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HomeMy WebLinkAbout02-0671CLINT FEGAN Plaintiff, BALANCED CARE CORPORATION, a Delaware Corporation Defendant : COURT OF COMMON PLEAS : CUMBERLAND COUNTY, PENNSYLVANIA : CASENO. {)*)-- ~7/ ~ ; CIVIL ACTION - LAW NOTICE You have been sued in court. If you wish to defend the claims set forth in the following pages, you must take action within twenty (20) days after this Complaint is served, by entering a written appearance personally or by attorney and filing in writing with the court your defenses or objections to the claims set forth against you. You are warned that if you fail to do so the case may proceed without you and a judgment may be entered against you by the court without further notice for any money claimed in the petition or for any other claim or relief requested by the plaintiff. You may lose money or property or other rights important to you. YOU SHOULD TAKE THIS PAPER TO YOUR LAWYER AT ONCE. IF YOU DO NOT HAVE A LAWYER OR CANNOT AFFORD ONE, GO TO OR TELEPHONE THE OFFICE SET FORTH BELOW TO FIND OUT WHERE YOU CAN GET LEGAL HELP. Cumberland County Bar Association 2 Liberty Avenue Cumberland County Courthouse Carlisle, PA 17013 NOTICIA USTED LE HAS SIDO DEMANDADO EN EL TRIBUNAL. Si desea alegar defensa alguna a las reclamaciones expuestas en las paginas siguientes, usted debe ir a la audienca. Advertencia: de no comparecer ante dicho tribunal, su caso sera decidido en su ausencia y, sin mas notificacion, el tribunal puede dictaminar un Decreto contra usted por cualquiera reclamacion o compensacion alegada en lla Peticion. Usted puede perder dinero o propiedad u otros derechos importantes a usted. LLEVE ESTOS DOCUMENTOS A SU ABOGADO EN SEGUIDA. SI NO TIENE UN ABOGADO O NO TIENE CON QUE PAGAR TAL SERVICIO, VISTE O LLAME A LA SIGUEINTE DIRECCION. Cumberland County Bar Association 2 Liberty Avenue Cumberland County Courthouse Carlisle, PA 17013 CLINT FEGAN Plaintiff, V, BALANCED CARE CORPORATION, a Delaware Corporation Defendant COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA CASE NO. t~ ~ ~ r']l ~ CIVIL ACTION - LAW COMPLAINT AND NOW, comes Clint Fegan, by his attorneys, Steven J. Schiffman and the law firm of Serratelli, Schiffinan, Brown & Calhoon, P.C., who files this Complaint and avers as follows: 1. Plaintiff is Clint Fegan, an adult individual, whose principal residence is 2 East Green Street, Shiremanstown, Pennsylvania 17011. 2. Defendant is Balanced Care Corporation, a Delaware corporation, with a principal office at 1215 Manor Drive, Mechanicsburg, Pennsylvania 17055. Defendant Balanced Care Corporation does business on a regular basis in County, Pennsylvania, and thus, venue is proper in Cumberland County, Cumberland Pennsylvania~ 4. Agreement. On February 11, 1999, Plaintiff and Defendant entered into an Employment A copy of said Agreement is attached hereto as Exhibit A and incorporated by reference as if fully set forth herein. 5. Pursuant to the terms of the Agreement, Clint Fegan was employed as the Chief Financial Officer of the Defendant Balanced Care Corporation. 6. Pursuant to section 7, paragraph (f), Termination Following a Change of Control, Plaintiff was entitled to receive a severance payment as defined in section 7(g)(III) of the job with Defendant: a. Employment Agreement if, within (2) two years following a Change in Control, there occurred any one of the actions set forth in section 7(0 of the Employment Agreement. 7. On December 21, 1999, a change of control took place as defined in section 7(g)(II). Specifically, IPC Advisors S.a.r.1. (IPC) purchased a 49.9% interest in Defendant. 8. Subsequent to December 21, 1999 the following changes occurred in Plaintiff's Plaintiff's reporting responsibilities were shifted to Gary Goodman, who serves as Vice-president of IPC, the company which purchased 49.9% of the Defendant. Further, reporting responsibilities were officially changed from the CEO Brad Hollinger to Dick Richardson as new interim CEO who reported to the Board of Directors of Defendant who was 100% controlled by IPC. b. Plaintiff was removed from most strategic planning for the Defendant, including but not limited to operations, organization charts, financing, cash management, REIT negotiations and special projects. c. Plaintiff was removed from many aspects of the decision making process of the day to day operations of the Defendant. d. Plaintiff was removed from all REIT restructuring negotiations. e. Plaintiff's responsibility for finance projects including cash management, forecasting, REIT summary analysis and financial modeling was removed and/or altered. f. Plaintiff was no longer requested to be present at Board meetings of Defendant or even notified of the content of the meetings. removed. g. Plaintiff directly interacted with the Board of Directors of the Defendant. Said Board was materially changed after the Change of Control date and Plaintiff's interaction was materially altered. g. Press releases no longer included Plaintiff's name as the contact person for Defendant for more information. h. On August 15, 2001 Plaintiff was orally notified that his contract would not be renewed. On November 10, 2001 Plaintiff was notified in writing that his contract would not be renewed. Plaintiff's responsibility for staffing changes was materially altered. Plaintiff's responsibility for approval of fix asset expenditures was k. Plaintiff was removed as liaison with the American Stock Exchange. 