SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
CareMatrix Corporation
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0.11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
[CareMatrix Logo]
197 First Avenue
Needham, Massachusetts 02194
------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
JUNE 22, 1998
------------
The Annual Meeting of Stockholders of CareMatrix Corporation (the
"Company") will be held on Monday, June 22, 1998 at 10:00 a.m. at the Company's
principal executive offices located at 197 First Avenue, Needham,
Massachusetts, for the following purposes:
1. To elect the members of the Board of Directors who shall hold office
until the 1999 annual meeting of stockholders and thereafter until their
successors are duly elected and qualified.
2. To consider and act upon a proposal to amend the Company's 1996 Equity
Incentive Plan.
3. To consider and act upon such other business and matters or proposals as
may properly come before said Annual Meeting or any adjournment or
adjournments thereof.
The Board of Directors has fixed the close of business on April 30, 1998
as the record date for determining the stockholders having the right to receive
notice of and to vote at said Annual Meeting.
By Order of the Board of Directors
James M. Clary, III, Secretary
Needham, Massachusetts
May 13, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN, DATE
AND MAIL PROMPTLY THE ENCLOSED PROXY WHICH IS BEING SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS. A RETURN ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES IS ENCLOSED FOR THAT PURPOSE. RETURNING THE ENCLOSED PROXY
WILL NOT AFFECT YOUR RIGHT TO ATTEND THE MEETING AND VOTE YOUR SHARES IN
PERSON.
<PAGE>
[CareMatrix Logo]
CareMatrix Corporation
197 First Avenue
Needham, MA 02194
------------
PROXY STATEMENT
------------
ANNUAL MEETING OF STOCKHOLDERS
June 22, 1998
This Proxy Statement is furnished in connection with the solicitation by
and on behalf of the Board of Directors of CareMatrix Corporation (the
"Company") of proxies for use at the Annual Meeting of Stockholders of the
Company to be held, pursuant to the accompanying Notice of Annual Meeting, on
Monday, June 22, 1998 at 10:00 a.m., at the Company's principal executive
offices at 197 First Avenue, Needham, Massachusetts, and at any adjournment or
adjournments thereof (the "Annual Meeting"), for the purposes stated in the
accompanying Notice of Meeting. Action will be taken at the Annual Meeting to
elect the members of the Board of Directors for the ensuing year and until
their successors are duly elected and qualified and to consider and act upon a
proposal to amend the Company's 1996 Equity Incentive Plan.
Any stockholder giving a proxy retains the power to revoke such proxy at
any time prior to its being voted by (i) delivering a written revocation to the
Secretary of the Company, (ii) by executing and returning to the Company a
proxy bearing a later date, or (iii) by attending the Annual Meeting and voting
his or her shares in person. Any stockholder who attends the Annual Meeting in
person will not be deemed to have revoked his or her proxy unless such
stockholder affirmatively indicates at the Annual Meeting his or her intention
to vote the shares in person. If the proxy is properly executed and is not
revoked, it will be voted at the Annual Meeting in the manner specified. If no
instructions are specified, the shares represented by the proxy will be voted
"for" the election of the nominees for directors named herein and "for" the
approval of Item 2 in the Notice of Meeting.
The Company mailed this Proxy Statement and the related form of proxy on
or about May 13, 1998 to its stockholders of record at the close of business on
April 30, 1998.
VOTING SECURITIES
The holders of record of shares of the Company's Common Stock, $.05 par
value per share (the "Common Stock"), and Series A Cumulative Convertible
Preferred Stock, $.01 par value per share (the "Series A Preferred Stock"), at
the close of business on April 30, 1998 may vote at the Annual Meeting. On that
date, there were outstanding and entitled to vote 17,592,839 shares of Common
Stock and 17,300 shares of Series A Preferred Stock. Each stockholder has one
vote at the Annual Meeting for each share of Common Stock and/or Series A
Preferred Stock held of record on said date. A majority of issued and
outstanding shares of Common Stock, present in person or represented by proxy,
is necessary to constitute a quorum for the transaction of business.
Directors will be elected at the Annual Meeting by a plurality of the
votes cast at the meeting by the holders of shares entitled to vote thereon.
Votes may be cast in favor of the election of the nominees for director or
withheld; votes that are withheld will have no effect on the outcome of the
election of directors. Approval of Item 2, amendment of the 1996 Equity
Incentive Plan, requires a majority of the votes so cast. Where proxies are
marked as abstentions (or stockholders appear in person but abstain from
voting) with respect to any matter submitted to the stockholders for a vote,
such abstentions will be treated as shares that are present and entitled to
vote for purposes of determining the presence of a quorum but as unvoted for
purposes of determining the approval of any matter submitted to the
stockholders for a vote. Accordingly, abstentions will have the effect of a
vote against the approval of the amendment to the 1996 Equity Incentive Plan.
If a broker indicates on the proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares
will not be considered as present and entitled to vote with respect to that
matter for purposes of determining the presence of a quorum.
<PAGE>
ITEM 1.
ELECTION OF DIRECTORS
The Company's By-laws provide that the Board of Directors shall consist of
not less than one nor more than 10 directors, the exact number to be fixed by
the Board of Directors. The Board of Directors has currently fixed the number
of directors at eight; however, the By-laws provide that, within the limits
specified above, the number of directors may at any time be increased or
decreased by the vote of the Board.
The nominees for election to the Board of Directors consist of Abraham D.
Gosman, Andrew D. Gosman, Michael M. Gosman, Donald J. Amaral, H. Loy Anderson,
Jr., Rev. Bedros Baharian, Robert Cataldo and Stephen E. Ronai. The nominees
were nominated by the Board of Directors. If elected, the nominees will serve
as directors until the 1999 Annual Meeting of Stockholders and thereafter until
their respective successors are duly elected and qualified.
In the event that any of the nominees becomes unavailable to serve as a
director of the Company, the persons named as proxies have discretionary
authority to vote for a substitute. The Board of Directors has no reason to
believe that any of the nominees will be unwilling or unable to serve if
elected.
Nominees for Election
Each of the following directors has been nominated for election at the
Annual Meeting:
Abraham D. Gosman, age 69, has served as Chairman of the Board of
Directors of the Company since October 1996. In addition, he has served as
Chairman of the Board of Trustees and Chief Executive Officer of Meditrust, the
nation's largest healthcare real estate investment trust, since its inception
in 1985. He has also served since 1996 as the Chairman of the Board of
Directors and Chief Executive Officer of PhyMatrix Corp. ("PhyMatrix"), a
publicly-traded physician practice management company. Mr. Gosman was the Chief
Executive Officer and Chairman of the Board of The Mediplex Group, Inc.
("Mediplex"), an operator and developer of health care facilities, from August
1990 until June 1994, when Mediplex was acquired by Sun Healthcare Group, Inc.
Andrew D. Gosman, age 32, has served as President of the Company since
August 1997 and as a director of the Company since October 1996. He served as
Vice Chairman of the Board of Directors and Executive Vice President of the
Company from October 1996 to August 1997. From January to October 1996, he
served alternatively as President and Executive Vice President of a group of
privately-owned corporations (the "CareMatrix Affiliates") which merged with
and into the Company on October 4, 1996. Previously, he served as Executive
Vice President of Development for Continuum Care Corporation ("Continuum") from
June 1994 to January 1996. He has also served as a Vice President of AMA
Funding Corporation and AMA Venture Corporation, two closely held investment
and development concerns, since March 1992.
Michael M. Gosman, age 35, has served as Vice Chairman of the Board of
Directors since August 1997 and as Executive Vice President--Acquisition and
Development of the Company since October 1996. He has served as a director of
the Company since October 1996 and was Executive Vice President--Assisted
Living of the CareMatrix Affiliates from January to October 1996. Previously,
he served as the Executive Vice President of Finance and Administration for
Continuum from June 1994 to January 1996. From January 1990 to June 1993, he
served as the Director of Special Projects for Diamond Health Group, Inc. where
he was responsible for organizing financing packages and structuring
acquisitions.
Donald J. Amaral, age 45, has served as a director of the Company since
October 1996. Mr. Amaral has served as Chairman and Chief Executive Officer of
Coram HealthCare Corp. ("Coram") since June 1997 and served as director,
President and Chief Executive Officer of Coram from October 1995 to June 1997.
Previously, he was President and Chief Operating Officer of OrNda Healthcorp
("OrNda") from April 1994 to August 1995, and served in various executive
positions with Summit Health Ltd. ("Summit") from October 1989 to April 1994,
including President and Chief Executive Officer between October 1991 and April
1994. Summit was merged into OrNda in April 1994. Prior to joining Summit, Mr.
Amaral was President and Chief Operating Officer of Mediplex from 1986 until
October 1989. Mr. Amaral is also a member of the Board of Directors of
Meditrust.
H. Loy Anderson, Jr., age 54, has served as a director of the Company
since October 1996. He has served as President, Chief Executive Officer and a
director of Palm Beach National Bank & Trust Company since June 1990.
Rev. Bedros Baharian, age 82, has served as a director of the Company
since October 1996. Rev. Baharian is a consultant and private investor. He has
also served as a member of the Board of Directors of FACT Retirement Services,
a not-for-profit owner and manager of continuing retirement communities in
California since 1990 and
2
<PAGE>
was its Chairman from 1994 to 1998. He served as Chairman of the Board of
Teachers Assistance Life Care Centers, Inc. from 1990 to 1993 and as a board
member of Casa de las Campanas from 1990 to 1994. He is a founder and past
president of the New England Elderly Housing Association.
Robert Cataldo, age 73, has served as a director of the Company since June
1997 and has been President of Sheldon Corporation, a health care and real
estate consulting firm since July 1983.
Stephen E. Ronai, age 61, has served as a director of the Company since
October 1996. Mr. Ronai has been a partner in the Connecticut law firm of
Murtha, Cullina, Richter and Pinney since 1984 where he serves as Chairman of
the firm's Health Care Department. From 1989 to 1995, he served as a member of
the Board of Directors of the National Health Lawyers Association. Mr. Ronai
also serves as a director of PhyMatrix Corp., is a member of the Committee on
Government of the Connecticut Hospital Association and is a Director of Church
Homes, Inc., which owns and manages retirement communities, nursing facilities
and assisted living facilities in Connecticut.
Additional Information Regarding the Board of Directors
The Board of Directors held six meetings during 1997. In addition to the
full Board of Directors, the Board of Directors has authorized the following
committees:
Executive Committee. The members of the Executive Committee of the
Company's Board of Directors are Andrew D. Gosman, Michael M. Gosman, Donald J.
Amaral and Rev. Bedros Baharian. The Executive Committee exercises all the
powers of the Board of Directors between meetings of the Board of Directors,
except such powers as are reserved to the Board of Directors by law. The
Executive Committee held two meetings during 1997.
Audit Committee. The members of the Audit Committee of the Company's Board
of Directors are Donald J. Amaral, H. Loy Anderson, Jr., Rev. Bedros Baharian
and Robert Cataldo, all of whom are independent directors. The Audit Committee
makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans for and
results of the audit, approves professional services provided by the
independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and nonaudit fees and reviews
the adequacy of the Company's internal accounting controls. The Audit Committee
held three meetings during 1997.
Compensation Committee. The members of the Compensation Committee of the
Company's Board of Directors are H. Loy Anderson, Jr., Rev. Bedros Baharian,
Robert Cataldo and Stephen E. Ronai. The Compensation 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 Committee administers all of the Company's employee
benefit plans. The Compensation 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. There are no interlocks among the members of the Compensation
Committee. The Compensation Committee held two meetings during 1997.
Family Relationships. Andrew D. Gosman and Michael M. Gosman are sons of
Abraham D. Gosman. No other family relationship exists among the Company's
directors or executive officers.
