<PAGE>
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
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
[ ] Definitive revised materials
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>
[LOGO]
197 First Avenue
Needham, Massachusetts 02494
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
JUNE 21, 1999
The Annual Meeting of Stockholders of CareMatrix Corporation (the "Company")
will be held on Monday, June 21, 1999 at 10:00 a.m. at the offices of Nutter,
McClennen & Fish, LLP, located at One International Place, Boston,
Massachusetts, 02110, for the following purposes:
1. To elect the members of the Board of Directors who shall hold office
until the next 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 26, 1999 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
/s/ Jeffrey P. Neterval
----------------------------------------
Jeffrey P. Neterval
SECRETARY
Needham, Massachusetts
April 30, 1999
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>
[LOGO]
CareMatrix Corporation
197 First Avenue
Needham, MA 02494
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
JUNE 21, 1999
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 21, 1999
at 10:00 a.m., at the offices of Nutter, McClennen & Fish, LLP located at One
International Place, Boston, Massachusetts, 02110, 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 both
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. Proxies solicited by the Board of Directors confer
discretionary authority to vote on any matter to come before the meeting with
respect to which the Company did not receive notice prior to March 29, 1999, or
June 8, 1999 in the case of the election of directors.
The Company mailed this Proxy Statement and the related form of proxy on or
about May 7, 1999 to its stockholders of record at the close of business on
April 26, 1999.
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 26, 1999 may vote at the Annual Meeting. On that
date, there were outstanding and entitled to vote 18,029,197 shares of Common
Stock and 7,100 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 capital stock entitled to vote at the Annual Meeting,
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 those entitled to vote. Votes may be cast either 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. With respect to Item 2, where proxies are marked
as abstentions (or stockholders appear in person but abstain from
<PAGE>
voting), such abstentions will be treated as shares that are present and
entitled to vote for purposes of determining the presence of a quorum for
purposes of determining the approval of Item 2. Abstentions will have no effect
on the outcome of 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.
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 next 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 70, has served as Chairman of the Board of Directors
of the Company since October 1996 and as the Company's Chief Executive Officer
since April 15, 1999. In addition, he has served as the Chairman of the Board of
Directors and Chief Executive Officer of PhyMatrix Corp. ("PhyMatrix"), a
publicly-traded, physician-driven, integrated medical management company, since
1996. He served as Chairman of the Board of Meditrust and its successor
Meditrust Corporation, a real estate investment trust, from its inception in
1985 to August 1998 and was its Chief Executive Officer from 1985 to November
1997. Mr. Gosman also served as the Chairman, Chief Executive Officer and
Treasurer of Meditrust Operating Company from November 1997 until August 1998.
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.
ANDREW D. GOSMAN, age 33, has served as a director of the Company since
October 1996 and as Vice Chairman of the Board of Directors, a post he
previously held from October 1996 to August 1997, since April 8, 1999. From
August 1997 until April 8, 1999, he served as President of the Company. He
served as 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 Land
Ventures, Inc., two closely held investment and development concerns, since
March 1992.
MICHAEL M. GOSMAN, age 36, has served as a director of the Company since
October 1996 and as its Vice Chairman from August 1997 until April 8, 1999. He
currently serves as a principal of K&G Associates, a firm which provides
consulting services to the Company. Mr. Gosman served as an Executive Vice
President--Acquisition and Development of the Company from October 1996 until
April 8, 1999. He was
2
<PAGE>
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.
DONALD J. AMARAL, age 46, has served as a director of the Company since
October 1996. Mr. Amaral has served as Chairman of the Board of Directors of
Coram HealthCare Corp. ("Coram") since June 1997. He served as Chief Executive
Officer of Coram from June 1997 until April 23, 1999 and as President 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. Mr.
Amaral is also a member of the Board of Directors of Meditrust Corporation and
Meditrust Operating Company.
H. LOY ANDERSON, JR., age 55, 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. Mr. Anderson is
also a director of PhyMatrix Corp.