9. The events set forth in paragraph 8 above constitute events which fall under the following sections under the Agreement: 7(f)(II) any material reduction in the Executive's responsibilities (including reporting responsibilities) or authority, including as such responsibilities or authority may be increased from time to time; 7(t3(Ili) the assignment to the Executive of duties inconsistent with the Executive's office on the date of a Change in Control or as the same may be increased from time to time after a Change in Control; 10. Pursuant to section 7 (c) and 7(f)(VIII), Plaintiff terminated his employment with Defendant December 20, 2001 such that the severance payment requirements of paragraph 7(f) took effect. 11. the Plaintiff. 12. Pursuant to paragraph 7(g)(III), a severance payment of $538,635.00 is owed to Plaintiff has demanded the payment of said severance pay as required by the contract and Defendants have refused and continue to refuse to make said payment. 13. Plaintiff has performed all conditions precedent to being entitled to the severance pay as set forth in the Agreement WHEREFORE, Plaintiff demands judgment against the Defendant in the amount of $538,635.00 plus interest from December 20, 2001 to the date of judgment and interest thereafter, and such other relief as this court deems just and equitable. Respectfully submitted, SERRATELLI, SCItlFFMAN, BROWN & CALHOON, PC c/ Steven J. ~]~iffi~, Esquire I.D. No.: ff5488 Suite 201f, 2080 Linglestown Road Harrisburg, PA 17110 (717) 540-9170 Dated: February 6, 2002 Attorneys for Plaintiff 4 VERIFICATION I, Clint Fegan, hereby state that I am the Plaintiff herein and that I have reviewed the foregoing complaint and that the facts stated therein are tree and correct to the best of my knowledge, information and belief; This statement is made subject to the penalties of 18 Pa. C.S. Section 4904 relating to unswom falsification to authorities Dated: 2 / ~4/ o z~ CLINTC~ :~6~"~&'/7'FEGAN ~-' ~ Exhibit A EMPLOYMENT AGREEMENT THIS AGREEMENT (the "Agreement"), made as of the 1 lth day of February, 1999 by and between Balanced Care Corporation, a Delaware corporation with a principal office at 5021 Louise Drive, Suite 200, Mecbanlcsburg, PA, 17055 (the "Company") and Clint T. Fegan, an individual business executive residing at 2 East Green Street, Skiremanstown, PA 17011 (the "Executive"). WITNESSETH: WItEREAS, the Company desires to retain the services and employment of Executive as Chief Financial Officer for the benefit of itself and each of its subsidiaries tbzoughout the term of this Agreement, and Executive is willing to be employed by the Company in the foregoing capacity for such period, upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and intending to be legally bound, the parties hereto agree as follows: .-- 1. Employment. The Company hereby employs Executive and Executive hereby accepts employment by the Company subject to all of the terms and conditions hereafter set forth. 2. Capacity. Executive shall serve as Chief Financial Officer of the Company ("CFO") and, in such capacity, shall report directly to the Chief Executive Officer {the "CEO") of the Company. Duties. During the term of this Agreement and any extension thereof, Executive shall and agrees to devote his business attention and best efforts to the performance of the customary duties of the office of CFO of the Company, including supervisory responsibility for the f'mancial function of the Company, including financial reporting and controls, accounting policy and procedures, £mancial forecasting and budgeting, treasury operation, tax reporting and external financial reporting. Executive agrees to perform such other or additional duties not inconsistent with the customary position of CFO, all as may be assigned from time to time by the Board of Directors of the Company (the "Board") and the CEO of the Company. Term of Employment and Renewal. The duties of Executive under this Agreement shall commence on the date hereof. Unless earlier terminated as hereafter provided, this Agreement shall