstanding Options (whether granted by The Company or by
another issuer) in return for the grant of new Options for the same or a
different number of shares and at the same or a different exercise price, (iii)
waive compliance by an Optionee with any obligation to be performed by the
Optionee under an Option, and (vi) waive any condition or provision in an
Option.
7.7 Limitations on Modifications of Options. The foregoing
---------------------------------------
notwithstanding, no modification of an Option shall (i) alter or impair, in any
material respect, an Optionee's rights under an Option, without such Optionee's
consent, or, (ii) in the case of an ISO, (w) increase the total number of Common
Shares covered by the Option, except pursuant to Article V, (y) extend the term
of the Option to more than ten years (five years, in the case of an ISO granted
to a Ten Percent Shareholder), (z) reduce the Exercise Price per share (except
pursuant to Article V) or otherwise result in a modification, extension or
renewal (within the meaning of Section 425(h) of the Code) of the Option.
7.8 Replacement Options. The Committee may grant Options under this Plan
-------------------
in substitution for options held by employees of another corporation who
concurrently become employees of The Company or a Subsidiary as a result of a
merger or consolidation of the employing corporation with The Company or a
subsidiary of The Company or the acquisition by The Company or a Subsidiary of
property or stock of the employing corporation. The Committee may direct that
the replacement Options be granted on such terms and conditions that the
Committee considers appropriate in the circumstances.
ARTICLE VIII. STOCK APPRECIATION RIGHTS.
------------ -------------------------
8.1 General. The Committee may Award Stock Appreciation Rights. In
-------
general, a Stock Appreciation Right entitles the Participant to receive, with
respect to each share of Common Stock as to which the right is exercised, the
excess of the share's fair market value on the date of exercise over its fair
market value on the date the Right was granted. However, the Committee may
provide at the time of grant that the amount the Participant is entitled to
receive will be adjusted upward or downward under rules established by the
Committee to take into account the performance of the Common Shares in
comparison with the performance of other stocks or an index or indices of other
stocks. The Committee may also grant Stock Appreciation Rights which provide
that following a Change in Control of The Company the holder of such Right will
be entitled to receive, with respect to each Common Share subject to the Right,
an amount equal to the excess of a specified value (which may include an average
of values) for a Common Share during a period preceding such Change in Control
over the fair market value of a Common Share on the date the Right was granted.
8.2 Rights Granted in Tandem With Options. Stock Appreciation Rights may
-------------------------------------
be granted in tandem with, or independently of, Options granted under this Plan.
A Stock Appreciation Right granted in tandem with an Option which is not an ISO
may be granted either at or after the time the Option is granted.
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<PAGE>
A Stock Appreciation Right granted in tandem with an ISO may be granted only at
the time the Option is granted. When Stock Appreciation Rights are granted in
tandem with Options, the following rules will apply:
(a) The Stock Appreciation Right will be exercisable only at such
time or times, and to the extent, that the related Option is exercisable and
will be exercisable in accordance with the procedure required for exercise of
the related Option.
(b) The Stock Appreciation Right will terminate and no longer be
exercisable upon the termination or exercise of the related Option, except that
a Stock Appreciation Right granted with respect to less than the full number of
shares covered by an Option will not be reduced until the number of shares as to
which the related Option has been exercised or has terminated exceeds the number
of shares not covered by the Stock Appreciation Right.
(c) The Option will terminate and no longer be exercisable upon the
exercise of the related Stock Appreciation Right.
(d) The Stock Appreciation Right will be transferable only with the
related Option.
(e) A Stock Appreciation Right granted in tandem with an ISO may be
exercised only when the market price of the Common Stock subject to the Option
exceeds the exercise price of such Option.
8.3 Rights Not Granted in Tandem With Options. A Stock Appreciation Right
-----------------------------------------
not granted in tandem with an Option will become exercisable at such time or
times, and on such terms and conditions, as the Committee may specify. The
Committee may at any time accelerate the time at which all or any part of the
Stock Appreciation Right may be exercised. Any exercise of an independent Stock
Appreciation Right must be in writing, signed by the proper person and delivered
or mailed to The Company, accompanied by any other documents required by the
Committee.