Compensation of Directors. Officers who are members of the Board of
Directors do not receive compensation for serving on the Board. Each other
member of the Board receives annual compensation of $15,000 for serving on the
Board, plus a fee of $1,000 for each Board of Directors' meeting attended and
$500 for telephonic meetings. In addition, such directors receive an additional
fee of $500 for each committee meeting attended, except that only one fee will
be paid in the event that more than one such meeting is held on a single day.
All directors receive reimbursement of reasonable expenses incurred in
attending Board and committee meetings and otherwise carrying out their duties.
Pursuant to the Company's 1995 Non-qualified Stock Option Plan for
Non-employee Directors (the "1995 Plan") entitles each non-employee director to
a grant of a non-qualified stock option to purchase 1,200 shares of the
Company's Common Stock at an exercise price equal to the higher of the average
high and low and trade prices and the closing price of the Common Stock on the
date of grant. Pursuant to the 1995 Plan, the date of grant is the first Friday
following the annual meeting of stockholders at which such individual is
elected or re-elected. Additionally, pursuant to the Company's 1996 Equity
Incentive Plan, each non-employee director was granted an option to purchase
10,000 shares of Common Stock at an exercise price of $28.625 per share (the
fair market value of the Common Stock on the date of grant) vesting in equal
increments over three years beginning December 8, 1998.
Section 16 Compliance. During the 1997 reporting period, Robert Cataldo
filed one late Form 3 reporting one transaction.
3
<PAGE>
MANAGEMENT
Executive Officers
Executive Officers are appointed by and serve at the discretion of the
Board of Directors. The following is a biographical summary of the experience
of the executive officers of the Company who have not been nominated to serve
as directors of the Company.
Robert M. Kaufman, age 49, has served as Chief Executive Officer of the
Company since August 1997. He served as President of the Company from October
1996 to August 1997 and as President of the CareMatrix Affiliates from July
1996 to October 1996. Mr. Kaufman spent from 1972 until July 1996 with Coopers
& Lybrand L.L.P., the last 15 years as a partner, specializing in the
for-profit healthcare, real estate and retail/consumer products industries. Mr.
Kaufman has significant experience advising companies in the long-term care,
senior housing and physician practice sectors in such areas as business and
strategic planning, deal negotiations and structure, public and private
financing, real estate development and management. In addition, he has been a
member of Coopers & Lybrand's mergers and acquisitions group and served on
their Board of Partners, the Firm's nationally elected oversight committee.
James M. Clary, III, age 36, has served as Executive Vice President,
General Counsel and Secretary of the Company since October 1996. Previously, he
served as Executive Vice President, General Counsel and Secretary of the
CareMatrix Affiliates from December 1995 to October 1996 and as Legal Counsel
and Senior Vice President for Continuum Care Corporation. Since January 1996,
Mr. Clary has also served as General Counsel to Chancellor Senior Housing
Group, Inc. and Senior Legal Advisor to PhyMatrix Corp. From June 1993 to
August 1994, he served as Associate Counsel to Meditrust. Prior to joining
Meditrust, Mr. Clary was a Senior Associate with the Boston law firm of Choate,
Hall & Stewart, from December 1991 to June 1993, and the Boston law firm of
Nutter, McClennen & Fish, LLP from October 1987 to December 1991, where he
specialized in the areas of real estate, health care and corporate law.
Harold E. Nash, III, age 44, has served as Executive Vice President of
Construction/Planning and Zoning of the Company since October 1996. Previously,
he served as Executive Vice President of the CareMatrix Affiliates from August
1996 until October 1996. From 1991 through March 1996, Mr. Nash served as Vice
President of Suffolk Construction Company, Inc., with primary responsibility as
Director of Design Build Services and Pre-Construction Services. Prior to
joining Suffolk Construction Company, Mr. Nash was a Vice President of two
diversified development companies from 1984 to 1991.
Michael J. Zaccaro, age 40, has served as Executive Vice President of
Operations of the Company since October 1996. Previously, he served as Senior
Vice President of the CareMatrix Affiliates from December 1995 until October
1996. From 1990 to 1995, Mr. Zaccaro served as a Senior Vice President of
Continuum and of GWZ Development Corp. Prior to 1990, he was a founder of
Athena Health Care Associates and served as its President from 1983 to 1990.
Marc H. Benson, age 41, has served as Chief Operating Officer of the
Company since October 1996. Previously, he served as Chief Operating Officer of
the CareMatrix Affiliates from August 1996 until October 1996. From September
1995 to July 1996, he served as a Vice President/Director of Operations for
ManorCare, Inc.'s southeast district where he had primary operating
responsibility for ManorCare, Inc.'s assisted living and Alzheimer's facilities
in the southeastern portion of the United States. Prior to joining ManorCare,
Inc., Mr. Benson served as Director of Operations for Beverly Enterprises where
he managed senior housing, assisted living, skilled nursing and home health
care centers in seven states from 1992 to September 1995. He served as Director
of Finance of the Retirement Living Division Beverly Enterprises from 1990 to
1992.
4
<PAGE>
EXECUTIVE COMPENSATION
The following summary compensation table shows compensation information
for the last three completed fiscal years for the Company's current Chief
Executive Officer, Robert M. Kaufman, and certain other current and former
executive officers of the Company (collectively, the "Named Executive
Officers"). With the exception of Michael J. Doyle, none of the Named Executive
Officers was employed by the Company prior to October 1996 or had annual salary
and bonus payments from the Company equal to or succeeding $100,000 prior to
such date.
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
-------------- ---------------
Securities
Underlying All Other
Name Year Salary ($) Options Compensation ($)
- -------------------------------- ------ -------------- --------------- -----------------
<S> <C> <C> <C> <C>
Robert M. Kaufman(1) ........... 1997 255,400 100,000 174
Chief Executive Officer 1996 63,850 50,000 44
James M. Clary, III(1) ......... 1997 246,600 100,000 66
Executive Vice President 1996 61,650 50,000 17
and General Counsel
Harold E. Nash, III(1) ......... 1997 232,800 80,000 102
Executive Vice President 1996 58,200 35,000 26
Michael J. Zaccaro(1) .......... 1997 207,800 60,000 66
Executive Vice President 1996 51,950 -- 17
Marc H. Benson(1) .............. 1997 206,600 70,000 102
Chief Operating Officer 1996 49,567 26,200 26
Michael J. Doyle(2) ............ 1997 152,304 -- 265,647(3)
Chief Executive Officer 1996 191,450 100,000 (4)
1995 157,500 10,000 (4)
James Sherman(1)(5) ............ 1997 256,600 35,000(6) 288
Senior Vice President 1996 64,250 30,000(6) 72
</TABLE>
- ------------
(1) Messrs. Kaufman, Clary, Nash, Zaccaro, Benson and Sherman did not commence
their employment with the Company until October 4, 1996, and therefore,
compensation shown for 1996 reflects only such portion of fiscal 1996.
(2) Mr. Doyle served as Chief Executive Officer of the Company until July 30,
1997, at which time he resigned from the Company.
(3) Consists of the first installment payment under Mr. Doyle's Resignation
Agreement and is approximately equal to approximately one-half of the
present value of the remaining salary and benefits payable under his
employment agreement as of July 30, 1997. See "-- Termination Agreements"
below.
(4) Mr. Doyle was entitled to receive approximately $624 of premiums on a life
insurance policy for a beneficiary designated by Mr. Doyle.
(5) Mr. Sherman resigned from the Company effective December 31, 1997.
(6) Mr. Sherman's option to purchase such shares, to the extent unexercised,
terminated on March 1, 1998, 60 days following the effective date of his
resignation.
Employment Agreements
The Company currently has an employment agreement with Marc H. Benson, the
Company's Chief Operating Officer, providing for an initial employment term
ending August 1999 and continuing thereafter on a year-to-year basis, subject
to the Company's or Mr. Benson's election not to renew. The agreement provides
for an initial annual base salary of $175,000, bonus compensation granted in
the sole discretion of the Company, a monthly car allowance of $550 and a grant
of options to purchase 26,200 shares of Common Stock vesting in equal
increments over three years beginning in October 1997. The exercise price for
such options is $15.00 per share. Mr. Benson's agreement may be terminated by
the Company without cause upon written notice or by Mr. Benson in the event of
a failure of the Company to substantially perform its duties under the
agreement. Upon any such termination, Mr. Benson would be entitled to receive
his salary payments for the twelve months following such termination.
5
<PAGE>
During 1997, the Company and James F. Sherman, the Company's former Senior
Vice President of Finance, were parties to an employment agreement which was
terminated by mutual agreement of the parties effective December 31, 1997.
Pursuant to the agreement, Mr. Sherman was entitled to an annual salary of
$250,000, a monthly car allowance of $550 and options to purchase 30,000 shares
of Common Stock at an exercise price of $15.00 per share, vesting in equal
increments over three years from October 1996.
During 1997, the Company and Michael J. Doyle, the Company's former Chief
Executive Officer, were parties to an employment agreement which was terminated
on July 30, 1997. Prior to its termination, the agreement provided for an
annual base salary of $250,000, bonus compensation to be determined by the
Board of Directors of the Company in its sole discretion, restrictions against
competition with the Company, an automobile allowance of $10,000 per annum and
payment of premiums on a life insurance policy in the amount of $500,000 for a
beneficiary to be designated by Mr. Doyle. Mr. Doyle's employment agreement
provided that if his employment terminated within a 24-month period following
the occurrence of certain changes in control because, among other events,
either (a) his employment is not renewed by the Company, (b) his employment is
involuntarily terminated other than for cause as of a date prior to the end of
the initial term or any renewal term or (c) a change in his duties occurs, he
would be entitled to receive a lump sum severance payment within 30 days after
ceasing to be employed equal to 2.99 times the average yearly total
compensation (consisting of base salary and any cash bonus) payable with
respect to the previous five full calendar years.
Termination Agreements
As noted above, Mr. Doyle resigned as an officer and employee of the
Company effective July 30, 1997. Under Mr. Doyle's Resignation Agreement, the
Company (i) has made lump sum severance payments to Mr. Doyle in the aggregate
amount of approximately $536,000 (equal to the present value of the remaining
salary and benefits payable under his employment agreement as of July 30,
1997), less applicable tax withholdings and insurance contributions and (ii)
will provide family health insurance through October 4, 1999 or such date on
which Mr. Doyle finds new employment providing corporate coverage. The
agreement also provided for the extension of the period during which Mr. Doyle
may exercise his non-qualified options to October 4, 1999.
Stock Option Plans
Restated 1991 Combination Stock Option Plan.
The Company's Restated 1991 Combination Stock Option Plan, as amended and
restated to date (the "1991 Plan"), was adopted initially in October 1991 and
has been amended several times subsequently, most recently in order to limit
the number of shares of Common Stock available for issuance to any participant
in any one year to 120,000 shares and change the composition of the
Compensation Committee, among other things. The number of shares currently
reserved for issuance under the 1991 Plan is 400,000. The purpose of the 1991
Plan is to provide long-term incentives and rewards to the Company's key
employees, officers, directors and others in a position to contribute to the
success of the Company.
1995 Non-Qualified Stock Option Plan.
Directors who are not also employees of the Company are eligible to
participate in the Company's 1995 Non-Qualified Stock Option Plan (the "1995
Plan"). Under the 1995 Plan, each non-employee director, upon becoming a
director, is automatically granted options to purchase 1,200 shares of Common
Stock, subject to vesting over three years, and options to purchase additional
shares hereafter are based upon the formula provisions of said Plan. In June
1997, pursuant to the 1995 Plan, the Company granted options to purchase 1,200
shares of Common Stock to each of Donald J. Amaral, H. Loy Anderson, Jr., Rev.
Bedros Baharian, Robert Cataldo and Stephen Ronai, who were elected to serve on
the Board of Directors of the Company at the 1997 Annual Meeting of
Stockholders.