expire three (3) years from the date hereof (the "Term"); provided, however, that upon expiration of such Term, this Agreement shall be extended for an additional one year term and thereafter shall extend on each one year anniversary of the date of this Agreement for an additional one year term (each, an "Extension Term") without further action on the part of the parties hereto, unless either party gives written notice of termination to the other party at least ninety (90) days prior to the expiration of the then current Term or any Extension Term that such party does not desire to renew the Agreement. The date upon which the Term hereof, as extended from time to time pursuant to an Extension Term, shall expire is hereinafter referred to as the "Expiration Date". 5. Compensation. (a) Cash Compensation. During the Term of this Agreement, as compensation for services to the Company, Company shall pay to Executive a base salary in the amount of $160,000 per year (the "Base Salary"), payable in equal installments in accordance with the Company's payroll practices then applicable to Executive officers. Additionally, the Board of Directors of the Company may, in its sole discretion from time to time, increase the Base Salary to be paid to Executive under this paragraph, or provide additional compensation to Executive, including but not limited to, the annual bonus provided in Section 5(b) below, whether permanently or for a limited period of time, based upon the performance of Executive, the financial performance of the Company, compensation paid to comparable officers by other companies in the industry and such other factors as the Board may deem relevant. (b) Annual Bonus. The Executive shall be eligible to receive an annual bonus (the "Annual Bonus") of up to 50% of his then current Base Salary based upon (1) Executive's performance as determined pursuant to written annual performance objectives mutually agreed upon by Executive and the CEO, as the case may be, and approved by the Board, which approval will not be unreasonably withheld and (2) the Company's achievement of its annual pre-tax earnings level (determined in accordance with generally accepted accounting principles and after giving effect, to the extent appropriate, to minority interests) approved by the Board in the annual operating budget for a particular year. (c) Stock Options. The Executive will be eligible to participate in the Company's 1996 Stock Incentive Plan, as such plan may be amended from time to time (the "Plan"). Executive shall be granted an option to purchase 125,000 shares of the Company's common stock at a price equal to the faix market value (based on the lowest price of the day) on the date of grant, which for-'- purposes of this Agreement is the date of Board approval of the grant (the "Grant Date"). Suer stock options shall vest over four (4) years at the rate of 25% per year. (d) __ Vacation. The Executive shall be entitled to a vacation of four (4) weeks annually in accordance with the policies of the Company applicable to comparable executives of the Company. Any time spent by the Executive at professional meetings and other similar meetings so as to better enable the Executive to perform his professional services on behalf of the Company shall not be considered vacation time. (e) Fringe Benefits. The Executive shall enjoy and benefit under all fringe benefit plans, programs or arrangements sponsored by the Company for employees generally or for executive officers in accordance with the respective terms and conditions thereof, as the same may be amended from time to time. (0 Signing Bonus. The Executive shall be entitled to receive a signing bonus in the amount of $10,000 (the "Signing Bonus") upon the execution of this Agreement by the parties hereto. The Signing Bonus shall be due and payable by the Company to the Executive within 15 calendar days of the date of this Agreement. Notwithstanding the foregoing, the Company may, without breaching the terms of this Agreement, amend any employee benefit plan and/or fringe benefit plan in which the Executive participates or any policy applicable to vacations or other terms and conditions of employment generally applicable to executive officers of the Company provided that such amendment is applicable to and proportionately affects all executive employees of the Company in positions comparable to the Executive's. 6. Confidentiality. Commencing immediately upon the signing of this Agreement and during Executive's employment with the Company and for any subsequent period with respect to which he is entitled to receive Severance Rights under this Agreement, the Executive shall keep secret and confidential all matters of the Company or relating to the Company, its operations and businesses