ARTICLE IX. STOCK AWARDS.
---------- ------------
9.1 Restricted Stock Awards. The Committee may make Restricted Stock
-----------------------
Awards. A Participant who is granted a Restricted Stock Award shall have no
rights with respect to such Award unless the Participant accepts the Award by
written instrument delivered or mailed to The Company accompanied by payment in
full of the specified purchase price, if any, of the shares covered by the
Award. Payment may be by certified or bank check or other instrument acceptable
to the Committee. A Participant who receives a Restricted Stock Award shall have
all the rights of a stockholder with respect to such stock, including voting and
dividend rights, subject to the restrictions described in Section 9.1 and any
other conditions imposed by the Committee at the time of grant. Unless the
Committee otherwise determines, certificates evidencing such shares will remain
in the possession of The Company until such shares are free of all restrictions
under this Plan. Except as provided in this Plan or the Award, if a Participant
suffers a Status Change for any reason, such Participant's restricted stock must
be offered to The Company for purchase for the amount of cash paid for the
Common Stock, or forfeited to The Company if no cash was paid. These
restrictions will lapse at such time or times, and on such terms and conditions,
as the Committee may determine. The Committee may at any time accelerate the
time at which the restrictions on all or any part of the shares will lapse. Any
Participant making, or required by an Award to make, an election under Section
83(b) of the Code with respect to Restricted Stock Award shall deliver to The
Company, within 10 days of the filing of such election with the Internal Revenue
Service, a copy of such election.
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<PAGE>
9.2 Unrestricted Stock Award. The Committee may, in its sole discretion,
------------------------
approve the sale to any Participant of Common Shares free of restrictions under
the Plan for a price which is not less than the par value of the Common Shares.
9.3 Deferred Stock Awards. The Committee may make Deferred Stock Awards.
---------------------
Under a Deferred Stock Award, delivery of the Common Shares will take place at
such time or times, and on such terms and conditions, as the Committee may
determine. The Committee may at any time accelerate the time at which delivery
of all or any part of the Common Shares will take place. At the time any Award
is granted, the Committee may provide that, at the time Common Shares would
otherwise be delivered pursuant to the Award, the Participant will instead
receive an instrument evidencing the Participant's right to future delivery of
Common Shares.
ARTICLE X. PERFORMANCE AWARDS.
--------- ------------------
The Committee may make Performance Awards. Performance Awards are based on
the attainment of performance goals which may be related to personal
performance, corporate performance, group or departmental performance or any
such other category of performance as the Committee may determine. The Committee
shall have the authority to determine the performance goals, the period or
period during which performance is to be measured and all other terms and
conditions applicable to the Award.
ARTICLE XI. LOANS AND SUPPLEMENTAL GRANTS.
---------- -----------------------------
11.1 Loans. In connection with any Award, the Committee shall have the
-----
authority, in its sole discretion, to determine whether to make a Loan, the
amount, terms and conditions of the Loan, including the interest rate (which may
be zero), whether the Loan is to be secured or unsecured or with or without
recourse against the borrower, the terms on which the Loan is to be repaid and
the terms and conditions, if any, under which the Loan may be forgiven. In no
event shall any Loan have a term (including extensions) in excess of ten years.
11.2 Supplemental Grants. In connection with any Award, the Committee
-------------------
shall have the authority, in its sole discretion, to make a Supplemental Grant
not to exceed an amount equal to (1) the amount of any Federal, state and local
income tax on ordinary income for which the Participant may be liable with
respect to the Award, determined by assuming taxation at the highest marginal
rate, plus (2) an additional amount on a grossed-up basis intended to make the
Participant whole on an after-tax basis after discharging all the Participant's
income tax liabilities arising from all Awards. Any payments under this Section
11.2 shall be made at the time the Participant incurs Federal income tax
liability with respect to the Award.
ARTICLE XII. EVENTS AFFECTING OUTSTANDING AWARDS.
