<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
SECURITIES AND EXCHANGE COMMISSION
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
OCCUPATIONAL HEALTH + REHABILITATION INC
(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>
OCCUPATIONAL HEALTH + REHABILITATION INC
175 DERBY STREET, SUITE 36
HINGHAM, MA 02043-4058
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 23, 1998
To Our Stockholders:
The 1998 Annual Meeting of Stockholders of Occupational Health +
Rehabilitation Inc (the "Company") will be held at the Company's corporate
offices located at 175 Derby Street, Suite 36, Hingham, Massachusetts 02043-4058
on July 23, 1998, at 9:00 A.M. (local time) for the following purposes:
1. To elect one director for a term to expire at the 2001 Annual Meeting of
Stockholders;
2. To approve the Company's 1998 Stock Plan, which includes performance-based
compensation objectives; and
3. To transact such other business as may properly come before the meeting or
any adjournment thereof.
Only stockholders of record at the close of business on June 11, 1998 are
entitled to notice of and to vote at the Annual Meeting and any adjournments
thereof.
By order of the Board of Directors,
Richard P. Quinlan
Secretary
Dated: June 29, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE MARK, SIGN, DATE
AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED POSTAGE PREPAID ENVELOPE.
ANY PERSON GIVING A PROXY HAS THE POWER TO REVOKE IT AT ANY TIME PRIOR TO ITS
EXERCISE AND, IF PRESENT AT THE MEETING, MAY WITHDRAW IT AND VOTE IN PERSON.
<PAGE>
OCCUPATIONAL HEALTH + REHABILITATION INC
175 DERBY STREET, SUITE 36
HINGHAM, MA 02043-4058
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 23, 1998
__________________________
This Proxy Statement is furnished to the stockholders of Occupational Health
+ Rehabilitation Inc (the "Company") in connection with the solicitation of
proxies by the Board of Directors for use at the Annual Meeting of Stockholders
of the Company to be held on July 23, 1998 and any adjournments or postponements
thereof (the "Annual Meeting"). This Proxy Statement, the foregoing Notice of
Annual Meeting, the enclosed form of proxy and the Company's 1997 Annual Report
to Stockholders are first being mailed or given to stockholders on or about June
29, 1998.
PROXIES
A stockholder giving a proxy may revoke it at any time before it is voted by
giving another proxy bearing a later date, by notifying the Secretary of the
Company in writing of such revocation, or by attending the Annual Meeting in
person and casting a ballot. Any properly executed proxy returned to the
Company will be voted in accordance with the instructions indicated thereon. If
no instructions are indicated on the proxy, the proxy will be voted for the
election of the nominee for director named herein and in favor of the other
proposal set forth in the Notice of Annual Meeting.
The cost of soliciting proxies will be borne by the Company. In addition to
the solicitation of proxies by mail, proxies may be solicited by directors,
officers or regular employees of the Company in person, by telephone or by other
means. Such persons will not receive any additional compensation for such
activities.
VOTING SECURITIES
The record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting was the close of business on June 11, 1998
(the "Record Date"). On the Record Date, there were 1,478,977 shares of Common
Stock (the "Common Stock") and 1,416,667 shares of Series A Convertible
Preferred Stock (the "Preferred Stock"), outstanding and entitled to vote. Each
share of Common Stock and each share of Preferred Stock is entitled to one vote
and, other than with respect to the election of one director, the Common Stock
and the Preferred Stock shall vote together as a single class. A majority of
such shares, present in person or represented by proxy, shall constitute a
quorum at the Annual Meeting. A majority of the shares of Common Stock, present
in person or represented by proxy, shall constitute a quorum at the Annual
Meeting for the purpose of electing a director as more fully described below.
Abstentions and broker non-votes will be included in the calculation of the
number of votes represented at the Annual Meeting for purposes of determining
whether a quorum has been achieved. Votes will be tabulated at the Annual
Meeting by one or more inspectors of election appointed by the Board of
Directors.
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP
OF MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of Record Date by (i) each person
known by the Company to own beneficially more than five percent of the
outstanding Common Stock of the Company, (ii) each director and nominee for
director of the Company, (iii) each executive officer of the Company named in
the Summary Compensation Table on page 8 and (iv) all directors and executive
officers of the Company as a group. Except as otherwise indicated, all shares
are
<PAGE>
owned directly. Except as indicated by footnote, and subject to community
property laws where applicable, the Company believes that the persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock indicated.
<TABLE>
<CAPTION>
SHARES PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) OF CLASS
- ------------------------------------------------ ------------------------ ---------------
<S> <C> <C>
Cahill, Warnock Strategic Partners Fund, L.P. (2)........ 679,042 31.5%
One South Street, Suite 2150
Baltimore, MD 21202
Prince Venture Partners III, L.P. (3).................... 400,045 27.0%
10 South Wacker Drive
Chicago, IL 60606
Partech International Entities (4)....................... 283,333 16.1%
50 California Street, Suite 3200
San Francisco, CA 94111
Venrock Entities (5)..................................... 246,784 15.0%
30 Rockefeller Plaza, Room 5508
New York, NY 10112
BancBoston Ventures, Inc. (6)............................ 215,636 13.7%
100 Federal Street
Boston, MA 02110
The Venture Capital Fund of
New England III, L.P. (7)................................ 182,303 11.8%
160 Federal Street, 23rd Floor
Boston, MA 02110
Asset Management Associates 1989, L.P. (8)............... 173,685 11.1%
2275 East Bayshore Road
Palo Alto, CA 94303
John C. Garbarino (9).................................... 131,196 8.5%
175 Derby Street, Suite 36
Hingham, MA 02043
Lynne M. Rosen (10)...................................... 33,318 2.2%
Richard P. Quinlan (11).................................. 11,250 *
H. Nicholas Kirby (11)................................... 8,341 *
Kevin J. Dougherty (12).................................. 1,200 *
Angus M. Duthie (13)..................................... 1,200 *
Edward L. Cahill (14).................................... 1,200 *
Donald W. Hughes......................................... - *
All directors and executive officers as a group.......... 187,705 11.8%
(8 persons) (15)
</TABLE>
_________________________
* Less than 1%
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<PAGE>
(1) Each of the stockholders who is a party to a certain Stockholders'
Agreement (the "Stockholders' Agreement") dated as of November 6, 1996 by
and among the Company and certain of its stockholders may be deemed to
share voting power with respect to, and may be deemed to beneficially own,
all of the shares of the Preferred Stock and Common Stock subject to the
Stockholders' Agreement. Such stockholders disclaim such beneficial
ownership.
(2) Consists of 679,042 shares of Common Stock issuable upon conversion of
shares of Preferred Stock. Edward L. Cahill, a director of the Company, is
a General Partner of Cahill, Warnock Strategic Partners, L.P., the General
Partner of Cahill, Warnock Strategic Partners Fund, L.P. David L. Warnock
is also a General Partner of Cahill, Warnock Strategic Partners, L.P. The
General Partners of Cahill, Warnock Strategic Partners, L.P. share voting
and investment power with respect to the shares held by Cahill, Warnock
Strategic Partners Fund, L.P. and may be deemed to be the beneficial owners
of such shares. Each of the General Partners of Cahill, Warnock Strategic
Partners, L.P. disclaims beneficial ownership of the shares held by Cahill,
Warnock Strategic Partners Fund, L.P.
(3) Angus M. Duthie, a director of the Company, is a General Partner of Prince
Ventures, L.P., the General Partner of Prince Venture Partners III, L.P.
James W. Fordyce, Mark J. Gabrielson and Gregory F. Zaic are also General
Partners of Prince Ventures, L.P. The General Partners of Prince Ventures,
L.P. share voting and investment power with respect to the shares held by
Prince Venture Partners III, L.P. and may be deemed to be the beneficial
owners of such shares. Each of the General Partners of Prince Ventures,
L.P. disclaims beneficial ownership of the shares held by Prince Venture
Partners III, L.P.
(4) Consists of 86,667 shares of Common Stock issuable upon conversion of
shares of Preferred Stock held by Axa U.S. Growth Fund, LLC (the "Axa
Conversion Shares"), 173,334 shares of Common Stock issuable upon
conversion of shares of Preferred Stock held by U.S. Growth Fund Partners,
C.V. (the "GFP Conversion Shares"), 16,667 shares of Common Stock issuable
upon conversion of shares of Preferred Stock held by Double Black Diamond
II, LLC (the "DBD Conversion Shares") and 6,665 shares of Common Stock
issuable upon conversion of shares of Preferred Stock held by Almanori
Limited (the "Almanori Conversion Shares"). As the investment managing
member of Axa U.S. Growth Fund, LLC, PAX V, LLC may be deemed to
beneficially own the Axa Conversion Shares. Based on a Schedule 13G dated
February 10, 1998, AXA-UAP may also be deemed to beneficially own the AXA
Conversion Shares. As the investment general partner of U.S. Growth Fund
Partners, C.V., PAR V V.O.F. may be deemed to beneficially own the GFP
Conversion Shares. As non-managing members of PAX V, LLC and general
partners of PAR V V.O.F., David Sherry and Glenn Solomon may be deemed to
beneficially own the Axa Conversion Shares and the GFP Conversion Shares.
As a managing member of PAX V, LLC and PAR V V.O.F., PAR SF, LLC may be
deemed to beneficially own the Axa Conversion Shares and the GFP Conversion
Shares. As a managing member of PAR SF, LLC and Double Black Diamond II,
LLC, Vincent Worms may be deemed to beneficially own the Axa Conversion
Shares, the GFP Conversion Shares and the DBD Conversion Shares. As a
managing member of PAR SF, LLC and Double Black Diamond II, LLC, Thomas
McKinley may be deemed to beneficially own the Axa Conversion Shares, the
GFP Conversion Shares and the DBD Conversion Shares. As a non-managing
member of PAX V, LLC, Scott Matson may be deemed to beneficially own the
Axa Conversion Shares. Each of PAX V, LLC, PAR SF, LLC, Vincent Worms,
Thomas McKinley, Scott Matson, David Sherry and Glenn Solomon disclaims
beneficial ownership of the Axa Conversion Shares, except to the extent of
their respective proportionate pecuniary interests therein. Each of PAR V
V.O.F., PAR SF, LLC, Vincent Worms, Thomas McKinley, David Sherry and Glenn
Solomon disclaims beneficial ownership of the GFP Conversion Shares, except
to the extent of their respective proportionate pecuniary interests
therein. Each of Vincent Worms and Thomas McKinley disclaims beneficial
ownership of the DBD Conversion Shares, except to the extent of their
respective proportionate pecuniary interests therein.
(5) Consists of 55,316 shares of Common Stock and 66,667 shares of Common Stock
issuable upon conversion of shares of Preferred Stock held by Venrock
Associates and 24,801 shares of Common Stock and 100,000 shares of Common
Stock issuable upon conversion of shares of Preferred Stock held by Venrock
Associates II, L.P. Patrick F. Latterell, Peter O. Crisp, Ted H.
McCourtney, Anthony B. Evnin, David R. Hathaway, Anthony Sun, Kimberley A.
Rummelsberg, Ray A. Rothrock and Mark W. Bailey are General Partners of
Venrock Associates and of Venrock Associates II, L.P. The General Partners
of
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<PAGE>
Venrock Associates and of Venrock Associates II, L.P. share voting and
investment power with respect to the shares held by Venrock Associates and
by Venrock Associates II, L.P. and may be deemed to be the beneficial
owners of such shares. Each of the General Partners of Venrock Associates
and Venrock Associates II, L.P. disclaims beneficial ownership of the
shares held by Venrock Associates and Venrock Associates II, L.P.
(6) Includes 100,000 shares of Common Stock issuable upon conversion of shares
of Preferred Stock.
(7) Includes 66,667 shares of Common Stock issuable upon conversion of shares
of Preferred Stock. Kevin J. Dougherty, a director of the Company, is a
General Partner of FH&Co. III, L.P., the General Partner of The Venture
Capital Fund of New England III, L.P. Richard A. Farrell, Harry J. Healer,
Jr. and William C. Mills III are also General Partners of FH&Co. III, L.P.
The General Partners of FH&Co. III, L.P. share voting and investment power
with respect to the shares held by The Venture Capital Fund of New England
III, L.P. and may be deemed to be the beneficial owners of such shares.