1996 Equity Incentive Plan.
In October 1996, the Board of Directors adopted the 1996 Equity Incentive
Plan (the "1996 Plan") which provides for the award of up to 1,600,000 shares
of Common Stock in the form of incentive stock options, non-qualified stock
options, restricted stock, performance shares and stock appreciation rights.
All employees, directors and consultants of the Company and any of its
subsidiaries are eligible to participate in the 1996 Plan. The Company has
proposed to increase the number of shares of Common Stock usable pursuant to
the 1996 Plan to 2,600,000 shares. See "Item 2: Proposal to Amend the 1996
Equity Incentive Plan" for more detailed information concerning the 1996 Plan.
6
<PAGE>
Stock Option Grants
The following is a summary of all stock options granted to the Named
Executive Officers during 1997. Where applicable, individual grants are listed
separately for each Named Executive Officer.
<TABLE>
<CAPTION>
Individual Grants(1)
----------------------------------------------------------------------
No. of Shares % of Total Potential Realizable
Underlying Options Exercise Value at Assumed
Options Granted to Price per Expiration Annual Rates of
Name Granted Employees in 1997(2) Share Date Stock Price Appreciation
- --------------------- --------------- ---------------------- ----------- ------------- 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Robert M. Kaufman 100,000 10.6% $ 16.125 4/3/07 (3) $1,014,090 $2,569,910
James M. Clary, III 100,000 10.6% $ 16.125 4/3/07 (3) $1,014,090 $2,569,910
Harold E. Nash, III 35,000 3.7% $ 21.000 6/16/07 (4) $ 462,238 $1,171,401
45,000 4.8% $ 28.625 12/8/07 (5) $ 810,095 $2,052,940
Michael J. Zaccaro 35,000 3.7% $ 21.000 6/16/07 (4) $ 462,238 $1,171,401
25,000 2.7% $ 28.625 12/8/07 (5) $ 450,053 $1,140,522
Marc H. Benson 35,000 3.7% $ 21.000 6/16/07 (4) $ 462,238 $1,171,401
35,000 3.7% $ 28.625 12/8/07 (5) $ 630,074 $1,596,732
James F. Sherman 35,000 3.7% $ 21.000 3/1/98 (6) $ 462,238 $1,171,401
</TABLE>
- ------------
(1) There was no grant of stock options in 1997 to Michael J. Doyle.
(2) Based upon aggregate grants of options to purchase 944,200 shares of Common
Stock in 1997.
(3) Vesting in one-third increments on each of April 1, 1998, April 1, 1999 and
April 1, 2000.
(4) Vesting in one-quarter increments on each of June 16, 1998, June 16, 1999,
June 16, 2000 and June 16, 2001.
(5) Vesting in one-third increments on each of December 8, 1998, December 8,
1999 and December 8, 2000.
(6) Mr. Sherman's options expired on March 1, 1998, or 60 days following his
resignation from the Company.
Aggregated Stock Option Exercises and Stock Option Values
There were no options exercised by any of the Named Officers during fiscal
1997. The following table indicates the aggregate value of all unexercised
options held by each Named Officer as of December 31, 1997.
<TABLE>
<CAPTION>
As of December 31, 1997
---------------------------------------------------------------------
Shares Number of Shares of
Acquired on Value Common Stock Underlying Value of Unexercised
Exercise Realized Unexercised Options In-the-Money Options(1)
------------- ---------- ------------------------------- -----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Kaufman -- -- 66,666 83,334 $1,045,823 $1,154,177
James M. Clary, III -- -- 66,666 83,334 $1,045,823 $1,154,177
Harold E. Nash, III -- -- 23,333 91,667 $ 437,494 $ 495,631
Michael J. Zaccaro -- -- -- 60,000 -- $ 274,375
Marc H. Benson -- -- 17,466 78,734 $ 240,158 $ 395,718
Michael J. Doyle(2) 26,802 $344,360 93,198 -- $1,309,342 --
James F. Sherman(3) 20,000 $252,500 (3) (3) (3) (3)
</TABLE>
- ------------
(1) Value of unexercised, in-the-money options based upon the closing price of
the Company's Common Stock on the American Stock Exchange on December 31,
1997 of $28.75.
(2) Mr. Doyle resigned from the Company on July 30, 1997.
(3) Mr. Sherman resigned from the Company effective December 31, 1997. Mr.
Sherman's option terminated 60 days following his resignation.
7
<PAGE>
Limitation of Liability and Indemnification Agreements
As permitted by the Delaware General Corporation Law, the Company's
Corrected Third Restated Certificate of Incorporation provides for the
elimination, subject to certain conditions, of the personal liability of
directors of the Company for monetary damages for breach of their fiduciary
duties.
The Company's By-Laws provide for the indemnification of directors and
officers. In addition, the Company has entered into indemnification agreements
with each of its directors. The Company may also enter into similar agreements
with certain of the Company's officers who are not also directors. Generally,
the Company's By-Laws and the indemnification agreements attempt to provide the
maximum protection permitted by Delaware law with respect to indemnification of
directors and officers.
The indemnification agreements, like the Company's By-Laws, provide that
the Company will pay certain amounts incurred by a director or officer in
connection with any civil or criminal action or proceeding, and specifically
including actions by or in the name of the Company (derivative suits), where
the individual's involvement is by reason of the fact that he is or was a
director or officer. Such amounts include, to the maximum extent permitted by
law, attorney's fees, judgments, civil or criminal fines, settlement amounts,
and other expenses customarily incurred in connection with legal proceedings.
Under the indemnification agreements and the Company's By-Laws, a director or
officer will not receive indemnification if he is found not to have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors, which consists of
solely non-employee directors, is responsible for the establishment and
administration of the Company's Executive Compensation Program. In addition,
the Committee is responsible for granting awards under and administrating the
Company's 1991 Plan, 1995 Plan and 1996 Plan.
The guiding principals of the Compensation Committee in setting
compensation for its executive officers and key employees include the alignment
of the interests of executive management with those of the Company's
shareholders and the establishment of remuneration policies that will allow the
Company to compete for and retain individuals with the qualities necessary to
contribute to the Company's success. The Committee's objective is to have a
significant portion of each executive's compensation package contingent on the
Company's operational and, ultimately, financial success. The achievement of
individual performance goals is also critical to the Committee's determination
of that which constitutes fair compensation. Compensation recommendations are
generally made by either the Chairman or the President and are reviewed and
approved by the Compensation Committee.
A key component to each executive officer's total compensation package is
long-term equity-based incentive compensation (e.g., stock options). By linking
the officer's compensation with the interests of the shareholders, equity-based
compensation has the effect of directly rewarding executive officers for the
Company's success and stock price appreciation.
The two key components of compensation for the Company's executive
officers are stock options and annual base salary. In fiscal 1997, the
Committee approved grants of options to purchase an aggregate of 944,200 shares
of Common Stock to all of the employees of Company. The Company's executive
officers received options to purchase an aggregate of 445,000 shares of Common
Stock, or 47.1% of the total options granted during 1997. Generally, the stock
options vest over a period ranging from three to four years, beginning on the
first anniversary of the date of grant. The exercise price for such options is
equal, in all cases, to the closing price for the Common Stock as listed on the
American Stock Exchange on the date of grant. The Committee believes that the
three to four year vesting schedule and fair market value pricing encourages
the Company's officers to focus on the long-term success of the Company.
The base salary of the Company's executive officers is based on individual
performance, as well as an examination of the compensation of persons similarly
situated at the Company's competitors. The yearly evaluation of base salary and
bonus payments, if any, is critical to the retention and the attraction of
qualified and talented personnel with the ability to contribute to the success
of the Company.
Respectfully submitted,
H. Loy Anderson, Jr.
Rev. Bedros Baharian
Robert Cataldo
Stephen E. Ronai
8
<PAGE>
SPECIAL PERFORMANCE GRAPH(1)
The following graph is being presented for informational purposes to
supplement the Required Performance Graph set forth below under the heading
"Required Performance Graph." Management believes that an appropriate measure
of the Company's performance begins in October 1996, when The Standish Care
Company, Inc. was acquired in a reverse merger by a group of affiliated
corporations (the "CareMatrix Affiliates") controlled by the Company's Chairman
and certain of its executive officers. Upon completion of the acquisition, the
shareholders of the CareMatrix Affiliates received approximately 92% of the
then-outstanding shares of Common Stock, the Company's current management was
elected and the Company's name was changed to CareMatrix Corporation.
The Special Performance Graph compares the relative performance of the
Company's Common Stock (as measured by the price per share) against the
cumulative market-weight return of the Company's Peer Group (as defined in Note
2 to the Special Performance Graph below) and the Standard & Poor's Composite
500 Stock Index (the "S&P 500 Index") for the 15-month period commencing
October 1, 1996 and ending December 31, 1997.
COMPARE CUMULATIVE TOTAL RETURN
AMONG CAREMATRIX CORPORATION
S&P 500 INDEX AND PEER GROUP INDEX
[Tabular Representation of Line Chart]
CAREMATRIX CORP. PEER GROUP INDEX S&P 500 INDEX
10/1/96 100 100 100
12/31/96 63.64 92.44 108.34
3/31/97 89.09 96.36 111.24
6/30/97 119.7 124.76 130.66
9/30/97 123.03 133.35 140.45
12/31/97 139.39 148.56 144.48
ASSUMES $100 INVESTED ON OCTOBER 1, 1996
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 1997
- ------------
(1) Assumes that the value of an investment in shares of the Company's Common
Stock, the S&P 500 Index and the Peer Group was $100 on October 1, 1996.
(2) The Company's Peer Group is defined as Alternative Living Services, Inc.,
Assisted Living Concepts, Inc., Atria Communities, Inc. Emeritus Corp.,
Forum Retirement Partners, L.P., Kapson Senior Quarters, Karrington
Health, Inc. and Sunrise Assisted Living, Inc.
9
<PAGE>
REQUIRED PERFORMANCE GRAPH(1)
The following graph, as required by the Securities Act, compares the
relative performance of the Company's Common Stock (as measured by the price
per share) against the cumulative market-weight return of the Company's Peer
Group (as defined in Note 2 to the Required Performance Graph below) and the
S&P 500 Index for the five-year period commencing December 31, 1992 and ending
December 31, 1997.
COMPARE CUMULATIVE TOTAL RETURN
AMONG CAREMATRIX CORPORATION
S&P 500 INDEX AND PEER GROUP INDEX
[Tabular Representation of Line Chart]
CAREMATRIX CORP. PEER GROUP INDEX S&P 500 INDEX
12/31/92 100 100 100
12/31/93 121.13 390 110.08
12/31/94 52.11 400 111.54
12/31/95 92.96 544.7 153.45
12/31/96 59.15 636.63 188.69
12/31/97 129.58 976.44 251.64
ASSUMES $100 INVESTED IN DECEMBER 31, 1992
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 1997
- ------------
(1) Assumes that the value of an investment in shares of the Company's Common
Stock, the S&P 500 Index and the Peer Group was $100 on December 31, 1992.
(2) The Company's Peer Group is defined as Alternative Living Services, Inc.,
Assisted Living Concepts, Inc., Atria Communities, Inc. Emeritus Corp.,
Forum Retirement Partners, L.P., Kapson Senior Quarters, Karrington
Health, Inc. and Sunrise Assisted Living, Inc.
10
<PAGE>
ITEM 2.