----------- -----------------------------------
12.1 Status Change Due to Death or Disability. If a Participant who
----------------------------------------
suffers a Status Change by reason of death or permanent disability (as
determined by the Committee), the following rules shall apply, unless otherwise
determined by the Committee:
(a) All Options and Stock Appreciation Rights held by the
Participant at the time of such Status Change, to the extent then exercisable,
will continue to be exercisable by the Participant's heirs, executor,
administrator or other legal representative, for a period of one year after the
Participant's Status Change. After the expiration of such one-year period, all
such Options and Stock Appreciation Rights shall terminate. In no event,
however, shall an Option or Stock Appreciation Right remain exercisable beyond
the latest date on which it could have been exercised without regard to this
Section 12. All Options and Stock Appreciation
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<PAGE>
Rights held by a Participant at the time of such Status Change that are not then
exercisable shall terminate upon such Status Change.
(b) All Restricted Stock held by the Participant at the time of
such Status Change shall immediately become free of all restrictions and
conditions.
(c) Any payment or benefit under a Deferred Stock Award,
Performance Award or Supplemental Grant to which the Participant was not
irrevocably entitled at the time of such Status Change shall be forfeited and
the Award canceled as of the time of such Status Change.
12.2 Status Change Due to Events Other Than Death or Disability. If a
----------------------------------------------------------
Participant suffers a Status Change other than by reason of death or permanent
disability (as determined by the Committee), the following rules shall apply,
unless otherwise determined by the Committee:
(a) All Options and Stock Appreciation Rights held by the
Participant at the time of such Status Change, to the extent then exercisable,
will continue to be exercisable by the Participant for a period of three months
after the Participant's Status Change. After the expiration of such three-month
period, all such Options and Stock Appreciation Rights shall terminate. In no
event, however, shall an Option or Stock Appreciation Right remain exercisable
beyond the latest date on which it could have been exercised without regard to
this Section 12. All Options and Stock Appreciation Rights held by a Participant
at the time of such Status Change that are not then exercisable shall terminate
upon such Status Change.
(b) All Restricted Stock held by the Participant at the time of
such Status Change shall immediately become free of all restrictions and
conditions, unless such Status Change results from a termination for Cause (as
defined in Section 12.2(d)), in which event all Restricted Stock held by the
Participant at the time of the Status Change shall be transferred to The Company
(and, in the event the certificates representing such Restricted Stock are held
by The Company, such Restricted Stock shall be so transferred without any
further action by the Participant) in accordance with Article IX above.
(c) Any payment or benefit under a Deferred Stock Award,
Performance Award, or Supplemental Grant to which the Participant was not
irrevocably entitled at the time of such Status Change shall be forfeited and
the Award canceled as of the date of such Status Change.
(d) A termination by The Company of a Participant's employment with
or service to The Company shall be for "Cause" only if: (a) at least 75% of the
members of the Board determined that the Participant (i) was guilty of gross
negligence or willful misconduct in the performance of his or her duties for The
Company, or (ii) breached or violated, in a material respect, any agreement
between the Participant and The Company or any of The Company's policy
statements regarding conflicts-of-interest, insider trading or confidentiality,
or (iii) committed a material act of dishonesty or breach of trust; and (b) in
the case of a Participant who is an Employee, (i) such determination was made at
a duly convened meeting of the Board with respect to which the Participant
received at least 10 days prior written notice, had a reasonable opportunity to
make a statement and answer the allegations against him or her; and (ii) either
(A) the Participant was given a reasonable opportunity to take remedial action
but failed or refused to do so, or (B) at least 75% of the members of the Board
also determined, at such meeting, that an opportunity to take remedial action
would not have been meaningful under the circumstances.
