<PAGE> 1
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:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of Commission Only (as
/X/ Definitive Proxy Statement permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
BALANCED CARE CORPORATION
(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)(1) 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 No.:
------------------------------
(3) Filing Party:
------------------------------
(4) Date Filed:
------------------------------
<PAGE> 2
[BALANCED CARE CORPORATION LOGO]
5021 LOUISE DRIVE, SUITE 200
MECHANICSBURG, PENNSYLVANIA 17055
October 6, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Balanced Care Corporation. The annual meeting will be held on Thursday,
October 29, 1998, at 10:00 a.m., local time, at the DoubleTree Club Hotel, 815
Eisenhower Boulevard, Middletown, Pennsylvania 17057.
Your vote is important and I urge you to vote your shares by proxy, whether
or not you plan to attend the meeting. After you read this proxy statement,
please indicate on the proxy card the way you want to vote your shares. Please
date, sign and mail the proxy card in the postage-paid envelope that is
provided. If you sign and return your proxy card without indicating your
choices, it will be understood that you wish to have your shares voted in
accordance with the recommendations of the Company's Board of Directors.
We hope to see you at the meeting.
Sincerely,
/s/ BRAD E. HOLLINGER
--------------------------------
Brad E. Hollinger
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 3
BALANCED CARE CORPORATION
5021 LOUISE DRIVE, SUITE 200
MECHANICSBURG, PENNSYLVANIA 17055
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 29, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Balanced Care Corporation (the "Company") will be held at the
DoubleTree Club Hotel, 815 Eisenhower Boulevard, Middletown, Pennsylvania 17057
on Thursday, October 29, 1998 at 10:00 a.m., local time, for the following
purposes, as more fully described in the attached Proxy Statement:
1. To elect three Class I directors, each for a term of three years;
2. To approve the Company's 1996 Stock Incentive Plan, as amended and
restated; and
3. To consider any other matters that may properly come before the
Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on October 5, 1998
as the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting or at any adjournment thereof. A complete list of the
stockholders entitled to vote at the Annual Meeting will be open for examination
by any stockholder during ordinary business hours for a period of ten days prior
to the Annual Meeting at the executive offices of the Company, 5021 Louise
Drive, Suite 200, Mechanicsburg, Pennsylvania 17055.
You are cordially invited to attend the Annual Meeting in person. In order
to ensure your representation at the meeting, however, please promptly complete,
date, sign and return the enclosed proxy in the accompanying envelope. If you
should decide to attend the Annual Meeting and vote your shares in person, you
may revoke your proxy at that time.
By Order of the Board of Directors,
/s/ ROBERT J. SUTTON
--------------------
Robert J. Sutton
Secretary
October 6, 1998
<PAGE> 4
BALANCED CARE CORPORATION
5021 LOUISE DRIVE, SUITE 200
MECHANICSBURG, PENNSYLVANIA 17055
PROXY STATEMENT
OCTOBER 6, 1998
PROXY SOLICITATION AND VOTING INFORMATION
The accompanying proxy is solicited by the Board of Directors of Balanced
Care Corporation (the "Company") for use at the Annual Meeting of Stockholders
(the "Annual Meeting") to be held on Thursday, October 29, 1998 at the
DoubleTree Club Hotel, 815 Eisenhower Boulevard, Middletown, Pennsylvania 17057
at 10:00 a.m., local time, and at any adjournment or postponement thereof. The
proxies will be voted if properly signed, received by the Secretary of the
Company prior to the close of voting at the Annual Meeting, and not revoked. If
no direction is given in the proxy, it will be voted "FOR" the election of the
directors nominated by the Board of Directors and "FOR" the approval of the
Company's 1996 Stock Incentive Plan, as amended and restated by the Board of
Directors on August 18, 1998 (the "Amended Incentive Plan"). The Company has not
received timely notice of any stockholder proposals for presentation at the
Annual Meeting as required by Section 14a-4(c) of the United States Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Therefore, with respect
to any other item of business that may come before the Annual Meeting, the proxy
holders have the right to and will vote in accordance with their judgment.
A stockholder who has returned a proxy may revoke it at any time before it
is voted at the Annual Meeting by delivering a revised proxy bearing a later
date, by voting by ballot at the Annual Meeting, or by delivering a written
notice withdrawing the proxy to the Secretary of the Company. This notice may be
mailed to the Secretary at the address set forth above or may be given to the
inspector of election at the Annual Meeting.
This Proxy Statement, together with the accompanying proxy, is first being
mailed to stockholders on or about October 6, 1998. The cost of this
solicitation of proxies will be borne by the Company. In addition to soliciting
proxies by mail, directors, officers, employees and affiliates of the Company,
without receiving additional compensation for these services, may solicit
proxies by telephone, telegram, in person or by other means. Arrangements also
will be made with brokerage firms and other custodians, nominees and fiduciaries
to forward proxy soliciting material to the beneficial owners of common stock,
par value $.001 per share, of the Company ("Common Stock") held of record by
such persons and the Company will reimburse such brokerage firms, custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them
in doing so. The cost of this proxy solicitation will consist primarily of
printing, legal fees, and postage and handling.
Holders of record of Common Stock at the close of business on October 5,
1998 (the "Record Date") are entitled to vote at the Annual Meeting. On that
date, 16,697,407 shares of Common Stock were outstanding. The presence, in
person or by proxy, of stockholders holding at least a majority of the shares of
stock entitled to be voted will constitute a quorum for the transaction of
business at the Annual Meeting. Stockholders are entitled to cast one vote per
share on each matter presented for consideration and action at the Annual
Meeting.
Approval of the proposals to be brought before the Annual Meeting,
including the election of directors, will require the affirmative vote of at
least a majority in voting interest of the stockholders present in person or by
proxy at the Annual Meeting and entitled to vote thereon. Votes may be cast in
favor of or withheld from the nominees for director. Abstentions may be
specified as to any proposal brought before the Annual Meeting, other than the
election of directors. An abstention will have the effect of a negative vote,
but if a broker indicates that it does not have authority to vote certain shares
(so-called "broker non-votes"), those shares will not be considered present and
entitled to vote with respect to that proposal and therefore will have no effect
upon the outcome of the vote. Under the rules of the American Stock Exchange
(the "AMEX"), brokers holding shares may vote without specific instruction from
beneficial owners on the election of directors.
<PAGE> 5
BOARD OF DIRECTORS AND ELECTION OF DIRECTORS
The Board of Directors of the Company consists of seven members, divided
into three classes. A vacancy in Class II occurred in June 1998 upon the death
of Kenneth F. Barber, which was filled by Raymond E. Schultz in September 1998.
The terms of office of the three classes of directors (Class I, Class II and
Class III) end in successive years. The terms of the Class I directors expire
this year and their successors are to be elected at the Annual Meeting for a
three-year term expiring in 2001. The terms of the Class II and Class III
directors do not expire until 1999 and 2000, respectively.
The Board of Directors has nominated John M. Brennan, Bill R. Foster, Sr.
and Edward R. Stolman for election as Class I directors. The accompanying proxy
will be voted for the election of these nominees, unless authority to vote for
one or more nominees is withheld. In the event that any of the nominees is
unable or unwilling to serve as a director for any reason (which is not
anticipated), the proxy will be voted for the election of any substitute nominee
designated by the Board of Directors. The nominees for directors have previously
served as members of the Board of Directors of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
EACH OF THE CLASS I DIRECTOR NOMINEES.
<TABLE>
<S> <C>
CLASS I DIRECTORS--NOMINEES FOR TERMS TO EXPIRE IN 2001
JOHN M. BRENNAN Mr. Brennan is presently involved in a number of
Age 42 businesses, including as developer/owner of a real estate
Director since 1995 development company in Hawaii and as owner of a golf resort
in Bloomington, Indiana. From 1995 to 1997, Mr. Brennan was
President of Respiratory Resources, LLC, a company that
manages respiratory therapy services. In 1990 Mr. Brennan
co-founded Golden Care, Inc., a respiratory therapy
company, and served as its President and a director from
1990 to 1995. From 1987 to 1990, Mr. Brennan served as
Chief Operating Officer of a private respiratory therapy
company headquartered in Indiana. From 1984 to 1987, he
operated a chain of private home care companies in the
states of Texas, New Mexico, Illinois and Indiana. From
1982 to 1984, Mr. Brennan was the Technical Director for
two hospital-based respiratory therapy departments in
Texas.
BILL R. FOSTER, SR. Mr. Foster is the President and Chief Executive Officer of
Age 71 Foster Hospitality Group. He has been involved in the
Director since 1996 development and operation of skilled nursing, independent
living and assisted living facilities for four decades. Mr.
Foster serves on the State of Missouri Governor's Advisory
Council on Aging, has served as its President for two terms
and has been a Delegate to the White House Conference on
Aging. He serves on the Board of Directors of the Missouri
Health Care Association. In February 1997, Mr. Foster was
appointed as a Senator to the Silver-Haired Congress,
representing the State of Missouri.
EDWARD R. STOLMAN Mr. Stolman has owned and operated Stolman Investments
Age 72 since 1982, specializing in real estate and health care
Director since 1997 investments and consulting. He joined Hospital Affiliates
International in 1968 and served as Executive Vice
President and Vice Chairman, and also served as Chairman of
Affiliated Health Corporation from 1984 to 1990. Mr.
Stolman was an original investor in and a member of the
Board of Directors of Dovebar International, Inc.
</TABLE>
2
<PAGE> 6
<TABLE>
<S> <C>
CONTINUING CLASS II DIRECTORS--PRESENT TERM EXPIRES IN 1999
RAYMOND E. SCHULTZ Mr. Schultz is Chairman of the Board of Directors and Chief
Age 64 Executive Officer of Promus Hotel Corporation, a
Director since 1998 lodging/hospitality company. He serves on the boards of the
TBC Corporation and the Memphis Arts Council, as well as on
the advisory boards of The Pennsylvania State University,
New Mexico State University and Christian Brothers
University.
GEORGE H. STRONG Mr. Strong is a private investor with many years of
Age 72 experience in both director and executive positions in
Director since 1996 health care enterprises. Mr. Strong was a Senior Vice
President and founding director of Universal Health
Services, Inc. for six years and was with American Medicorp
for four years prior to that. He also serves as a director
for Integrated Health Services, HealthSouth Rehabilitation
Corporation, Clinical Partners, Managed Care USA,
Amerisource, Corefunds Group and Pocantico Development
Associates.
CONTINUING CLASS III DIRECTORS--PRESENT TERM EXPIRES IN 2000
DAVID L. GOLDSMITH Mr. Goldsmith has been associated with BancAmerica
Age 50 Robertson Stephens and its predecessors since 1981 and is
Director since 1996 currently Managing Director, Health Care. Mr. Goldsmith is
also a member of the Boards of Directors of Apria
Healthcare Group Inc. and selected private companies.
BRAD E. HOLLINGER Mr. Hollinger has previously served as Executive Vice
Age 44 President of the Contract Services Group of Continental
Chairman of the Board, Medical Systems ("CMS"), a national provider of medical
President and rehabilitation services and contract therapy services from
Chief Executive Officer 1992 to 1995. During his eight years with CMS, Mr.
and a Director since 1995 Hollinger also served as Senior Vice President/Development
from 1987 to 1990, leading the development and financing of
eighteen medical rehabilitation hospitals in seven states.
From 1985 to 1987, Mr. Hollinger was Vice President of
Development of Rehab Hospital Service Corporation.
</TABLE>
MEETINGS AND COMMITTEES OF THE BOARD
During the fiscal year ended June 30, 1998 ("Fiscal 1998"), the Board of
Directors met on five occasions. The Board of Directors took action by unanimous
written consent on two occasions and by telephonic conference call on eight
occasions. The Board has three standing committees: the Audit, Compensation and
Project Financing Committees. The Board does not have a nominating committee.
The Audit Committee currently consists of David L. Goldsmith and George H.
Strong. Prior to June 1998, Kenneth F. Barber was also a member of the Audit
Committee. This committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the plans and results of the audit engagement, approves professional services
provided by the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit fees
and reviews the adequacy of the Company's internal accounting. The Audit
Committee held three meetings in Fiscal 1998.
The Compensation Committee currently consists of John M. Brennan, Edward R.