REV. BEDROS BAHARIAN, age 83, 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 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 74, 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 62, 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. He is a member of the American Health Lawyers
Association. 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 two non-profit
corporations, The Milford Hospital, Inc. and Church Homes, Inc. Mr. Ronai also
serves as the secretary of Church Homes, Inc.
ADDITIONAL INFORMATION REGARDING THE BOARD OF DIRECTORS
The Board of Directors held seven meetings during 1998. 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, Abraham D. 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 one meeting during 1998.
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
3
<PAGE>
reviews the adequacy of the Company's internal accounting controls. The Audit
Committee held two meetings during 1998.
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 the Company's officers and senior
employees. 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 one meeting during 1998.
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.
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 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. In addition,
pursuant to the Company's 1996 Equity Incentive Plan (described in detail in
Item 2 below), the Board of Directors granted each non-employee director options
to purchase Common Stock on two occasions in 1998. In September, such directors
were granted options to purchase 20,000 shares at an exercise price of $17.50
per share, vesting in equal increments over a four-year period. In December,
each non-employee director was granted options to purchase 10,000 shares at an
exercise price of $28.625 per share, vesting in equal increments over a
three-year period. The exercise price of each option was equal to the fair
market value of the Common Stock on the applicable date of grant.
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
MARC H. BENSON, age 42, has served as President of the Company since April
8, 1999. From October 1996 until April 8, 1999, he was Chief Operating Officer
of the Company. 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 ("ManorCare") southeast district where he had primary
operating responsibility for ManorCare's assisted living and Alzheimer's
facilities in the southeastern portion of the United States. Prior to joining
ManorCare, 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
4
<PAGE>
September 1995. He served as Director of Finance of the Retirement Living
Division Beverly Enterprises from 1990 to 1992.
MICHAEL J. ZACCARO, age 41, has served as the Chief Operating Officer of the
Company since April 8, 1999 and as Executive Vice President of Operations of the
Company from October 1996 until April 8, 1999. 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. Mr.
Zaccaro serves as a Vice President and Director of both the Connecticut
Association of Health Care Facilities and the Connecticut Assisted Living
Association.
HAROLD E. NASH, III, age 45, has served as an Executive Vice President of
the Company since April 1996. From 1992 to April 1996, Mr. Nash served as a Vice
President at Suffolk Construction Company.
FREDERICK R. LEATHERS, age 41, has served as Chief Financial Officer of the
Company since April 15, 1999. From June 1994, he has served as the Chief
Financial Officer and Treasurer of PhyMatrix Corp. Previously, he served as
Treasurer, Chief Financial Officer and Principal Accounting Officer of Mediplex
from October 1991 to June 1994. He was Treasurer of A.M.A. Advisory Corp. and
Controller of Meditrust from July 1988 to January 1991.
EXECUTIVE COMPENSATION
The following summary compensation table shows compensation information for
the last three completed fiscal years for the Company's former Chief Executive
Officer and the five other most highly compensated current and former executive
officers (collectively, the "Named Executive Officers"). Abraham D. Gosman, the
Company's current Chief Executive Officer, did not receive any compensation from
the Company during the past three fiscal years.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL -------------
COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME YEAR SALARY($) BONUS($) OPTIONS COMPENSATION($)(1)
- - -------------------------------------------- --------- ------------- --------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Marc H. Benson.............................. 1998 226,600 -- 30,000 8,535(2)
President 1997 206,600 -- 70,000 102
1996 49,567 -- 26,200 26
Harold E. Nash, III......................... 1998 257,800 -- 70,000 15
Executive Vice President 1997 232,800 -- 80,000 102
1996 58,200 -- 35,000 26
Michael J. Zaccaro.......................... 1998 222,800 -- 50,000 9
Chief Operating Officer 1997 207,800 -- 60,000 66
1996 51,950 -- -- 17
Andrew D. Gosman............................ 1998 268,037 -- -- 5
Vice Chairman and Former President 1997 157,800 -- -- 54
1996 39,450 -- -- 13
Michael M. Gosman........................... 1998 222,274 -- -- 6
Former Executive Vice President 1997 157,800 -- -- 66
1996 39,450 -- -- 17
Robert M. Kaufman(3)........................ 1998 255,400 50,000 120,000 50
Former Chief Executive Officer 1997 255,400 -- 100,000 174
1996 63,850 -- 50,000 44
</TABLE>
- - ------------------------
(1) Imputed income for Company-paid life insurance.