(e) For all purposes of this Section 12.2: (a) if a Participant is
an Employee of a subsidiary of The Company and such subsidiary ceases to be a
subsidiary of The Company, then the Participant's employment with The Company
will be deemed to have been terminated by The Company without Cause, unless the
Participant is transferred to The Company or another subsidiary of The Company;
(b) the
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<PAGE>
employment with The Company of a Participant who is an Employee will not be
deemed to have been terminated if the Participant is transferred from The
Company to a subsidiary of The Company, or vice versa, or from one subsidiary of
The Company to another; and (c) if a Participant who is an Employee terminates
his or her employment with The Company following a reduction in his or her rate
of compensation, then the Participant's employment with The Company will be
deemed to have been terminated by The Company without Cause.
ARTICLE XIII. PAYMENT FOR SHARES.
------------ ------------------
13.1 General Rule. The entire Exercise Price of the Common Shares issued
------------
upon exercise of an Award shall be payable in cash, certified check, bank draft
or money order at the time when such Common Shares are purchased, except as
follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable
Stock Option Agreement. The Stock Option Agreement may specify
that payment may be made in any form(s) described in this
Article XIII.
(b) In the case of an Award (other than an ISO), the Committee may
at any time accept payment in any form(s) described in this
Article XIII.
13.2 Surrender of Stock. To the extent that this Section 13.2 is
------------------
applicable and approved by the Committee, payment for all or any part of the
Exercise Price may be made with Common Shares which have already been owned by
the Participant for more than six months. Such Common Shares shall be valued at
their Fair Market Value on the date when the new Common Shares are purchased
under the Plan.
13.3 Promissory Note. To the extent that this Section 13.3 is applicable
---------------
and approved by the Committee, payment for all or any part of the Exercise Price
may be made with a full-recourse promissory note (on a form prescribed by The
Company); provided that the par value of newly issued Common Shares must be paid
in lawful money of the United States at the time when such Common Shares are
purchased.
13.4 Exercise/Sale. To the extent that this Section 13.4 is applicable and
-------------
approved by the Committee, payment may be made by the delivery (on a form
prescribed by The Company) of an irrevocable direction to a securities broker
approved by The Company to sell Common Shares and to deliver all or part of the
sales proceeds to The Company in payment of all or part of the Exercise Price
and any withholding taxes.
13.5 Exercise/Pledge. To the extent that this Section 13.5 is applicable
---------------
and approved by the Committee, payment may be made by the delivery (on a form
prescribed by The Company) of an irrevocable direction to pledge Common Shares
to a securities broker or lender approved by The Company, as security for a
loan, and to deliver all or part of the loan proceeds to The Company in payment
of all or part of the Exercise Price and any withholding taxes.
13.6 Other Forms of Payment. To the extent that this Section 13.6 is
----------------------
applicable and approved by the Committee, payment may be made in any other form
that is consistent with applicable laws, regulations and rules.
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<PAGE>
ARTICLE XIV. LIMITATION ON RIGHTS.
----------- --------------------
14.1 Written Instrument Required. The Committee's approval of a grant of
---------------------------
an Award under this Plan, including the names of Participants and the size of
the Award, including the number of Common Shares subject to the Award, shall be
reflected in minutes of meetings held by the Committee or the Board or in
written consents signed by members of the Committee or the Board. Once approved
by the Committee, each Award shall be evidenced by such written instrument,
containing such terms as are required by this Plan and such other terms,
consistent with the provisions of this Plan, as may be approved from time to
time by the Committee. Each instrument may be in the form of agreements to be
executed by both the Participant and The Company, or certificates, letters or
similar instruments, which need not be executed by the Participant but
acceptance of which shall evidence agreement to the terms thereof. The receipt
of an Award shall not impose any obligation on the Participant to accept the
Award.
14.2 No Stockholder Rights. Except as specifically provided by this Plan,
---------------------
the receipt of an Award shall not give a Participant rights as a stockholder.
The Participant shall obtain such rights, subject to any limitations imposed by
this Plan or the instrument evidencing the Award, upon actual receipt of Common
Shares. However, the Committee may, on such conditions as it deems appropriate,
provide that a Participant will receive a benefit in lieu of cash dividends that
would have been payable on any or all Common Shares subject to the Participant's
Award had such Common Shares been outstanding. Without limitation, the Committee
may provide for payment to the Participant of amounts representing such
dividends, either currently or in the future, or for the investment of such
amounts on behalf of the Participant.