Stolman and David L. Goldsmith. This committee establishes a general
compensation policy for the Company and approves increases both in directors'
fees and in salaries paid to officers and senior employees of the Company. The
Compensation
3
<PAGE> 7
Committee determines, subject to the provisions of the Company's plans, the
directors, officers and employees of the Company eligible to participate in any
of the plans, the extent of such participation and terms and conditions under
which benefits may be vested, received or exercised. The Compensation Committee
held one meeting in Fiscal 1998.
The Project Financing Committee currently consists of Brad E. Hollinger and
Edward R. Stolman. Prior to June 1998, Kenneth F. Barber was also a member of
the Project Financing Committee. This committee was formed to take the actions
necessary to finalize the financial closings of those projects previously
authorized and approved by the Board of Directors. The Project Financing
Committee held 11 meetings in Fiscal 1998.
COMPENSATION OF DIRECTORS
Members of the Board of Directors who are also employees of the Company do
not receive cash compensation for their services as directors. Members of the
Board of Directors who are not employees of the Company receive a $5,000 annual
retainer for their services as directors, payable quarterly. Each non-employee
director also receives $1,000 for each meeting attended and $500 for each
telephonic meeting in which he participated. Commencing in June 1998, Messrs.
Barber, Brennan, Foster, Goldsmith, Stolman and Strong received $1,500, $500,
$1,500, $2,500, $1,500 and $2,500, respectively, as Fiscal 1998 compensation for
their services as directors of the Company. All directors are reimbursed for
reasonable expenses incurred in attending board and committee meetings and
otherwise carrying out their duties. Each non-employee director will be granted
a non-qualified option to acquire 15,000 shares of Common Stock upon election to
the Board and an option to acquire 5,000 shares of Common Stock on the
anniversary of such director's election to the Board for the duration of his or
her term pursuant to the Company's Amended Incentive Plan. All share numbers
reflect the 3-for-4 reverse stock split of the Company's Common Stock in October
1997.
Prior to June 1998, Mr. Barber was party to a consulting agreement with the
Company to provide financial, development and other consulting services at the
rate of $100 per hour not to exceed 20 hours per week for 52 weeks. During
Fiscal 1998, Mr. Barber received $96,600 under such agreement, which
automatically terminated.
4
<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation information for the two fiscal
years ended June 30, 1998 for the Company's Chief Executive Officer and for the
four other most highly compensated executive officers of the Company for Fiscal
1998 (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------
ANNUAL COMPENSATION SECURITIES
FISCAL ----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(S) YEAR SALARY($) BONUS($)(1) OPTIONS(#S)(2) COMPENSATION($)
------------------------------ ---- --------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Brad E. Hollinger........................ 1998 200,000 116,250 -- --
Chairman of the Board, President 1997 152,500 58,000 75,000 --
and Chief Executive Officer
William T. McCarthy(3)................... 1998 122,000 43,600 -- 7,200(4)
Vice President--Mergers and
Acquisitions 1997 119,495 -- 18,750 3,600(4)
Brian L. Barth........................... 1998 125,000 32,400 15,000 --
Chief Development Officer 1997 75,000 20,000 26,250 --
Paul A. Kruis(5)......................... 1998 110,866 -- 150,000 --
Chief Financial Officer 1997 -- -- -- --
Russell A. DiGilio....................... 1998 104,000 36,000 -- 2,132(6)
Vice President--Assisted Living
Division 1997 89,667 3,683 18,750 1,708(6)
</TABLE>
- ---------------
(1) Reflects bonuses paid in Fiscal 1998 and the year ended June 30, 1997
("Fiscal 1997") for services rendered in Fiscal 1997 and Fiscal 1996,
respectively.
(2) Options granted pursuant to the Company's 1996 Stock Incentive Plan (the
"Incentive Plan") to purchase shares of Common Stock. Options granted during
Fiscal 1998 are described in greater detail below.
(3) Mr. McCarthy resigned from the Company effective July 2, 1998.
(4) Represents travel and lodging reimbursement.
(5) Mr. Kruis became Chief Financial Officer of the Company in November 1997.
(6) Represents the value received by Mr. DiGilio in connection with personal
usage of a Company-owned vehicle.
OPTION GRANTS IN LAST FISCAL YEAR
The table below sets forth information with respect to stock options
granted to the Named Executive Officers in Fiscal 1998. No options were
exercised by the Named Executive Officers in Fiscal 1998. The options listed
below are included in the Summary Compensation Table above.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------------
NAME GRANTED(1) FISCAL YEAR PRICE($/SH) DATE 5% 10%
- ---- ---------- ----------- ----------- ---- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Brad E. Hollinger........... -- -- -- -- -- --
William T. McCarthy......... -- -- -- -- -- --
Brian L. Barth.............. 15,000 3.2% $6.50 11/6/2002 $ 26,937 $ 59,525
Paul A. Kruis............... 150,000 31.7% $5.50 10/6/2002 $227,932 $503,671
Russell A. DiGilio.......... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Options granted pursuant to the Incentive Plan to purchase shares of Common
Stock. Subject to the approval of the Compensation Committee, the exercise
price and applicable withholding taxes may be paid in cash or in shares of
the Company's Common Stock (whether previously owned or to be acquired upon
exercise), or by other methods which comply with the Incentive Plan and
applicable law. The options granted to Mr. Barth will vest in equal
5
<PAGE> 9
increments on November 6, 1998, 1999, 2000 and 2001. Of the options granted
to Mr. Kruis, 25% are vested and the remaining options will vest in equal
increments on October 6, 1999, 2000 and 2001.
(2) These assumed "potential realizable values" are mathematically derived from
certain prescribed rates of stock appreciation. The actual value of these
option grants is dependent on the future performance of Company Common Stock
and overall stock market conditions. There is no assurance that the values
reflected in this table will be achieved. These values are calculated using
the estimated fair market values of the Common Stock on October 6, 1997 and
November 6, 1997, of $5.50 and 6.50 per share, respectively, and assume that
all such options are currently exercisable.
EMPLOYMENT AGREEMENTS
Employment Agreement with the Chief Executive Officer. The Company is party
to an employment agreement with Mr. Hollinger that became effective as of August
1, 1996 and is to expire on July 31, 2001, subject to extension annually
thereafter. Pursuant to the employment agreement, for the period beginning
August 1, 1996 and ending June 30, 1997, Mr. Hollinger was entitled to receive
an annual salary of $150,000; for the period beginning July 1, 1997 and ending
June 30, 1998, Mr. Hollinger is to receive an annual salary of $200,000; for the
period beginning July 1, 1998 and for the duration of the agreement, Mr.
Hollinger is to receive an annual salary of $225,000. For each fiscal year of
the Company throughout the term of the agreement, Mr. Hollinger is also entitled
to receive an annual bonus in an amount not less than 75% of his base salary
upon achievement by the Company of certain levels of pre-tax earnings to be
determined by the Board of Directors. If the level of earnings exceeds the level
determined by the Board for a fiscal year, the Board may award Mr. Hollinger
additional bonus compensation. Pursuant to the employment agreement, the Company
granted to Mr. Hollinger as of August 1, 1996 the right to purchase 37,500
shares of Common Stock at a purchase price of $2.00 per share and, as of June
30, 1997, the right to purchase an additional 37,500 shares of Common Stock at a
per share purchase price equal to the fair market value of a share of Common
Stock on June 30, 1997, which was $6.67 per share. These options are generally
to vest in accordance with the Incentive Plan (including the Change of Control
acceleration provision contained in such plan), provided that if Mr. Hollinger
terminates his employment for Good Reason (as defined in the employment
agreement, which includes the occurrence of a Change in Control as Good Reason),
the options are to become fully vested and exercisable as of the date of such
termination and may be exercised within one year following such termination. In
addition, if Mr. Hollinger terminates his employment for Good Reason (including
upon the occurrence of a Change in Control), he will be entitled to receive a
cash payment within 10 days of such termination equal to three times his annual
compensation plus the amount of any bonus for that year.
Employment Agreements with Other Named Executive Officers. The Company is
party to an employment letter with Mr. Kruis which provides that, in the event
of a change in control of the Company that results in his position being
diminished in scope of authority and responsibilities or change in reporting
responsibility, or if he is terminated without cause, Mr. Kruis is entitled to
receive three years compensation. Mr. Kruis is entitled to receive an annual
salary of $150,000, with an annual bonus of up to 45% of his base salary based
upon his performance of stated objectives and the Company's achievement of
certain levels of pre-tax earnings to be determined by the Board of Directors.
Mr. Kruis was also granted the right to purchase 150,000 shares of Common Stock
of the Company, in accordance with the Incentive Plan at $5.50, the fair market
value of a share of Common Stock on October 6, 1997.
The Company is party to an employment agreement with Mr. Barth that became
effective as of September 20, 1995, was amended and renewed as of July 1, 1998,
and is to expire on June 30, 2001, subject to automatic renewal unless one party
provides written notice to the other not later than 90 days prior to the next
extension date of his or its intention not to renew. The employment agreement
provides that Mr. Barth is to receive an annual salary of $170,000, subject to
increase by the Board of Directors. Mr. Barth is also entitled to receive an
annual bonus of up to 50% of his base salary subject to achievement of the
Company's annual operating budget as approved by the Board of Directors. In the
event of a termination following a Change in Control (as defined in the
employment agreement) or Mr. Barth's voluntary withdrawal within one year
following such Change of Control, Mr. Barth is entitled to receive a lump sum
payment equal to his base salary and annual bonus for the preceding three years.
6
<PAGE> 10
The Company was a party to an employment agreement with Mr. McCarthy that
became effective as of May 1, 1996, was renewed as of May 1, 1998 and was to
expire on April 30, 1999, subject to automatic annual renewal unless one party
provided written notice to the other not later than 60 days prior to the next
extension date of his or its intention not to renew. Mr. McCarthy resigned from
the Company effective July 2, 1998. The employment agreement provided that Mr.
McCarthy was to receive an annual salary of $100,000, subject to increase by the
Board of Directors. Mr. McCarthy was also entitled to receive an annual bonus of
up to 40% of his base salary subject to the terms and conditions as may be
determined by Mr. Hollinger and approved by the Board. Pursuant to the
employment agreement, the Company granted to Mr. McCarthy an option to purchase
up to 75,000 shares of Common Stock at a per share exercise price of $2.00
vesting in equal installments over two years. In the event of a termination
following a Change of Control (as defined in the employment agreement), Mr.
McCarthy was entitled to receive his base salary at a rate then in effect for
the period equal to one year. In connection with Mr. McCarthy's resignation from
the Company, he entered into an agreement with the Company pursuant to which he
is entitled to exercise his vested options until July 2, 1999, or one year from
the effective date of his resignation. In the absence of such an agreement, an
employee is entitled to exercise options until the ninetieth day following
resignation from the Company.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors ("Committee") of the
Company is composed entirely of independent, non-employee directors. The
Committee is responsible for reviewing and approving the compensation of the
Company's executive officers and for determining the Company's general
compensation policies. The Committee also administers the Incentive Plan.
Executive Compensation Philosophy. The Committee endeavors to ensure that
the compensation programs for the executive officers of the Company are
effective in attracting and retaining key executives responsible for the success
of the Company and are administered in appropriate fashion in the long-term
interests of the Company and its stockholders. The Committee seeks to align
total compensation for senior management with the overall performance of the
Company as well as the individual performance of each executive officer. The
Company's compensation package, which currently is comprised of base salary,
bonuses and stock options, is intended to reinforce management's commitment to
enhancing profitability and stockholder value.
In determining the level and composition of compensation for the executive
officers of the Company, the Committee considers various corporate and
individual performance measures. The Committee also evaluates other external
factors such as market conditions as well as compensation practices and
financial performance of other companies in the assisted living industry.
Executive Compensation Components. The key components of the Company's
compensation policy are base salary, an annual incentive award and equity
participation. These components are administered with the goal of providing
total compensation that is competitive in the marketplace, rewarding successful
financial performance and aligning executive officers' interests with those of
the Company's stockholders. The Committee reviews each component of executive
compensation on an annual basis.
Base Salary. During Fiscal 1998, base salaries for executive officers were
established by the Committee based upon an evaluation of each executive's
performance, as well as the performance of the Company as a whole. The Committee
also considered the success of the executive officers in developing and
executing the Company's strategic plans, developing management employees and
exercising leadership.
Annual Incentive. Bonus payments to executive officers for Fiscal 1998 were
based upon a combination of the Company's performance and the individual
officer's achievement of pre-established performance goals. The Committee
believes that a significant proportion of total cash compensation for executive
officers should be subject to the attainment of specific performance criteria.