Each of the General Partners of FH&Co. III, L.P. disclaims beneficial
ownership of the shares held by The Venture Capital Fund of New England
III, L.P.
(8) Includes 83,333 shares of Common Stock issuable upon conversion of shares
of Preferred Stock. Craig C. Taylor, Franklin P. Johnson Jr., John F.
Shoch and W. Ferrell Sanders are General Partners of AMC Partners 89, L.P.,
the General Partner of Asset Management Associates 1989, L.P. The General
Partners of AMC Partners 89, L.P. share voting and investment power with
respect to the shares held by Asset Management Associates 1989, L.P. and
may be deemed to be the beneficial owners of such shares. Each of the
General Partners of AMC Partners 89, L.P. disclaims beneficial ownership of
the shares held by Asset Management Associates 1989, L.P.
(9) Includes 72,460 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of the Record Date.
(10) Includes 16,537 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of the Record Date.
(11) Consists entirely of shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of the Record Date.
(12) Consists entirely of shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of the Record Date.
Mr. Dougherty disclaims any beneficial ownership in the shares held by The
Venture Capital Fund of New England III, L.P. See Note 7.
(13) Consists entirely of shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of the Record Date. Mr. Duthie
disclaims any beneficial ownership in the shares held by Prince Venture
Partners III, L.P. See Note 3.
(14) Consists entirely of shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of the Record Date. Does not
include 679,042 shares of Common Stock issuable upon conversion of shares
of Preferred Stock held by Cahill, Warnock Strategic Partners Fund, L.P.
(see Note 2) and 37,625 shares of Common Stock issuable upon conversion of
shares of Preferred Stock held by Strategic Associates, L.P. Mr. Cahill is
a Member of Cahill Warnock & Company, LLC, the General Partner of Strategic
Associates, L.P. Mr. Cahill disclaims any beneficial ownership of the
shares held by Cahill, Warnock Strategies Partners Fund, L.P. and Strategic
Associates, L.P.
(15) Includes an aggregate of 112,188 shares of Common Stock issuable upon the
exercise of options that are exercisable within 60 days of the Record Date.
Does not include an aggregate of 575,681 shares of Common Stock and an
aggregate of 783,334 shares of Common Stock issuable upon conversion of
shares of Preferred Stock with respect to which certain directors disclaim
beneficial ownership. See Notes 2, 3, 7, 12, 13 and 14.
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<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors and persons who beneficially own
more than ten percent of the Company's Common Stock to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. Based
solely on reports and other information submitted by the executive officers,
directors and such beneficial owners, the Company believes that during the
fiscal year ended December 31, 1997, all such reports were timely filed except a
Form 3 was filed late with respect to Donald W. Hughes appointment to the Board
of Directors.
1. ELECTION OF DIRECTOR
The Company's Restated Certificate of Incorporation provides that the Board
of Directors shall be divided into three classes, as nearly equal in number as
possible, with each class having a three-year term. The Board of Directors,
pursuant to the Company's Restated Certificate of Incorporation, has fixed the
number of directorships at seven. Pursuant to the terms of the Preferred Stock,
the holders of such stock, voting as a single class, are entitled to elect two
of such directors. Pursuant to the terms of the Stockholders' Agreement,
certain of the Company's stockholders have agreed to vote all of their shares of
Preferred Stock and Common Stock to elect certain nominees to the Company's
Board of Directors. The Stockholders' Agreement provides that such nominees are
to be determined as follows: (a) the Chief Executive Officer of the Company
(currently, John C. Garbarino); (b) a person designated by the Telor Principal
Stockholders, as defined in the Stockholders' Agreement (currently, Angus M.
Duthie); (c) a person designated by the OH+R Principal Stockholders, as defined
in the Stockholders' Agreement (currently, Kevin J. Dougherty); (d) two persons
designated by Cahill, Warnock Strategic Partners Fund, L.P. (currently, Edward
L. Cahill and Donald W. Hughes); and (e) two persons unaffiliated with the
management of the Company and mutually agreeable to all of the other directors.
At the Annual Meeting, one director will be elected. The Board of Directors
has nominated Kevin J. Dougherty to serve until the 2001 Annual Meeting of
Stockholders of the Company as the director designated by the OH+R Principal
Stockholders under the Stockholders' Agreement. If elected, Mr. Dougherty shall
continue in office until a successor has been elected and qualified. Mr.
Dougherty is currently a director of the Company. Mr. Dougherty has indicated a
willingness to serve as a director, but if for any reason he should be
unavailable to serve as a director at the time of the Annual Meeting, a
contingency which the Board of Directors does not expect, a different person
designated by the Board of Directors may be nominated in his stead. Two
directorships are currently vacant. The Board of Directors is searching for
qualified candidates to fill these vacancies.
If a quorum of the holders of Common Stock is present at the Annual Meeting,
the election of Mr. Dougherty as a director will require the affirmative vote of
a plurality of the shares of Common Stock present in person or represented by
proxy and entitled to vote. Abstentions by holders of such shares and broker
non-votes with respect to the election of a director will be included in
determining the presence of such quorum but will not be included in determining
whether the nominee has received the vote of such plurality.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR SUCH
---
NOMINEE.
The following sets forth certain information regarding the nominee named
above and the other directors of the Company whose terms will continue after the
Annual Meeting.
NOMINEE FOR THREE-YEAR TERM EXPIRING 2001
KEVIN J. DOUGHERTY, age 51, has served as a director of the Company since the
merger of Occupational Health + Rehabilitation Inc ("OH+R") with and into the
Company (then known as Telor Ophthalmic Pharmaceuticals, Inc. ("Telor")) (the
"Merger") in June 1996 and previously served as a director of OH+R from July
1993 to the Merger. Mr. Dougherty is currently a General Partner of The Venture
Capital Fund of New England, a venture capital firm he joined in April 1986.
Previously, he participated in the venture capital industry as Vice President of
3i Capital Corporation from 1985 to 1986, and as Vice President of Massachusetts
Capital Resource Company from 1981 to 1985. Prior to that, Mr. Dougherty served
as a commercial banker at Bankers
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<PAGE>
Trust Company and the First National Bank of Boston. He currently serves on the
board of directors of Inspectron Corporation.
CONTINUING DIRECTORS
Terms Expiring 1999:
JOHN C. GARBARINO, age 45, a founder of OH+R, has served as President, Chief
Executive Officer and a director of the Company since the Merger and previously
served as the President and Chief Executive Officer of OH+R from its formation
in July 1992 to the Merger. From February 1991 through June 1992, Mr. Garbarino
served as President and Chief Executive Officer of Occupational Orthopaedic
Systems, Inc., a management company that operated Occupational Orthopaedic
Center, Inc., a company which was the initial acquisition of OH+R. From 1985 to
January 1991, Mr. Garbarino was associated in various capacities with Foster
Management Company ("Foster"), a private investment company specializing in
developing businesses to consolidate fragmented industries. In his association
with Foster, Mr. Garbarino was a general partner and consultant and held various
senior executive positions (including Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer) in Chartwell Group Ltd., a Foster portfolio
company organized to consolidate through acquisitions the highly fragmented
premium priced segment of the interior furnishings industry. Previously, Mr.
Garbarino participated in the venture capital industry as a founder and general
partner of Fairfield Venture Partners, L.P. and as vice president and treasurer
of Business Development Services, Inc., a venture capital subsidiary of General
Electric Company. Mr. Garbarino is a C.P.A. and previously worked at Ernst &
Whinney (a predecessor to Ernst & Young LLP).
ANGUS M. DUTHIE, age 58, has served as a director of the Company since the
Merger and previously served as a director of OH+R from June 1992 to the Merger.
Mr. Duthie is currently a General Partner of Prince Ventures, L.P., a venture
capital firm he co-founded in 1978. Mr. Duthie has over 28 years of experience
involving portfolio management. He currently serves on the board of directors
of KENETECH, Inc.
Terms Expiring in 2000:
EDWARD L. CAHILL, age 45, has served as a director of the Company since
November 1996. Mr. Cahill is a founding partner of Cahill, Warnock & Company,
LLC ("Cahill, Warnock"), an asset management firm established to invest in small
public companies. Prior to founding Cahill, Warnock in July 1995, Mr. Cahill
had been a Managing Director at Alex. Brown & Sons Incorporated where, from 1986
through 1995, he headed the firm's Health Care Investment Banking Group. Mr.
Cahill is also a director of GENEMEDICINE, INC., Jay Jacobs, Inc. and Md/Bio.
DONALD W. HUGHES, age 47, has served as a director of the Company since
December 1997. Mr. Hughes has been the Vice President and Chief Financial
Officer of Cahill, Warnock since February 1997. From December 1995 to February
1997, Mr. Hughes served as Vice President, Chief Financial Officer and Secretary
of Capstone Pharmacy Services, Inc. (Nasdaq: DOSE) and served as Executive Vice
President and Chief Financial Officer of Broventure Company, Inc., a closely-
held investment management company, from July 1984 to November 1995.
BOARD OF DIRECTORS COMMITTEES AND MEETINGS
The standing committees of the Board of Directors are the Audit Committee and
the Compensation Committee. The Board of Directors does not have a standing
nominating committee.
The Audit Committee is currently comprised of Kevin J. Dougherty, Angus M.
Duthie and Donald W. Hughes. The Audit Committee oversees the Company's system
of internal accounting controls, recommends to the Board of Directors the
appointment of a firm of independent certified auditors to conduct the annual
audit of the Company's financial statements, reviews the scope of the audit,
reviews reports from the independent certified auditors, and makes such
recommendations to the Board of Directors in connection with the annual audit as
it deems appropriate. The Audit Committee met once during 1997.
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<PAGE>
The Compensation Committee is currently comprised of Edward L. Cahill and
Angus M. Duthie. The Compensation Committee reviews the compensation of
officers of the Company and the Company's compensation policies and practices.
The Compensation Committee also administers the 1988, 1993 and 1996 Stock Plans,
including recommending the grant of stock options thereunder. The Compensation
Committee met three times during 1997.
The Board of Directors held six meetings during 1997. Each director attended
at least 75% of the aggregate of (i) the total number of meetings of the Board
of Directors and (ii) the total number of meetings held by all committees of the
Board on which such director served.
DIRECTORS' COMPENSATION
The Company's directors do not receive any cash compensation for service on
the Board of Directors or any committee thereof but are reimbursed for expenses
incurred in connection with attending meetings of the Board of Directors and any
committee thereof. Pursuant to the Company's 1993 Stock Plan (subject to the
availability of shares thereunder), each director who is not an employee of the
Company is granted on the date of his or her election a non-qualified stock
option to purchase 1,200 shares of Common Stock. The exercise price for shares
under each stock option is the fair market value of the Common Stock on the date
of grant. Such options vest ratably over three years on each of the first three
anniversary dates of the grant date and are exercisable for a period of ten
years. In addition, pursuant to the Company's 1993 Stock Plan (subject to the
availability of shares thereunder), at each annual meeting of stockholders or
special meeting in lieu thereof, each director who is not an employee of the
Company and who has been in the continued and uninterrupted service of the
Company as a director for at least the last six months is granted a non-
qualified stock option to purchase 800 shares of Common Stock. The exercise
price for each such stock option is the fair market value of the Common Stock on
the date of grant. Such options have a term of ten years and become immediately
exercisable in full as of the date of the next annual meeting of stockholders
(or special meeting in lieu thereof) following the annual meeting (or special
meeting in lieu thereof) at which the option was granted, whether or not such
director is re-elected at that meeting, provided that such director has been in
the continued and uninterrupted service of the Company as a director from the
date of that grant through the day prior to the subsequent annual meeting.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth certain information regarding the compensation
paid by the Company for the years ended December 31, 1997, 1996 and 1995 to the
Company's Chief Executive Officer and the only other executive officers whose
salary and bonus exceeded $100,000 in 1997 (together, the "Named Executive
Officers") for services rendered in all capacities to the Company and its
subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
Compensation
------------------
Awards
------------------
Annual Compensation SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR Salary ($) BONUS ($) OPTIONS (#) COMPENSATION ($)(1)
- ------------------------------------ ---- ---------- -------- ------------- ---------------------
<S> <C> <C> <C> <C> <C>
John C. Garbarino................... 1997 180,000 - - 6,170
President, Chief Executive 1996 174,088 25,000 128,319 3,670
Officer and Director 1995 152,191 - - 3,305
Richard P. Quinlan (2).............. 1997 140,000 - - 7,674
Chief Financial Officer, 1996 19,923 - 45,000 936
Treasurer, Secretary and 1995 - - - -
General Counsel
Lynne M. Rosen...................... 1997 108,654 - - 2,915
Sr. Vice President, Planning 1996 99,115 - 27,080 1,938
and Development 1995 89,615 - - 1,855
</TABLE>
__________
(1) Includes the Company's contribution under the Company's 401(k) plan and car
allowances, and in the case of Mr. Garbarino, premiums paid for life
insurance policies of which the Company is not the beneficiary.