PROPOSAL TO AMEND THE 1996 EQUITY INCENTIVE PLAN
In the opinion of the Board of Directors, the future success of the
Company depends, in large part, on its ability to attract, retain and motivate
key employees with experience and ability. The Company's 1996 Equity Incentive
Plan (the "1996 Plan") currently provides for the award of up to 1,600,000
shares of Common Stock in the form of incentive stock options ("ISOs"),
non-qualified stock options ("NSOs"), restricted stock, performance shares and
stock appreciation rights. Currently, approximately 800 employees of the
Company are eligible to participate in the 1996 Plan. As of April 30, 1998,
options to purchase 1,482,400 shares of Common Stock were outstanding under the
1996 Plan and 986 shares were available for future grant. The closing price of
the Company's Common Stock on April 29, 1998 was $26.875.
In Item 2 of the Notice of Meeting, the Board of Directors proposes to
amend the 1996 Plan in order to increase the number of shares of Common Stock
available for issuance under the 1996 Plan to 2,600,000 shares. The following
is a summary of the material provisions of the 1996 Plan.
Eligibility
All employees, directors and consultants of the Company and any of its
subsidiaries are eligible to participate in the 1996 Plan. The Company
currently has approximately 800 employees, consultants and directors who are
eligible to participate in the 1996 Plan.
Administration
The 1996 Plan will be administered by the Compensation Committee which
determines (i) who shall receive awards from those who are eligible to
participate in the 1996 Plan, (ii) the type of award to be made, (iii) the
number of shares of Common Stock which may be acquired pursuant to the award
and (iv) the specific terms and conditions of each award, including the
purchase price, term, vesting schedule, restrictions on transfer and any other
conditions and limitations applicable to the awards or their exercise. The
Board of Directors, at its discretion, may assume administration of the 1996
Plan.
Each award may be made alone, in addition to, or in relation to any other
award. The terms of each award need not be identical, and the Compensation
Committee need not treat participants uniformly. Except as otherwise provided
by the 1996 Plan or a particular award, any determination with respect to an
award may be made by the Compensation Committee at the time of award or at any
time thereafter. The Compensation Committee determines whether awards are
settled in whole or in part in cash, Common Stock, other securities of the
Company, awards or other property. The Compensation Committee may permit a
participant to defer all or any portion of a payment under the 1996 Plan,
including the crediting of interest on deferred amounts denominated in Common
Stock. Such a deferral may have no effect for purposes of determining the
timing of taxation of payments. In the event of certain corporate events,
including a merger, consolidation, dissolution, liquidation or the sale of
substantially all of the Company's assets, all awards become fully exercisable
and realizable.
The Compensation Committee may amend, modify or terminate any outstanding
award, including substituting therefor another award of the same or a different
type, changing the date of exercise or realization, and converting an ISO to a
NSO, if the participant consents to such action, or if the Compensation
Committee determines that the action would not materially and adversely affect
the participant. Awards may not be made under the 1996 Plan after September 1,
2006, but outstanding awards may extend beyond such date.
Stock Available for Awards
The 1996 Plan currently provides for the award for up to 1,600,000 shares
of Common Stock. The number of shares of Common Stock issuable pursuant to the
1996 Plan may not be changed except by approval of the stockholders. However,
in the event that the Compensation Committee determines that any stock
dividend, extraordinary cash dividend, creation of a class of equity
securities, recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination, exchange of shares, warrants or rights offering to
purchase Common Stock at a price substantially below fair market value, or
other similar transaction affects the Common Stock such that an adjustment is
required to preserve the benefits intended to be made available under the 1996
Plan, the Compensation Committee may adjust equitably the number and kind of
shares of stock or securities in respect of which awards may be made under the
1996 Plan, the number and kind of shares subject to outstanding awards, and the
award, exercise or conversion price with respect to any of the foregoing, and
if considered appropriate, the Compensation Committee may make provision for a
cash payment with respect to an outstanding award. In addition, upon the
adoption of a plan or agreement concerning a change in control, sale of
substantially all the assets, or liquidation or dissolution of
11
<PAGE>
the Company, all awards which are not then fully exercisable or realizable
become so. Common Stock subject to awards which expire or are terminated prior
to exercise or Common Stock which has been forfeited under the 1996 Plan will
be available for future awards under the 1996 Plan. Both treasury shares and
authorized but unissued shares may be used to satisfy awards under the 1996
Plan.
The 1996 Plan may be amended from time to time by the Board of Directors
or terminated in its entirety; however, no amendment may be made without
stockholder approval if such approval is necessary to comply with any
applicable tax or regulatory requirement.
The maximum number of shares of Common Stock that could be awarded to any
employee in any one year is 120,000 shares.
Stock Options
The Compensation Committee may award two types of options: ISOs, which
qualify for special tax treatment under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") and NSOs that do not qualify for special
federal income tax treatment under the Code. The Compensation Committee may
also determine the number of shares to be covered by each option, the option
price therefor, the term of the option, and the other conditions and
limitations applicable to the exercise of the option. As required by the Code,
the option price per share of Common Stock purchasable under an ISO may not be
less than the fair market value of the Common Stock on the date of award. The
option price per share of Common Stock purchasable under a NSO will be
determined by the Compensation Committee and may be less than, equal to or
greater than the fair market value of the Common Stock on the date of award.
The 1996 Plan provides that the option price may not be granted at a price less
than fair market value, with exceptions of (i) discounts providing for an
exercise price in excess of 85% of fair market value which are granted upon
approval of the Committee in lieu of a reasonable amount of salary or cash
bonus and (ii) options to purchase less than 10% of the shares authorized to be
issued under the 1996 Plan. Options may be exercisable for not more than ten
years after the date the option is awarded in the case of ISOs and ten years
and one day after the date the option is awarded in the case of NSO. The
Compensation Committee may at any time accelerate the exercisability of all or
any portion of any option.
For federal income tax purposes, no taxable income results to the optionee
upon the grant of an ISO or upon the issuance of shares to him or her upon the
exercise of the option. Correspondingly, no deduction is allowed to the Company
for federal income tax purposes upon either the grant or the exercise of an
ISO.
If shares acquired upon the exercise of an ISO are not disposed of either
within the two-year period following the date the option is granted or within
the one-year period following the date the shares are transferred to the
optionee pursuant to exercise of the option, the difference between the amount
realized on any disposition thereafter and the option price will be treated as
long-term capital gain or loss to the optionee. If a disposition occurs before
the expiration of the requisite holding periods, then the lower of (i) any
excess of the fair market value of the shares at the time of the exercise of
the option over the option price or (ii) the actual gain realized on
disposition, will be deemed to be compensation to the optionee and will be
taxed at ordinary income rates. In such event, the Company will be entitled to
a corresponding deduction for federal income tax purposes. Any such increase in
the income of the optionee or deduction from the income of the Company
attributable to such disposition is treated as an increase in income or
deduction from income in the taxable year in which the disposition occurs. Any
excess of the amount realized by the optionee on disposition over the fair
market value of the shares at the time of exercise will be treated as capital
gain.
"Alternative minimum taxable income" in excess of the taxpayer's exemption
amount is subject to the alternative minimum tax, which is imposed at graduated
rates of up to 28% on individuals and is payable to the extent it exceeds
regular income tax. The excess of the fair market value on the date of exercise
over the option price of shares acquired upon exercise of an ISO generally
constitutes an item of alternative minimum taxable income for the purpose of
the alternative minimum tax, and the payment of any alternative minimum tax
resulting therefrom will not increase the optionee's basis for the shares
acquired for regular income tax purposes. In addition, if the aggregate fair
market value (determined at the time the option is granted) of the Common Stock
covered by ISOs which are exercisable for the first time by an individual
during a calendar year exceeds $100,000, the amount of the excess will not be
treated as shares acquired through the exercise of an ISO.
Under the Code, a person who is granted a NSO will not have taxable income
at the date of grant; however, an optionee who thereafter exercises such an
option will be deemed to have received compensation income in an amount equal
to the difference between the option price and the fair market value of the
shares on the date of exercise. The optionee's tax basis for such shares will
be increased by the amount which is deemed compensation
12
<PAGE>
income. For the year in which a NSO is exercised, the Company will be entitled
to a deduction in the same amount as the optionee is required to include in his
or her income, provided the Company timely complies with certain reporting
requirements. When the optionee disposes of such shares he or she will
recognize capital gain or loss.
Stock Appreciation Rights
A stock appreciation right ("SAR") entitles the participant to receive an
amount in cash or shares of Common Stock or a combination thereof having a
value equal to (or, if the Compensation Committee shall so determine at the
time of grant, less than) the excess of the fair market value of a share of
Common Stock on the date of exercise over the fair market value of a share of
Common Stock on the date of grant (or over the option price, if the SAR was
granted in tandem with an option) multiplied by the number of shares with
respect to which the SAR is exercised. Subject to the provisions of the 1996
Plan, the Compensation Committee may award SARs in tandem with a Non-Qualified
Stock Option (at or after the award of the option), or alone and unrelated to
an option and determine the terms and conditions applicable thereto, including
the form of payment. SARs granted in tandem with an option terminate to the
extent that the related option is exercised, and the related option terminates
to the extent that the tandem SARs are exercised. Generally, SARs granted in
tandem with an option will be exercisable at such time or times, and only to
the extent that, a related option is exercisable, and shall not be transferable
except to the extent that a related option is transferable.
No income will be recognized by a participant in connection with the grant
of an SAR. When the SAR is exercised or when a participant receives payment in
cancellation of an option, the participant will generally be required to
include as taxable ordinary income in the year of such exercise or payment an
amount equal to the amount of cash received and the fair market value of any
stock received. The Company will generally be entitled to a deduction for
federal income tax purposes at the same time equal to the amount includable as
ordinary income by such participant, provided the Company withholds and deducts
to the extent required by then applicable law.
Performance Shares
A performance share ("Performance Share") entitles a participant to
acquire shares of Common Stock upon the attainment of specified performance
goals. Subject to the provisions of the 1996 Plan, the Compensation Committee
may award Performance Shares and determine the performance goals applicable to
each such award, the number of such shares for each Performance Cycle, the
duration of each Performance Cycle, and all other limitations and conditions
applicable to the awarded Performance Shares. There may be more than one
Performance Cycle in existence at any one time, and the duration of Performance
Cycles may differ from each other. The payment value of each Performance Share
shall be equal to the fair market value of one share of Common Stock on the
date the Performance Share is earned or, in the discretion of the Compensation
Committee, on the date the Compensation Committee determines that the
Performance Share has been earned. The Compensation Committee will determine,
at or after the time of award, whether payment values will be settled in whole
or in part in cash or other property, including Common Stock or awards. All
awards of Performance Shares expressly indicate that they are awarded in lieu
of cash.
No income will be recognized by a recipient in connection with the grant
of Performance Shares. When a recipient receives a Performance Share, the
recipient will generally be required to include as taxable ordinary income in
the year of receipt an amount equal to the amount of cash received and the fair
market value of any Common Stock or other property received. The Company will
generally be entitled to a deduction for federal income tax purposes at the
same time equal to the amount includable as ordinary income by such recipient,
provided the Company timely complies with certain reporting requirements.
Restricted Stock
An award of restricted stock ("Restricted Stock") entitles the participant
to acquire shares of Common Stock for a purchase price per share equal to or
less than par value, subject to such conditions and restrictions as the
Compensation Committee shall determine, including a right of the Company,
during a specified period or periods, to repurchase such shares at their
original purchase price (or to require forfeiture of such shares) upon the
participant's termination of employment. Subject to the provisions of the 1996
Plan, the Compensation Committee may award shares of Restricted Stock and
determine the purchase price therefor, the duration of the restricted period
during which, and the conditions under which, the shares may be forfeited to or
repurchased by the Company, and the other terms and conditions of such awards.