This approach creates a direct incentive for executive officers to achieve
desired performance goals and places a significant percentage of each executive
officer's compensation at risk. Consequently, at the beginning of each year, the
Committee establishes potential bonuses for executive officers based upon the
Company's achievement of certain performance criteria.
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<PAGE> 11
Equity Participation Through Stock Options. The Committee believes that
equity participation is a key component of its executive compensation policy.
The use of stock-based awards provides a long-term link between the result
achieved for the Company's stockholders and the rewards provided to executive
officers. Stock options are granted to executive officers primarily based on the
officer's actual and potential contribution to the Company's growth and
profitability. These awards are designed to retain executive officers and
motivate them to enhance stockholder value by aligning the financial interests
of executive officers with those of the Company's stockholders. Stock options,
in particular, provide an effective incentive for management to create
stockholder value over the long term since the full benefit of the option cannot
be realized unless an appreciation of the price of the Company's Common Stock
occurs over a number of years.
Options to purchase a total of 342,500 shares of the Company's Common Stock
were granted to the Company's 16 executive officers (including the Chief
Executive Officer) in Fiscal 1998 with an exercise price equal to the fair
market value of the underlying Common Stock at the date of grant. To encourage
long-term performance, these options vest cumulatively in four annual
installments of 25% and expire five years from the date of the grant.
The Committee granted these stock options in recognition of the significant
efforts expended by the executive officers in connection with the implementation
of the Company's growth strategy. The Committee granted options to the executive
officers based upon its judgment that the grants were appropriate and desirable
considering the executive officers' actual and potential contribution to the
Company. The assessment of actual and potential contribution was based on the
Committee's subjective evaluation of each executive officer's ability, skill and
leadership.
Compensation of Chief Executive Officer. The base salary of Brad E.
Hollinger, President, Chief Executive Officer and Chairman of the Board, was
established as a result of the Committee's evaluation of Mr. Hollinger's
performance, as well as the performance of the Company as a whole. For services
rendered in Fiscal 1998, Mr. Hollinger received an annual base salary of
$200,000. The assessment of actual and potential contribution resulted from the
Committee's subjective evaluation of Mr. Hollinger's abilities, skills, efforts
and leadership. Mr. Hollinger also received a bonus of $116,250 for Fiscal 1997
that was paid in Fiscal 1998 due to the Company's achievement of certain
earnings per share goals established by the Committee and Mr. Hollinger's
efforts and leadership in implementing the Company's growth strategy.
Under the Omnibus Budget Reconciliation Act of 1993, publicly held
companies may not deduct compensation paid to a company's chief executive
officer and the four other highest-paid executive officers to the extent that
such compensation exceeds $1 million in any year for each such officer, unless
such compensation qualifies as "performance-based." The Company was not affected
by this limitation for the 1998 tax year. The Company will continue its efforts
to preserve tax deductibility of compensation where it is reasonable and
feasible to do so.
John M. Brennan
David L. Goldsmith
George H. Strong
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During Fiscal 1998, Mr. Brennan, a member of the Compensation Committee,
served as President of Respiratory Resources LLC, an Indiana limited liability
company that manages respiratory therapy services in four skilled nursing
facilities owned or leased by the Company. The Company's payments to RRI for
such services were $152,000 for Fiscal 1998. Mr. Brennan received a warrant in
August 1996 to purchase 138,000 shares of Common Stock of the Company at a
purchase price of $3.00 per share. The warrant has a 10 year term and may be
exercised at any time.
8
<PAGE> 12
COMPARATIVE STOCK PERFORMANCE
The following graph compares the performance of the Company's Common Stock
against the AMEX Composite Stock Index and a peer group index for the period
commencing with the Company's initial public offering on February 11, 1998 and
ending June 30, 1998. The peer group consists of Assisted Living Concepts, Inc.,
Alternative Living Services, Inc., American Retirement Corporation, ARV Assisted
Living, Inc., Atria Communities, Inc., Brookdale Living Communities, Inc.,
Capital Senior Living Corporation, CareMatrix Corporation, Emeritus Assisted
Living, Karrington Health, Inc., Regent Assisted Living, Inc. and Sunrise
Assisted Living, Inc.
The graph assumes that $100 was invested on February 11, 1998, and that
dividends were reinvested.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD BALANCED CARE
(FISCAL YEAR COVERED) CORPORATION AMEX INDEX PEER GROUP
- --------------------- ------------ ---------- ----------
<S> <C> <C> <C>
2-11-98 100.00 100.00 100.00
2-27-98 117.308 103.184 101.876
3-27-98 157.692 107.891 105.636
4-24-98 136.538 108.407 104.980
5-29-98 123.077 104.423 087.285
6-30-98 109.615 105.399 089.662
</TABLE>
9
<PAGE> 13
CERTAIN TRANSACTIONS AND RELATIONSHIPS WITH THE COMPANY; LEGAL PROCEEDINGS
David Barber, the son of Kenneth F. Barber, has been employed by the
Company as Vice President of Construction and Design since 1996. During Fiscal
1998, David Barber received an annual salary of $83,500 and a bonus of $31,000.
Robin Barber, Kenneth F. Barber's daughter and sister-in-law of Brad E.
Hollinger, has been employed by the Company as Director of Legal Services since
1996 and as Vice President and Senior Counsel since September 1997. During
Fiscal 1998, Ms. Barber received an annual salary of $77,550 and a bonus of
$16,000.
John M. Brennan, a director of the Company, received $152,000 for providing
respiratory therapy management services and supplies to the Company's Missouri
facilities during Fiscal 1998.
Bill R. Foster, Sr. is the majority stockholder of Foster Health Care
Group, a corporation that provided management and rental services to 10 skilled
nursing facilities, a pharmacy, a home health operation, and three assisted
living facilities and four independent living facilities operated by the Company
for which it received a payment of $68,000 during Fiscal 1998. On July 1, 1997,
the Company purchased the assets and operations of Foster Health Care Group for
approximately $120,000. During Fiscal 1998, Mr. Foster also leased two assisted
living facilities in Springfield and Nevada, Missouri to the Company at an
annual rental of $208,000 and $154,000, respectively. Susan Foster, Mr. Foster's
daughter-in-law, became an officer of the Company effective July 1, 1997 and
received an annual salary of $80,000, and a bonus of $23,000. Ms. Foster
resigned from the Company effective June 30, 1998. John Foster, Mr. Foster's
son, became an officer of the Company effective July 1, 1997 and received an
annual salary of $110,000, and a bonus of $44,000. John Foster resigned from the
Company effective June 30, 1998.
Scott J. Hollinger, brother of Brad E. Hollinger and son-in-law of Kenneth
F. Barber, has been employed by the Company as a Construction Project Manager
since 1996. During Fiscal 1998, Scott J. Hollinger received an annual salary of
$59,843 and a bonus of $5,000.
Deborah Myers Welsh, spouse of Brad E. Hollinger, entered into a consulting
agreement with the Company on February 3, 1997 to provide legal services at the
rate of $90 per hour not to exceed 30 hours per week for 50 weeks. Ms. Welsh
received $110,000 under such arrangement during Fiscal 1998.
F. David Carr is a general partner of SAE Partners ("SAE"), a shareholder
of Hawthorn Health Partners, Inc. (formerly known as Medi-Cap Partners) ("HHP"),
a managing general partner of HCO Partners IV-BCC ("HCO"), a shareholder of
Hawthorn Health Properties, Inc. ("Hawthorn"), and Executive Vice President of
Hakman & Company Incorporated, an investment banking firm ("Hakman"). James A.
Diebold is a general partner of SAE, a shareholder of HHP, a general partner of
HCO and a shareholder of Hawthorn. SAE owns 2.1% of the Common Stock of the
Company. HCO owns 2.3% of the Common Stock of the Company. Mr. Carr owns 4.6% of
the Common Stock of the Company. Hakman has entered a broker's agreement with
the Company to find suitable acquisition properties for the Company. Hakman
receives a finder's fee for such acquisitions, based upon the purchase price, in
an amount equal to 2% of the first $1,000,000 and 1% for any amount in excess of
$1,000,000. Hawthorn leases seven skilled nursing facilities to the Company for
annual rentals of $4,627,000 in Fiscal 1998. The facility leases provide for an
initial term of 12 years, with four six-year renewal options and a fair market
value purchase option. In August 1996, Hawthorn also received a warrant to
purchase 37,500 shares of Common Stock of the Company at a purchase price of
$3.33 per share. The warrant has a 10 year term and may be exercised at any
time. Hakman received a fee of $250,000 for its assistance in raising
$12,500,000 in a Series B Convertible Preferred Stock Offering in October 1996
and April 1997. In April 1998, the Board approved warrants to purchase 100,000
shares of Common Stock of the Company to be granted to Hakman in an amount
proportional to Hakman's $10,000,000 investment in special purpose entities.
These special purpose entities were formed to lease assisted living facilities.
The Company has entered into management agreements with each special purpose
entity, and has the option (but not the obligation) to acquire the stock or
assets of each special purpose entity based on formulas set forth in various
option agreements. Pursuant to this arrangement, through June 30, 1998, Hakman
invested $4,025,000 in the Company and received warrants to purchase 40,250
shares. The warrants were issued in April 1998 at a purchase price of $8.88 per
share, and will vest on the first anniversary of their issuance and will
terminate three years after their issuance.
10
<PAGE> 14
As of September 30, 1997, Meditrust was the beneficial owner of more than
five percent of the Common Stock of the Company. See "Security Ownership." The
Company has entered into non-binding letters of intent with Meditrust for
project financing. Pursuant to these letters of intent, the Company would
develop assisted living facilities for Meditrust, and Meditrust would lease such
facilities to Operators/Lessees when construction is completed. The Company
expects to manage the assisted living facilities pursuant to management
agreements with the Operators/Lessees. Specific development projects and
acquisitions require Meditrust's approval prior to financing of a transaction.
In addition, to date, the Company has seven facilities in operation leased by
the Company from Hawthorn that are mortgaged in favor of Meditrust; two
facilities in operation that are leased by the Company from Meditrust; two
facilities in operation owned by the Company that are mortgaged in favor of
Meditrust; and 22 facilities (seven in operation and 15 under development)
leased by third party operators from Meditrust that are managed by the Company.
Meditrust's investment in these facilities is approximately $165 million.
Brad E. Hollinger, without admitting or denying the allegations, settled a
proposed civil action brought by the Securities and Exchange Commission (the
"Commission") contending that he violated certain federal securities laws in
connection with trading in the common stock of Continental Medical Systems, Inc.
prior to its merger with Horizon Healthcare, Inc. in 1995. The Commission
approved the settlement on May 12, 1998, which consisted of the entry of an
order enjoining him from future violations of such securities laws and the
payment of $21,625, representing profits allegedly realized by him and a family
member, plus interest, and a civil money penalty in an amount equal to such
payment, plus interest.
See also "Compensation Committee Interlocks and Insider Participation."
11
<PAGE> 15
SECURITY OWNERSHIP
The following table sets forth the beneficial ownership of the Company's
Common Stock as of September 1, 1998 by each person or group known by the
Company to beneficially own more than five percent of outstanding Common Stock,
each director, nominee for director and the executive officers named in the
Summary Compensation Table, and by all directors and executive officers as a
group. Unless otherwise indicated, the holders of all shares shown in the table
have sole voting and investment power with respect to such shares. As of
September 1, 1998, there were 16,696,469 outstanding shares of Common Stock.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME OWNED CLASS
- ---- ------------ ----------
<S> <C> <C>
BankAmerica Corporation..................................... 2,472,962(1) 14.8%
555 California Street
Suite 2600
San Francisco, CA 94104
Meditrust................................................... 1,086,179(2) 6.2%
197 First Avenue
Needham, MA 02194
Brad E. Hollinger........................................... 807,588(3) 4.8%
2850 Ford Farm Road
Mechanicsburg, PA 17055
John M. Brennan............................................. 1,274,551(4) 7.6%
Brennan Holdings
11212 Mann Road
Mooresville, IN 46158
Bill R. Foster, Sr.......................................... 782,412(5) 4.7%
Foster Health Care Group
426 South Jefferson
Springfield, MO 65801-2351
David L. Goldsmith.......................................... 45,663(6) *
Edward R. Stolman........................................... 14,250(7) *
George H. Strong............................................ 41,250(8) *
William T. McCarthy......................................... 80,626(9) *
Brian L. Barth.............................................. 118,126(10) *
Paul A. Kruis............................................... 50,423(11) *
Russell A. DiGilio.......................................... 85,876(12) *
All Directors and Executive Officers as a Group (16 4,347,851(14) 25.4%
persons)(13)..............................................