(2) Mr. Quinlan joined the Company in November 1996.
OPTION GRANTS
No option grants were issued to the Named Executive officers in 1997.
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<PAGE>
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information concerning option holdings as of
December 31, 1997 with respect to the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE MONEY OPTIONS
ON VALUE OPTIONS AT FY-END (#) AT FY-END ($)(1)
----------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------ -------------- ------------ ------------ ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
John C. Garbarino - - 72,460 82,080 42,084 -
Richard P. Quinlan - - 11,250 33,750 - -
Lynne M. Rosen - - 16,537 15,000 7,153 -
</TABLE>
__________
(1) Based on the fair market value of the Company's Common Stock as of
December 31, 1997 ($3.375) minus the exercise price of the options.
EMPLOYMENT AGREEMENT
John C. Garbarino has an employment agreement with the Company dated June 6,
1996. The term of the agreement is two years from such date and renews
automatically for successive one-year periods until terminated. The agreement
provides for an annual salary of $180,000, subject to increase on an annual
basis in the discretion of the Board of Directors, and bonus as may be
determined by the Compensation Committee of the Board of Directors.
Mr. Garbarino is subject to a covenant not to compete with the Company for six
months after the termination of his employment. If the Company terminates the
agreement without "cause" (as defined in the agreement), or if Mr. Garbarino
becomes incapacitated, or if Mr. Garbarino resigns from the Company for "just
cause" (as defined in the agreement), then the Company shall be obligated to pay
to Mr. Garbarino six months' base salary in consideration of his covenant not to
compete.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors (the "Committee") is
composed of two Directors, Edward L. Cahill and Angus M. Duthie, both of whom
are non-employee and outside directors. the Committee is responsible for
setting and monitoring the effectiveness of the compensation provided to senior
management employees and executive officers of the Company and making
recommendations concerning the same to the Company's Board of Directors.
Compensation Philosophy
The Company's compensation philosophy is premised upon three basic goals: (1)
to attract and retain qualified individuals who shall provide skills and
leadership that will result in both short and long-term success for the Company;
(2) to reinforce strategic performance objectives through the use of incentive
compensation programs; and (3) to create a mutuality of interest between
executive officers and stockholders through compensation structures that create
a direct link between executive compensation and stockholder return.
The Company's compensation system has been designed to achieve these basic
goals by providing three separate forms of compensation consisting of base
salary, incentive-based cash compensation and equity-based compensation in the
form of stock option grants. in determining the levels of each of these aspects
of
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<PAGE>
compensation, the Committee reviews available public data published by its
competitors and information gathered by the Company through conversations with
consultants in the executive recruiting industry. through this process, the
Committee attempts to create a survey that it believes is indicative of the
Company's industry competitors after giving due regard to the relative sizes of
other companies in the occupational healthcare industry.
Base Salary
Base salary levels for the Company's executive officers and senior management
are competitively set relative to the Committee's survey results after taking
into account each executive's areas and level of responsibility, the
individual's historical performance, compensation, tenure with the Company and
the recommendations of such individual's superiors. Base salary increases are
generally modest and consistent with increases in the Consumer Price Index. If,
however, the Committee believes that the future needs of the Company warrant it,
the Committee may prudently increase base salaries above relative ranges within
the Company or above local competitors in order to ward off any potential
departures by personnel to competitors that the Committee believes would have an
adverse consequence to the Company.
Incentive Compensation
Executive officers and senior management may be awarded discretionary cash
bonuses based on the Committee's assessment of the Company's performance in the
preceding fiscal year as determined by reference to, among other factors,
qualitative and quantitative performance measures and the individual's region or
center performance against its fiscal year budget. Cash bonuses are not
determined by a formula but are determined on an individual basis pursuant to
the basic premise of fairly compensating individuals of relatively similar value
within the Company.
Incentive compensation, in the opinion of the Committee, is an excellent
means by which it can reward and motivate short-term performance by its
executive officers and senior managers, which in the opinion of the Committee
will enhance the Company's value. The Committee believes that this mechanism is
particularly successful with senior management personnel who may have relatively
lower base salaries as a percentage of overall compensation but have direct
supervision and management responsibilities over the Company's operating regions
or centers so that their activities can have an immediate impact on such
region's or center's financial performance.
Equity-Based Compensation
The Committee believes that in order to enhance long-term stockholder value
it must provide incentives that provide both short-term and long-term results.
Since the Company is still in a relatively early stage of development, the
Committee believes that its executive officers and senior management have a
tremendous opportunity to develop and obtain significant rewards by enhancing
the Company's long-term market value. Thus, a prime objective of the Company's
stock plans is to align the interests of executive officers and senior managers
with stockholders by enabling such officers and managers to develop and maintain
long-term stock ownership positions in the Company's Common Stock thereby
creating a strong and direct link between executive pay and stockholder return.
Options are typically granted annually. Individual grant sizes are
determined based on a variety of factors, which primarily include practices for
similar positions in the occupational healthcare industry, the Company's and
individual's overall performance, and finally such individual's relative level
of authority and responsibility within the Company. Before actually determining
individual grants, however, the Committee establishes distinct levels of options
pursuant to which a specific number of options are granted to each individual
assigned to such level. Then, upon weighing an individual's performance against
the foregoing factors, each executive officer and senior manager is assigned to
one of the established levels. At the discretion of the Committee, and based on
the recommendation of management, options may also be used as an incentive for
candidates recruited to fill key positions, or serve as special retention
incentives for employees with significant future potential.
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<PAGE>
Chief Executive Officer Compensation
During 1997, the Company's most highly compensated executive officer was its
Chief Executive Officer, John C. Garbarino. Mr. Garbarino is a party to an
employment agreement described above but otherwise participates in the same
executive compensation program provided to other executive officers and senior
management of the Company as described above. In 1997, Mr. Garbarino received a
base salary of $180,000, which included a 3% increase over his base salary in
1996.
Conclusion
The Committee believes that its methodology and actual compensation provided
for fiscal 1997 was appropriate and will ensure that the Company's executive
officers and senior managers will continue to be motivated to act in a manner
that will enhance the long-term interests of the Company and its stockholders.
Submitted by,
Edward L. Cahill
Angus M. Duthie
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<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Company's Common Stock with the return on the Total Return Index for the NASDAQ
Stock Market (U.S.) and the NASDAQ Health Services Index. The measurement
assumes a $100 investment as of June 6, 1996 (the date of the Merger) with all
dividends reinvested. Index comparisons begin as of May 31, 1996. The data
presented are on a semi-annual basis from the time of the Merger (or May 31,
1996 for index comparisons) to the end of fiscal 1997.
[STOCK PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Nasdaq Stock Nasdaq Health
OH+R Market (US) Services Index
---- ----------- --------------
<S> <C> <C> <C>
6/6/96 $100 $100 $100
6/30/96 129 95 95
12/31/96 196 104 83
6/30/97 114 116 87
12/31/97 96 127 85
</TABLE>
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<PAGE>
2. 1998 STOCK PLAN
The Board of Directors has unanimously adopted and recommended that the
stockholders consider and approve the Company's 1998 Stock Plan (the "1998 Stock
Plan"), under which an aggregate of 150,000 shares will be reserved for
issuance. The 1998 Stock Plan must be approved by the Company's stockholders,
otherwise the 1998 Stock Plan and any options granted pursuant thereto will be
null and void. Such approval at the Annual Meeting will require the affirmative
vote of the holders of a majority of the shares of Common Stock and Preferred
Stock present in person or represented by proxy and entitled to vote.
Abstentions by holders of such shares with respect to voting on the 1998 Stock
Plan will have the effect of a vote against the 1998 Stock Plan; broker non-
votes with respect to voting on the 1998 Stock Plan will have no effect on the
outcome of the vote.
In November 1988, the Company adopted, and its stockholders approved, the
1988 Plan, which has been amended from time to time (the "1988 Stock Plan"). In
March 1993, the Company adopted the 1993 Stock Plan, which was approved by the
Company's stockholders in April 1993 and which has been amended from time to
time (the "1993 Stock Plan"). In October 1996, the Company adopted the 1996
Stock Plan (the "1996 Stock Plan"). As of May 31, 1998, 3,948 shares of Common
Stock had been issued pursuant to the exercise of options granted under the
1988, 1993 and 1996 Stock Plans, options to purchase 437,603 shares were
outstanding under such plans and 100,803 shares were available for future grants
under such plans. To assure that sufficient shares are available to provide
stock-based incentives to those employees, directors, officers and consultants
of the Company and any subsidiaries who will be responsible for the Company's
future growth and continued success, the Board of Directors has adopted the 1998
Stock Plan. Regardless of stockholder action as to the 1998 Stock Plan, the
Company may continue to grant awards under the 1988, 1993 and 1996 Stock Plans
in accordance with their terms.
THE BOARD OF DIRECTORS UNANIMOUSLY BELIEVES THE 1998 STOCK PLAN IS ADVISABLE AND
IN THE BEST INTERESTS OF THE COMPANY AND RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE APPROVAL OF THE 1998 STOCK PLAN.
- ---
The following constitutes a brief discussion of the material features of the
1998 Stock Plan and is qualified in its entirety by reference to the 1998 Stock
Plan, the full text of which is attached hereto as Appendix A and is
incorporated herein by reference. All stockholders of the Company are urged to
read Appendix A in its entirety.
NATURE AND PURPOSE
The stated purpose of the 1998 Stock Plan is to secure for the Company and
any subsidiaries of the Company the benefits arising from capital stock
ownership by those employees, directors, officers and consultants of the Company
and any subsidiaries who will be responsible for the Company's future growth and
continued success.
The 1998 Stock Plan is designed to meet these objectives by granting stock
incentive awards to those persons whose performance or potential contribution
will benefit the Company. The 1998 Stock Plan empowers the Company to grant to
employees (including officers), directors and consultants of the Company and its
subsidiaries incentive and non-qualified stock options ("Options"), stock
appreciation rights ("SARs") and restricted stock awards ("Awards")
(collectively, the "Plan Benefits"). The 1998 Stock Plan also empowers the
Company to grant to eligible individuals any combination of any or all of these
Plan Benefits, subject to certain limitations, and to grant Plan Benefits
intended to qualify as performance-based compensation under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code").
Persons to whom grants of Plan Benefits are made are sometimes referred to as
"participants." References to "incentive stock options" are to incentive stock
options within the meaning of Section 422 of the Code.
DURATION
The 1998 Stock Plan provides that it will terminate upon the earlier of (i)
the tenth anniversary of the date of approval of the 1998 Stock Plan by the
Board of Directors, subject to approval by the stockholders of the Company, or
(ii) the date on which all shares available for issuance under the 1998 Stock
Plan shall have been issued pursuant to Awards and the exercise or cancellation
of Options and SARs granted thereunder. Plan Benefits outstanding on the
termination date of the 1998 Stock Plan will continue to have full force and
effect in accordance
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<PAGE>
with the provisions of the instruments evidencing the Plan Benefits. Pursuant to
the 1998 Stock Plan, the Board of Directors may modify, amend, terminate or
suspend the 1998 Stock Plan from time to time or at any time without stockholder
approval (except as otherwise required by law), including amending the 1998
Stock Plan to increase the number of shares of Common Stock subject to the 1998
Stock Plan. Any such modification, amendment, termination or suspension of the
1998 Stock Plan will not impair the rights of any person with respect to any
Plan Benefit previously granted.