(2) Includes moving expense allowance of $8,526 and imputed income for
Company-paid life insurance of $9.
(3) Mr. Kaufman resigned from the Company on April 15, 1999.
5
<PAGE>
EMPLOYMENT AGREEMENTS
The Company currently has an employment agreement with Marc H. Benson, the
Company's President, 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.
The Company currently has an employment agreement with Harold E. Nash, III,
an Executive Vice President, providing for an initial employment term ending
September 2000 and continuing thereafter on a year-to-year basis, subject to the
Company's or Mr. Nash's election not to renew. The agreement provides for an
initial annual base salary of $250,000 with bonus compensation granted at the
Company's sole discretion. The agreement may be terminated by the Company with
or without cause upon written notice or by Mr. Nash in the event of a failure of
the Company to substantially perform its duties under the agreement. Upon a
termination by the Company without cause or by Mr. Nash, Mr. Nash would be
entitled to receive his salary during the remainder of the term of the
agreement.
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 156,260. 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
1998, 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.
1996 EQUITY INCENTIVE PLAN.
In October 1996, the Board of Directors adopted the 1996 Equity Incentive
Plan (the "1996 Plan") which currently provides for the award of up to 2,600,000
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 issuable pursuant to
the 1996 Plan to 2,900,000 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 1998. Where applicable, individual grants are listed
separately for each Named Executive Officer. None of Abraham, Michael or Andrew
Gosman have options to purchase Common Stock.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
% OF AT
TOTAL ASSUMED
NO. OF OPTIONS ANNUAL RATES OF
SHARES GRANTED STOCK PRICE
UNDERLYING TO EXERCISE APPRECIATION
OPTIONS EMPLOYEES PRICE PER EXPIRATION ------------------
NAME GRANTED IN 1998 SHARE($) DATE 5% ($) 10% ($)
- - ------------------------------------------------------- ---------- --------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Marc H. Benson......................................... 30,000 2.2% 17.50 9/3/2008(1) 330,170 836,715
Harold E. Nash, III.................................... 40,000 2.9% 29.00 4/14/2008(2) 729,518 1,848,741
30,000 2.2% 17.50 9/3/2008(2) 330,170 836,715
Michael J. Zaccaro..................................... 50,000 3.6% 17.50 9/3/2008(1) 550,283 1,394,525
Robert M. Kaufman(3)................................... 60,000 4.3% 25.38 1/2/2008(2) 957,492 2,426,473
60,000 4.3% 17.50 9/3/2008(1) 660,339 1,673,430
</TABLE>
- - ------------------------
(1) Vesting in one-quarter increments beginning September 3, 1999.
(2) Vesting in one-third increments beginning April 14, 1999.
(3) Mr. Kaufman resigned from the Company on April 15, 1999.
AGGREGATED STOCK OPTION EXERCISES AND STOCK OPTION VALUES
Certain of the Named Officers exercised options during fiscal 1998 as set
out below. The following table indicates the aggregate value of all exercised
and unexercised options held by each Named Officer as of December 31, 1998. None
of Abraham, Michael or Andrew Gosman have options to purchase Common Stock.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
-----------------------------------------------------
NUMBER OF SHARES OF
COMMON STOCK VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS OPTIONS($)(1)
ON VALUE -------------------------- -------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - -------------------------------------------- ----------- ----------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marc H. Benson.............................. 26,200 340,725 20,417 79,583 107,553 693,072
Harold E. Nash, III......................... 20,000 375,000 38,750 126,250 423,594 771,406
Michael J. Zaccaro.......................... -- -- 17,084 92,916 100,887 942,238
Robert M. Kaufman(2)........................ -- -- 83,333 186,667 1,514,579 2,069,172
</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,
1998 of $30.625.