</TABLE>
- ---------------
* Indicates ownership of less than 1% of the Common Stock.
(1) BankAmerica reported to the United States Securities and Exchange
Commission (the "Commission") that it shared voting and dispositive power
with respect to 2,472,962 shares with two of its subsidiaries, Robertson
Stephens Investment Management Co. and Robertson, Stephens & Company
Investment Management, L.P.
(2) Includes 465,124 shares held subject to warrants are owned by Meditrust
Mortgage Investments, Inc. and 289,743 shares held subject to warrants are
owned by Meditrust Acquisition Corporation II, wholly owned subsidiaries of
Meditrust.
(3) Includes 28,125 shares held subject to stock options. Also includes 1,150
shares held jointly by Brad E. Hollinger and his spouse, and 5,250 shares
subject to Mr. DiGilio's right to purchase.
(4) Includes 138,000 shares held subject to warrants and 15,000 shares held
subject to stock options.
12
<PAGE> 16
(5) Includes 767,412 shares owned by the Inter Vivos Trust of Billy Ray Foster.
As the trustee, Mr. Foster has voting and investment power with respect to
the shares held by the trust and may be deemed to have indirect beneficial
ownership of them. Also includes 15,000 shares held subject to stock
options.
(6) Includes 30,000 shares owned by the Goldsmith Family Trust. As the
co-trustee, Mr. Goldsmith has voting and investment power with respect to
the shares held by the trust and may be deemed to have indirect beneficial
ownership of them. Also includes 11,250 shares held subject to stock
options.
(7) Includes 3,000 shares owned by The Stolman Family Trust. Also includes
11,250 shares held subject to stock options.
(8) Includes 3,750 shares held subject to stock options.
(9) Includes 80,626 shares held subject to stock options.
(10) Includes 3,750 shares held by The Brian L. Barth and Lori A. Barth
Irrevocable Children's Trust, for which Mr. Barth's sister-in-law is
trustee. Mr. Barth disclaims beneficial ownership as to such shares. Also
includes 9,376 shares held subject to stock options.
(11) Includes 6,000 shares held in managed accounts for Mr. Kruis' nephews. As
trustee, Mr. Kruis disclaims beneficial ownership as to such shares. Also
includes 37,500 shares held subject to stock options.
(12) Includes 5,250 shares subject to a right to purchase from Mr. Hollinger.
Also includes 80,626 shares held subject to stock options.
(13) Includes directors and officers as of September 1, 1998. Raymond E. Schultz
was elected as a Class II director on September 15, 1998 and Douglas L.
Brewer was appointed Senior Vice President--Mergers and Acquisitions of the
Company on September 21, 1998.
(14) Includes 138,000 shares held subject to warrants and 262,663 shares held
subject to stock options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
its executive officers and any persons beneficially holding more than ten
percent of the Company's Common Stock are required to report their ownership of
the Company's Common Stock and any changes in that ownership to the Commission
and the AMEX. Specific due dates for these reports have been established and the
Company is required to report in this proxy statement any failure to file by
these dates. All of these filing requirements were satisfied, except that
BankAmerica Corporation filed a Form 3 following the required filing date to
disclose the beneficial ownership of its shares; Messrs. Barth, Goldsmith and
Marcus amended their previously filed Forms 3 to revise disclosure related to
the beneficial ownership of certain of their stock options; Mr. Breed amended
his previously filed Form 3 to reflect the beneficial ownership of certain of
his shares; Mr. Stolman filed a Form 4 following the required filing date to
reflect the acquisition of shares by a family trust and Messrs. David K. Barber,
Kenneth F. Barber, Brennan, DiGilio and Kurt A. Meyer filed Forms 4 following
the required filing date to reflect the conversion of shares of Preferred Stock
held prior to the Company's initial public offering. In making these statements,
the Company has relied on copies of the reports that its officers, directors and
beneficial owners of more than ten percent of the Company's Common Stock have
filed with the Commission.
13
<PAGE> 17
PROPOSAL TO APPROVE THE 1996 STOCK INCENTIVE PLAN,
AS AMENDED AND RESTATED
Stockholders are being asked to approve the Amended Incentive Plan, a copy
of which is attached as Annex A hereto. A vote in favor of the Amended Incentive
Plan will also be a vote in favor of all of the amendments to the Incentive
Plan, which will, among other things, increase the amount of Common Stock that
is authorized to be issued under the plan by 1,000,000 shares, allow certain
independent contractors to participate in the plan and allow the term of options
granted from the inception of the plan to be extended by five years. The Amended
Incentive Plan provides for the grant to non-employee directors of non-qualified
stock options to purchase 15,000 shares of Common Stock upon election to the
Board and 5,000 shares on the anniversary of such director's election to the
Board for the duration of his or her term. All share numbers reflect the 3-for-4
reverse stock split of the Company's Common Stock in October 1997.
The Company believes that in order to attract, retain and motivate key
employees and independent contractors, it is desirable to offer to such
individuals stock options which provide an incentive tied to the Company's stock
price performance. Accordingly, on August 18, 1998, the Board of Directors
unanimously adopted the Amended Incentive Plan.
General Provisions. The Amended Incentive Plan is administered by the
Compensation Committee. The Compensation Committee is authorized to: (i) select
employees and independent contractors for participation in the Amended Incentive
Plan; (ii) make decisions regarding timing, pricing and amounts of grants or
awards under the Amended Incentive Plan, subject to the terms of the Amended
Incentive Plan, (iii) interpret and construe the Amended Incentive Plan; (iv)
adopt, amend or rescind rules and regulations relating to the Amended Incentive
Plan; and (v) make all other determinations necessary or advisable for the
administration of the Amended Incentive Plan. Each of the members of the
Compensation Committee is a "disinterested person," within the meaning of Rule
16b-3 of the Exchange Act, and the regulations promulgated thereunder.
Options granted under the Amended Incentive Plan may be either "incentive
stock options," that is, options which meet the requirements of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), or "non-qualified
stock options," that is, options which do not meet such requirements. The
aggregate fair market value (determined as of the date of grant) of the stock
for which an optionee's incentive stock options will vest in any calendar year
may not exceed $100,000.
The exercise price per share for each option granted under the Amended
Incentive Plan may not be less than the fair market value per share of the
Company's Common Stock on the date of grant. For any option recipient who owns
more than 10% of the Company's voting stock at the time of grant of an incentive
stock option, the exercise price must be at least 110% of fair market value. The
Compensation Committee will set the terms and vesting schedule of each option,
provided, however, that no term may exceed ten years from the date of grant; and
provided further, for options granted before August 18, 1998 for a period of
less than ten years, the term of the options may, in the sole discretion of the
Compensation Committee, be extended up to ten years. Payment upon exercise of
an option may be made in cash or, with the approval of the Compensation
Committee, in shares of Common Stock of the Company valued at the fair market
value as of the date of exercise or by a combination of cash and such shares of
Common Stock.
Generally, options may be exercised only by the individual to whom the
option is granted, and are not transferable or assignable, except that in the
event of an optionee's death or legal disability, the optionee's heirs or legal
representatives may exercise the options for a period not to exceed one year.
The Compensation Committee, subject to approval by the Board, may terminate or
amend the Amended Incentive Plan without the approval of the Company's
stockholders, but stockholder approval is required in order to amend the Amended
Incentive Plan to: (i) materially increase the number of shares of Common Stock
as to which incentive stock options may be granted; (ii) materially modify the
requirements as to eligibility to receive options; (iii) materially increase the
benefits accruing to participants under the incentive stock option portion of
the plan; (iv) reduce an incentive stock option price below the fair market
value on the day the option is awarded; (v) extend the period during which an
option may be granted or exercised, or (vi) extend the termination date of the
provisions of the plan which permit the granting of incentive stock options.
14
<PAGE> 18
Termination of Employment. Unless otherwise determined by the Compensation
Committee, options will cease to be exercisable after the ninetieth day
following termination of the optionee's service to the Company other than upon
termination due to death, disability or retirement. Options will be exercisable
within twelve months of death or disability and within thirty days of
retirement.
Change in Control. In the event an entity acquires more than 30% of the
Company's voting securities without prior Board approval, the composition of the
Board changes so that two-thirds of the Board consists of persons who were not
members of the Board on October 1, 1996 (or who were not nominated for election
as members of the Board at a time when two-thirds of the Board consisted of
persons who were members of the Board on October 1, 1996) or the Company's
stockholders approve a reorganization, merger, consolidation, sale of
substantially all of the Company's assets or liquidation or dissolution of the
Company, the outstanding options will become immediately exercisable. The
Amended Incentive Plan further provides that, in the event of any merger or
consolidation in which the Company is not the surviving corporation, the option
participant shall receive a substitute option to purchase the stock of the
merging or consolidating entity no less than seven days prior to the effective
time of the merger or consolidation. If a substitute option is not timely
delivered, the then-outstanding option shall become fully vested and
exercisable.
Antidilution Provisions. The amount of shares reserved for issuance under
the Amended Incentive Plan and the terms of outstanding options shall be
adjusted by the Compensation Committee in the event of changes in the
outstanding Common Stock by reason of stock dividends, stock splits, reverse
stock splits, split-ups, recapitalizations, reclassifications, mergers,
consolidations or like events.
Benefits Under the Amended Incentive Plan. Presently, approximately 200
officers, employees and independent contractors of the Company and its
subsidiaries are eligible to participate in the Amended Incentive Plan. However,
the identity of future grantees and the size of any additional grants have not
been determined. On August 18, 1998, the closing price of the Common Stock on
the AMEX was $5.50 per share.
Certain Federal Income Tax Consequences. The following is a brief summary
of the principal federal income tax consequences of awards under the Amended
Incentive Plan based upon current federal income tax laws. The summary is not
intended to be exhaustive and, among other things, does not describe state,
local or foreign tax consequences. Options designated as incentive stock options
are intended to fall within the provisions of Section 422 of the Code.
An optionee recognizes no taxable income as the result of the grant or
exercise of an incentive stock option. If stock acquired upon exercise of an
option is held at least until (i) two years following the date of grant of the
option and (ii) one year following the date of exercise, then any gain on
subsequent sale of the stock will be taxed as a long-term capital gain. In that
case, the Company will not be entitled to any deduction for federal income tax
purposes. In general, if an optionee sells shares within two years after the
date of grant or within one year after the date of exercise, the excess of the
fair market value of the shares on the date of exercise over the option exercise
price (not to exceed the gain realized on the sale) will be taxable as ordinary
income at the time of sale. A gain in excess of that amount will be a long-term
or short-term capital gain, depending on the length of time the stock was held.
If the optionee sells the stock for less than the option exercise price, the
loss will be a long-term or short-term capital loss and no income will be
recognized. The amount of any ordinary income recognized by the optionee upon
the disposition of stock would be deductible by the Company for federal income
tax purposes.
An optionee generally recognizes no taxable income as the result of the
grant of a nonqualified stock option. Upon exercise of such an option, the
optionee normally recognizes ordinary income in the amount of the excess of the
fair market value of the shares on the date of exercise over the option price.
Such ordinary income generally is subject to withholding of income and
employment taxes. Upon the sale of stock acquired by the exercise of a
nonqualified stock option, any gain or loss, based on the difference between the
sale price and the fair market value on the date of recognition of income, will
be taxed as short-term or long-term capital gain or loss, depending upon the
length of time the optionee has held the stock from the date of exercise. The
Company would be entitled to a deduction equal to the amount of ordinary income
recognized by the optionee as a result of the exercise of the option.
15
<PAGE> 19
Special rules may apply to a participant who is an officer or director of
the Company subject to liability under Section 16(b) of the Exchange Act if such
participant exercises an option within six months of the date of grant.
The Compensation Committee may also grant stock appreciation rights
("SARs") to participants in the Amended Incentive Plan who have been granted
options. An SAR is to expire no later than the expiration date of the underlying
option, and may be for no more than 100% of the difference between the exercise
price of the option and the fair market value of the Common Stock subject to the
option.
The Amended Incentive Plan also provides for awards of restricted stock,
including restricted stock awarded in connection with specified performance
targets. Recipients of such awards are to be determined by the Compensation
Committee.