ADMINISTRATION
The 1998 Stock Plan may be administered by the Board of Directors of the
Company, or a Compensation Committee or other committee, appointed by the Board
of Directors and consisting of at least two directors, whose construction and
interpretation of the terms and provisions of the 1998 Stock Plan are final and
conclusive. The Board of Directors has delegated many of its powers under the
1998 Stock Plan to the Company's Compensation Committee. Members of the
Compensation Committee serve at the discretion of the Board of Directors. The
Compensation Committee may grant Plan Benefits containing performance-based
criteria to participants, recommend to the Board of Directors the grant of other
Plan Benefits, issue shares upon exercise of Options and SARs, and may recommend
to the Board of Directors the grant of other Awards, all as provided in the 1998
Stock Plan. The Compensation Committee has the authority, subject to the
express provisions of the 1998 Stock Plan, to construe the 1998 Stock Plan and
its related agreements, to prescribe, amend and rescind the rules and
regulations relating to the 1998 Stock Plan, to determine the terms and
provisions of the respective Plan Benefits agreements, which need not be
identical, and to make all other determinations in the judgment of the
Compensation Committee necessary or desirable for the administration of the 1998
Stock Plan. The 1998 Stock Plan provides that if Plan Benefits are to be
approved solely by a committee, the committee members must be "outside
directors" as that term is used in the regulation related to Section 162(m) of
the Code and "non-employee directors" as that term is used in Rule 16b-3 under
the Securities Exchange Act of 1934, as amended.
SHARES SUBJECT TO THE 1998 STOCK PLAN
The stock to be offered under the 1998 Stock Plan consists of shares of the
Company's Common Stock. The last sale price for the Company's Common Stock as
reported by the Nasdaq SmallCap Market on the Record Date was $4.875 per share.
The maximum number of shares of Common Stock in respect of which Plan Benefits
may be granted pursuant to the provisions of the 1998 Stock Plan may not exceed
150,000 (subject to adjustment for stock splits, stock dividends,
recapitalizations and the like). The shares may be either authorized and
unissued shares, treasury shares or shares purchased on the open market. If the
Company reacquires unvested shares issued pursuant to Awards under the 1998
Stock Plan, or if an Option or SAR expires or terminates without having been
exercised in full, the reacquired or unexercised shares will be available for
subsequent grant under the 1998 Stock Plan. Shares of Common Stock issued
pursuant to the 1998 Stock Plan may be subject to such restrictions on transfer,
repurchase rights or other restrictions as may be determined by the Compensation
Committee.
ELIGIBILITY
All employees (including officers) of the Company or any of its subsidiaries
are eligible to receive incentive stock options pursuant to the 1998 Stock Plan.
All employees (including officers), directors and consultants of the Company or
any of its subsidiaries are eligible to receive non-qualified options, SARs and
Awards. All employees (including officers), directors and consultants of the
Company or any of its subsidiaries are eligible to receive Plan Benefits
containing performance-based criteria. As of May 31, 1998, approximately 300
persons were eligible to participate in the 1998 Stock Plan.
The selection of participants in, and the nature and size of grants under,
the 1998 Stock Plan are within the discretion of the Compensation Committee,
subject to approval by the Board of Directors except in the case of Plan
Benefits intended to qualify as performance-based compensation. However, under
the 1998 Stock Plan, the maximum number of shares with respect to which Options
or SARs may be granted to any employee shall be limited to 100,000 shares of
Common Stock in any calendar year. The Board of Directors' designation of a
participant in any year does not require the Board of Directors to designate
such person to receive a grant in any other year. The Compensation Committee
has granted Options under the 1998 Stock Plan to the persons or groups listed in
the table below, subject to approval of the 1998 Stock Plan by the stockholders
of the Company.
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<PAGE>
Consequently, such persons have a substantial interest in the approval of the
1998 Stock Plan since they would be directly benefited by such Options. The
options have an exercise price of $3.00 per share (the fair market value of a
share of the Company's Common Stock on the date of grant) and a ten-year term,
vesting fully on December 31, 1998 if various performance goals are achieved.
<TABLE>
<CAPTION>
NUMBERS OF OPTIONS
GRANTED SUBJECT TO
NAME AND POSITION STOCKHOLDER APPROVAL
- ------------------------------------------------------------------------ --------------------
<S> <C>
John C. Garbarino, President, Chief Executive Officer
and Director.......................................................... 60,000
Richard P. Quinlan, Chief Financial Officer,
Treasurer, Secretary and General Counsel.............................. 5,000
Lynne M. Rosen, Senior Vice President,
Planning and Development.............................................. 5,000
H. Nicholas Kirby, Senior Vice President,
Corporate Development................................................. 5,000
All current executive officers as a group............................... 75,000
All current directors who are not executive officers
as a group............................................................ -
All current employees, including all current officers
who are not executive officers, as a group............................ 45,000
</TABLE>
If the 1998 Stock Plan is not approved by the stockholders, all such options
listed above shall become null and void. If 1998 Stock Plan is approved, such
approval would not limit the Company's right to award or pay other forms of
compensation (including, but not limited to other stock-based awards) to the
person or groups listed above if the Compensation Committee and/or the Board of
Directors determine that the award or payment of such other forms of
compensation is in the best interest of the Company.
The 1998 Stock Plan permits the Compensation Committee to award Plan Benefits
intended to qualify as performance-based compensation under Section 162(m) of
the Code. The Compensation Committee believes it is in the best interest of the
Company to provide performance-based compensation that allows the Company to
attract, retain and provide appropriate incentives for qualified and capable
employees while also ensuring that the Company will continue to obtain tax
deductions for performance-based compensation awarded to them and has granted
the foregoing options to further such interests. Section 162(m) of the Code
generally does not allow publicly held companies to obtain tax deductions for
compensation of more than $1 million paid in any year to their Chief Executive
Officer, or any of their other four most highly compensated executive officers,
unless such payments are "performance-based" in accordance with conditions
specified in that law. One of those conditions requires the Company to obtain
stockholder approval of the material terms of the performance goals set by a
committee of outside directors for certain compensation awards or payments.
This condition will be satisfied if the stockholders approve the 1998 Stock Plan
which sets forth the business criteria on which performance goals are based.
See "Performance Goals" below.
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<PAGE>
OPTIONS AND SARS
Options
Options granted under the 1998 Stock Plan may be in the form of incentive
stock options or non-qualified stock options. Options may be granted under the
1998 Stock Plan on such terms and conditions not inconsistent with the
provisions of the 1998 Stock Plan and in such form as the Board of Directors may
from time to time approve.
The Option exercise price per share of Common Stock purchasable under an
Option granted under the 1998 Stock Plan shall be determined by the Board of
Directors at the time of grant. The exercise price of an incentive stock
option, however, shall not be less than the fair market value of Common Stock on
the date of grant or, in the case of an incentive stock option to be granted to
a participant owning stock having more than 10% of the total combined voting
power of all classes of stock of the Company or any subsidiary, the exercise
price per share shall be not less than 110% of the fair market value of such
stock on the date of grant. The exercise price of a non-qualified stock option
shall not be less than 50% of the fair market value of Common Stock on the date
of grant.
The term of each Option granted under the 1998 Stock Plan shall be fixed by
the Board of Directors; however, the term of any Option may not exceed ten years
from the date of grant, except that the term of any incentive stock option
granted to a participant owning stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any subsidiary
may not exceed five years.
An Option granted under the 1998 Stock Plan shall be exercisable in equal
annual installments over a four-year period or at such other time or times and
subject to such conditions as the Board of Directors shall determine at the date
of grant and as set forth in the instrument evidencing the Option. With respect
to incentive stock options, the aggregate fair market value (determined as of
the date of grant) of the number of shares with respect to which such incentive
stock options are exercisable for the first time by a participant during any
calendar year may not exceed $100,000 or such other limit as may be established
under Section 422 of the Code.
An Option granted under the 1998 Stock Plan may be exercised as provided in
the instrument evidencing the option; however, no partial exercise of the Option
may be for less than ten shares. Payment of the exercise price may be made with
cash, with shares of Common Stock or with a combination of cash and stock. The
Compensation Committee may also permit participants to simultaneously exercise
options and sell the shares of Common Stock thereby acquired, pursuant to a
brokerage or similar arrangement, approved in advance by the Compensation
Committee, and to use the proceeds from such sale as payment of the purchase
price. The Compensation Committee may, in its discretion, accelerate the date
of exercise of any installments of any Options, provided that no acceleration
will be made that would violate the annual vesting limitation contained in
Section 422(d) of the Code with respect to incentive stock options.
No shares of Common Stock will be issued under the 1998 Stock Plan unless
counsel for the Company is satisfied that such issuance will be in compliance
with applicable federal and state securities laws or any applicable listing
requirements of any national securities exchange on which the Common Stock is
then listed. Any participant in the 1998 Stock Plan may be required to
represent and agree in writing that the stock acquired by the participant is
being acquired for investment.
Stock Appreciation Rights
Under the 1998 Stock Plan, an SAR may be granted in tandem with, in addition
to, or independent of any other grant. An SAR is the right to receive, without
payment, an amount equal to the excess, if any, of the fair market value of a
share of Common Stock on the date of exercise over the grant price of such
share, multiplied by the number of shares as to which the SARs shall have been
exercised. The Company will pay such amount to the holder in cash or in shares
of Common Stock or a combination thereof, as the Compensation Committee may
determine.
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<PAGE>
An SAR may be exercised by a participant in accordance with procedures
established by the Compensation Committee. The Compensation Committee may also
determine that an SAR shall be automatically exercised on one or more specified
dates.
Employment
An Option or SAR shall terminate if the participant ceases to be employed by
the Company or a subsidiary for any reason other than death, except that the
participant may exercise within the three-month period following termination of
employment any unexpired portion of an Option or SAR that was otherwise
exercisable on the date of termination of employment. If a participant dies
while an employee of the Company or a subsidiary, any Option or SAR granted to
such participant may be exercised by the participant's personal representatives
or heirs within six months of the participant's death to the extent that the
participant could have exercised the Option or SAR on the date of his or her
death.
Transferability
No Option or SAR granted under the 1998 Stock Plan, and no right or interest
therein, is assignable or transferable by a participant except by will or the
laws of descent and distribution or, with respect to non-qualified stock options
and SARs, pursuant to a qualified domestic relations order as defined in the
Code or Title I of the Employee Retirement Income Security Act ("ERISA") or the
rules promulgated thereunder, or to the extent the participant's agreement
granting such non-qualified stock option or SAR provides otherwise.
AWARDS
The Board of Directors may grant a participant an Award of shares of Common
Stock, on such terms and conditions and subject to such restrictions as the
Board of Directors may determine. Such restrictions may include restrictions on
the pledging, sale, assignment, transfer or other disposition of such shares and
the requirement that the participant forfeit all or a portion of such shares to
the Company upon termination of employment. Each participant receiving an Award
may be required to enter into a stock restriction agreement with the Company
agreeing to such restrictions. Shares issued pursuant to an Award are held by
the participant as holder of record for all purposes, including voting and
receipt of dividends.
Transferability
Shares of Common Stock issued pursuant to an Award may not be sold, assigned,
transferred or otherwise disposed of, except, subject to the terms of any stock
restriction agreement, by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations order as defined in the Code or Title
I of ERISA or the rules promulgated thereunder, and may not be pledged or
hypothecated as collateral for a loan, prior to the lapse of restrictions on
such shares. Any attempt by the participant to dispose of or encumber the
shares issued pursuant to an Award prior to the lapse of restrictions on such
shares will cause the participant's interest in such shares to terminate.
Employment
If prior to the lapse of the restrictions on the stock the participant ceases
to be an employee of the Company or a subsidiary for any reason, all such shares
which remain subject to restrictions shall be forfeited to the Company.