(2) Mr. Kaufman resigned from the Company on April 15, 1999.
7
<PAGE>
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 principles 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 1998, the Committee approved grants
of options to purchase an aggregate of 1,381,850 shares of Common Stock to all
of the employees of Company. The Company's executive officers received options
to purchase an aggregate of 320,000 shares of Common Stock, or 23% of the total
options granted during 1998. 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 encourage the Company's officers to focus
on the long-term success of the Company.
The base salary of the Company's executive officers, including its Chief
Executive Officer, 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. In July 1998, Robert M.
Kaufman, then Chief Executive Officer, received a bonus of $50,000 in
recognition of his contributions to the continued growth of the Company.
Respectfully submitted,
H. Loy Anderson, Jr.
Rev. Bedros Baharian
Robert Cataldo
Stephen E. Ronai
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SPECIAL PERFORMANCE GRAPH
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 Chief Executive Officer and certain of its other 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 took office 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 MG Industry Group Index 523 (Long Term
Care Facilities) (the "MG Index") and the Standard & Poor's Composite 500 Stock
Index (the "S&P 500 Index") for the 27-month period commencing October 1, 1996
and ending December 31, 1998.
COMPARE CUMULATIVE TOTAL RETURN
AMONG CAREMATRIX CORPORATION,
S&P 500 INDEX AND INDUSTRY INDEX(1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS
<S> <C> <C> <C>
CAREMATRIX CORPORATION MG INDEX S&P 500 INDEX
10/01/96 100.00 100.00 100.00
12/31/96 63.64 103.84 108.34
3/31/97 89.09 107.56 111.24
6/30/97 119.70 133.22 130.66
9/30/97 123.03 143.08 140.45
12/31/97 139.39 140.36 144.48
3/31/98 149.09 143.71 164.63
6/30/98 130.61 132.53 170.07
9/30/98 110.30 93.35 153.15
12/31/98 148.48 95.97 185.77
</TABLE>
ASSUMES $100 INVESTED ON OCTOBER 1, 1996
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 1998
(1) Assumes that the value of an investment in shares of the Company's Common
Stock, the S&P 500 Index and the MG Index was $100 on October 1, 1996.
(2) The Company has moved to the MG Index from the peer group used in the 1998
Proxy Statement because of consolidation in the assisted living industry.
The MG Index contains each of the companies in the former peer group in
addition to other companies within the industry. The former peer group was
defined as Alternative Living Services, Inc., Assisted Living Concepts,
Inc., Emeritus Corp., Karrington Health, Inc. and Sunrise Assisted Living,
Inc. The former peer group had a total cumulative return for the period
beginning October 31, 1996 and ending on December 31, 1998 of $163.65.
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REQUIRED PERFORMANCE GRAPH
The following graph, as required by the Securities Exchange Act of 1934,
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 MG
Industry Group Index 523 (Long Term Care Facilities) (the "MG Index") and the
S&P 500 Index for the five-year period commencing December 31, 1993 and ending
December 31, 1998.
COMPARE CUMULATIVE TOTAL RETURN
AMONG CAREMATRIX CORPORATION,
S&P 500 INDEX AND INDUSTRY INDEX(1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS
<S> <C> <C> <C>
CAREMATRIX CORPORATION MG INDEX S&P 500 INDEX
1993 100.00 100.00 100.00
1994 43.02 118.38 101.30
1995 76.74 121.31 139.40
1996 48.84 121.37 171.41
1997 106.98 163.22 228.59
1998 113.95 102.93 293.92
</TABLE>
ASSUMES $100 INVESTED IN DECEMBER 31, 1993
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DECEMBER 31, 1998
(1) Assumes that the value of an investment in shares of the Company's Common
Stock, the S&P 500 Index and the MG Index was $100 on December 31, 1993.