which are not, as of the time immediately preceding disclosure, in the public domain and generally known by the public (the "Confidential Information"). Executive shall not intentionally or through gross negligence disclose Confidential Information to any third party without the express written consent of the Company and may only utilize such information during the normal course of performing his duties for the Company and solely for the Company's benefit. Executive acknowledges and agrees that any breach of this Section 6 will cause the Company irreparable injury to which the Company shall have no adequate remedy at law. Therefore, Executive agrees that the Company shall be entitled, in addition to any remedies it may have under this Agreement or at law, to injunctive and other equitable relief to prevent or curtail any breach of the provisions of this Section 6 by Executive. 7. Tennination of Employment. Except as otherwise specifically set forth in this Section 7, this Agreement, the Term hereof, as extended by any Extension Term, and the Executive's employment and fight to receive salary and other benefits set forth in Section 5 hereof, shall terminate on the earlier of the events described below: (a) ~ Death. The employment, salary and benefits of the Executive hereunder shall immediately terminate upon the Executive's date of death and the Executive shall not be entitled to receive any pro-rata portion of any Annual Bonus payment which may be accrued for the year in which the Executive's death occurred. Any stock options granted to the Executive on or before the date of death will be governed by the provisions of the Plan. Nothing contained herein shall be deemed to prevent the receipt by the Executive or his spouse or estate, as the case may be, of any benefit payable to or xvith respect to such death under any plan, program or arrangement then sponsored by the Company, if applicable. (b) Disability. The Company may terminate the Executive's employment if, in the reasonable opinion of the Board acting in the best interest of the Company, the Executive is unable for any reason to perform the duties to be performed by the Executive hereunder for a period of 120 consecutive calendar days (the ""Disability Period"). The Board may terminate the Executive's employment upon expiration of the Disability Period upon written notice by the Company to the Executive. Termination of employment under this Section 7(b) shall be effective on and as of the date that the Company provides written notice to the Executive. In the event of termination under this Section 7(b), the Executive shall be entitled to receive salary and other benefits (excluding the fight to receive any pro-rata portion of any Annual Bonus payment which may be accrued for the year in which such termination occurred), for the 8-month period following the termination date in accordance with the terms and conditions of the Company's applicable plans, to the extent permitted thereunder. Any stock options granted to the Executive on or before the term/nation date will be governed by the provisions of the Plan. (c) Voluntary Resignation bi the Executive. The employment, salary and benefits of the Executive hereunder shall immediately terminate on the effective date of the Executive's voluntary resignation and the Executive shall not be entitled to receive any pro-rata portion of any Annual Bonus payment which may be accrued for the year in which such resignation occurred or any Severance Rights unless such voluntary resignation is made after and as a consequence of a Change in Control of the Company (as def'med in subsection (g) (II) below. Any stock options granted to the Executive on or before the resignation date will be governed by the provisions of the Plan. (d) __ Cause. The Company may terminate the Executive's employment, salary and benefits for Cause (as defined in subsection (g) (I) below). In the event of termination under this Section 7(d), the employment, salary and benefits of the Executive hereunder shall immediately terminate on the effective date of term'marion (determined in accordance with the provisions of Section g(I)) and the Executive shall not be entitled to receive any pro-rata portion of any Annual Bonus payment which may be accrued for the year in which such termination occurred or any Severance Rights. Any stock options granted to the Executive on or before the effective termination date will be governed by the provisions of the Plan. (e) Termination by the Company without Cause. The Company may terminate the Executive's employment without Cause upon 90 days prior written notice to the Executive. Termination under this Section 7(e) shall be effective 90 days after the date of the Company's written notice to the Executive. If