PERFORMANCE GOALS
The Compensation Committee may require satisfaction of pre-established
performance goals consisting of one or more business criteria, and a targeted
performance level with respect to such criteria, as a condition of Plan Benefits
being granted or becoming exercisable under the 1998 Stock Plan, or as a
condition to accelerating the timing of such events. If so determined by the
Compensation Committee in order to avoid the limitations of Section 162(m) of
the Code, the business criteria used by the Compensation Committee in
establishing performance goals applicable to Plan Benefits to participants,
including the Chief Executive Officer and the four
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<PAGE>
other most highly compensated executive officers, will be selected exclusively
from among the following: (i) pre-tax income; (ii) operating profit; (iii)
return to stockholders; (iv) return on equity, (v) earnings per share; (vi)
revenues and revenue growth; (vii) cash flow; (viii) Company-created income (for
example, income due to Company-initiated cost reductions or productivity
improvements); (ix) stock price; and/or (x) strategic business criteria,
consisting of one or more objectives based on region or center performance
compared to budget, meeting specific revenue, market penetration, business
expansion goals and cost targets, and goals relating to affiliations, joint
ventures, acquisitions and divestitures as specified by the Compensation
Committee. The maximum number of shares to be awarded under Plan Benefits to any
single participant in a calendar year is 100,000.
CHANGE IN CONTROL
The 1998 Stock Plan provided that in the event of a "Change in Control" (as
defined in the 1998 Stock Plan) of the Company, subject to certain exceptions,
(i) vesting of Options and SARs shall accelerate such that (1) upon the Change
in Control, the participant would be entitled to exercise his or her Options
and/or SARs to the extent of 50% of the number of shares not otherwise
exercisable at the time of the Change in control, (2) beginning six months after
the Change in Control, the participant would be entitled to exercise his or her
Options and/or SARs to the extent of an additional 25% of the number of shares
not otherwise exercisable at the time of the Change in Control, and (3)
beginning eighteen months after the Change in Control, the participant would be
entitled to exercise his or her Options and/or SARs to the extent of an
additional 25% of the number of shares not otherwise exercisable at the time of
the Change in Control; and (ii) a participant who is an officer of the Company
(including the controller) who is terminated other than for cause or who resigns
because of a significant diminution of his or her duties and responsibilities,
in either case within 180 days before a Change in Control or within eighteen
months after a Change in Control and in conjunction with such Change in Control,
shall be entitled to exercise his or her Option sand SARs to the extent of 100%
of the number of shares covered thereby. For purposes of the 1998 Stock Plan, a
Change in Control means (i) the acquisition by a third person of beneficial
ownership of securities of the Company representing 25% or more of the total
number of votes that may be cast for the election of directors of the Company,
or (ii) as a result of, or in connection with any tender or exchange offer,
merger, consolidation or other business combination, sale of assets or one or
more contested elections, or any combination of the foregoing transactions, the
persons who were directors of the Company shall cease to constitute a majority
of the Board of Directors of the Company.
The 1998 Stock Plan also provides that in the case of any tender or exchange
offer, merger, consolidation or other business combination or sale of all or
substantially all of the assets of the Company which does not constitute a
Change in Control, or in the case of a reorganization or liquidation of the
Company, the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, will, as to outstanding
Options, SARs and Awards, (1) make appropriate provision for the protection of
any such outstanding Options, SARs and Awards by the substitution on an
equitable basis of appropriate stock of the Company or of the merged,
consolidated or otherwise reorganized corporation which will be issuable or
exercisable in respect of the shares of Common Stock, (2) upon written notice to
the participants, provide that all unexercised Options and SARs must be
exercised within a specified number of days of the date of such notice or such
Options and SARs will be terminated, or (3) upon written notice to the
participants, provide that the Company or the merged, consolidated or otherwise
reorganized corporation shall have the right, upon the effective date of any
such merger, consolidation, sale of assets or reorganization, to purchase all
Options, SARs and Awards held by each participant and unexercised as of that
date for an amount and in the form determined pursuant to the 1998 Stock Plan.
FEDERAL INCOME TAX CONSEQUENCES
Based on current provisions of the Code, and the existing regulations
thereunder, certain anticipated federal income tax consequences with respect to
the several types of grants are described below.
Grant of Options and SARs
A participant will not recognize any taxable income at the time an Option or
SAR is granted, and the Company will not be entitled to a federal income tax
deduction at that time.
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<PAGE>
Incentive Stock Options
No ordinary income will be recognized by a participant holding an incentive
stock option at the time of exercise. The excess of the fair market value of
the shares at the time of exercise over the aggregate option exercise price will
be an adjustment to alternative minimum taxable income for purposes of the
federal "alternative minimum tax" at the date of exercise. If the participant
holds the shares for the greater of two years after the date the option was
granted or one year after the acquisition of such shares, the difference between
the amount realized upon disposition of the shares and the aggregate option
exercise price will constitute a long-term capital gain or loss, as the case may
be, and the Company will not be entitled to a federal income tax deduction. If
the shares are disposed of in a sale, exchange or other "disqualifying
disposition" (including the use of the shares to exercise subsequent options)
within two years after the date of grant or within one year after the date of
exercise, the participant will realize taxable ordinary income in an amount
equal to the excess of the fair market value of the shares purchased at the time
of exercise over the aggregate option exercise price, and the Company will
usually be entitled to a federal income tax deduction equal to such amount. In
addition, the participant will have a taxable capital gain equal to the
difference, if any, between: (i) the amount realized upon disposition of the
shares, and (ii) the sum of the aggregate option exercise price plus the amount
of ordinary income on which the participant was taxed.
Non-Qualified Stock Options
Taxable ordinary income will be recognized by the participant at the time of
exercise of a non-qualified stock option in an amount equal to the excess of the
fair market value of the shares purchased at the time of such exercise over the
aggregate option exercise price. The Company will usually be entitled to a
corresponding federal income tax deduction. At the time of a subsequent sale of
the shares, the participant will generally recognize a taxable capital gain or
loss based upon the difference between the aggregate selling price of the shares
and the aggregate fair market value of the shares at the time of exercise.
Stock Appreciation Rights
Upon the exercise of an SAR, the participant will realize taxable ordinary
income on the amount of cash received and/or the then current fair market value
of the shares of Common Stock received, and the Company will usually be entitled
to a corresponding federal income tax deduction. The participant's basis in any
shares of Common Stock received will be equal to the amount of ordinary income
upon which the participant was taxed. Upon any subsequent disposition, any gain
or loss realized will be a capital gain or loss.
Awards
Unless a participant makes the election described below, a participant
receiving a restricted Award will not recognize income, and the Company will not
be allowed a deduction, at the time of grant of such Award, assuming no portion
of the Award is vested at the time of grant. While the restrictions on the
shares are in effect, a participant will recognize compensation income equal to
the amount of the dividends received, and the Company will be allowed a
deduction in a like amount. When the restrictions on the shares are removed or
lapse, the fair market value of the shares on the date the restrictions are
removed or lapse in excess of the amount, if any, paid by the participant will
be ordinary income to the participant in the year in which such restrictions are
removed or lapse, and such amount will be allowed as a deduction for federal
income tax purposes to the Company. Upon disposition of the shares, the gain or
loss recognized by the participant shall be equal to the difference between the
amount realized on such disposition and the fair market value of the shares on
the date the restrictions were removed or lapsed. Such amount will be treated
as capital gain or loss, and the capital gain or loss will be short-term or
long-term depending upon the period of time the shares are held by the
participant following the removal or lapse of the restrictions. If the
restrictions do not lapse and the shares are forfeited by the participant and
thus returned to the Company, there will be no federal income tax consequences
to either the participant or the Company. If permitted by the Compensation
Committee, by properly filing an election pursuant to Section 83(b) of the Code
with the Internal Revenue Service within 30 days after the date of grant
(assuming that the date of grant is the date the participant acquires a
beneficial interest in the Award), a participant's ordinary income and
commencement of the holding period and the Company's deduction will be
determined as of the date of grant. In such a case, the amount of ordinary
income recognized by such a participant and deductible by the Company will
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be equal to the fair market value of the shares as of the date of grant. If such
election is made and a participant thereafter forfeits his or her stock, no
refund or deduction will be allowed for the amount previously included in such
participant's income.
Special Rules
To the extent a participant pays all or part of the option exercise price of
a non-qualified stock option by tendering shares of Common Stock owned by the
participant, the tax consequences described above apply except that the number
of shares received upon such exercise which is equal to the number of shares
surrendered in payment of the option exercise price shall have the same tax
basis and holding period as the shares surrendered. The additional shares
received upon such exercise shall have a tax basis equal to the amount of
ordinary income recognized on such exercise and a holding period which commences
on the date of exercise. To preserve the Company's deductions with respect to
the non-qualified options and SARs, the Board of Directors may be required to
set the exercise or grant price for such non-qualified options and SARs at the
fair market value of a share of Common Stock on the date of grant.
Withholding Taxes
Withholding taxes must be paid by the participant at the time of exercise of
any non-qualified stock option or SAR prior to the delivery of shares. In
respect of Awards, withholding taxes must be paid by the participant when
ordinary income to the participant is recognized for tax purposes.
Section 162(m)
As discussed above, under Section 162(m) of the Code, the Company is not
entitled to a federal income tax deduction for compensation in excess of $1
million paid in any year to its Chief Executive Officer and its four other most
highly compensated executive officers, subject to certain exceptions.
Compensation that qualifies as "performance-based" under Section 162(m) is
exempt from this limitation. In addition to Options and SARs granted subject to
the attainment of pre-established performance goals described above, Options and
SARs granted under the 1998 Stock Plan at an exercise price that is not less
than the fair market value of the Company's Common Stock on the date of grant
are designed to satisfy the requirements for the performance-based exemption.
However, Awards granted under the 1998 Stock Plan not subject to the attainment
of performance goals would not qualify for the performance-based exemption under
Section 162(m).
General
Because the tax consequences to a participant may vary depending upon the
participant's individual situation, and because such tax consequences are
subject to change due to changes in tax laws or regulations, each participant
should consult his or her personal tax advisor regarding the federal, and any
state, local or foreign, tax consequences to the participant.
INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of the Audit Committee, has
selected Ernst & Young LLP ("Ernst & Young") as independent certified auditors
to audit the consolidated financial statements of the Company for the fiscal
year ending December 31, 1998. Ernst & Young served as the Company's
independent certified auditors for the fiscal year ended December 31, 1997 and
has reported on the Company's consolidated financial statements for such year.
Representatives of Ernst & Young are expected to be present at the Annual
Meeting, will have the opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions from stockholders.
On September 24, 1996, the Board of Directors of the Company, upon the
recommendation of the Audit Committee, dismissed its prior independent
accountants, Arthur Andersen LLP ("Arthur Andersen"), and appointed Ernst &
Young as the independent public accountants to audit the financial statements of
the Company and its consolidated subsidiaries for the fiscal year ended December
31, 1996. This change in the Company's auditing firm was due to the Merger,
effective June 6, 1996, of OH+R with Telor, with the Company being the
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surviving corporation. Prior to the Merger, Arthur Andersen served as
independent accountants for Telor, and Ernst & Young served as independent
accountants for OH+R. The Merger was accounted for as a "reverse acquisition"
whereby OH+R was deemed to have acquired Telor for financial reporting purposes.
Consistent with the reverse acquisition accounting treatment, historical
financial statements for the Company for periods prior to the date of the Merger
are those of OH+R. Because the financial statements of the Company are
substantially the financial statements of OH+R, the Board of Directors of the
Company considered it appropriate to engage Ernst & Young rather than Arthur
Andersen as the Company's independent accountants.
The reports of Arthur Andersen on the consolidated financial statements of
Telor as of and for the years ended December 31, 1995 and 1994 did not contain
any adverse opinion or disclaimer of opinion, and were not qualified or modified
as to uncertainty, audit scope or accounting principles, nor during the same
period of time or the subsequent interim periods through September 24, 1996 have
there been any disagreements with Arthur Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to their satisfaction, would
have caused them to make reference to the subject matter of the disagreement in
connection with their reports. Furthermore, during the last two fiscal years of
Telor and the subsequent interim periods through September 24, 1996, there were
no "reportable events" as described in Paragraph 304(a)(1)(v) of Regulation S-K.
During the years ended December 31, 1995 and 1994 and the subsequent interim
periods through September 24, 1996, neither the Company nor anyone on its behalf
consulted Ernst & Young regarding either (i) the application of accounting
principles to a specified transaction (whether completed or proposed) except as
described below, or the type of audit opinion that might be rendered on the
Company's financial statements, or (ii) any matter that was either the subject
of a disagreement (as described in Paragraph 304(a)(1)(iv) of Regulation S-K) or
a reportable event (as described in Paragraph 304(a)(1)(v) of Regulation S-K).