(2) The Company has moved to the MG Index from the peer group used in the 1998
Proxy Statement because of consolidation in the assisted living industry.
The MG Index contains each of the companies in the former peer group in
addition to other companies within the industry. The former peer group was
defined as Alternative Living Services, Inc., Assisted Living Concepts,
Inc., Emeritus Corp., Karrington Health, Inc. and Sunrise Assisted Living,
Inc. The former peer group had a total cumulative return for the period
beginning December 31, 1993 and ending December 31, 1998 of $271.50.
10
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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 2,600,000 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 2,100 employees of the Company are
eligible to participate in the 1996 Plan. As of April 26, 1999, options to
purchase 2,165,395 shares of Common Stock were outstanding under the 1996 Plan
and no shares were available for future grant. The closing price of the
Company's Common Stock on April 26, 1999 was $18.375.
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 2,900,000 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 2,100 employees, consultants and directors who are eligible to
participate in the 1996 Plan.
ADMINISTRATION
The 1996 Plan is 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 2,600,000 shares of
Common Stock. The number of shares of Common Stock issuable pursuant to the 1996
Plan may not be changed except by
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<PAGE>
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. If considered appropriate, the Compensation Committee may
make provision for a cash payment with respect to an outstanding award. In
addition, except in certain limited circumstances, upon the adoption of a plan
or agreement concerning a change in control, sale of substantially all the
assets, or liquidation or dissolution of 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
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<PAGE>
(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 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.
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<PAGE>
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 will 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 determined by
the Compensation Committee, subject to such conditions and restrictions as the
Compensation Committee shall determine. 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 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
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<PAGE>
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 stockholders and recommends
a vote "FOR" the proposal 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 5% and 8% of total project costs,
depending on the individual transaction and determined on the date of signing.
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 management fee equal to approximately 5% of revenues. The
Company generally has an option to convert such Global Management Agreements
into fair market value leases (which will be a negotiated percentage of total
project costs) for a fifteen-year initial term with two to four five-year fair
market value renewal options. There also may be an option to acquire the
facility at either fair market value or based on a percentage of Consumer Price
Index increases at the end of the initial term
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or option periods. The Company expects to exercise the lease option at such time
as the facilities reach profitability. Chancellor may sell some of the developed
facilities to REITs or other financing sources; however, no such agreements are
currently in place. Any such sale would be subject to any management, lease or
purchase terms already in place. Going forward, the Company expects to enter
into Global Management Agreements for most developed facilities commencing at
the time of property acquisition. These agreements will generally be for a
fifteen-year period with up to three five-year options. Such options normally
may only be exercised if the facility has achieved positive cash flow for the
three fiscal years immediately prior to the extension. The management fee will
generally equal the greater of $20,000 per month or 5% of net revenues plus
incentive management fees based on the net cash flow from the facilities. Under
these agreements, the manager is responsible for all expenses related to the
operations of the facility other than debt service and is reimbursed for such
costs. In addition, the agreements will often contain an option for the manager
to purchase the facility at various times during the agreement at mutually
agreed upon prices.
The Company 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.
During 1998, the Company entered into Global Development Agreements with 19
separate Chancellor Entities with respect to the development of assisted living
facilities located in Connecticut (Old Saybrook), Florida (Bradenton, Ft. Myers,
Venice and Wellington), Illinois (Chicago, Flossmoor, Mt. Prospect and Vernon
Hills), New York (Garden City, Ossining and Ryebrook), Ohio (Brooklyn and
Westlake), Pennsylvania (Abington, Chestnut Hill and Haverford) and Tennessee
(Cordova). In addition, the Company entered into consulting agreements with
Chancellor Entities relating to the retention of third party financing for
facilities located in Florida (Aberdeen and Deerfield) and New Jersey (Park
Ridge/ Princeton), the fees from which are included in the Company's development
fee revenue. For the year ended December 31, 1998, the Company recognized
approximately $21.7 million in development fee revenue from development and
consulting agreements with various Chancellor Entities.