The duration of the restricted period shall be at least one year in the case of
restrictions conditioned upon specified performance levels and at least three
years in the case of restrictions conditioned solely upon the passage of time,
except with respect to shares of Restricted Stock representing not more than
10% of the shares authorized to be issued under the 1996 Plan. The Compensation
Committee may not modify
13
<PAGE>
or waive the restrictions with respect to any Restricted Stock except for
Restricted Stock representing not more than 10% of the shares authorized to be
issued under the 1996 Plan. Shares of Restricted Stock may be issued for no
cash consideration or such minimum consideration as may be required by
applicable law. A participant shall have all the rights of a stockholder with
respect to the Restricted Stock, including voting and dividend rights, subject
to restrictions on transferability and Company repurchase rights or forfeiture
conditions and subject to any other conditions contained in the award.
A recipient of Restricted Stock generally will be subject to tax at
ordinary income rates on the fair market value of the Common Stock at the time
the Common Stock is no longer subject to forfeiture, less any amount paid for
such stock. A recipient who makes an election under Section 83(b) of the Code
within 30 days of the date of issuance of the Restricted Stock, however, will
recognize ordinary income on the date of issuance equal to the fair market
value of the shares of Restricted Stock at that time (measured as if the shares
were unrestricted and could be sold immediately), less any amount paid for such
stock. If the election is made, no taxable income will be recognized when the
shares subject to such election are no longer subject to forfeiture. If the
shares subject to such election are forfeited, the recipient will not be
entitled to any deduction, refund or loss for tax purposes with respect to the
forfeited shares, except that the amount, if any, actually paid for the shares
will be a capital loss. The holding period to determine whether the recipient
has long-term or short-term capital gain or loss begins when the forfeiture
period expires (or upon earlier issuance of the shares, if the recipient
elected immediate recognition of income under Section 83(b) of the Code).
Section 162(m) of the Code
Section 162(m) provides a $1 million limit for deductions of the Company
with respect to compensation of the Company's Chief Executive Officer and four
other most highly compensated executive officers. Stock options (whether
qualified or non-qualified) will be excluded from this limitation provided that
the exercise price of the option is equal to the fair market value of the
Company's shares subject to the option on the date of grant, and certain other
requirements, relating to the composition of the Compensation Committee and
shareholder approval of the 1996 Plan, are met. Further, the compensation
element of grants of restricted stock is not excluded from this limitation.
Therefore, it is possible that at a future point in time the Company's
deduction for executive compensation could be subject to the $1 million
limitation.
Future awards under the 1996 Plan are subject to the discretion of the
Compensation Committee. Therefore, it is impossible to indicate the specific
awards that will be granted to or benefits that will be received by any
individual participant or any group of participants under the 1996 Plan.
Board Recommendation
The Board of Directors believes that approval of the amendment to the 1996
Plan is in the best interests of the Company and its shareholders and
recommends a vote "FOR" the proposals contained in Item 2 of the Notice of
Meeting.
CERTAIN TRANSACTIONS
As used herein, "Chancellor" or a "Chancellor Entity" is Chancellor Senior
Housing Group, Inc. or a company in which Abraham D. Gosman has an ownership
interest in excess of 90%. The Company provides and will continue to provide
development, management and other services in connection with the establishment
of assisted living facilities, skilled nursing facilities and other health care
facilities to or for the benefit of Chancellor, which will be the owner of the
new facilities. In addition to Mr. Gosman, certain members of the Company's
senior management also have an ownership interest in Chancellor.
On September 1, 1996, the Company and a Chancellor Entity entered into a
Development and Turnkey Services Agreement (the "Global Services Agreement") in
connection with the development and management of assisted living, supportive
independent living and skilled nursing/rehabilitation facilities by the Company
for certain existing and future Chancellor Entities. Upon the completion of all
necessary due diligence and satisfaction of all material contingencies (with
the exception of the receipt of final, non-appealable zoning approvals for the
facility to be developed), the parties expect to enter into a development
agreement, the form of which is attached to the Global Services Agreement (the
"Global Development Agreement"), prior to the commencement of construction of
the facility. The Global Development Agreement provides for a development fee
that the Company expects will range between 4% and 7% of total project costs,
depending on the individual transaction and determined on the date of signing.
At least six months prior to completion of the construction of a facility, and
pursuant to the Global Development Agreement, the parties will enter into a
management agreement, the form of which is attached to the Global Development
Agreement (the "Global Management Agreement"), pursuant to which the Company
earns and expects to earn a
14
<PAGE>
management fee equal to approximately 5% of gross revenues. Generally, each
Global Management Agreement has and will have a 10 year term. Each Global
Management Agreement is expected to contain an option granting the Company the
right to lease each facility at a fair market value rental to be a negotiated
percentage of total project costs determined on the date of execution (the
"Lease Option"). The Lease Option generally will have an initial 10 year term
and may also include three to four five-year fair market value renewal options.
The Lease Option will contain an option to purchase the facility at a price
equal to the lesser of (a) the then fair market value of the facility minus the
component of the fair market value of the facility attributable to any capital
additions paid for by the Company and (b) the total project cost of the
facility multiplied by the sum of 1 plus 50% of a fraction, the numerator of
which is the consumer price index in effect on the purchase option date and the
denominator of which is the consumer price index in effect on the commencement
date of the lease. The Company also expects that, to the extent solely
development or solely management opportunities present themselves with such
Chancellor Entities, it will utilize the Global Development Agreement or the
Global Management Agreement on a stand alone basis.
Between March 1997 and December 1997, the Company entered into Global
Development Agreements with 19 separate Chancellor Entities with respect to the
development of assisted living facilities located in Connecticut (Darien,
Easton, Ridgefield and Westport), Florida (Altamonte Springs, Bonita Springs,
Boynton Beach, Clearwater, Deerfield Beach, Jensen Beach, Lauderhill, Naples,
Plantation and Tamarac), Georgia (Atlanta and Roswell), Indiana (Merrillville),
Maine (Cape Elizabeth and Saco), Maryland (Ellicott City and Greenbelt),
Massachusetts (East Longmeadow), New Jersey (Livingston, Middletown, Pennington
and Watchung), New York (Bayport, Dix Hills, Great Neck, Islandia and Upper
Nyack), North Carolina (Durham and Pineville) and Pennsylvania (Philadelphia
and Upper Providence). For the year ended December 31, 1997, the Company
recognized approximately $11.8 million in development fee revenue from
development agreements with Chancellor Entities.
Between March 1997 and December 1997, the Company entered into Global
Management Agreements with 16 separate Chancellor Entities for the management
of facilities located in Connecticut (Easton and Ridgefield), Florida (Bonita
Springs, Boynton Beach, Deerfield Beach, Jensen Beach and Naples), Georgia
(Roswell), Indiana (Merrillville), Maryland (Ellicott City), New Jersey (Park
Ridge and Princeton), New York (Great Neck), Nevada (Las Vegas), North Carolina
(Durham and Pineville), Pennsylvania (Philadelphia) and Texas (Houston). For
the year ended December 31, 1997, the Company recognized approximately $4.8
million in management fee revenue resulting from various management services
performed for Chancellor Entities.
On January 1, 1997, pursuant to an Assignment Agreement, a Chancellor
Entity assigned to the Company the Global Management Agreement relating to a
facility located in Ridgefield, Connecticut.
In connection with a previously negotiated financing arrangement among the
Company, Chancellor and Health Care REIT, Inc., the Company issued to Health
Care REIT, Inc. two warrants, one dated August 22, 1997 to purchase an
aggregate of 11,131 shares of Common Stock at an exercise price of $16.55 per
share, and one dated September 18, 1997 to purchase an aggregate of 3,677
shares of Common Stock at an exercise price of $16.55 per share. Both of such
warrants were immediately exercisable.
On June 2, 1997, the Company entered into a lease with Chancellor with
respect to the property located in Needham, Massachusetts. The lease has an
initial term of 10 year and three 5-year options. The rent during the initial
term is equal to the greater of (a) Chancellor's debt service or (b) $169,214.
Rent during the extension terms equals the greater of (i) Chancellor's debt
service, (ii) fair market rental value or (iii) the rent in effect during the
immediately preceding period.
In July 1997, the Company entered into a management/lease contract with a
Chancellor Entity for a senior living facility in Palm Beach, Florida. Under
the terms of the agreement, the Company is not required to make a lease payment
until the facility achieves certain financial performance measures. No lease
payments were made in 1997.
On August 20, 1997, the Company entered into a lease with a Chancellor
Entity with respect to the property located in Dedham, Massachusetts. The lease
has an initial term of 10 year and three 5-year options. The rent during the
initial term is equal to Chancellor's debt service. Rent during the extension
terms equals the greater of (i) Chancellor's debt service, (ii) fair market
rental value or (iii) the rent in effect during the immediately preceding
period. The Company had been managing the facility prior to August 1997.
During 1997, the Company entered into two additional leases with
Chancellor Entities. The lease terms are generally for 15 year periods plus
renewal options. The Company had been managing one of these facilities. In
connection with certain of these leases, the Company paid $1.8 million to a
Chancellor Entity for the lease rights and paid $3.8 million to another
Chancellor Entity as a lease deposit.
15
<PAGE>
During 1997, Chancellor reimbursed the Company for services provided by
certain of the Company's executive officers and other employees in the amount
of approximately $925,000 in connection with the development of projects by the
Company and Chancellor. The value of such services was determined based upon
the commitment of time by the applicable employee to Chancellor projects
relative to such employee's annual base salary paid by the Company.
In 1997, the Company purchased from a Chancellor Entity, for $2.1 million,
a subordinated loan related to a facility that it managed for another
Chancellor Entity. The loan has a face value of $2.4 million, bears interest at
8.5% and matures November 2024. Payment of accrued interest on the note is
subordinated to the facility achieving certain financial performance measures.
The Company also subleases a portion of its principal office space in
Needham, Massachusetts to Meditrust, a publicly traded real estate investment
trust of which Abraham D. Gosman is the Chairman of the Board and Chief
Executive Officer, for annual rental payments equal to $179,256.
In April 1997, the Company entered into an agreement with PhyMatrix Corp.
("PhyMatrix") relating to the reimbursement of any fees or expenses incurred in
connection with the utilization of the services or property of the respective
companies. Abraham D. Gosman is the Chairman and Chief Executive Officer of
PhyMatrix and is also the beneficial owner of approximately 24.6% of the
outstanding shares of PhyMatrix common stock.
It is the general policy of the Company not to enter into any transaction,
or amend in a manner adverse to the Company any existing transaction, in which
an affiliate of the Company has a material interest, unless a majority of the
disinterested directors approve the terms thereof.
16
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1998 (except where
otherwise indicated), certain information regarding the beneficial ownership of
shares of Common Stock (i) by each person known by the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, (ii) by each
director and each director nominee, (iii) by each of the Named Executive
Officers of the Company, and (iv) by all current directors and executive
officers as a group. Except as indicated in the footnotes, all of such shares
of Common Stock set forth in the following table are owned directly, and the
indicated person has sole voting and investment power with respect to all
Common Stock shown as beneficially owned by such person:
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned(1)
----------------------------
Name of Beneficial Owner Number Percentage(2)
- ------------------------------------------------- ----------- --------------
<S> <C> <C>
Abraham D. Gosman(3) ............................ 7,739,515 43.8%
Andrew D. Gosman(4) ............................. 1,527,309 8.7%
Michael M. Gosman(4) ............................ 1,527,309 8.7%
FMR Corp.(5) .................................... 2,096,606 11.9%
Marsh & McLennan Companies, Inc.(6) ............. 1,980,882 11.3%
Robert M. Kaufman(7) ............................ 266,666 1.5%
James M. Clary, III(8) .......................... 267,166 1.5%
Michael J. Zaccaro .............................. 148,010 *
Harold E. Nash, III(9) .......................... 23,733 *
Michael J. Doyle(10) ............................ 65,860 *
James F. Sherman(11) ............................ 23,000 *
Marc H. Benson(12) .............................. 8,750 *
Donald J. Amaral(13) ............................ 400 *
H. Loy Anderson, Jr.(13) ........................ 510 *
Bedros Baharian(13) ............................. 20,400 *
Robert Cataldo(13) .............................. 400 *
Stephen E. Ronai(13) ............................ 1,400 *
All directors and executive officers as a group
(13 persons including certain of the above-named
individuals) ................................... 8,476,950 47.5%
</TABLE>
- ------------
* Less than 1%
(1) Includes shares which may be acquired within 60 days of March 31, 1998
pursuant to the exercise or conversion of outstanding options, warrants
and convertible securities of the Company.