In connection with the consummation of the Merger, OH+R consulted with Ernst &
Young regarding the "reverse acquisition" treatment of the transaction.
Compliance with the elements of that accounting treatment impacted the structure
of the transaction for the Company. In addition, subsequent to the Merger, the
Company consulted with Ernst & Young (i) to determine the appropriate financial
statements to be filed as part of the Form 8-K/A reporting the Merger; (ii) to
consider whether various proposed acquisitions required the filing of a Form 8-
K; and (iii) to advise the Company on the relevant criteria for consolidation of
subsidiaries resulting from proposed acquisitions for financial reporting
purposes. Ernst & Young did not provide the Company with written reports
related to these issues. The Company did not consult with Arthur Andersen
regarding these issues.
The Company previously reported these events on a Current Report on Form 8-K
dated September 24, 1996.
OTHER BUSINESS
The Board of Directors knows of no other business to be brought before the
Annual Meeting. If, however, any other business should properly come before the
Annual Meeting, the persons named in the accompanying proxy will vote the proxy
as in their discretion they may deem appropriate, unless they are directed by
the proxy to do otherwise.
STOCKHOLDERS PROPOSALS FOR 1999
Any proposal intended to be presented by a stockholder at the Company's 1999
Annual Meeting of Stockholders must comply with the procedures set forth in the
Company's by-laws and must be presented to the Company within a reasonable time
prior to the solicitation of proxies related to the meeting. Proposals should
be addressed to Richard P. Quinlan, Occupational Health + Rehabilitation Inc,
175 Derby Street, Suite 36, Hingham, Massachusetts 02043-4058.
By order of the Board of Directors,
Richard P. Quinlan
Hingham, MA Secretary
June 29, 1998
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APPENDIX A
----------
OCCUPATIONAL HEALTH + REHABILITATION INC
1998 STOCK PLAN
SECTION 1. PURPOSE
- --------- -------
The purpose of the 1998 Stock Plan (the "Plan") is to secure for
Occupational Health + Rehabilitation Inc (the "Company"), its parent (if any)
and any subsidiaries of the Company (collectively the "Related Companies") the
benefits arising from capital stock ownership by those employees, directors,
officers and consultants of the Company and any Related Companies who will be
responsible for the Company's future growth and continued success.
The Plan will provide a means whereby (a) employees of the Company and
any Related Companies may purchase stock in the Company pursuant to options
which qualify as "incentive stock options" ("Incentive Stock Options") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
(b) directors, employees and consultants of the Company and any Related
Companies may purchase stock in the Company pursuant to options granted
hereunder which do not qualify as Incentive Stock Options ("Non-Qualified
Option" or "Non-Qualified Options"); (c) directors, employees and consultants of
the Company and any Related Companies may be awarded stock in the Company
("Awards"); and (d) directors, employees and consultants of the Company and any
Related Companies may receive stock appreciation rights ("SARs"). Both Incentive
Stock Options and Non-Qualified Options are referred to hereafter individually
as an "Option" and collectively as "Options." As used herein, the terms "parent"
and "subsidiary" mean "parent corporation" and "subsidiary corporation" as those
terms are defined in Section 424 of the Code. Options, Awards and SARs are
referred to hereafter individually as a "Plan Benefit" and collectively as "Plan
Benefits." Directors, employees and consultants of the Company and any Related
Companies are referred to herein as "Participants."
SECTION 2. ADMINISTRATION
- --------- --------------
2.1 BOARD OF DIRECTORS AND THE COMMITTEE. The Plan will be
------------------------------------
administered by the Board of Directors of the Company whose construction and
interpretation of the terms and provisions hereof shall be final and conclusive.
Any director to whom a Plan Benefit is awarded shall be ineligible to vote upon
his or her Plan Benefit, but Plan Benefits may be granted to any such director
by a vote of the remainder of the directors, except as limited below. The Board
of Directors may in its sole discretion grant Options, issue shares upon
exercise of such Options, grant Awards and grant SARs all as provided in the
Plan. The Board of Directors shall have authority, subject to the express
provisions of the Plan, to construe the Plan and its related agreements, to
prescribe, amend and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of the respective Option, Award and SAR
agreements, which need not be identical, and to make all other determinations in
the judgment of the Board of Directors necessary or desirable for the
administration of the Plan. The Board of Directors may correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any related
agreement in the manner and to the extent it shall deem expedient to carry the
Plan into effect, and it shall be the sole and final judge of such expediency.
No director shall be liable for any action or determination made in good faith.
The Board of Directors may delegate any or all of its powers under the Plan to a
Compensation Committee or other Committee (the "Committee") appointed by the
Board of Directors consisting of at least two members of the Board of Directors.
If Plan Benefits are to be approved solely by a Committee, the members of the
Committee shall at all times be: (i) "outside directors" as that term is defined
in Treas. Reg. (S)1.162-27(e)(3) (or any successor regulation); and (ii) "non-
employee directors" within the meaning of Rule 16b-3 (or any successor rule)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
such terms are interpreted from time to
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time. If the Committee is so appointed, all references to the Board of Directors
herein shall mean and relate to such Committee, unless the context otherwise
requires.
2.2 COMPLIANCE WITH SECTION 162(M) OF THE CODE. Section 162(m) of
------------------------------------------
the Code generally limits the tax deductibility to publicly held companies of
compensation in excess of $1,000,000 paid to certain "covered employees"
("Covered Employees"). It is the Company's intention to preserve the
deductibility of such compensation to the extent it is reasonably practicable
and to the extent it is consistent with the Company's compensation objectives.
For purposes of this Plan, Covered Employees of the Company shall be those
employees of the Company described in Section 162(m)(3) of the Code.
SECTION 3. ELIGIBILITY
- --------- -----------
3.1 INCENTIVE STOCK OPTIONS. Participants who are employees shall
-----------------------
be eligible to receive Incentive Stock Options pursuant to the Plan; provided
that no person shall be granted any Incentive Stock Option under the Plan who,
at the time such Option is granted, owns, directly or indirectly, Common Stock
of the Company possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of its Related Companies, unless the
requirements of Section 6.6(b) hereof are satisfied. In determining whether
this 10% threshold has been reached, the stock attribution rules of Section
424(d) of the Code shall apply. Directors who are not regular employees are not
eligible to receive Incentive Stock Options.
3.2 NON-QUALIFIED OPTIONS, AWARDS AND SARS. Non-Qualified
--------------------------------------
Options, Awards and SARs may be granted to any Participant.
3.3 GENERALLY. The Board of Directors may take into consideration
---------
a Participant's individual circumstances in determining whether to grant an
Incentive Stock Option, a Non-Qualified Option, an Award or an SAR. Granting of
any Option, Award or SAR for any individual shall neither entitle that
individual to, nor disqualify that individual from, participation in any other
grant of Plan Benefits.
SECTION 4. STOCK SUBJECT TO PLAN
- --------- ---------------------
Subject to adjustment as provided in Sections 10 and 11 hereof, the
stock to be offered under the Plan shall consist of shares of the Company's
Common Stock, $.001 par value, and the maximum number of shares which will be
reserved for issuance, and in respect of which Plan Benefits may be granted
pursuant to the provisions of the Plan, shall not exceed in the aggregate
150,000 shares. Such shares may be authorized and unissued shares, treasury
shares or shares purchased on the open market. If an Option or SAR granted
hereunder shall expire or terminate for any reason without having been exercised
in full, or if the Company shall reacquire any unvested shares issued pursuant
to Awards, the unpurchased shares subject thereto and any unvested shares so
reacquired shall again be available for subsequent grants of Plan Benefits under
the Plan. Stock issued pursuant to the Plan may be subject to such restrictions
on transfer, repurchase rights or other restrictions as shall be determined by
the Board of Directors.
SECTION 5. GRANTING OF OPTIONS, SARS AND AWARDS
- --------- ------------------------------------
Plan Benefits may be granted under the Plan at any time after January
16, 1998 (the date of approval of the Plan by the Board of Directors), subject
to approval of the Plan by the stockholders of the Company, and prior to January
16, 2008; provided, however, that nothing in the Plan shall be construed to
obligate the Company to grant Plan Benefits to a Participant or anyone claiming
under or through a Participant. The date of grant of Plan Benefits under the
Plan will be the date specified by the Board of Directors at the time the Board
of Directors grants such Plan Benefits; provided, however, that such date shall
not be prior to the date on which the Board of
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Directors takes such action. The Board of Directors shall have the right, with
the consent of a Participant, to convert an Incentive Stock Option granted under
the Plan to a Non-Qualified Option pursuant to Section 6.7. Plan Benefits may be
granted alone or in addition to other grants under the Plan.
SECTION 6. SPECIAL PROVISIONS APPLICABLE TO OPTIONS AND SARS
- --------- -------------------------------------------------
6.1 PURCHASE PRICE AND SHARES SUBJECT TO OPTIONS AND SARS.
-----------------------------------------------------
(a) The purchase price per share of Common Stock deliverable upon
the exercise of an Option shall be determined by the Board of Directors;
provided, however, that (i) in the case of an Incentive Stock Option, the
-------- -------
exercise price shall not be less than 100% of the fair market value of such
Common Stock on the day the Option is granted (except as modified in
Section 6.6(b) hereof), and (ii) in the case of a Non-Qualified Option, the
exercise price shall not be less than 50% of the fair market value on the
day such Option is granted.
(b) Options granted under the Plan may provide for the payment of
the exercise price by delivery of (i) cash or a check payable to the order
of the Company in an amount equal to the exercise price of such Options,
(ii) shares of Common Stock of the Company owned by the Participant having
a fair market value equal in amount to the exercise price of the Options
being exercised, or (iii) any combination of (i) and (ii). The fair market
value of any shares of the Company's Common Stock which may be delivered
upon exercise of an Option shall be determined by the Board of Directors.
The Board of Directors may also permit Participants, either on a selective
or aggregate basis, to simultaneously exercise Options and sell the shares
of Common Stock thereby acquired, pursuant to a brokerage or similar
arrangement, approved in advance by the Board of Directors, and to use the
proceeds from such sale as payment of the purchase price of such shares.
(c) If, at the time an Option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes
discussed in this sentence are available prior to the date such Option is
granted (the "Determination Date") and shall mean (i) the average (on the
Determination Date) of the high and low prices of the Common Stock on the
principal national securities exchange on which the Common Stock is traded,
if such Common Stock is then traded on a national securities exchange; (ii)
the last reported sale price (on the Determination Date) of the Common
Stock on The Nasdaq Stock Market if the Common Stock is not then traded on
a national securities exchange; or (iii) the closing bid price (or average
of bid prices) last quoted (on the Determination Date) by an established
quotation service for over-the-counter securities, if the Common Stock is
not reported on The Nasdaq Stock Market. However, if the Common Stock is
not publicly traded at the time an Option is granted under the Plan, "fair
market value" shall be deemed to be the fair value of the Common Stock as
determined by the Board of Directors after taking into consideration all
factors which it deems appropriate, including, without limitation, recent
sale and offer prices of the Common Stock in private transactions
negotiated at arm's length.
(d) The maximum number of shares with respect to which Options or SARs
may be granted to any employee, including any transactions contemplated by
Treas. Reg. (S)1.162-27(e)(2)(vi), shall be limited to 100,000 shares in
any calendar year.
6.2 DURATION OF OPTIONS AND SARS. Subject to Section 6.6(b)
----------------------------
hereof, each Option and SAR and all rights thereunder shall be expressed to
expire on such date as the Board of Directors may determine, but in no event
later than ten years from the day on which the Option or SAR is granted and
shall be subject to earlier termination as provided herein.
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6.3 EXERCISE OF OPTIONS AND SARS.
----------------------------
(a) Subject to Section 6.6(b) hereof, each Option and SAR granted
under the Plan shall be exercisable at such time or times and during such
period as shall be set forth in the instrument evidencing such Option or
SAR, with vesting to occur in equal annual installations over a four-year
period unless otherwise approved by the Board of Directors. To the extent
that an Option or SAR is not exercised by a Participant when it becomes
initially exercisable, it shall not expire but shall be carried forward and
shall be exercisable, on a cumulative basis, until the expiration of the
exercise period. No partial exercise may be for less than ten (10) full
shares of Common Stock (or its equivalent).