During 1998, the Company entered into a Global Management Agreement with a
Chancellor Entity for a facility located in Southington, Connecticut. For the
year ended December 31, 1998, the Company recognized approximately $12.8 million
in management fee revenue resulting from various management services performed
for various Chancellor Entities.
In 1998, the Company paid various Chancellor Entities a total of $7.1
million for lease rights to three facilities, two located in Arizona and one in
Connecticut. The lease term for each facility is 15 years with rent equal to
debt service plus approximately 27% to 34% of cash flow (in the case of the
Arizona facilities) or simply debt service (in the case of the Connecticut
facility). Each lease has at least three five-year renewal options. The Company
also exercised its option to lease from certain Chancellor Entities, four
facilities which it had been managing, two of which are located in New Jersey,
one in Florida and one in Connecticut. The New Jersey facilities each have a
lease term of 15 years, with three five-year renewal options and a purchase
option equal to not less than the fair market value of the facility when such
option is exercised. The Florida facility lease has a term of approximately
seven years and no renewal or purchase option. The Connecticut facility lease
has a term of 10 years with four five-year renewal options and no purchase
option. Rent in each case is equal to debt service, except for the Connecticut
facility for which rent equals debt service plus 50% of cash flow.
In 1998, the Company paid a total of $4.0 million in lease deposits related
to two facilities (one in Connecticut and one in New York), which are owned 50%
by certain Chancellor Entities and 50% by an unrelated third party.
During 1998, the Company paid a Chancellor Entity $2.0 million for
development and lease rights related to a senior living community in New York,
the purchase price for which was based on expected earnings from the development
of the senior community. In addition, the Company paid $1.0 million to
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Chancellor to purchase, at original cost (which at such time was less than fair
market value), Chancellor's interest in a limited partnership owning marketable
securities.
During 1998, the Company recorded interest income of $1.8 million from
various Chancellor Entities related primarily to amounts owed pursuant to
various development and management agreements, escrow deposits, and other
short-term advances. Such outstanding amounts earned interest at the same rate
as the Company pays under its line of credit with an unrelated third party bank.
All short-term advances were repaid as of December 31, 1998.
During 1998, Chancellor reimbursed the Company for services provided by
certain of the Company's executive officers and other employees in the amount of
approximately $1.1 million 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.
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 was the Chairman of the Board and Chief
Executive Officer, for annual rental payments equal to $179,256.
In 1997, the Company purchased from a related party, for $2.1 million, a
subordinated loan related to a facility that it managed for a 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. During 1998, $370,000
of this note was repaid.
In January 1998, the Company purchased for $800,000 a management agreement
for a skilled nursing facility located in Florida from PhyMatrix Corp.
("PhyMatrix"), a publicly-owned company of which Mr. Gosman is Chairman of the
Board and Co-Chief Executive Officer and of which he, together with his two
sons, beneficially owns approximately 24.6%. The Company began leasing this
facility in the second quarter of 1998. In addition, in April 1997, the Company
entered into an agreement with 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.
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.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 26, 1999 (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)................................................................ 7,544,314 41.6 %
Andrew D. Gosman(4)(5).............................................................. 1,528,309 8.5 %
Michael M. Gosman(4)................................................................ 1,527,309 8.5 %
Alliance Capital Management L.P.(6)................................................. 1,101,400 6.1 %
Marsh & McLennan Companies, Inc.(7)................................................. 2,570,000 14.3 %
Marc H. Benson(8)................................................................... 29,166 *
Michael J. Zaccaro(9)............................................................... 173,843 *
Harold E. Nash, III(10)............................................................. 49,565 *
Robert M. Kaufman(11)............................................................... 336,826 1.9 %
Donald J. Amaral(12)................................................................ 5,333 *
H. Loy Anderson, Jr.(12)(13)........................................................ 5,843 *
Bedros Baharian(12)(14)............................................................. 31,333 *
Robert Cataldo(12).................................................................. 5,333 *
Stephen E. Ronai(12)(15)............................................................ 6,333 *
All directors and executive officers as a group (12 persons including certain of the
above-named individuals)(16)...................................................... 7,852,063 43.2 %
</TABLE>
- - ------------------------
* Less than 1%
(1) Includes shares which may be acquired within 60 days of April 26, 1999
pursuant to the exercise or conversion of outstanding options, warrants and
convertible securities of the Company.