VOTE REQUIRED
Approval of the Amended Incentive Plan will require the affirmative vote of
at least a majority in voting interest of the stockholders present in person or
by proxy at the Annual Meeting and entitled to vote thereon.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AMENDED INCENTIVE PLAN
AND RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE "FOR" ADOPTION OF THE
AMENDED INCENTIVE PLAN.
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP has served as the independent accountants for Fiscal
1998 and continues to serve as independent accountants for the Company.
Representatives of KPMG Peat Marwick LLP will be present at the Annual Meeting,
and will have an opportunity to make a statement if they desire to do so, and
will be available to respond to appropriate questions. The Board of Directors
has not met to discuss the selection of independent accountants for the fiscal
year ending June 30, 1999.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Rule 14a-8 of the Exchange Act contains the procedures for including
certain stockholder proposals in the Company's proxy statement and related
materials. The deadline for submitting a stockholder proposal pursuant to Rule
14a-8 for the 1999 Annual Meeting of Stockholders (the "1999 Annual Meeting") of
the Company is June 8, 1999. With respect to any stockholder proposal outside
the procedures provided in Rule 14a-8 and received by the Company no later than
August 20, 1999, the Company may be required to include certain limited
information concerning such proposal in the Company's proxy statement so that
proxies solicited for the 1999 Annual Meeting may confer discretionary authority
to vote on any such matter. Any stockholder proposals should be addressed to the
Secretary of the Company, 5021 Louise Drive, Suite 200, Mechanicsburg,
Pennsylvania 17055.
16
<PAGE> 20
ANNEX A
BALANCED CARE CORPORATION
1996 STOCK INCENTIVE PLAN
AS AMENDED AND RESTATED, EFFECTIVE AS OF AUGUST 18, 1998
A-1
<PAGE> 21
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 1. BACKGROUND AND PURPOSE...................................... A-4
1.1 PURPOSE..................................................... A-4
1.2 ESTABLISHMENT OF PLAN....................................... A-4
SECTION 2. DEFINITIONS................................................. A-4
2.1 "AFFILIATE"................................................. A-4
2.2 "BENEFICIARY"............................................... A-4
2.3 "BOARD"..................................................... A-4
2.4 "CHANGE IN CONTROL"......................................... A-4
2.5 "CODE"...................................................... A-5
2.6 "COMMITTEE"................................................. A-5
2.7 "CORPORATION"............................................... A-5
2.8 "CORPORATION VOTING SECURITIES"............................. A-5
2.9 "DISABLED" OR "DISABILITY".................................. A-5
2.10 "ELIGIBLE EMPLOYEE"......................................... A-5
2.11 "FAIR MARKET VALUE"......................................... A-5
2.12 "FISCAL YEAR"............................................... A-5
2.13 "INCENTIVE STOCK OPTION" OR "ISO"........................... A-5
2.14 "INDEPENDENT CONTRACTOR".................................... A-5
2.15 "NON-EMPLOYEE DIRECTOR"..................................... A-5
2.16 "NON-EMPLOYEE DIRECTOR AWARD"............................... A-6
2.17 "NONQUALIFIED STOCK OPTION" OR "NSO"........................ A-6
2.18 "OPTION".................................................... A-6
2.19 "OPTIONEE".................................................. A-6
2.20 "PARTICIPANT"............................................... A-6
2.21 "PERFORMANCE SHARE"......................................... A-6
2.22 "PERFORMANCE UNIT".......................................... A-6
2.23 "PLAN"...................................................... A-6
2.24 "RESTRICTED STOCK".......................................... A-6
2.25 "RETIREMENT"................................................ A-6
2.26 "STOCK APPRECIATION RIGHT" OR "SAR"......................... A-6
2.27 "SIGNIFICANT SHAREHOLDER"................................... A-6
2.28 "STOCK"..................................................... A-6
SECTION 3. SHARES SUBJECT TO THE PLAN.................................. A-6
3.1 SHARES...................................................... A-6
3.2 PERFORMANCE UNITS........................................... A-7
SECTION 4. STOCK OPTIONS............................................... A-7
4.1 PARTICIPATION............................................... A-7
4.2 OPTION TERMS AND CONDITIONS................................. A-7
4.3 STOCK APPRECIATION RIGHTS................................... A-9
4.4 ISSUANCE OF CERTIFICATES.................................... A-9
SECTION 5. RESTRICTED STOCK............................................ A-9
5.1 PARTICIPATION............................................... A-9
5.2 RESTRICTED STOCK AWARDS..................................... A-9
</TABLE>
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<PAGE> 22
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 6. PERFORMANCE SHARES AND PERFORMANCE UNITS................... A-10
6.1 PARTICIPATION.............................................. A-10
6.2 PERFORMANCE AWARDS......................................... A-10
6.3 PERFORMANCE PERIOD AND TARGETS............................. A-10
6.4 EARNING A PERFORMANCE AWARD................................ A-10
6.5 PAYMENT OF PERFORMANCE AWARDS.............................. A-10
SECTION 7. OTHER STOCK-BASED AWARDS................................... A-11
7.1 GRANT OF OTHER AWARDS...................................... A-11
7.2 TERMS OF OTHER AWARDS...................................... A-11
SECTION 8. TERMINATION OF EMPLOYMENT.................................. A-11
8.1 GENERAL RULE............................................... A-11
8.2 EXCEPTIONS FOR DEATH, DISABILITY OR RETIREMENT OF A
PARTICIPANT OR FOR CAUSE FOR A PARTICIPANT OR INDEPENDENT
CONTRACTOR................................................ A-12
8.3 OTHER ACCELERATION OF BENEFITS.............................. A-13
8.4 CERTAIN TRANSACTIONS........................................ A-13
SECTION 9. GENERAL PROVISIONS.......................................... A-14
9.1 STOCKHOLDER PRIVILEGES...................................... A-14
9.2 SHAREHOLDER APPROVAL........................................ A-14
9.3 HOLDING REQUIREMENT......................................... A-14
9.4 AMENDMENT, SUSPENSION, MODIFICATION AND
TERMINATION OF PLAN....................................... A-14
9.5 ADMINISTRATION.............................................. A-15
9.6 INDEMNIFICATION............................................. A-15
9.7 EXPENSES.................................................... A-15
9.8 RIGHTS OF PARTICIPANTS AND INDEPENDENT CONTRACTORS.......... A-15
9.9 NONTRANSFERABILITY.......................................... A-15
9.10 GOVERNING LAW............................................... A-15
</TABLE>
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<PAGE> 23
BALANCED CARE CORPORATION
1996 STOCK INCENTIVE PLAN
SECTION 1. BACKGROUND AND PURPOSE
1.1 PURPOSE.
Balanced Care Corporation (the "Corporation") wishes to establish various
equity-related incentive compensation programs in order to provide employees,
non-employee directors and independent contractors of particular importance to
the Corporation with a direct stake in company growth. The Corporation hereby
adopts these programs to encourage and enable the acquisition of a larger
proprietary stake in the Corporation by its employees, non-employee directors
and certain independent contractors to attract and retain qualified and
committed executives, to develop and maintain a competent management team, to
provide key employees, non-employee directors and certain independent
contractors with long-term incentives to improve corporate performance, to
enhance shareholder investment values and to provide a competitive compensation
package which includes participation in the long-term financial success of the
Corporation.
1.2 ESTABLISHMENT OF PLAN.
The Corporation desires to combine these various equity compensation
programs into one plan. This Plan shall be known as the Balanced Care
Corporation 1996 Stock Incentive Plan and shall be effective upon adoption by
the Board of Directors of the Corporation, subject to the approval of the
shareholders of the Corporation in accordance with Section 9.2 of this Plan, and
extend until terminated as provided herein.
SECTION 2. DEFINITIONS
Unless the context requires otherwise, when capitalized the terms listed
below shall have the following meanings when used in this or any other section
of the Plan:
2.1 "AFFILIATE" is any corporation, business trust, division, partnership
or joint venture in which the Corporation owns (either directly or indirectly)
fifty percent (50%) or more of the voting stock or rights analogous to voting
stock, but only for the period such ownership exists.
2.2 "BENEFICIARY" shall have the meaning given it under Section 8.2.
2.3 "BOARD" is the Board of Directors of the Corporation, as elected from
time to time.
2.4 "CHANGE IN CONTROL" means any of the events set forth below; provided,
however, that the Committee, in its sole discretion, may specify a more
restrictive definition of Change in Control in any award agreement and, in such
event, the definition of Change in Control set forth in the award agreement
shall apply to the award granted under such award agreement:
(a) The acquisition in one or more transactions, other than from the
Corporation, by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended) of a
number of Corporation Voting Securities in excess of 30% of the Corporation
Voting Securities unless such acquisition has been approved by the Board;
or
(b) Any election has occurred of persons to the Board that causes
two-thirds of the Board to consist of persons other than (i) persons who
were members of the Board on October 1, 1996 and (ii) persons who were
nominated for elections as members of the Board at a time when two-thirds
of the Board consisted of persons who were members of the Board on October
1, 1996; provided, however, that any person nominated for election by a
Board at least two-thirds of whom constituted persons described in clauses
(i) and/or (ii) or by persons who were themselves nominated by such Board
shall, for this purpose, be deemed to have been nominated by a Board
composed of persons described in clause (i); or
(c) Approval by the stockholders of the Corporation of a
reorganization, merger or consolidation, unless, following such
reorganization, merger or consolidation, all or substantially all of the
individuals and
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entities who were the respective beneficial owners of the Corporation
Voting Securities immediately prior to such reorganization, merger or
consolidation, following such reorganization, merger or consolidation
beneficially own, directly or indirectly, more than 60% of the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors of the entity resulting from such
reorganization, merger or consolidation in substantially the same
proportion as their ownership of the Corporation Voting Securities
immediately prior to such reorganization, merger of consolidation, as the
case may be; or
(d) Approval by the stockholders of the Corporation of (i) a complete
liquidation or dissolution of the Corporation or (ii) a sale or other
disposition of all or substantially all the assets of the Corporation.
2.5 "CODE" is the Internal Revenue Code of 1986, as amended.
2.6 "COMMITTEE" shall mean the committee provided for in Section 9.5
hereof.
2.7 "CORPORATION" is Balanced Care Corporation, a Delaware corporation.
2.8 "CORPORATION VOTING SECURITIES" means the combined voting power of all
outstanding voting securities of the Corporation entitled to vote generally in
the election of the Board.
2.9 "DISABLED" OR "DISABILITY" is a physical or mental incapacity which
qualifies an individual to collect a disability benefit under any long-term
disability plan maintained by the Corporation, or such other condition which the
Committee in its discretion may determine is a Disability.
2.10 "ELIGIBLE EMPLOYEE" is any employee of the Corporation or an Affiliate
who is selected for participation in the Plan by the Committee.
2.11 "FAIR MARKET VALUE" is, as of a particular date, the average of the
high and low prices of a share of Stock on the relevant date as reported by a
recognized national stock exchange as selected by the Committee or as otherwise
determined using procedures established by the Committee (i) if the Common Stock
is listed on a national securities exchange or is authorized for quotation in
The Nasdaq Stock Market's National Market ("NNM"), the closing price, regular
way, of the Common Stock on such exchange or NNM, as the case may be, or if no
such reported sale of the Common Stock shall have occurred on such date, on the
next preceding date on which there was such a reported sale; or (ii) if the
Common Stock is not listed for trading on a national securities exchange or
authorized for quotation on NNM, the closing bid price as reported by The Nasdaq
Stock Market or The Nasdaq SmallCap Market (if applicable), or if no such prices
shall have been so reported for such date, on the next preceding date for which
such prices were so reported; or (iii) if the Common Stock is not listed for
trading on a national securities exchange or authorized for quotation on NNM,
The Nasdaq Stock Market or The Nasdaq SmallCap Market (if applicable), the last
reported bid price published in the "pink sheets" or displayed on the National
Association of Securities Dealers, Inc. ("NASD") Electronic Bulletin Board, as
the case may be; or (iv) if the Common Stock is not listed for trading on a
national securities exchange, or is not authorized for quotation on NNM, The
Nasdaq Stock Market or The Nasdaq SmallCap Market, or is not published in the
"pink sheets" or displayed on the NASD Electronic Bulletin Board, the Fair
Market Value of the Common Stock as determined in good faith by the Committee.