14.3 Regulatory Requirements. The Company shall not be obligated to
-----------------------
deliver any Common Shares (a) until, in the opinion of The Company's counsel,
all applicable federal, state and foreign laws and regulations have been
complied with, (b) if the outstanding Common Shares are at the time listed on
any stock exchange, until the Common Shares to be delivered have been listed or
authorized to be listed on such exchange upon official notice of issuance, and
(c) until all other legal matters in connection with the issuance and delivery
of such Common Shares have been approved by The Company's counsel. If the sale
of Common Shares has not been registered under the Securities Act of 1933, as
amended, The Company may require, as a condition to the exercise of an option,
such representations and agreements as counsel for The Company may consider
appropriate to avoid violation of such Act or applicable state laws and may
require the certificates evidencing such Common Shares bear an appropriate
legend restricting transfer.
14.4 Exercise of Awards. Awards shall not be exercisable until at least
------------------
six (6) months after the date of grant.
ARTICLE XV. WITHHOLDING TAXES.
---------- -----------------
15.1 General. To the extent required by applicable federal, state, local
-------
or foreign law, the recipient of any payment or property under this Plan shall
make arrangements satisfactory to The Company for the satisfaction of any
withholding tax obligations that arise by reason of the receipt or vesting of
such payment or property. The Company shall not be required to issue any Common
Shares or make any cash payment under this Plan until such obligations are
satisfied.
15.2 Share Withholding. The Committee may permit the recipient of any
-----------------
payment or property under this Plan to satisfy all or part of his or her
withholding or income tax obligations by having The Company withhold a portion
or any Common Shares that otherwise would be issued to him or her or by
surrendering a portion of any Common Shares that previously were issued to him
or her. Such Common Shares shall be valued at their Fair Market Value on the
date when taxes otherwise would be withheld in
A-12
<PAGE>
cash. Any payment of taxes by assigning Common Shares to The Company may be
subject to restrictions, including any restrictions required by rules of the
Securities and Exchange Commission.
ARTICLE XVI. FUTURE OF THE PLAN.
----------- ------------------
16.1 Term of the Plan. This Plan, as set forth herein, shall become
----------------
effective on the Effective Date, subject to the approval of The Company's
shareholders. This Plan shall remain in effect until it is terminated under this
Article XVI, except that ISOs shall not be granted after the expiration of a
period which is ten (10) from the date this Plan was first approved by The
Company's shareholders.
16.2 Amendment or Termination. The Board may, at any time and for any
------------------------
reason, amend or terminate this Plan, except that the provisions of Section 6.2
relating to Outside Directors shall not be amended more than once in any six (6)
month period. An amendment of this Plan shall be subject to the approval of The
Company's shareholders only to the extent required by applicable law,
regulations or rules. No Awards shall be granted under this Plan after the
termination thereof. The termination of this Plan, or any amendment thereof,
shall not affect any Awards previously granted under this Plan.
ARTICLE XVII. EFFECTIVENESS OF AWARD.
------------ ----------------------
Corporate action constituting an offer by The Company of Common Shares to
any Participant under the terms of an Award shall be deemed completed as of the
date of grant of the Award, regardless of when the instrument, certificate, or
letter evidencing the Award is actually received or accepted by the Participant.
ARTICLE XVIII. NO ASSIGNMENT.
------------- -------------
None of a Participant's rights under any Award or under this Plan may be
assigned or transferred in any manner other than by will or under the laws or
descent and distribution. The foregoing shall not, however, restrict a
Participant's right with respect to unrestricted Common Shares or the outright
transfer of cash, nor shall it restrict the ability of a Participant's heirs,
estate, beneficiaries, or personal or legal representatives to enforce the terms
of the Plan with respect to Awards granted to the Participant.
ARTICLE XIX. MISCELLANEOUS
----------- -------------
19.1 Shareholder Approval. This Plan shall be approved and ratified by the
--------------------
stockholders of The Company, not later than one year after adoption of this Plan
by the Board, pursuant to Treasury regulation section 1.423-2(c). Grants of
Awards under this plan may be made prior to that date (but after adoption of the
Plan by the Board), subject to the approval of this Plan by The Company's
shareholders.