(2) Percentages shown are based on 18,029,197 shares of Common Stock
outstanding as of April 26, 1999, 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 April 26, 1999, after anti-dilution adjustments in respect of
such holders.
(3) Consists of (i) 4,378,503 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"), (iii) 4,800 shares held directly by Mr. Gosman, and (iv) a
warrant to purchase 91,761 shares of Common Stock, which is currently
exercisable. Mr. Gosman is
18
<PAGE>
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 and sole voting power with respect to
14,632 shares held by CPLP II. CPLP II's sole limited partner, Chancellor
Partners Business Trust (of which Andrew and Michael Gosman are trustees
and shareholders) has sole voting power over the remainder of such shares.
Mr. Gosman's business address is 197 First Avenue, Needham, MA 02494.
(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 but 14,632 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, has voting power
with respect to one-half of the shares held by CPLP II (excluding the
aforementioned 14, 632 shares), or 1,527,309 shares. Andrew D. Gosman and
Michael M. Gosman's business address is 197 First Avenue, Needham, MA
02494.
(5) Also includes 1,000 shares of Common Stock held directly by Mr. Gosman.
(6) Alliance Capital Management L.P. ("ACM"), an investment adviser registered
under Section 203 of the Investment Advisers Act of 1940, acquired the
Common Stock solely for investment purposes on behalf of client
discretionary investment advisory accounts. ACM is majority owned by The
Equitable Companies Incorporated ("The Equitable Companies"), 1290 Avenue
of the Americas, New York, NY 10104. The Equitable Companies acts as a
parent holding company in accordance with 240.13d-1(b)(ii)(G). The
Equitable Companies is majority owned by AXA (formerly AXA-UAP), 9 Place
Vendome, 75001 Paris, France. AXA is majority owned by AXA Conseil Vie
Assurance Mutuelle (formerly Alpha Assurances Vie Mutuelle), 100-101
Terrasse Boieldieu, 92042 Paris La Defense, France, AXA Assurances I.A.R.D.
Mutuelle and AXA Assurances Vie Mutuelle, both located at 21 rue de
Chateaudun, 75009 Paris, France, and AXA Courtage Assurance Mutuelle, 26
rue Louis le Grand, 75002 Paris, France as a group (collectively with ACM,
The Equitable Companies and AXA, the "Companies"). Each of the Companies
operates under independent management and makes independent decisions. The
foregoing is based upon the Schedule 13G, as amended, filed with the
Commission on February 16, 1999 by the Companies.
(7) 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 1166
Avenue of the Americas, New York, NY 10036. The foregoing is based upon the
Schedule 13G, as amended, filed with the Commission on February 4, 1999 by
M&MC, PI, PIM, PAC and PNOF.
(8) Includes 29,166 shares of Common Stock which Mr. Benson has the right to
acquire within 60 days upon the exercise of stock options.
(9) Includes 148,010 shares of Common Stock held directly by Mr. Zaccaro and
25,833 shares which Mr. Zaccaro has the right to acquire within 60 days
upon the exercise of stock options.
(10) Includes 400 shares of Common Stock held directly by Mr. Nash and 49,165
shares which Mr. Nash has the right to acquire within 60 days upon the
exercise of stock options.
19
<PAGE>
(11) Includes (i) 200,000 shares held directly, (ii) 160 shares held by Mr.
Kaufman's children, and (iii) 136,666 shares of Common Stock which Mr.
Kaufman has the right to acquire within 60 days upon the exercise of stock
options.
(12) Includes 5,333 shares of Common Stock which each of Rev. Baharian and
Messrs. Amaral, Anderson, Cataldo and Ronai has the right to acquire within
60 days upon the exercise of stock options.