2.12 "FISCAL YEAR" is the twelve (12) consecutive month period beginning
July 1 and ending June 30.
2.13 "INCENTIVE STOCK OPTION" OR "ISO" is any Option granted under this
Plan which is designated as an Incentive Stock Option by the Committee and which
is intended to qualify as such under Code section 422.
2.14 "INDEPENDENT CONTRACTOR" is a person, firm or corporation which
provides services to the Corporation for a fee, and not for wages as defined in
Section 3121(a) of the Code, and is not an employee of the Corporation for
purposes of Sections 3121(d) or 3231(b) of the Code.
2.15 "NON-EMPLOYEE DIRECTOR" is a Director of the Corporation who is not
then and has not been for one year prior to the relevant time a common law
employee of the Corporation.
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<PAGE> 25
2.16 "NON-EMPLOYEE DIRECTOR AWARD" is a grant of Nonqualified Stock Option
to a Non-Employee Director as described in Section 4.l(b) hereof.
2.17 "NONQUALIFIED STOCK OPTION" or "NSO" is any Option granted under this
Plan which is not an ISO.
2.18 "OPTION" is the right granted pursuant to this Plan to purchase Stock
subject to the terms and conditions specified at the time of grant.
2.19 "OPTIONEE" is a Participant who participates in the Plan or a
Non-Employee Director or Independent Contractor who has been granted an Option
under this Plan.
2.20 "PARTICIPANT" is any Eligible Employee who has been selected by the
Committee to receive a benefit of any kind under the Plan. An Eligible Employee
may be a Participant with respect to one, some or all of the types of benefits
available under the Plan.
2.21 "PERFORMANCE SHARE" is a share of Restricted Stock awarded by the
Committee, subject to any performance targets or other restrictions which the
Committee may determine at the time of award.
2.22 "PERFORMANCE UNIT" is an amount equal to (i) the value of one share of
Stock determined at such time as a Performance Unit is awarded or (ii) such
other dollar amount as the Committee may determine at such time as a Performance
Unit is awarded.
2.23 "PLAN" is the Balanced Care Corporation 1996 Stock Incentive Plan, as
amended from time to time.
2.24 "RESTRICTED STOCK" is Stock issued or transferred to a Participant by
means of an award that is subject to the following restrictions, and such other
restrictions as may be imposed from time to time by the Committee in its sole
discretion, and which will remain subject to applicable restrictions until such
time as the restrictions by their terms, lapse:
(1) Restricted Stock may not be sold, assigned, transferred, pledged,
hypothecated, or otherwise disposed of during a restriction period.
(2) Except as otherwise herein provided, unless the Participant
remains continuously employed by the Corporation or an Affiliate until such
time as the conditions for the removal of restrictions, as determined by
the Committee in its sole discretion, have been satisfied, Restricted Stock
shall be forfeited and returned to the Corporation, and all rights of a
Participant to such Restricted Stock shall terminate without any payment or
consideration by the Corporation.
2.25 "RETIREMENT" is the time a Participant withdraws from his or her
principal business activity at the corporation, and from active employment
generally, and is eligible to receive a retirement income benefit from a tax
qualified retirement plan maintained by the Corporation (or an Affiliate), or
from the federal social security program.
2.26 "STOCK APPRECIATION RIGHT" OR "SAR" shall have the meaning given it
under Section 4.3.
2.27 "SIGNIFICANT SHAREHOLDER" is an Eligible Employee who owns more than
ten percent (10%) of the total combined voting power of all classes of stock
issued by the Corporation as of the date an Option under the Plan is granted.
For this purpose, the provisions of Code sections 422 and 424 shall apply.
2.28 "STOCK" is the common stock, par value $0.001 per share, of the
Corporation.
SECTION 3. SHARES SUBJECT TO THE PLAN
3.1 SHARES.
(A) NUMBER OF SHARES. The maximum number of shares of Stock which may be
issued for any purpose or any type of benefit under the Plan shall be 3,025,000
subject to adjustment as provided herein.
(B) UNUSED SHARES. Any shares of Stock subject to an Option which is
canceled, expires or otherwise terminates without having been exercised in full
(unless such cancellation is due to the exercise of a related SAR),
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<PAGE> 26
or subject to any Restricted Stock Performance Shares or Performance Units which
are forfeited, shall again be available for grants or awards under the Plan.
(C) ANTIDILUTION. In the event of any change in the number or class of
outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, reclassification, merger, consolidation, or other similar
corporate change, the number of shares as to which grants of Options or other
awards may be made shall be adjusted proportionately to the nearest whole share.
Any such action shall be within the discretion of the Committee, whose
determination shall be conclusive, and the Committee's discretion shall be
directed to preserving the economic value and prevent dilution of in the value
of awards in any form granted.
In the event of such an adjustment with respect to shares subject to an
Option under the Plan, the number of shares and the Option price per share shall
be adjusted proportionately so that the aggregate price to be paid upon exercise
of such option shall not change.
3.2 PERFORMANCE UNITS.
The maximum number of Performance Units denominated other than by the value
of Stock which may be awarded under the Plan is 1,500,000 (not in addition to
the number of shares reserved under the Plan). If such a Performance Unit is
awarded, but the value of such Performance Unit is never paid, then such
Performance Unit may again be made subject to awards under the Plan.
SECTION 4. STOCK OPTIONS
4.1 PARTICIPATION.
(A) ELIGIBLE EMPLOYEES. The Committee shall from time to time and in its
absolute discretion select Participants who shall be granted Options (i.e.,
Option Participants) from among the Eligible Employees of the Corporation and
its Affiliates. Option Participants may be granted ISOs, NSOs, SARs or any
combination thereof.
(B) NON-EMPLOYEE DIRECTORS. Each Non-Employee Director shall be granted an
NSO to purchase 15,000 Shares effective on the (i) date this Plan is adopted by
the shareholders of the Corporation for Non-Employee Directors who are members
of the Board on the date of such approval and (ii) for Non-Employee Directors
elected after the date of adoption by the shareholders, on the date he or she is
initially elected to the Board. During his or her term as a Director, each
Non-Employee Director shall be granted annually, as of the anniversary of his or
her initial election to the Board, an additional NSO to purchase 5,000 Shares,
in each case subject to the availability of Shares under the Plan for such
grants. Each such NSO shall (i) be exercisable for Fair Market Value on the date
of grant, (ii) be fully vested on grant, (iii) have a duration for the shorter
of ten (10) years or the Director's term as a Director and (iv) shall be no
longer exercisable after the 91st day following the date the Director's term
ends. The Committee shall have no authority to amend or vary the terms of NSO
granted to Non-Employee Directors.
(C) INDEPENDENT CONTRACTORS. The Committee may from time to time, but shall
not be required to, select one or more Independent Contractors who shall be
granted NSOs. In the event a particular Independent Contractor is awarded NSOs
at one time, the Committee shall be under no obligation to award that
Independent Contractor NSOs at any other time. The selection of Independent
Contractors, if any, awarded NSOs and the number of NSOs granted shall be made
by the Committee in its sole and absolute discretion. The terms and conditions
of any such awards shall be determined by the Committee in its discretion to the
extent not inconsistent with this Plan.
4.2 OPTION TERMS AND CONDITIONS.
(A) GRANT OF OPTION. Subject to the provisions of this Section 4, Options
may be granted at any time as determined by the Committee. Except as otherwise
limited by the Plan, the Committee shall have complete discretion to determine
the number of Options to be granted to any Optionee, the type of Option and the
term and conditions of an Option, provided, however, Non-Employee Directors and
Independent Contractors may be granted only NSOs. Notwithstanding the foregoing,
the Committee shall not cause any Option to be granted with a schedule for
vesting (that is, the date upon which an Option is in whole or in part
exercisable, subject to the
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<PAGE> 27
terms of the Plan) calling for vesting more rapid than 50% in any year or for
full vesting to occur earlier than the second anniversary (i) for options
granted on or before September 30, 1996, of the date the employee began
employment with the Corporation and (ii) for options granted on or after October
1, 1996, of the grant of the Option.
(B) ISO EXERCISE LIMIT. With respect to Options designated as ISOs at the
time of grant, to the extent the aggregate Fair Market Value of Stock,
determined as of the date of grant, with respect to which ISOs are exercisable
for the first time by an Option Participant during any calendar year exceeds
$100,000, such Options shall be treated as Nonqualified Stock Options. In
applying this limit, Options shall be taken into account in the order granted.
(C) OPTION PRICE. The Option price of each Option shall be no less than the
Fair Market Value of the Stock on the date the Option is granted; provided,
however, that if an ISO is granted to a Significant Shareholder, the Option
price shall be not less than 110% of the Fair Market Value of the Stock on the
date the option is granted.
(D) TERM OF OPTION. Each Option, regardless of type, shall expire at the
time specified by the Committee when granting the Option. The Committee may not
fix a term which is shorter than required under any applicable state or federal
statute or regulation, nor which is longer than ten (10) years from the date the
Option is granted; provided, however, for Options granted before August 18, 1998
for a period of less than ten (10) years, the term of the Options awarded to
Eligible Employees may, in the sole discretion of the Committee, be extended to
be for a term up to ten (10) years. The term of an Option may extend beyond the
Plan's termination date.
(E) MANNER OF EXERCISE. An Optionee wishing to exercise an Option shall
give written notice to the Corporation in the form and manner as prescribed by
the Committee. Options may be either completely or partially exercised. Payment
for the Stock to be acquired pursuant to the exercise of an Option must
accompany such written notice.
(F) PAYMENT FOR OPTIONS.
(1) GENERAL. Full payment for all Stock to be acquired pursuant to the
exercise of an Option shall be made at the time such Option, or any part
thereof, is exercised. No Stock certificate shall be issued to an Optionee
until payment of the Option exercise price and all required withholding
taxes has been made. The Corporation shall be entitled to deduct and
withhold any withholding taxes from any cash payments to be made to an
Option Participant, whether under this Plan or otherwise. Payment of the
Option exercise price shall be made in cash or in such other form as is
acceptable to the Committee, provided that in the case of an ISO, no form
of payment shall be allowed which would prevent the Option that is intended
to be an ISO from qualifying as such under Code section 422.
(2) PAYMENT WITH STOCK. With the approval of and subject to any
restrictions or limitations imposed by the Committee, the Optionee, in lieu
of or in combination with a payment in cash, may transfer to the
Corporation a sufficient number of shares of Stock to satisfy all or any
part of the Option price, and/or any applicable state or federal
withholding taxes. Such Stock may be Stock already owned by the Optionee,
or Stock which will be acquired by exercise of the Option (which process is
sometimes referred to as a pyramid exercise). For this purpose, the value
of the Stock shall be the Fair Market Value as of the date of exercise.
Where payment is made in whole or in part by Stock, the Optionee may not
transfer fractional shares of Stock. The Optionee may not transfer a number
of shares of Stock which would have an aggregate Fair Market Value in
excess of the Option price plus applicable withholding taxes.
(3) INTERIM BROKER LOAN. The Committee may, in its sole discretion,
arrange with a stock brokerage or other similar agent to loan to an
Optionee some or all of the cash needed to exercise an Option. Upon
application by and receipt of written notice of exercise of an Option from
an Optionee, the broker will pay to the Corporation the amount requested by
the Optionee as necessary to permit the exercise of an Option and to pay
any applicable withholding taxes. The Corporation will promptly deliver to
such broker a certificate representing the total number of shares of Stock
which will be acquired by the exercise of said Option. The broker will then
sell part or all of these shares and pay to the Optionee the proceeds from
the
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<PAGE> 28
sale, less the loan principal and any interest charged on the loan from the
date the broker receives the notice of exercise until the date the broker
is reimbursed.
(4) OTHER PAYMENT METHODS. The Committee may, in its sole discretion,
authorize payment of the Option exercise price and applicable withholding
taxes by other methods or forms, within the limitations imposed by this
Section 4, by the Plan generally, and any applicable state or federal laws
or regulations.
(G) NO TANDEM OPTIONS. No ISO granted under this Plan shall contain terms
which would limit or otherwise affect an Option Participant's right to exercise
any other option, nor shall any NSO contain terms which will limit or otherwise
affect the Option Participant's right to exercise any other Option in such a
manner that the Option intended to be an ISO would fail to qualify as such Code
section 422.