19.2 Employment/Engagement Rights. Neither the establishment of this Plan,
----------------------------
nor the grant of any Options thereunder, nor the exercise thereof shall be
deemed to give to any Employee or Consultant the right to be retained in the
employ of or to receive any consideration from The Company or any Subsidiary or
to interfere with the right of The Company or any Subsidiary to discharge any
Employee or Consultant or otherwise modify the employment or consulting
relationship at any time.
19.3 Other Options Not Precluded. Neither the adoption of this Plan nor
---------------------------
the grant of Awards to an Employee or Consultant shall affect The Company's
right to grant such Awards that are not subject to this Plan, to issue to
Employees or Consultants stock as a bonus or otherwise, or to adopt other plans
or arrangements under stock may be issued to Employees or Consultants.
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<PAGE>
19.4 Governing Law. This Plan shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Pennsylvania except to the
extent such laws are preempted by the laws of the United States.
IN WITNESS WHEREOF, to record the approval of this Plan by the Board, the
Company has caused its duly authorized officer to affix the corporate name and
seal hereto on this 13th day of November, 1997.
HOME HEALTH CORPORATION OF AMERICA, INC.
By: /s/ Bruce J. Feldman
------------------------------------
Attest: /s/ Tina Labant
--------------------------------
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<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC.
KING OF PRUSSIA, PA
PROXY FOR 1997 ANNUAL MEETING OF SHAREHOLDERS, FEBRUARY 16, 1998
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Bruce J. Feldman and Tina
Labant, and each of them, as attorneys and proxies of the undersigned, with
full power of substitution, for and in the name, place and stead of the
undersigned, to appear at the annual meeting of shareholders of Home Heath
Corporation of America, Inc. to be held on the 16th day of February, 1998 and
at any postponement or adjournment thereof, and to vote all of the shares of
Home Heath Corporation of America, Inc. which the undersigned is entitled to
vote, with all the powers and authority the undersigned would possess if
personally present. The undersigned hereby directs that this proxy be voted as
marked on the reverse side hereof.
THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED. IF NO
DIRECTIONS TO THE CONTRARY ARE INDICATED IN THE BOXES PROVIDED, THE PERSONS
NAMED HEREIN INTEND TO VOTE FOR EACH PROPOSAL LISTED ON THE REVERSE SIDE
HEREOF.
A MAJORITY OF SAID ATTORNEYS AND PROXIES PRESENT AND ACTING AT THE MEETING
IN PERSON OR BY THEIR SUBSTITUTES (OR IF ONLY ONE IS PRESENT AND ACTING, THEN
THAT ONE) MAY EXERCISE ALL THE POWERS CONFERRED HEREBY. DISCRETIONARY AUTHORITY
IS CONFERRED HEREBY AS TO CERTAIN MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
(Continued and to be marked, signed and dated on the reverse side)
<PAGE>
[X] Please Mark Your Votes As In This Example.
FOR WITHHOLD AUTHORITY
the nominee To Vote For The
listed Nominee
1. ELECTION OF DIRECTOR:
G. Michael Bellenghi [_] [_]
FOR AGAINST ABSTAIN
2. Proposal to consider and approve
amendments to HHCA's 1995 Employee [_] [_] [_]
and Consultant Equity Plan.
3. To transact such other business as
may properly come before the meeting [_] [_] [_]
or any postponement or adjournment
thereof.
Receipt Of The Notice Of Annual Meeting Of Shareholders And Proxy Statement
Dated January 14, 1998 Is Hereby Acknowledged.
Please Sign Exactly As Your Name Or Names Appear Hereon, Including Any Official
Position Or Representative Capacity.
Signature(s): Date: Signature(s): Date:
-------------- --------- ------------ ---------
Please Mark, Date And Sign This Proxy And Return It Promptly In The Enclosed
Postage Paid Envelope.