(13) Also includes 510 shares of Common Stock held directly by Mr. Anderson.
(14) Also includes 26,000 shares of Common Stock held directly by Rev. Baharian.
(15) Also includes 1,000 shares of Common Stock held directly by Mr. Ronai.
(16) Includes an aggregate of 130,829 shares of Common Stock that directors and
executive officers have the right to acquire within 60 days upon the
exercise of options or warrants.
20
<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 13, 2000 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.
The By-laws of the Company specify when a stockholder must submit
nominations for director for consideration at a stockholders' meeting in order
for those nominations to be considered at the meeting. In order for the
nominations to be considered at the meeting, the stockholder making them must
have given timely notice in writing to the Secretary of the Company. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Company, 197 First Avenue, Needham,
Massachusetts 02494, not less than 14 days nor more than 60 days prior to the
meeting; except that in the event that less than 21 days' notice or prior public
disclosure of the date of the meeting is given or made to the stockholders,
notice by the stockholder to be timely must be received no later that the close
of business on the fifth day following the day on which such notice of the date
of the meeting was mailed or such public disclosure was made.
A stockholder's notice to the Secretary concerning nominations for director
shall set forth (a) as to each person whom the stockholder proposes to nominate
for election or reelection as a director the name, age, business address and, if
known, residence address of each nominee proposed in such notice, the principal
occupation or employment of such nominee, and the number of shares of Common
Stock beneficially owned by such nominee; and (b) as to the stockholder giving
notice (i) the stockholder's name and address, as they appear on the Company's
books and (ii) the class and number of shares of the Company's stock that are
beneficially owned by such stockholder.
A stockholder's notice to the Secretary with respect to other proposals
shall set forth as to each matter the stockholder proposes to bring before the
meeting (a) a brief description of the business desired to be brought before the
meeting, (b) the stockholder's name and address, as they appear on the Company's
books, (c) the class and number of shares of the Company's stock that are
beneficially owned by the stockholder and (d) any material interest of the
stockholder in such business.
ANNUAL REPORT AND INDEPENDENT ACCOUNTANTS
The Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1998, including financial statements and the report of
PricewaterhouseCoopers LLP ("PWC") thereon, is being mailed herewith to each of
the Company's shareholders of record at the close of business on April 26, 1999.
The Board of Directors has selected PWC as the Company's independent accountants
for the current fiscal year. Representatives of PWC 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
21
<PAGE>
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,
/s/ Jeffrey P. Neterval
--------------------------------------
Jeffrey P. Neterval
SECRETARY
April 30, 1999
22
<PAGE>
PROXY PROXY
CAREMATRIX CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 21, 1999
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, Andrew D. Gosman and Marc H.
Benson, 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 21, 1999, 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 as to the
extent permitted by the Company's By-laws and applicable law.
The undersigned hereby confer(s) upon the Proxies, and each of them,
discretionary authority to the extent permitted by the Company's By-laws and
applicable law (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. This 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.
<PAGE>
Exhibit 99.1
CAREMATRIX CORPORATION
1996 EQUITY INCENTIVE PLAN
(as amended and restated through March 29, 1999,
subject to stockholder approval)
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 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.
<PAGE>
"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 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
<PAGE>
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 Two
Million Nine Hundred Thousand (2,900,000) 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.
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 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.
<PAGE>
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 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.
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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 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 more than 50%
of 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 all
outstanding Awards will become exercisable immediately prior to the
consummation of such merger, consolidation or sale of assets; provided,
however, that if the acceleration of the exercisability of any Award would
prevent such merger or consolidation from being treated as a pooling of
interests (and pooling of interests accounting treatment is, in the opinion
of the Board, necessary for the consummation of such transaction), then the
outstanding Awards will NOT become immediately exercisable, and instead,
the Board shall arrange, subject to consummation of the merger or
consolidation to have the surviving entity or an affiliate of such entity
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.
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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 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.
<PAGE>
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 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.
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.
<PAGE>
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.
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
<PAGE>
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.