(2) Percentages shown are based on 17,592,839 shares of Common Stock
outstanding as of April 30, 1998, plus, as to each individual and group
listed, the number of shares of Common Stock deemed to be owned by such
holder pursuant to Rule 13d-3 under the Exchange Act, assuming exercise or
conversion of outstanding options, warrants and convertible securities of
the Company held by such holder which are exercisable or convertible
within 60 days from March 31, 1998, after anti-dilution adjustments in
respect of such holders.
(3) Consists of (i) 4,578,503 shares of Common Stock held of record by
Chancellor Partners Limited Partnership I ("CPLP I"), (ii) 3,069,250
shares of Common Stock held of record by Chancellor Partners Limited
Partnership II ("CPLP II"), and (iii) a warrant to purchase 91,761 shares
of Common Stock, which is currently exercisable. Mr. Gosman is the sole
shareholder of CLP, Inc., which is the sole general partner of each of
CPLP I and CPLP II. As general partner of CPLP I, CLP, Inc. has sole
voting and dispositive power over the shares held by such partnership. As
general partner of CPLP II, CLP, Inc. has sole dispositive power over the
shares held by such partnership, but CPLP II's sole limited partner,
Chancellor Partners Business Trust (of which Andrew and Michael Gosman are
trustees and shareholders) has sole dispositive power over such shares.
Mr. Gosman's business address is 197 First Avenue, Needham, MA 02194.
17
<PAGE>
(4) CPLP II, the sole limited partner of which is Chancellor Partners Business
Trust ("CPBT"), is the record owner of 3,069,250 shares of Common Stock.
Pursuant to the terms of the partnership agreement of CPLP II, CPBT has
sole voting power over all of such shares. Pursuant to the terms of CPBT's
declaration of trust, each of Andrew D. Gosman and Michael M. Gosman,
which are CPBT's sole trustees and shareholders, have voting power with
respect to one-half of the shares held by CPLP II, or 1,527,309 shares.
Andrew D. Gosman and Michael M. Gosman's business address is 197 First
Avenue, Needham, MA 02194.
(5) Fidelity Management & Research Company ("Fidelity"), 82 Devonshire Street,
Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR Corp. and an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940, is the beneficial owner of 2,088,506 or 11.9% of the Common
Stock outstanding as a result of acting as investment adviser to various
investment companies registered under Section 8 of the Investment Company
Act of 1940. The number of shares of Common Stock owned by the investment
companies at December 31, 1997 include 93,506 shares of common stock
resulting from the assumed conversion of $2,700,000 principal amount of
CareMatrix 6.25% Convertible Subordinated Notes due 2004. The ownership of
one investment company, Fidelity Magellan Fund, amounted to 899,100 shares
or 5.1% of the common stock outstanding. Fidelity Magellan Fund has its
principal business office at 82 Devonshire Street, Boston, Massachusetts
02109. Edward C. Johnson 3d ("Johnson") and FMR Corp., through its control
of Fidelity and the funds, each has sole power to dispose of the 2,088,506
shares owned by the Funds. Neither FMR Corp. nor Johnson, has the sole
power to vote or direct the voting of the shares owned directly by the
Fidelity funds, which power resides with the Funds' Boards of Trustees.
Fidelity carries out the voting of the shares under written guidelines
established by the Funds' Board of Trustees. FMR Corp.'s address is 82
Devonshire Street, Boston, MA 02109. The foregoing information is based
upon Amendment No. 1 to Schedule 13G filed by FMR Corp. et al. with the
Commission on February 2, 1998.
(6) Putnam Investments, Inc. ("PI"), which is a wholly-owned subsidiary of
Marsh & McLennan Companies, Inc. ("M&MC"), wholly owns two registered
investment advisers: Putnam Investment Management, Inc. ("PIM"), which is
the investment adviser to the Putnam family of mutual funds (including the
Putnam New Opportunities Fund ("PNOF")) and The Putnam Advisory Company,
Inc. ("PAC"), which is the investment adviser to Putnam's institutional
clients. Both subsidiaries have dispository power over the shares as
investment managers, but each of the mutual fund's trustees have voting
power over the shares held by each fund, and PAC has shared voting power
over the shares held by the institutional clients. M&MC's address is One
Post Office Square, Boston, MA 02109. The foregoing is based upon the
Schedule 13G, as amended, filed with the Commission on January 22, 1998 by
M&MC, PI, PIM, PAC and PNOF.
(7) Includes 66,666 shares of Common Stock which Mr. Kaufman has the right to
acquire upon the exercise of stock options.
(8) Includes (i) 200,500 shares of Common Stock held of record by Mr. Clary's
wife, who has sole voting and investment power over such shares, and (ii)
66,666 shares of Common Stock which Mr. Clary has the right to acquire
upon the exercise of stock options.
(9) Includes 23,333 shares of Common Stock which Mr. Nash has the right to
acquire upon the exercise of stock options.
(10) Information is based upon stock option information maintained by the
Company and upon Mr. Doyle's Form 4 for May 1997, the last report filed by
Mr. Doyle pursuant to Section 16 of the Exchange Act following his
resignation. Consists of (i) 15,194 shares held by Mr. Doyle directly,
(ii) 7,136 shares held by his wife, (iii) an aggregated of 8,332 shares
held in trust for his son and daughter and (iv) 35,198 upon the exercise
of immediately exercisable stock options.
(11) Information is based upon Mr. Sherman's Form 4 for December 1997, the last
report filed by Mr. Sherman pursuant to Section 16 of the Exchange Act
following his resignation effective December 31, 1997.
(12) Includes 8,750 shares of Common Stock which Mr. Benson has the right to
acquire upon the exercise of stock options.
(13) Includes 400 shares of Common Stock which each of Rev. Baharian and
Messrs. Amaral, Anderson, Cataldo and Ronai has the right to acquire upon
the exercise of stock options.
18
<PAGE>
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the next annual
meeting of stockholders must be received by the Company at its principal
executive offices by January 2, 1999 for inclusion in the proxy statement and
form of proxy relating to that meeting and must comply with the applicable
requirements of the federal securities laws.
ANNUAL REPORT AND INDEPENDENT ACCOUNTANTS
The Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1997, including financial statements and the report of Coopers &
Lybrand LLP ("Coopers & Lybrand") thereon, is being mailed herewith to each of
the Company's shareholders of record at the close of business on April 30, 1998.
The Board of Directors has selected Coopers & Lybrand as the Company's
independent accountants for the current fiscal year. Representatives of Coopers
& Lybrand are expected to be present at the Annual Meeting where they will have
the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
OTHER MATTERS
The Board of Directors knows of no business which will be presented for
consideration at the Annual Meeting other than as shown above. However, if any
such other business should come before the Annual Meeting, it is the intention
of the persons named in the enclosed proxy to vote the proxies in respect of
any such business in accordance with their best judgment.
The cost of preparing, assembling and mailing this proxy material will be
borne by the Company. The Company may solicit proxies otherwise than by use of
the mail, in that certain officers and regular employees of the Company,
without additional compensation, may use their personal efforts, by telephone
or otherwise, to obtain proxies. Such assistance may take the form of personal,
telephonic or written solicitation or any combination thereof. The Company will
also request persons, firms and corporations holding shares in their names, or
in the names of their nominees, which shares are beneficially owned by others,
to send this proxy material to and obtain proxies from such beneficial owners
and will reimburse such holders for their reasonable expenses in doing so.
By Order of the Board of Directors,
James M. Clary, III
Secretary
May 13, 1998
19
<PAGE>
PROXY PROXY
CAREMATRIX CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 22, 1998
The undersigned, having received the Notice of Annual Meeting of Stockholders
and the Board of Directors' Proxy Statement (the "Proxy Statement"), hereby
appoint(s) Abraham D. Gosman, Robert M. Kaufman and James M. Clary, III, and
each of them, Proxies of the undersigned (with full power of substitution) to
attend the Annual Meeting of Stockholders of CareMatrix Corporation to be held
June 22, 1998, and all adjournments thereof (the "Meeting"), and there to vote
all shares of Common Stock of CareMatrix Corporation that the undersigned would
be entitled to vote, if personally present, in regard to all matters which may
come before the meeting.
The undersigned hereby confer(s) upon the Proxies, and each of them,
discretionary authority (i) to consider and act upon such business, matters or
proposals other than the business set forth below as may properly come before
the Meeting and (ii) with respect to the election of directors in the event
that any of the nominees is unable or unwilling to serve. The Proxy when
properly executed will be voted in the manner specified herein. If no
specification is made, the Proxies intend to vote FOR all nominees for director
and FOR the amendment to the Company's 1996 Equity Incentive Plan.
Please mark vote as in this example. [X]
1. For the election of all nominees listed below (except as otherwise
indicated).
Nominees: Abraham D. Gosman, Andrew D. Gosman, Michael M. Gosman,
Donald J. Amaral, H. Loy Anderson, Jr., Rev. Bedros Baharian, Robert Cataldo
and Stephen E. Ronai
[ ] FOR all nominees [ ] WITHHOLD from all nominees
[ ] FOR all nominees, except those listed on the line below.
- --------------------------------------------------------------------------------
(CONTINUED ON REVERSE SIDE)
<PAGE>
2. For the amendment of the Company's 1996 Equity Incentive Plan.
[ ] FOR the amendment [ ] AGAINST the amendment [ ] ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Mark here for address change and note below. [ ]
Signature ------------------------------------------ Date ---------
Signature ------------------------------------------ Date ---------
In signing, please write name(s) exactly as appearing in the imprint on this
card. For shares held jointly, each joint owner should sign. If signing as
executor, or in any other representative capacity, or as an officer of a
corporation, please indicate your full title as such.
CAREMATRIX CORPORATION
1996 EQUITY INCENTIVE PLAN
(as amended April 23, 1998)
Section 1. Purpose and Duration
1.1 Purposes. The purposes of the Plan are to attract, retain and
motivate employees and consultants of the Company, its Parent (if any), and any
present or future Subsidiaries to enable them to participate in the growth of
the Company by providing for or increasing the proprietary interests of such
persons in the Company.
1.2 Effective Date. The Plan is effective as of its adoption by the
Board, subject to approval by the stockholders of the Company. Prior to such
stockholder approval, the Board may grant Awards conditioned on stockholder
approval. If such stockholder approval is not obtained at or before the first
annual meeting of stockholders to occur after the adoption of the Plan by the
Board but in any event within twelve months after adoption by the Board, the
Plan and any Awards made thereunder shall be null and void.
1.3 Expiration Date. The Plan shall expire on September 1, 2006. In no
event shall any Awards be made under the Plan after the expiration of the Plan,
but Awards previously granted may extend beyond expiration of the Plan.
Section 2. Definitions
As used in the Plan, the following capitalized words shall have the
meanings indicated below:
"1934 Act" means the Securities Exchange Act of 1934, as amended.
Reference to a specific section of the 1934 Act or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.
"Award" means, individually or collectively, a grant under the Plan of
Options, SARs, Performance Shares, Restricted Stock or Stock Units.
"Award Agreement" means the written agreement setting forth the terms and
provisions applicable to each Award granted under the Plan.
"Board" means the Board of Directors of the Company.