(b) The Board of Directors shall have the right to accelerate the
date of exercise of any installments of any Option or SAR; provided that
the Board of Directors shall not accelerate the exercise date of any
installment of any Option granted to a Participant as an Incentive Stock
Option (and not previously converted into a Non-Qualified Option pursuant
to Section 6.7) if such acceleration would violate the annual vesting
limitation contained in Section 422(d)(1) of the Code, which provides
generally that the aggregate fair market value (determined at the time the
Option is granted) of the stock with respect to which Incentive Stock
Options granted to any Participant are exercisable for the first time by
such Participant during any calendar year (under all plans of the Company
and any Related Companies) shall not exceed $100,000.
6.4 NONTRANSFERABILITY OF OPTIONS AND SARS. No Option or SAR
--------------------------------------
granted under the Plan shall be assignable or transferable by the Participant,
either voluntarily or by operation of law, except by will or the laws of descent
and distribution or, with respect to Non-Qualified Options and SARs, pursuant to
a qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act ("ERISA") or the rules promulgated
thereunder or unless the Participant's non-qualified stock option agreement
granting such options (the "Non-Qualified Stock Option Agreement") or the
Participant's SAR agreement granting such SARs (the "SAR Agreement") provides
otherwise. Unless otherwise provided by the Non-Qualified Stock Option
Agreement or the SAR Agreement, as applicable, during the life of the
Participant, the Option or SAR shall be exercisable only by him or her. If any
Participant should attempt to dispose of or encumber his or her Options or SARs,
other than in accordance with the applicable terms of a Non-Qualified Stock
Option Agreement or SAR Agreement, his or her interest in such Options or SARs
shall terminate.
6.5 EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH ON OPTIONS AND
-----------------------------------------------------------
SARS.
----
(a) If a Participant ceases to be employed by the Company or a
Related Company for any reason, including retirement but other than death,
any Option or SAR granted to such Participant under the Plan shall
immediately terminate; provided, however, that any portion of such Option
-------- -------
or SAR which was otherwise exercisable on the date of termination of the
Participant's employment may be exercised within the three-month period
following the date on which the Participant ceased to be so employed, but
in no event after the expiration of the exercise period. Any such exercise
may be made only to the extent of the number of shares subject to the
Option or SAR which were purchasable or exercisable on the date of such
termination of employment. If the Participant dies during such three-month
period, the Option or SAR shall be exercisable by the Participant's
personal representatives, heirs or legatees to the same extent and during
the same period that the Participant could have exercised the Option or SAR
on the date of his or her death.
(b) If the Participant dies while an employee of the Company or any
Related Company, any Option or SAR granted to such Participant under the
Plan shall be exercisable by the Participant's personal representatives,
heirs or legatees, for the purchase of or exercise relative to that number
of shares and to the same extent that the Participant could have exercised
the Option or SAR on the date of his or her death. The Option or SAR or
any unexercised portion thereof shall terminate unless so exercised
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<PAGE>
prior to the earlier of the expiration of six months from the date of such
death or the expiration of the exercise period.
6.6 DESIGNATION OF INCENTIVE STOCK OPTIONS; LIMITATIONS. Options
---------------------------------------------------
granted under the Plan which are intended to be Incentive Stock Options
qualifying under Section 422 of the Code shall be designated as Incentive Stock
Options and shall be subject to the following additional terms and conditions:
(a) Dollar Limitation. The aggregate fair market value (determined
-----------------
at the time the option is granted) of the Common Stock for which Incentive
Stock Options are exercisable for the first time during any calendar year
by any person under the Plan (and all other incentive stock option plans of
the Company and any Related Companies) shall not exceed $100,000. In the
event that Section 422(d)(1) of the Code is amended to alter the limitation
set forth therein so that following such amendment such limitation shall
differ from the limitation set forth in this Section 6.6(a), the limitation
of this Section 6.6(a) shall be automatically adjusted accordingly.
(b) 10% Stockholder. If any Participant to whom an Incentive Stock
---------------
Option is to be granted pursuant to the provisions of the Plan is on the
date of grant the owner of stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any Related
Companies, then the following special provisions shall be applicable to the
Incentive Stock Option granted to such individual:
(i) The option price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the fair market
value of one share of Common Stock on the date of grant; and
(ii) The option exercise period shall not exceed five years from the
date of grant.
In determining whether the 10% threshold has been reached, the stock
attribution rules of Section 424(d) of the Code shall apply.
(c) Except as modified by the preceding provisions of this Section
6.6, all of the provisions of the Plan shall be applicable to Incentive
Stock Options granted hereunder.
6.7 CONVERSION OF INCENTIVE STOCK OPTIONS INTO NON-QUALIFIED
--------------------------------------------------------
OPTIONS; TERMINATION OF INCENTIVE STOCK OPTIONS. The Board of Directors, at
- -------- --------------------------------------
the written request of any Participant, may in its discretion take such actions
as may be necessary to convert such Participant's Incentive Stock Options (or
any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time prior
to the expiration of such Incentive Stock Options, regardless of whether the
Participant is an employee of the Company or a Related Company at the time of
such conversion. Such actions may include, but not be limited to, extending the
exercise period or reducing the exercise price of the appropriate installments
of such Options. At the time of such conversion, the Board of Directors (with
the consent of the Participant) may impose such conditions on the exercise of
the resulting Non-Qualified Options as the Board of Directors in its discretion
may determine, provided that such conditions shall not be inconsistent with the
Plan. Nothing in the Plan shall be deemed to give any Participant the right to
have such Participant's Incentive Stock Options converted into Non-Qualified
Options, and no such conversion shall occur until and unless the Board of
Directors takes appropriate action. The Board of Directors, with the consent of
the Participant, may also terminate any portion of any Incentive Stock Option
that has not been exercised at the time of such termination.
6.8 STOCK APPRECIATION RIGHTS. An SAR is the right to receive,
-------------------------
without payment, an amount equal to the excess, if any, of the fair market value
of a share of Common Stock on the date of exercise over the grant price, which
amount will be multiplied by the number of shares with respect to which the SARs
shall have been exercised. The grant of SARs under the Plan shall be subject to
the following terms and conditions and shall
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contain such additional terms and conditions, not inconsistent with the express
terms of the Plan, as the Board of Directors shall deem desirable:
(a) Grant. SARs may be granted in tandem with, in addition to or
-----
completely independent of any Plan Benefit.
(b) Grant Price. The grant price of an SAR may be the fair market
-----------
value of a share of Common Stock on the date of grant or such other price as the
Board of Directors may determine.
(c) Exercise. An SAR may be exercised by a Participant in accordance
--------
with procedures established by the Board of Directors or as otherwise provided
in any agreement evidencing any SARs. The Board of Directors may provide that
an SAR shall be automatically exercised on one or more specified dates.
(d) Form of Payment. Payment upon exercise of an SAR may be made in
---------------
cash, in shares of Common Stock or any combination thereof, as the Board of
Directors shall determine, provided, however, that any SAR exercised upon or
subsequent to the occurrence of a Change in Control (as defined in Section 11(a)
hereof) shall be paid in cash.
(e) Fair Market Value. Fair market value shall be determined in
-----------------
accordance with Section 6.1(c) with the "Determination Date" being determined by
reference to the date of grant or the date of exercise of an SAR, as applicable.
6.9 RIGHTS AS A STOCKHOLDER. The holder of an Option or SAR shall
-----------------------
have no rights as a stockholder with respect to any shares covered by the Option
or SAR until the date of issue of a stock certificate to him or her for such
shares. Except as otherwise expressly provided in the Plan, no adjustment shall
be made for dividends or other rights for which the record date is prior to the
date such stock certificate is issued.
6.10 SPECIAL PROVISIONS APPLICABLE TO NON-QUALIFIED OPTIONS AND
----------------------------------------------------------
SARS GRANTED TO COVERED EMPLOYEES. In order for the full value of Non-Qualified
- ---------------------------------
Options or SARs granted to Covered Employees other than Non-Qualified Options or
SARs granted pursuant to Section 8 hereof, to be deductible by the Company for
federal income tax purposes, the Company may intend for such Non-Qualified
Options or SARs to be treated as "qualified performance-based compensation" as
described in Treas. Reg. (S)1.162-27(e) (or any successor regulation). In such
case, Non-Qualified Options or SARs granted to Covered Employees shall be
subject to the following additional requirements:
(a) such options and rights shall be granted only by the Committee;
and
(b) the exercise price of such Options and the grant price of such
SARs granted shall in no event be less than the fair market value of the
Common Stock as of the date of grant of such Options or SARs.
SECTION 7. SPECIAL PROVISIONS APPLICABLE TO AWARDS
- --------- ---------------------------------------
7.1 GRANTS OF AWARDS. The Board of Directors may grant a
----------------
Participant an Award subject to such terms and conditions as the Board of
Directors deems appropriate, including, without limitation, restrictions on the
pledging, sale, assignment, transfer or other disposition of such shares and the
requirement that the Participant forfeit all or a portion of such shares back to
the Company upon termination of employment.
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<PAGE>
7.2 CONDITIONS. Approvals of Awards may be subject to the
----------
following conditions:
(a) Each Participant receiving an Award shall enter into an
agreement (a "Stock Restriction Agreement") with the Company, if required
by the Board of Directors, in a form specified by the Board of Directors
agreeing to such terms and conditions of the Award as the Board of
Directors deems appropriate.
(b) Shares issued and transferred to a Participant pursuant to an
Award may, if required by the Board of Directors, be deposited with the
Treasurer or other officer of the Company designated by the Board of
Directors to be held until the lapse of the restrictions upon such shares,
and each Participant shall execute and deliver to the Company stock powers
enabling the Company to exercise its rights hereunder.
(c) Certificates for shares issued pursuant to an Award shall, if
the Company shall deem it advisable, bear a legend to the effect that they
are issued subject to specified restrictions.
(d) Certificates representing the shares issued pursuant to an Award
shall be registered in the name of the Participant and shall be owned by
such Participant. Such Participant shall be the holder of record of such
shares for all purposes, including voting and receipt of dividends paid
with respect to such shares.
(e) If required by the Board of Directors, no Participant receiving
an Award shall make, in connection with such Award, the election permitted
under Section 83(b) of the Code.
7.3 NONTRANSFERABILITY. Shares issued pursuant to an Award may
------------------
not be sold, assigned, transferred, alienated, commuted, anticipated, or
otherwise disposed of (except, subject to the provisions of such Participant's
Stock Restriction Agreement, by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or Title
I of ERISA or the rules promulgated thereunder), or pledged or hypothecated as
collateral for a loan or as security for the performance of any obligation, or
be otherwise encumbered, and are not subject to attachment, garnishment,
execution or other legal or equitable process, prior to the lapse of
restrictions on such shares, and any attempt at action in contravention of this
Section shall be null and void. If any Participant should attempt to dispose of
or encumber his or her shares issued pursuant to an Award prior to the lapse of
the restrictions imposed on such shares, his or her interest in such shares
shall terminate.
7.4 EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH ON AWARDS. If,
------------------------------------------------------
prior to the lapse of restrictions applicable to Awards, the Participant ceases
to be an employee of the Company or the Related Companies for any reason, Awards
to such Participant, as to which restrictions have not lapsed, shall be
forfeited to the Company, effective on the date of the Participant's termination
of employment. The Board of Directors shall have the sole power to decide in
each case to what extent leaves of absence shall be deemed a termination of
employment.
SECTION 8. PERFORMANCE OBJECTIVES
- --------- ----------------------
The Committee may, in its discretion, designate any Plan Benefit that
is subject to the achievement of performance conditions as a performance-based
Plan Benefit subject to this Section 8, in order to qualify such Plan Benefit as
"qualified performance-based compensation" as described in Treas. Reg. (S)1.162-
27(e) (or any successor regulation). The performance objectives for a Plan
Benefit subject to this Section 8 shall consist of one or more business criteria
and a targeted level or levels of performance with respect to such criteria, as
specified by the Committee but subject to this Section 8. Such performance
objectives shall be objective and shall otherwise meet the requirements of
Section 162(m)(4)(C) of the Code and regulations thereunder. Business criteria
used by the Committee in establishing such performance objectives shall be
selected exclusively from among the following:
A-7
<PAGE>
(1) Pre-tax income;
(2) Operating profit;
(3) Return to stockholders;
(4) Return on equity;
(5) Earnings per share;
(6) Revenues and revenue growth;
(7) Cash flow
(8) Company-created income (for example, income due to Company-
initiated cost reductions or productivity improvements)
(9) Stock price; and/or
(10) Strategic business criteria, consisting of one or more
objectives based on region or center performance compared to
budget, meeting specified revenue, market penetration,
business expansion goals, cost targets, and goals relating to
affiliations, joint ventures, acquisitions and divestitures.