4.3 STOCK APPRECIATION RIGHTS.
(A) GRANT OF STOCK APPRECIATION RIGHTS. The Committee may, in its sole
discretion, grant stock appreciation rights ("SARs") to Option Participants who
have been granted Options. These SARs may relate to any number of shares, not to
exceed the number of shares the Option Participant may acquire by exercise of
the underlying Option. An SAR shall expire no later than the expiration date of
the underlying Option. SARs may be for no more than 100% of the difference
between the Option price and the Fair Market Value of the Stock subject to the
Option, determined on the day the SARs are exercised.
(B) EXERCISE. SARs may be exercised at the same time and to the same extent
and subject to the same conditions as the Options related thereto. SARs may be
exercised only when the Fair Market Value of the Stock subject to the Option
exceeds the Option price. The exercise of an SAR shall cancel the related Option
and the exercise of an Option shall cancel the related SAR.
(C) PAYMENT OF STOCK APPRECIATION RIGHTS. Upon exercise of an SAR, but
subject to all applicable tax withholding requirements, the Option Participant
shall be paid in cash, Stock, Restricted Stock, or a combination thereof, as the
Committee shall determine. To the extent payment is made in Stock or Restricted
Stock, the shares shall be valued at the Fair Market Value on the date the SAR
is exercised.
4.4 ISSUANCE OF CERTIFICATES.
(A) DELIVERY. As soon as practicable after either the exercise of an Option
and the delivery of payment therefor, or the exercise of an SAR which is to be
paid in Stock or Restricted Stock, the Corporation shall deliver to the Optionee
a certificate or certificates for the number of shares of Stock acquired.
Consistent with applicable state or federal laws and regulations, the Committee
may fix a minimum or maximum period of time during which a Participant may not
sell any such Stock or Restricted Stock.
(B) DESIGNATION. Shares acquired pursuant to the exercise of an ISO shall
be designated as such on the stock transfer records of the Corporation, to the
extent the value of such shares does not exceed the $100,000 exercise limit of
Section 4.2(b). Any shares acquired by the exercise of an Option which exceed
this $100,000 limit shall be designated on the Corporation's stock transfer
records as shares acquired pursuant to an NSO.
SECTION 5. RESTRICTED STOCK
5.1 PARTICIPATION.
The Committee shall, from time to time, and in its absolute discretion,
select Participants who shall be awarded Restricted Stock from among the
Eligible Employees of the Corporation and its Affiliates.
5.2 RESTRICTED STOCK AWARDS.
(A) WRITTEN AGREEMENT. Each Restricted Stock award shall be evidenced by a
written agreement, executed by the Participant and the Corporation. Such
agreement shall specify the number of shares of Restricted Stock so awarded and
any terms and conditions which the Committee may require, including but not
limited to, an escrow condition.
(B) RESTRICTION PERIOD. At the time of a Restricted Stock award, the
Committee shall fix a period of time (restriction period) during which the
restrictions as set forth in the Plan or as otherwise imposed by the
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<PAGE> 29
Committee shall remain in effect. Such restrictions shall lapse upon expiration
of the restriction period, or sooner as otherwise provided in the Plan.
SECTION 6. PERFORMANCE SHARES AND PERFORMANCE UNITS
6.1 PARTICIPATION.
The Committee, from time to time and in its absolute discretion, shall
select Participants who shall be granted awards of Performance Shares and/or
Performance Units (i.e. Performance Participants) from among the Eligible
Employees of the Corporation and its Affiliates.
6.2 PERFORMANCE AWARDS.
(A) PERFORMANCE AGREEMENT. Each award of Performance Shares and Performance
Units shall be evidenced by a written agreement, executed by the Performance
Participant and the Corporation. Such agreement shall contain all terms and
conditions for the payment of a Performance Share or Performance Unit award as
the Committee may determine.
(B) PERFORMANCE ACCOUNTS. At such time as a performance award is made, the
Corporation shall establish an account ("Performance Account") for each
Performance Participant and shall credit Performance Units and Performance
Shares awarded to a Performance Participant to such account. Any Performance
Shares credited to a Performance Account shall be in the form of Restricted
Stock, shall be registered in the name of the Performance Participant and
deposited, together with a stock power endorsed in blank, with the Corporation
before the Performance Participant's Account shall be credited with such shares.
Dividends paid with respect to such Restricted Stock may be credited to the
Participant's Performance Account pursuant to Section 9.l(c). The maintenance of
Performance Accounts is solely a bookkeeping function, and does not entitle a
Performance Participant to payment of any awards hereunder, or to the payment of
any dividends which may be credited to a Performance Account.
6.3 PERFORMANCE PERIOD AND TARGETS.
(A) PERFORMANCE PERIOD. The period over which the Participant must meet the
criteria established in a performance agreement to be entitled to payment of an
award hereunder shall be established by the Committee at the time of the award.
This period may differ for each award in existence for any one Performance
Participant.
(B) PERFORMANCE TARGETS. At the time of a performance award, the Committee,
in its discretion but in connection with the Corporation's on-going business
planning processes, shall establish performance targets to be achieved within
the performance period. Examples of such targets include performance by the
Corporation, by an Affiliate, by the individual Performance Participant, or by
any combination thereof. Successful completion of performance targets shall be
determined by the Committee, using such measures of performance during the
performance period as are specified in the performance agreement.
6.4 EARNING A PERFORMANCE AWARD.
Attainment of performance targets in all respects during the Performance
Period shall earn one hundred percent (100%) of the related award for the
Performance Participant. Failure to meet any of the performance targets means
the Performance Participant will earn no part of the performance award. The
Committee may in its sole discretion, pay a portion of a performance award to a
Performance Participant based on the degree of attainment of performance targets
during the Performance Period.
6.5 PAYMENT OF PERFORMANCE AWARDS.
(A) TIME FOR PAYMENT. No performance award shall be payable until after
earned in accordance with the terms and conditions of the performance agreement,
unless otherwise provided in the Plan or in the sole discretion of the
Committee. Any Performance Shares, Performance Units or other amounts credited
to a Performance Account shall be paid to the Performance Participant only when,
and to the extent, the Committee determines to make such payment. All such
determinations shall be made during the four (4) month period immediately
following the end of the Performance Period as established in the performance
agreement. Payment of dividends credited to a Performance Account, together with
interest credited to such dividends, if any, shall be
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paid to the Performance Participant at such time as the performance targets with
respect to the underlying Performance Shares have been satisfied or such shares
are otherwise released.
(B) FORM OF PAYMENT. Payment of Performance Shares shall be in the form of
Stock or Restricted Stock, or a combination thereof as determined by the
Committee, to be delivered to the Performance Participant. Payment of
Performance Units and any related dividends or other amounts, including
interest, if any, credited to a Performance Account shall be made in cash,
Stock, Restricted Stock or any combination thereof, as the Committee shall
determine. To the extent payment is made in Stock or Restricted Stock, the
shares shall be valued at Fair Market value on the date of payment.
SECTION 7. OTHER STOCK-BASED AWARDS
7.1 GRANT OF OTHER AWARDS.
Other awards, valued in whole or in part by reference to or otherwise based
on Stock, may be granted either alone or in addition to or in conjunction with
other awards under the Plan. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the persons to
whom and the time or times at which such awards shall be made, the number of
shares of Stock to be granted pursuant to such awards, and all other conditions
of the awards. Any such award shall be confirmed by an award agreement executed
by the Corporation and the Participant, which award agreement shall contain such
provisions as the Committee determines to be necessary or appropriate to carry
out the intent of this Plan with respect to such award.
7.2 TERMS OF OTHER AWARDS.
In addition to the terms and conditions specified in the award agreement,
awards granted pursuant to this Section 7 shall be subject to the following:
(A) NONTRANSFERABILITY. Any Stock subject to awards made under this Section
7 may not be sold, assigned, transferred, pledged or otherwise encumbered prior
to the date on which the Stock is issued, or, if later, the date on which any
applicable restriction, performance or deferral period lapses.
(B) DIVIDENDS. Unless otherwise provided by the Committee in the award
agreement, the recipient of an award under this Section 7 shall be entitled to
receive, currently or on a deferred basis, dividends or dividend equivalents
with respect to the Stock covered by the award, and the Committee, in its sole
discretion, may provide in the award agreement that such amounts be reinvested
in additional shares of Stock.
(C) TERMINATION OF EMPLOYMENT. The award agreement with respect to any
award granted pursuant to this Section 7 shall contain provisions dealing with
the disposition of such award in the event of a termination of employment prior
to the exercise, realization or payment of such award, whether such termination
occurs because of Retirement, Disability, death or other reason, with such
provisions to take account of the specific nature and purpose of the award, as
well as appropriate provisions regarding acceleration of exercise, realization
or payment of such award upon the occurrence of a Change in Control, and the
Committee, in its sole discretion, may waive any or all of the restrictions
imposed with respect to any award under this Section 7.
(D) CONSIDERATION FOR ISSUANCE. Stock issued pursuant to this Section 7
shall be issued for such consideration as the Committee shall determine in its
sole discretion.
SECTION 8. TERMINATION OF EMPLOYMENT
8.1 GENERAL RULE.
Except as otherwise provided in the Plan, Options may be exercised and
Restricted Stock, Performance Share or Performance Unit awards may be paid to a
Participant or Independent Contractor only in accordance with the terms and
conditions attached to such benefit by the Committee at the time it is granted
or otherwise awarded. The provisions of Section 8.2 (A) through (D) shall govern
the treatment of awards upon termination of a Participant's employment unless
other provisions are approved by the Committee and set forth in the applicable
award agreement. The provisions of Section 8.2 (E) shall govern the treatment of
awards of NSOs to an
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Independent Contractor upon the termination of the Independent Contractor's
relationship with the Company for Cause.
8.2 EXCEPTIONS FOR DEATH, DISABILITY OR RETIREMENT OF A PARTICIPANT OR FOR
CAUSE FOR A PARTICIPANT OR INDEPENDENT CONTRACTOR.
(A) DEATH OF PARTICIPANT. If a Participant's employment terminates due to
death, any benefits under the Plan shall be transferred by the provisions of
such Participant's will, or if there is no will, by the laws of descent and
distribution of the state in which the Participant is a resident on the date of
death, but only to the extent hereinafter set forth. The individual who succeeds
to the Participant's benefits under the Plan, that is, the Beneficiary may:
(1) exercise any outstanding Options to the same extent the
Participant was entitled to exercise such Options, together with any
Options the Committee may, in its sole discretion, accelerate, at any time
prior to the earlier of twelve (12) months from the date of the
Participant's death, or the date the Option would otherwise expire by its
terms (or such later date as the Committee may approve in its sole
discretion);
(2) receive payment of any shares of Restricted Stock granted under
Section 5 based on a deemed lapse of the restrictions, provided that such
payment of Restricted Stock shall be either prorated based on the ratio of
the number of months since the date the award was made to the total number
of months contained in the restriction period at the time the award was
granted, or otherwise paid as determined by the Committee in its sole
discretion;
(3) receive payment of Performance Shares or Units, as determined in
the sole discretion of the Committee, by considering the degree to which
performance targets had been attained as of the date of the Participant's
death.
(B) DISABILITY OF PARTICIPANT. A Participant who becomes Disabled may:
(1) exercise outstanding Options that are otherwise exercisable,
together with any Options the Committee may, in its sole discretion,
accelerate, at any time prior to the earlier of twelve (12) months of the
date of Disability or the date the option would otherwise expire by its
terms (or such later date as the Committee may approve in its sole
discretion);
(2) be paid a prorated amount of a Restricted Stock granted under
Section 5, determined by application of the payment provisions in Section
8.2(a)(ii), based on a deemed lapse of restrictions;
(3) be paid a Performance Share or Unit award prior to the expiration
of a Performance Period, as authorized in the sole discretion of the
Committee, which may consider the degree of attainment of performance
targets in fixing the amount of any such payment.
(C) RETIREMENT OF A PARTICIPANT. At the time of Retirement, a Participant
may:
(1) exercise outstanding Options that are otherwise exercisable,
together with any Options the Committee may, in its sole discretion,
accelerate, at any time prior to the earlier of thirty (30) days following
Retirement, or the date the Option would otherwise expire by its terms (or
such later date as the Committee may approve in its sole discretion);
(2) receive a prorated payment of an award of Restricted Stock granted
under Section 5, determined by application of the payment provisions in
Section 8.2(a)(2), based on a deemed lapse of restrictions;
(3) receive a payment of Performance Shares or Units as authorized in
the sole discretion of the Committee, which may consider the degree to
which performance targets have been attained in determining the amount of
any such payment.