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended. Reference to
a specific section of the Code or regulation thereunder shall include such
section or regulation, any valid regulation promulgated under such section, and
any comparable provision of any future legislation or regulation amending,
supplementing or superseding such section or regulation.
"Committee" means any committee of the Board appointed by the Board to
administer the Plan in accordance with Section 3.1.
"Company" means CareMatrix Corporation, a Delaware corporation, or any
successor thereto.
"Director" means any individual who is a member of the Board.
"Fair Market Value" means, with respect to a Share, the fair market
thereof as of the relevant date of determination, as determined in accordance
with a valuation methodology approved by the Board in good faith (or in the
absence of such determination, the closing price of the Shares as reported by
The Nasdaq Stock Market's National Market or any successor thereto, on the
applicable date of determination (or if such date shall not be a trading day, on
the last trading day previous thereto)) but in no event less than, in the case
of newly issued stock, the par value per Share.
"Grant Date" means the effective date of an Award as specified by the
Board and set forth in the applicable Award Agreement.
"Incentive Stock Option" or "ISO" means an option to purchase Shares
awarded to a Participant under Section 6 of the Plan that is intended to meet
the requirements of Section 422 of the Code.
"Nonqualified Stock Option" or "NQO" means an option to purchase Shares
awarded to a Participant under Section 6 of the Plan that is not intended to be
an ISO.
"Option" means an ISO or an NQO.
"Parent" means a "parent corporation" as that term is defined in Section
424 of the Code.
"Participant" means an individual eligible to receive Awards under the
Plan who has been selected by the Board to receive an Award under the Plan.
"Performance Cycle" means the period of time selected by the Board during
which performance is measured for the purpose of determining the extent to which
an Award of Performance Shares has been earned. More than one Performance Cycle
may
-2-
<PAGE>
be in progress at any one time and the duration of Performance Cycles may differ
from each other.
"Performance Share" means a Share awarded to a Participant under Section
8 of the Plan that entitles the Participant to acquire Shares upon the
attainment of specified performance goals.
"Plan" means the Equity Incentive Plan set forth in this document and as
hereafter amended from time to time in accordance with Section 13.
"Restricted Period" means the period of time selected by the Board during
which Shares of Restricted Stock are subject to forfeiture and/or restrictions
on transferability.
"Restricted Stock" means Shares awarded to a Participant under Section 9
of the Plan pursuant to an Award that entitles the Participant to acquire Shares
for a purchase price (which may be zero), subject to such conditions, including
a Company right during a specified period or periods to repurchase such Shares
at their original purchase price (or to require forfeiture of such Shares if the
purchase price was zero) upon the Participant's termination of employment.
"SAR" or "Stock Appreciation Right" means an Award that is designated as
an SAR pursuant to Section 7 of the Plan, granted alone or in connection with a
related Award, entitling a Participant to receive an amount in cash or Shares or
a combination thereof having a value equal to (or if the Board shall so
determine at time of grant, less than) the excess of the Fair Market Value of a
Share on the date of exercise over the Fair Market Value of a Share on the Grant
Date (or over the Option exercise price, if the Stock Appreciation Right was
granted in tandem with an Option) multiplied by the number of Shares with
respect to which the Stock Appreciation Right is exercised.
"Shares" means shares of the Company's common stock, par value $0.01
per share.
"Stock Unit" means an Award of a Share or a unit valued in whole or in
part by reference to, or otherwise based on, the value of a Share, granted to a
Participant under Section 10 of the Plan.
"Subsidiary" means a "subsidiary corporation" as that term is defined in
Section 424 of the Code.
Section 3. Administration of the Plan
3.1 The Board. The Plan shall be administered by the Board. The Board
may, in its discretion, delegate some or all of its powers with respect to the
Plan to the
-3-
<PAGE>
Committee, in which event all references in the Plan (as appropriate) shall be
deemed to refer to the Committee. The Committee, if one is appointed, shall
consist of two or more Non-Employee Directors (as defined in the 1934 Act).
3.2 Authority of the Board. The Board shall have the authority to adopt,
alter and repeal such administrative rules, guidelines and practices governing
the operation of the Plan as it shall consider advisable from time to time, to
interpret the provisions of the Plan and any Award, and to decide all disputes
arising in connection with the Plan. The Board's decisions and interpretations
shall be final and binding.
Section 4. Eligibility
4.1 Participants. The persons eligible to receive Awards under the Plan
shall be all executive officers of the Company, its Parent (if any), and any
Subsidiaries and other employees, consultants and advisers who, in the opinion
of the Board, are in a position to make a contribution to the success of the
Company, its Parent (if any), and any Subsidiaries. Directors, including
directors who are not employees, of the Company, its Parent (if any), and any
Subsidiaries, shall be eligible to receive Awards under the Plan.
Section 5. Stock Available for Awards
5.1 Number of Shares. Awards may be made under the Plan for up to One
Million Six Hundred Thousand (1,600,000) Shares. Shares issued under the Plan
may consist in whole or in part of authorized but unissued Shares or treasury
Shares.
5.2 Lapsed, Forfeited or Expired Awards. If any Award in respect of
Shares expires or is terminated before exercise or is forfeited for any reason,
the Shares subject to such Award, to the extent of such expiration, termination,
or forfeiture, shall again be available for award under the Plan.
5.3 Maximum Number of Shares to a Single Participant in any Calendar
Year. In no event shall any Participant receive in any calendar year Awards
under the Plan and any other grants for more than One Hundred Twenty Thousand
(120,000) Shares.
-4-
<PAGE>
Section 6 Stock Options
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
the Board may award Options and determine the number of shares to be covered by
each
-5-
<PAGE>
Option, the exercise price therefor, the term of the Option, and any other
conditions and limitations applicable to the exercise of the Option. The Board
may grant ISOs, NQOs or a combination thereof.
6.2 Exercise Price. Subject to the provisions of this Section 6, the
exercise price for each Option shall be determined by the Board in its sole
discretion, provided that Options shall not be granted with an exercise price
less than one hundred percent (100%) of the Fair Market Value per Share on the
Grant Date, except for (a) discounts providing for an exercise price in excess
of eighty-five percent (85%) of such Fair Market Value which the Committee
determines are granted in lieu of a reasonable amount of salary or cash bonus
and (b) Options to purchase less than ten percent (10%) of the Shares authorized
to be issued under the Plan.
6.3 Restrictions on Option Transferability and Exercisability. No Option
shall be transferable by the Participant other than by will or the laws of
descent and distribution, and all Options shall be exercisable, during the
Participant's lifetime, only by the Participant; provided, however, that the
Board may provide that an NQO is transferable by the Participant and exercisable
by persons other than the Participant upon such terms and conditions as the
Board shall determine.
6.4 Certain Additional Provisions for Incentive Stock Options
6.4.1 Exercise Price. In the case of an ISO, the exercise price shall be
not less than one hundred percent (100%) of the Fair Market Value per Share on
the Grant Date; provided, however, that if on the Grant Date the Participant
(together with persons whose stock ownership is attributed to the Participant
pursuant to Section 424(d) of the Code) owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company, its Parent (if any) or any Subsidiaries, the exercise price shall be
not less than one hundred and ten percent (110%) of the Fair Market Value of a
Share on the Grant Date.
6.4.2 Exercisability. Subject to Section 12.3, the aggregate Fair Market
Value (determined on the Grant Date(s)) of the Shares with respect to which ISOs
are exercisable for the first time by any Participant during any calendar year
(under all plans of the Company, its Parent (if any) and any Subsidiaries) shall
not exceed $100,000.
6.4.3 Eligibility. ISOs may be granted only to persons who are employees
of the Company, its Parent (if any) or any Subsidiaries on the Grant Date.
6.4.4 Expiration. No ISO may be exercised after the expiration of one day
less than ten (10) years from the Grant Date; provided, however, that if the
Option is granted to a Participant who, together with persons whose stock
ownership is attributed to the Participant pursuant to Section 424(d) of the
Code, owns stock possessing more than ten
-6-
<PAGE>
percent (10%) of the total combined voting power of all classes of stock of the
Company, its Parent (if any) or any Subsidiaries, the ISO may not be exercised
after the expiration of one day less than five (5) years from the Grant Date.
6.4.5 Compliance with Section 422 of the Code. The terms and conditions
of ISOs shall be subject to and comply with Section 422 of the Code or any
successor provision.
6.4.6 Notice to Company of Disqualifying Disposition. Each Participant
who receives an ISO shall notify the Company in writing immediately after the
Participant makes a Disqualifying Disposition of any Shares received pursuant to
the exercise of an ISO. The term "Disqualifying Disposition" means any
disposition (including any sale) of Shares before the later of (a) two years
after the Participant was granted the ISO under which he acquired such Shares,
or (b) one year after the Participant acquired such Shares by exercising the
ISO.
6.4.7 Substitute Options. Notwithstanding the provisions of Section 6.4.1,
in the event that the Company, its Parent (if any) or any Subsidiary consummates
a transaction described in Section 424(a) of the Code (relating to the
acquisition of property or stock from an unrelated corporation), individuals who
become employees or consultants of the Company, its Parent (if any) or any
Subsidiary on account of such transaction may be granted ISOs in substitution
for options granted by their former employer. The Board, in its sole discretion
and consistent with Section 424(a) of the Code, shall determine the exercise
price of such substitute Options.
6.5 NQO Presumption. Options granted pursuant to the Plan shall be
presumed to be NQOs unless expressly designated ISOs.
Section 7 Stock Appreciation Rights
7.1 Grant of SARs. Subject to the terms and provisions of the Plan, the
Board may award SARs in tandem with another Award (at or after the Grant Date of
the other Award), or alone and unrelated to another Award, and may determine the
terms and conditions applicable thereto, including the form of payment.
7.2 Termination of SARs. SARs granted in tandem with an ISO shall
terminate to the extent that the related ISO is exercised, and the related ISO
shall terminate to the extent that the tandem SARs are exercised.
-7-
<PAGE>
Section 8 Performance Shares
8.1 Grant of Performance Shares. The Board may award Performance Shares
to Participants and determine the performance goals applicable to each such
Award, the number of Shares for each Performance Cycle, the duration of each
Performance Cycle and all other limitations and conditions applicable to the
awarded Performance Shares. The payment value of each Performance Share shall be
equal to the Fair Market Value of one Share on the date the Performance Share is
earned or, in the discretion of the Board, on the date the Board determines that
the Performance Share has been earned. The vote awarding Performance Shares
shall expressly indicate that they are awarded in lieu of cash.
8.2 Adjustment of Performance Goals. Except as provided in an Award,
during any Performance Cycle, the Board may adjust the performance goals for
such Performance Cycle as it deems equitable in recognition of unusual or
non-recurring events affecting the Company, changes in applicable tax laws or
accounting principles, or such other factors as the Board shall determine.
8.3 Written Certification. As soon as practical after the end of a
Performance Cycle, the Board shall certify in writing the extent to which the
performance goals applicable to each Participant for the Performance Cycle were
achieved or exceeded and the number of Performance Shares which have been earned
on the basis of performance in relation to the established performance goals.
Section 9 Restricted Stock
9.1 Grant of Restricted Stock. The Board may award Shares of Restricted
Stock and determine the purchase price, if any, therefor, the duration of the
Restricted Period and the conditions under which the Shares may be forfeited to
or repurchased by the Company and the other terms and conditions of such Awards.
The duration of the Restricted Period shall be at least one year in the case of
restrictions conditioned upon specified performance levels and at least three
years in the case of restrictions conditioned solely upon the passage of time,
except with respect to Shares of Restricted Stock representing not more than ten
percent (10%) of the Shares authorized to be issued under the Plan. The Board
may not modify or waive the restrictions with respect to Restricted Stock except
for Restricted Stock representing not more than ten percent (10%) of the Shares
authorized to be issued under the Plan. Shares of Restricted Stock may be issued
for no cash consideration or such minimum consideration as may be required by
applicable law.