The levels of performance required with respect to such business
criteria may be expressed in absolute or relative levels. Achievement of
performance objectives with respect to such Plan Benefits shall be measured over
such periods as the Committee may specify. Performance objectives may differ
for such Plan Benefits to different Participants. The Committee shall specify
the weighing to be given to each performance objective for purposes of
determining the final amount payable with respect to any such Plan Benefit. The
Committee may, in its discretion, reduce the amount of a payout otherwise to be
made in connection with a Plan Benefit subject to this Section 8, but may not
exercise discretion to increase such amount, and the Committee may consider
other performance criteria in exercising such discretion. All determinations by
the Committee as to the achievement of performance objectives shall be in
writing. Any Plan Benefit designated as performance-based pursuant to this
Section 8 shall be granted only by the Committee, and the Committee may not
delegate any responsibility with respect to a Plan Benefit subject to this
Section 8.
SECTION 9. REQUIREMENTS OF LAW
- --------- -------------------
9.1 VIOLATIONS OF LAW. No shares shall be issued and delivered
-----------------
upon exercise of any Option or the making of any Award or the payment of any SAR
unless and until, in the opinion of counsel for the Company, any applicable
registration requirements of the Securities Act of 1933, any applicable listing
requirements of any national securities exchange on which stock of the same
class is then listed, and any other requirements of law or of any regulatory
bodies having jurisdiction over such issuance and delivery, shall have been
fully complied with. Each Participant may, by accepting Plan Benefits, be
required to represent and agree in writing, for himself or herself and for his
or her transferees by will or the laws of descent and distribution, that the
stock acquired by him, her or them is being acquired for investment. The
requirement for any such representation may be waived at any time by the Board
of Directors.
9.2 COMPLIANCE WITH RULE 16b-3. The intent of this Plan is to
---------------------------
qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the
extent any provision of the Plan does not comply with the requirements of Rule
16b-3, it shall be deemed inoperative to the extent permitted by law and deemed
advisable by the Board of Directors and shall not affect the validity of the
Plan. In the event Rule 16b-3 is revised or replaced, the Board of Directors
may exercise discretion to modify this Plan in any respect necessary to satisfy
the requirements of the revised exemption or its replacement.
SECTION 10. RECAPITALIZATION
- ---------- ----------------
In the event that dividends are payable in Common Stock of the Company
or in the event there are splits, sub-divisions or combinations of shares of
Common Stock of the Company, the number of shares available under
A-8
<PAGE>
the Plan shall be increased or decreased proportionately, as the case may be,
and the number of shares deliverable upon the exercise thereafter of any Option
previously granted shall be increased or decreased proportionately, as the case
may be, without change in the aggregate purchase price, and the number of shares
to which granted SARs relate shall be increased or decreased proportionately, as
the case may be, and the grant price of such SARs shall be decreased or
increased proportionately, as the case may be.
SECTION 11. CHANGE IN CONTROL AND REORGANIZATION
- ---------- ------------------------------------
(a) For purposes of this Plan, a "Change in Control" shall mean (i)
the acquisition by a third person, including a "person" as defined in
Section 13(d)(3) of the Exchange Act, of beneficial ownership (as defined
in Rule 13d-3 under the Exchange Act) directly or indirectly, of securities
of the Company representing twenty-five percent (25%) or more of the total
number of votes that may be cast for the election of the directors of the
Company; or (ii) as the result of, or in connection with, any tender or
exchange offer, merger, consolidation or other business combination, sale
of assets or one or more contested elections, or any combination of the
foregoing transactions, the persons who were directors of the Company shall
cease to constitute a majority of the Board of the Company. In the event
of a Change in Control of the Company, except as the Board of Directors may
expressly provide otherwise at the time of the Change in Control or in a
Participant's agreement governing an Option, Award or SAR, (i) vesting of
Options and SARs shall accelerate such that (1) upon the Change in Control,
the Participant would be entitled to exercise his or her Options and/or
SARs to the extent of 50% of the number of shares not otherwise exercisable
at the time of the Change in Control, (2) beginning six months after the
Change in Control, the Participant would be entitled to exercise his or her
Options and/or SARs to the extent of an additional 25% of the number of
shares not otherwise exercisable at the time of the Change in Control, and
(3) beginning eighteen months after the Change in Control, the Participant
would be entitled to exercise his or her Options and/or SARs to the extent
of an additional 25% of the number of shares not otherwise exercisable at
the time of the Change in Control; in each case, unless such Options and/or
SARs would vest sooner pursuant to the terms of their original grant, in
which case they shall vest at such earlier date, but in no event will
Options or SARs vest prior to six months from the date of grant; and (ii) a
Participant who is an officer of the Company (including the controller) who
is terminated other than for cause or who resigns because of a significant
diminution of his or her duties and responsibilities, in either case within
180 days before a Change in Control or within eighteen months after a
Change in Control and in conjunction with such Change in Control, shall be
entitled to exercise his or her Options and/or SARs to the extent of 100%
of the number of shares covered thereby. For purposes of this Plan,
"cause" shall mean (x) conviction of a felony, (y) commission of an act of
fraud or embezzlement against the Company or the commission of any other
action with the intent to injure the Company, and (z) material misconduct
in the performance of the Participant's duties or any material neglect of
his or her duties to the Company.
(b) In the case of any tender or exchange offer, merger,
consolidation or other business combination or sale of all or substantially
all of the assets of the Company, which does not constitute a Change in
Control, or in the case of a reorganization or liquidation of the Company,
the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company hereunder, shall, as to
outstanding Plan Benefits, (i) make appropriate provision for the
protection of any such outstanding Plan Benefits by the substitution on an
equitable basis of appropriate stock of the Company or of the merged,
consolidated or otherwise reorganized corporation which will be issuable in
respect of the shares of Common Stock of the Company; provided only that
the excess of the aggregate fair market value of the shares subject to the
Plan Benefits immediately after such substitution over the purchase price
thereof is not more than the excess of the aggregate fair market value of
the shares subject to such Plan Benefits immediately before such
substitution over the purchase price thereof, (ii) upon written notice to
the Participants, provide that all unexercised Plan Benefits must be
exercised within a specified number of days of the date of such notice or
such Plan Benefits will be terminated, or (iii) upon written notice to the
Participants, provide that the Company or the merged, consolidated or
otherwise reorganized corporation shall have the right, upon the effective
date of any such merger,
A-9
<PAGE>
consolidation, sale of assets or reorganization, to purchase all Plan
Benefits held by each Participant and unexercised as of that date at an
amount equal to the aggregate fair market value on such date of the shares
subject to the Plan Benefits held by such Participant over the aggregate
purchase or grant price therefor, such amount to be paid in cash or, if
stock of the merged, consolidated or otherwise reorganized corporation is
issuable in respect of the shares of the Common Stock of the Company, then,
in the discretion of the Board of Directors, in stock of such merged,
consolidated or otherwise reorganized corporation equal in fair market
value to the aforesaid amount. In any such case the Board of Directors
shall, in good faith, determine fair market value and may, in its
discretion, advance the lapse of any waiting or installment periods and
exercise dates.
SECTION 12. NO SPECIAL EMPLOYMENT RIGHTS
- ---------- ----------------------------
Nothing contained in the Plan or in any Plan Benefit documentation
shall confer upon any Participant receiving a grant of any Plan Benefit any
right with respect to the continuation of his or her employment by the Company
(or any Related Company) or interfere in any way with the right of the Company
(or any Related Company), subject to the terms of any separate employment
agreement to the contrary, at any time to terminate such employment or to
increase or decrease the compensation of the Participant from the rate in
existence at the time of the grant of any Plan Benefit. Whether an authorized
leave of absence or absence in military or government service shall constitute
termination of employment shall be determined by the Board of Directors, in
accordance with any applicable laws.
SECTION 13. AMENDMENT OF THE PLAN
- ---------- ---------------------
The Board of Directors may at any time and from time to time suspend
or terminate all or any portion of the Plan or modify or amend the Plan in any
respect. The termination or any modification or amendment of the Plan shall
not, without the consent of a recipient of any Plan Benefit, affect his or her
rights under any Plan Benefit previously granted. With the consent of the
affected Participant, the Board of Directors may amend outstanding agreements
relating to any Plan Benefit in a manner not inconsistent with the Plan. The
Board of Directors hereby reserves the right to amend or modify the terms and
provisions of the Plan and of any outstanding Options to the extent necessary to
qualify any or all Options under the Plan for such favorable federal income tax
treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code, provided, however, that
the consent of a Participant is required if such amendment or modification would
cause unfavorable income tax treatment for such Participant.
SECTION 14. WITHHOLDING
- ---------- -----------
The Company's obligation to deliver shares of stock upon the exercise
of any Option or SAR or the granting of an Award and to make payment upon
exercise of any SAR shall be subject to the satisfaction by the Participant of
all applicable federal, state and local income and employment tax withholding
requirements.
SECTION 15. EFFECTIVE DATE AND DURATION OF THE PLAN
- ---------- ---------------------------------------
15.1 EFFECTIVE DATE. The Plan shall become effective as of January
--------------
16, 1998 (the date of approval of the Plan by the Board of Directors), subject
to approval of the Plan by the stockholders of the Company.
15.2 DURATION. Unless sooner terminated in accordance with Section
--------
13 hereof, the Plan shall terminate upon the earlier of (i) the tenth
anniversary of the effective date or (ii) the date on which all shares
A-10
<PAGE>
available for issuance under the Plan shall have been issued pursuant to any
Awards or the exercise or cancellation of Options and SARs granted hereunder. If
the date of termination is determined under (i) above, then Plan Benefits
outstanding on such date shall continue to have force and effect in accordance
with the provisions of the instruments evidencing such Plan Benefits.
SECTION 16. GOVERNING LAW
- ---------- -------------
The Plan and all actions taken thereunder shall be governed by the
laws of the State of Delaware.
A-11
<PAGE>
OCCUPATIONAL HEALTH + REHABILITATION INC
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 23, 1998
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoint(s) John C. Garbarino
and Richard P. Quinlan, and each of them, with full power of substitution, as
proxies to represent and vote as designated herein, all shares of capital stock
of Occupational Health + Rehabilitation Inc (the "Company") which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of Stockholders of the Company to be held at the Company's corporate
offices located at 175 Derby Street, Suite 36, Hingham, Massachusetts 02043-
4058, on July 23, 1998 at 9:00 a.m., local time, and at any adjournment thereof.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS
AS PROPERLY MAY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder(s). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2. The undersigned may revoke this proxy at any time
before it is voted by executing and delivering to the Company a proxy bearing a
later date, by delivering a written notice to the Secretary of the Company
stating that the proxy is revoked, or by voting in person at the meeting.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
--------------------------
SEE REVERSE SIDE
--------------------------
<PAGE>
----- ---------
Please mark
X votes as in
_____ this sample
The Board of Directors unanimously recommends a vote FOR Proposals 1 and 2.
Proposal 1. To elect director (only for holders of Common Stock)
Nominee: Kevin J. Dougherty
FOR WITHHELD
------ ------
------ ------
Proposal 2. To approve the Company's 1998 Stock Plan, which includes
performance-based compensation objectives and under which a total
of 150,000 shares will be reserved for issuance.
FOR AGAINST ABSTAIN
------ ------ ------
------ ------ ------
______
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW
______
Sign as name appears on stock certificate. Joint
owners must both sign. Attorney, executor,
administrator, trustee or guardian must give title.
A corporation or partnership must sign in its name
by an authorized person.
Signature: Date Signature: Date
---------------- ------ ----------------- ------