(D) OTHER TERMINATION OF EMPLOYMENT OF A PARTICIPANT.
(1) TERMINATION NOT FOR CAUSE. In the event of a termination of
employment for reasons other than those listed in this Section 8.2 or in
Section 8.4, outstanding Options may be exercised no later than the earlier
of ninety (90) days following such termination, or the date the Option
would, by its term, otherwise
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<PAGE> 32
expire (or such later date as the Committee may approve in its sole
discretion). In the event any portion of an Option would have vested during
the ninety (90) day period commencing on the date of termination not for
Cause, then such portion of the Option shall become vested as scheduled and
shall be exercisable in accordance with this subsection. The Committee may,
in its sole and exclusive discretion, accelerate payment of any other
benefits under the Plan.
(2) TERMINATION FOR CAUSE. In the event a Participant's services are
terminated for cause, as determined by the Committee in good faith
("Cause"), all Options, Restricted Stock, Performance Shares and
Performance Units under the Plan, to the extent not vested and already
exercised or otherwise paid, shall immediately terminate. Options vested on
the date of such termination may be exercised by the Participant for ninety
(90) days following the date of termination for Cause.
(E) TERMINATION OF INDEPENDENT CONTRACTOR FOR CAUSE
In the event an Independent Contractor's relationship with the Company
is terminated for Cause, as determined by the Committee in good faith, all
Options, to the extent not then vested and already exercised, shall
immediately terminate.
8.3 OTHER ACCELERATION OF BENEFITS.
The Committee shall have the discretion to accelerate the exercise date of
an Option or the time at which Stock restrictions lapse, to remove any Stock
restrictions or to accelerate the expiration of a Performance Period, or to take
any such similar action whenever it may decide, in its absolute discretion, that
such action is in the best interests of the Corporation and is equitable to an
Optionee (or, if applicable, such Optionee's heirs or beneficiaries), based on
changes in applicable tax or other laws, or such other changes of circumstances
as may arise after the date of an award under the Plan.
8.4 CERTAIN TRANSACTIONS.
(A) CHANGE IN CONTROL. In the event a Change in Control occurs:
(1) Any and all Options and Stock Appreciation Rights, whether such
Options and SAR were previously vested or unvested, shall become
immediately exercisable;
(2) Any restriction periods and restrictions imposed on Restricted
Stock shall lapse and within ten (10) business days after the occurrence of
a Change in Control the stock certificates representing Restricted Stock,
without any restrictions or legends thereon, shall be delivered to the
applicable Participant; and
(3) The target values attainable under all Performance Shares and
Units shall be deemed to have been fully earned for the entire award period
as of the effective date of the Change in Control.
(B) MERGER.
(1) OPTIONS. With respect to Options outstanding at the time of a
merger or consolidation of the Corporation with another corporation, an
Option granted under the Plan shall be deemed to apply to that number of
shares (or shares with a value equivalent to the value of the merger
consideration if not in shares) which a holder of the same number of shares
not subject to an Option would have been entitled to receive under the
terms of such merger or consolidation. If the Corporation is not the
surviving entity after such merger or consolidation, then the Optionee
shall, no less than seven (7) days prior to the effective time of the
merger, receive (contingent only upon the happening of the then
contemplated merger) a substitute option in exchange for the Option. In the
substitute option, the surviving entity shall grant to the Optionee an
option to purchase that entity's stock on terms and conditions which
substantially preserve the rights, benefits and value of the outstanding
Option granted by the Corporation. If a substitute option is not timely
delivered, the then outstanding Option shall be fully vested and
exercisable and the Optionee shall be entitled to exercise the Option and
exchange the shares received for the merger consideration.
(2) RESTRICTED STOCK. If the Corporation is consolidated or merged
with another corporation, each Participant who has been awarded Restricted
Stock shall be entitled to the sale rights and privileges due to the merger
as any other stockholder; provided, however, that any shares of the
Corporation stock received
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<PAGE> 33
in connection with the merger shall be subject to the same restrictions as
were imposed on the underlying shares of Restricted Stock unless otherwise
accelerated.
SECTION 9. GENERAL PROVISIONS
9.1 STOCKHOLDER PRIVILEGES.
(A) OPTION PARTICIPANT, NON-EMPLOYEE DIRECTOR OR INDEPENDENT CONTRACTOR.
Until such time as a Stock certificate is issued, an Option Participant,
Non-Employee Director or Independent Contractor or any other person entitled to
exercise an Option under the Plan, shall not have any of the privileges of a
stockholder with respect to Stock covered by an Option granted under this Plan.
(B) OTHER PARTICIPANTS. Upon delivery of Restricted Stock to a Participant
(or to the escrow holder, if applicable) pursuant to a Restricted Stock award,
such Participant shall have all of the rights of a shareholder with respect to
the Restricted Stock, subject to the restrictions imposed, including the right
to receive dividends (subject to the provisions of subparagraph (c) below) and
to vote the shares of Restricted Stock. In the event of forfeiture, the
certificate or certificates representing such Restricted Stock shall be
delivered to the Corporation, accompanied by executed instruments of transfer.
If the Restricted Stock is held in escrow, the Corporation shall be entitled to
have the certificates representing the Restricted Stock redelivered to it out of
escrow.
(C) PAYMENT OF DIVIDENDS TO ACCOUNTS. The Committee may, in its sole and
exclusive discretion, provide that amounts equivalent to dividends, with respect
to each share of Restricted Stock awarded, shall be credited to a Participant's
Performance Account, as the case may be, rather than paid directly to the
Participant.
(D) INTEREST. The Committee may also provide that interest shall be payable
with respect to Performance Units or dividends credited to a Participant's
account. The rate of any interest credited hereunder shall be determined in the
sole discretion of the Committee.
(E) SALE OF STOCK OR RESTRICTED STOCK. The Committee may fix a period
during which any Stock or Restricted Stock acquired under the Plan may not be
sold, provided that the Committee may not fix any period which is less than or
which exceeds such requirements as may be imposed by any applicable state or
federal law or regulation.
9.2 SHAREHOLDER APPROVAL.
This Plan shall be subject to approval by the affirmative vote of the
holders of a majority of the Corporation's Stock present or represented and
entitled to vote thereon at a meeting of shareholders and all awards made under
the Plan prior to approval of the Plan by the shareholders shall be made
contingent upon receipt of shareholder approval.
9.3 HOLDING REQUIREMENT.
No Optionee may dispose of any grants or awards made hereunder for a period
of six (6) months from the time of the grant or award by the Corporation;
provided, however, that an Optionee may exercise any Options or otherwise
convert any other awards to Stock, as permitted by the terms of the Plan, within
six (6) months of the grant or award, but he shall be prohibited from disposing
of the underlying Stock for a period of six (6) months after the date on which
the Option or other award is granted.
9.4 AMENDMENT, SUSPENSION, MODIFICATION AND TERMINATION OF PLAN.
The Committee, subject to approval by the Board, may amend or modify the
Plan, or any section of the Plan, at any time to conform to any change in
applicable laws or regulations or in any other respect deemed to be in the best
interest of the Corporation. Pursuant to Code Section 422, no such amendment
shall, without shareholder approval (i) materially increase the number of shares
of Stock as to which ISOs may be granted under the Plan, (ii) materially modify
the requirements as to eligibility to receive Options under the Plan, (iii)
materially increase the benefits accruing to Participants under the ISO portion
of the Plan, (iv) reduce an ISO Option price below the Fair Market Value on the
day the Option is awarded, (v) extend the period during which an Option may be
granted or exercised, or (vi) extend the termination date of the provisions of
the Plan which permit the granting of
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<PAGE> 34
ISOs. No amendment or modification of the Plan shall adversely affect any
Optionee under the Plan, or any section thereof, without such Optionee's
consent.
9.5 ADMINISTRATION.
The Plan shall be administered by the Compensation Committee of the Board
of Directors of the Corporation or such other committee membership as the Board
of Directors shall determine. Provided that the Committee shall always consist
of a committee of two or more directors, each of whom is a "non-employee
director" within the meaning of Rule 16b-3 of the Securities Exchange Act of
1934, as amended, and the regulations promulgated thereunder. The actions of the
Committee shall be reviewed by the Board. The Committee is authorized to (i)
select employees for participation in the plan, (ii) make all decisions
concerning the timing, pricing and amount of grants or awards under the Plan to
the extent such matters are left to the discretion of the Committee by the terms
of the Plan, (iii) interpret and construe the Plan, (iv) adopt, amend, or
rescind rules and regulations relating to the Plan, and (v) make all other
determinations necessary or advisable for the administration of the Plan. Any
actions, determinations or other interpretations made by the Committee within
the scope of its authority shall be final, binding and conclusive for all
purposes on all persons.
9.6 INDEMNIFICATION.
To the extent permitted by law, members of the Committee and the Board
shall be indemnified and held harmless by the Corporation with respect to any
loss, cost, liability or expense that may be reasonably incurred in connection
with any claim, action, suit or proceeding which arises by reason of any act or
omission under the Plan so long as such act or omission is taken within the
scope of the authority delegated herein.
9.7 EXPENSES.
The expense of maintaining and administering this Plan shall be borne by
the Corporation.
9.8 RIGHTS OF PARTICIPANTS AND INDEPENDENT CONTRACTORS.
Nothing in this Plan shall interfere with or limit in any way the right of
the Corporation or an Affiliate to terminate any individual's employment at any
time, with or without cause or to terminate the relationship of any Independent
Contractor with the Corporation. This Plan does not, nor is it intended to,
confer upon any employee the right to continue in the employment of the
Corporation or an Affiliate or an Independent Contractor to continue as a
contractor to the Corporation or any Affiliate.
9.9 NONTRANSFERABILITY.
Except as provided in Section 8.2(a) of the Plan (relating to death of a
Participant) or as may be set forth the applicable Award Agreement, Options
awarded under the Plan shall not be transferable.
9.10 GOVERNING LAW.
To the extent not preempted by applicable federal law or as necessary to
comply with the laws of the State of Delaware, this Plan shall be construed and
interpreted in accordance with the laws of the Commonwealth of Pennsylvania
other than the conflict of law provisions of such laws.
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<PAGE> 35
FORM OF PROXY
P BALANCED CARE CORPORATION
R
O 5021 Louise Drive, Suite 200 Mechanicsburg, Pennsylvania 17055
X
Y Proxy for Annual Meeting of Stockholders on October 29, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Brad E. Hollinger, Paul A.
Kruis and Robin L. Barber, and each or any of them as proxies, each
with power to appoint his or her substitute, and hereby authorizes
any of them to represent and to vote, as designated on the reverse
side of this proxy card, all shares of the Common Stock, par value
$.001 per share (the "Common Stock"), of Balanced Care Corporation
(the "Company"), which the undersigned is entitled to vote at the
Annual Meeting of Stockholders of the Company (the "Annual Meeting")
to be held on Thursday, October 29, 1998, commencing at 10:00 A.M.,
local time, at the DoubleTree Club Hotel, 815 Eisenhower Boulevard,
Middletown, Pennsylvania 17057, or any adjournment or postponement
thereof, as follows on the reverse side of this proxy card.
PLEASE DATE AND SIGN ON REVERSE SIDE
<PAGE> 36
----- Please mark your
X votes as in this
----- example
<TABLE>
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<S> <C> <C>
1. The election of three directors, each for a term of three years;
FOR all nominees listed at ----- Nominees: John M. Brennan
right (except as marked to Bill R. Foster, Sr.
the contrary below). ----- Edward R. Stolman
WITHHOLD AUTHORITY to vote -----
for all nominees listed at
right. -----
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, draw a line through such nominee's name.)
2. To approve the Company's 1996 Stock Incentive Plan, as amended and restated.
<S> <C> <C>
FOR AGAINST ABSTAIN
----- ------ -----
----- ------ -----
In their discretion, the proxy holders are authorized to vote upon such other business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER.
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS.
<S> <C>
SIGNATURE _____________________________________________________ DATED ___________________________________, 1998
SIGNATURE _____________________________________________________ DATED ___________________________________, 1998
Note: Please sign exactly as name or names appear hereon. When signing as attorney, executor, administrator, trustee or guardian,
please give your full title. If a corporation, please sign in full corporate name by president or other authorized officer.
If a partnership, please sign in partnership name by authorized partner.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