9.2 Transferability. Shares of Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as permitted by
the Board, during the Restricted Period.
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9.3 Evidence of Award. Shares of Restricted Stock shall be evidenced in
such manner as the Board may determine. Any certificates issued in respect of
Shares of Restricted Stock shall be registered in the name of the Participant
and unless otherwise determined by the Board, deposited by the Participant,
together with a stock power endorsed in blank, with the Company. At the
expiration of the Restricted Period, the Company shall deliver such certificates
and stock power to the Participant.
9.4 Shareholder Rights. A Participant shall have all the rights of a
shareholder with respect to Restricted Stock awarded, including voting and
dividend rights, unless otherwise provided in the Award Agreement.
Section 10. Stock Units
10.1 Grant of Stock Units. Subject to the terms and provisions of the
Plan, the Board may award Stock Units subject to such terms, restrictions,
conditions, performance criteria, vesting requirements and payment rules as the
Board shall determine.
10.2 Consideration. Shares awarded in connection with a Stock Unit shall
be issued for no cash consideration or such minimum consideration as may be
required by applicable law.
Section 11 Other Awards
11.1 Grant of Other Awards. The Board shall have the authority to specify
the terms and provisions of other forms of equity-based or equity-related Awards
not described above which the Board determines to be consistent with the purpose
of the Plan and the interests of the Company, which Awards may provide for cash
payments based in whole or in part on the value or future value of Shares, for
the acquisition or future acquisition of Shares, or any combination thereof.
Other Awards may also include cash payments (including the cash payment of
dividend equivalents) under the Plan which may be based on one or more criteria
determined by the Board that are unrelated to the value of the Shares and that
may be granted in tandem with, or independent of, other Awards under the Plan.
Section 12 General Provisions Applicable to Awards
12.1 Legal and Regulatory Matters. The delivery of Shares shall be
subject to compliance with (i) applicable federal and state laws and
regulations, (ii) the listing requirements of a stock exchange, if the
outstanding Shares are at the time listed on any such exchange, and (iii) the
Company's counsel's approval of all other legal matters in
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connection with the issuance and delivery of such Shares. If the sale of Shares
has not been registered under the Securities Act of 1933, as amended, the
Company may require, as a condition to receipt of the Shares, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act and may require that the certificates
evidencing such Shares bear an appropriate legend restricting transfer.
12.2 Written Award Agreement. The terms and provisions of an Award shall
be set forth in a written Award Agreement approved by the Board and delivered or
made available to the Participant as soon as practicable following the Grant
Date. Where the Award is an Option Award, the Award Agreement shall specify
whether the Option is intended to be an ISO or a NQO.
12.3 Determination of Restrictions on the Award. The vesting,
exercisability, payment and other restrictions applicable to an Award (which may
include, without limitation, restrictions on transferability or provision for
mandatory resale to the Company) shall be determined by the Board and set forth
in the applicable Award Agreement. Notwithstanding the foregoing, the Board may
accelerate (i) the vesting or payment of any Award (including an ISO), (ii) the
lapse of restrictions on any Award (including an Award of Restricted Stock) or
(iii) the date on which any Option or SAR first becomes exercisable.
12.4 Mergers, etc. Notwithstanding any other provision of the Plan, in
the event of a consolidation or merger in which the Company is not the surviving
corporation or which results in the acquisition of substantially all the
Company's outstanding shares by a single person or entity or by a group of
persons and/or entities acting in concert, or in the event of the sale or
transfer of substantially all the Company's assets, then if the Board so
determines, all outstanding Awards shall terminate, provided that at least 20
days prior to the effective date of any such merger, consolidation or sale of
assets, the Board shall either (i) make all outstanding Awards exercisable
immediately prior to the consummation of such merger, consolidation or sale of
assets or (ii) if there is a surviving or acquiring corporation, arrange,
subject to consummation of the merger, consolidation or sale of assets, to have
that corporation or an affiliate of that corporation assume outstanding Awards
and/or grant to Participants replacement Awards, which Awards in the case of
ISOs shall satisfy, in the discretion of the Board, the requirements of section
424(a) of the Code.
12.5 Termination of Employment. For purposes of the Plan, the following
events shall not be deemed a termination of employment of a Participant: (i) a
transfer to the employment of the Company from its Parent (if any) or from a
Subsidiary, or from the Company to its Parent (if any) or to a Subsidiary, or
from one Subsidiary to another; or (ii) an approved leave of absence for
military service or sickness, or for any other purpose approved by the Company,
if the Participant's right to employment is guaranteed either by a statute or by
contract or under the policy pursuant to which the leave of absence was granted
or if the Board otherwise so provides in writing. For
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purposes of the Plan, employees of a Subsidiary or Parent (if any) shall be
deemed to have terminated their employment on the date on which such Subsidiary
or Parent ceases to be a Subsidiary or Parent of the Company, as the case may
be.
12.5.1 Date of Termination of Employment. The date of a Participant's
termination of employment for any reason shall be determined in the sole
discretion of the Board.
12.5.2 Effect of Termination of Employment. The Board shall have full
authority to determine and specify in the applicable Award Agreement the effect,
if any, that a Participant's termination of employment for any reason will have
on the vesting, exercisability, payment or lapse of restrictions applicable to
an outstanding Award.
12.6 Grant of Awards. Each Award may be made alone, in addition to or in
relation to any other Award. The terms of each Award need not be identical, and
the Board need not treat Participants uniformly.
12.7 Settlement of Awards. No Shares shall be delivered pursuant to any
exercise of an Award until payment in full of the price therefor, if any, is
received by the Company. Such payment may be made in whole or in part in cash or
by certified or bank check or, to the extent permitted by the Board at or after
the Grant Date, by delivery of a note or Shares, including Restricted Stock,
valued at their Fair Market Value on the date of delivery, or such other lawful
consideration or provision for the payment thereof as the Board shall determine.
12.8 Withholding Requirements and Arrangements. The Participant shall pay
to the Company or make provision satisfactory to the Board for payment of any
taxes required by law to be withheld in respect of Awards under the Plan no
later than the date of the event creating the tax liability. In the Board's
discretion, such tax obligations may be paid in whole or in part in Shares,
including Shares retained from the Award creating the tax obligation, valued at
their Fair Market Value on the date of delivery. The Company may, to the extent
permitted by law, deduct any such tax obligations from any payment of any kind
otherwise due to the Participant.
12.9 No Effect on Employment. The Plan shall not give rise to any right
on the part of any Participant to continue in the employ of the Company, its
Parent (if any) or any Subsidiary. The loss of existing or potential profit in
Awards granted under the Plan shall not constitute an element of damages in the
event of termination of the relationship of a Participant even if the
termination is in violation of an obligation of the Company to the Participant
by contract or otherwise.
12.10 No Rights as Shareholder. Subject to the provisions of the Plan
and the applicable Award Agreement, no Participant shall have any rights as a
shareholder with
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respect to any Shares to be distributed under the Plan until he or she becomes
the holder thereof.
12.11 Adjustments. Upon the happening of any of the following described
events, a Participant's rights with respect to Awards granted hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
Award Agreement.
12.11.1 Recapitalizations. In the event Shares shall be subdivided or
combined into a greater or smaller number of Shares or if, upon a merger,
consolidation, reorganization, split-up, liquidation, combination,
recapitalization or the like of the Company, Shares shall be exchanged for other
securities of the Company or of another entity, each Participant shall be
entitled, subject to the conditions herein stated, to purchase such number of
Shares or amount of other securities of the Company or such other entity as were
exchangeable for the number of Shares which such Participant would have been
entitled to purchase except for such action, and appropriate adjustments shall
be made in the purchase price per Share to reflect such subdivision,
combination, or exchange.
12.11.2 Stock Dividends. In the event the Company shall issue any of its
shares as a stock dividend upon or with respect to the Shares at the time
subject to option hereunder, each Participant upon exercising an Award shall be
entitled to receive (for the purchase price paid upon such exercise) the Shares
as to which he is exercising his Award and, in addition thereto (at no
additional cost), such number of shares of the class or classes in which such
stock dividend or dividends were declared or paid, and such amount of cash in
lieu of any fractional shares, as he would have received if he had been the
holder of the Shares as to which he is exercising his Award at all times between
the Grant Date of such Award and the date of its exercise.
12.11.3 Restricted Stock. If any person owning Restricted Stock receives
new or additional or different shares or securities ("New Securities") in
connection with a corporate transaction described in Section 12.11.1 or a stock
dividend described in Section 12.11.2 as a result of owning such Restricted
Stock, such New Securities shall be subject to all of the conditions and
restrictions applicable to the Restricted Stock with respect to which such New
Securities were issued.
12.11.4 Board Determination. Notwithstanding the foregoing, any adjustments
made pursuant to this Section 12.11 with respect to ISOs shall be made only
after the Board, after consulting with counsel for the Company, determines
whether such adjustments would constitute a "modification" of such ISOs as that
term is defined in Section 424 of the Code, or would cause any adverse tax
consequences for the holders of such ISOs. No adjustments shall be made for
dividends paid in cash or in property other than securities of the Company.
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12.11.5 Fractional Shares. No fractional shares shall be issued under the
Plan. Any fractional shares which, but for this Section, would have been issued
shall be deemed to have been issued and immediately sold to the Company for
their fair market value, and the Participant shall receive from the Company cash
in lieu of such fractional shares.
12.11.6 Other Distributions. The Board may adjust the number of Shares
subject to outstanding Awards and the exercise price and the terms of
outstanding Awards to take into consideration material changes in accounting
practices or principles, extraordinary dividends, consolidations or mergers
(except those described in Section 12.4), acquisitions or dispositions of stock
or property or any other event if it is determined by the Board that such
adjustment is appropriate to avoid distortion in the operation of the Plan,
provided that no such adjustment shall be made in the case of an ISO, without
the consent of the Participant, if it would constitute a modification, extension
or renewal of the option within the meaning of Section 424(h) of the Code.
12.11.7 Further Adjustment. Upon the happening of any of the events
described in Sections 12.11.1 or 12.11.2, the class and aggregate number of
Shares set forth in Sections 5.1 and 5.3 hereof that are subject to Awards which
previously have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such Sections. The
Board shall determine the specific adjustments to be made under this Section
12.11.7.
Section 13. Amendment and Termination
13.1 Amendment, Suspension, Termination of the Plan. The Board may
modify, amend, suspend or terminate the Plan in whole or in part at any time;
provided, however, that no modification, amendment, suspension or termination of
the Plan shall be made without shareholder approval if (a) the amendment would
increase the number of Shares authorized to be issued under the Plan, (b) the
amendment would expand the class of eligible participants, or (c) such approval
is necessary to comply with any applicable tax or regulatory requirement;
provided, further, that such modification, amendment, suspension or termination
shall not, without a Participant's consent, affect adversely the rights of such
Participant with respect to any Award previously made.
13.2 Amendment, Suspension, Termination of an Award. The Board may
modify, amend, or terminate any outstanding Award, including, without
limitation, substituting therefor another Award of the same or a different type,
changing the date of exercise or realization and converting an ISO to an NQO;
provided, however, that the Participant's consent to such action shall be
required unless the Board determines that the action, taking into account any
related action, would not materially and adversely affect the Participant.
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Section 14. Legal Construction
14.1 Captions. The captions provided herein are included solely for
convenience of reference and shall not affect the meaning of any of the
provisions of the Plan or serve as a basis for interpretation or construction of
the Plan.
14.2 Severability. In the event any provision of the Plan shall be held
invalid or illegal for any reason, the illegality or invalidity shall not affect
the remaining provisions of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
14.3 Governing Law. The Plan and all rights hereunder shall be construed
in accordance with and governed by the internal laws of the State of Delaware.
423188_2.WP6
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