the Company terminates the Executive's employment without Cause, the Executive shall be entitled to receive an amount equal to the sum of(A) the Executive's annual Base Salary for the year in which the termination occurred and (B) the pro-rata portion of any Annual Bonus payment which may be accrued for the year in which the termination occurred (the sum of(A) and (B) may hereinafter be referred to as the "Termination Payment"). At the Company's option, the Termination Payment may be payable in (A) a lump sum due within 45 days of the date of termination or (B) 12 equal monthly installments due on the 1st day of each month for the 12 consecutive months immediately following the date of termination. Any stock options granted to the Executive on or before the termination date will be governed by the provisions of the Plan. The Executive will also be entitled to participate in the Company's other benefit programs for the 12-month period following the termination date subject to the terms and conditions of such plans and to the extent permitted thereunder. (f) Termination Following a Change of Conttol. The Executive shall be entitled to receive a Severance Payment (as defined in Section (g)(III) below) if, within two (2) years following a Change in Control, there occurs any of the following events: (I) any termination of the Executive except for Cause; (II) any material reduction in the Executive's responsibilities (including reporting responsibilities) or authority, including as such responsibilities or authority may be increased from time to time; (III) the assignment to the Executive of duties inconsistent with the Executive's office on the date ora Change in Control or as the same may be increased from time to time after a Change in Control: (IV) any reassignment of the Executive to a location greater than sixty (60) miles from the principal executive offices of the Company before the Change in Control; (v) any material reduction (including, after a Change in Control, proportional reductions affecting all employees or executive employees) in the Executive's annual Base Salary in effect on the date of a Change in Control or as same may be increased from time to time after a Change in Control; (VI) any failure (including, after a Change in Control, proportional failures affecting all executive employees) to continue the Executive's participation on substantially similar terms in the Plan or any bonus plan in which the Executive participated at the time of the Change in Control or any change or amendment to any substantive provisions of any such plan which would materially decrease the potential benefits to the Executive under any of such plans; (vii) any failure (including, after a Change in Control, a proportional failure affecting all executive employees) to provide the Executive with benefits at least as favorable as those enjoyed by the Executive under any of the Company's pension, life insurance, medical, health and accident or other employee plans in which the Executive participated at (g) the time of the Change in Control, unless such reduction relates to a reduction in benefits applicable to all employees generally; AND (vm) in the event of any of the events described in (II) through (VII) above, the Executive voluntarily terminates his employment under this Agreement as a result of such event(s). Definitions. As used in this Section 7, the following terms shall have the meanings set forth below: "Cause" shall mean willful misconduct, intentional and material failure to perform duties under this Agreement by the Executive or the Executive's conviction ora felony. No termination for cause shall be effective unless and until the Executive is given written notice that the act or omission constitutes "Cause" under this Agreement and the Executive is given an opportunity to correct or cure the particular-act or omission within thirty (30) days after receipt by the Executive of such ~vritten notice from the Company. (II) A "Change in Control" shall be deemed to have taken place if: (A) any person, including a group but not excluding the Company or any current stockholder of the Company who beneficially owns five percent (5%) or more of the Company's outstanding shares, becomes the beneficial owner of shares of the Company having twenty percent (20%) or more of the total number of votes that may be cast for the election of directors or (B) there occurs any cash tender or exchange offer for shares of the Company, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, and as a result of or in connection with any such event persons who were directors of the Company before the event shall cease to constitute a majority of the Board of the Company or any successor to the Company. As used herein, the terms "person" and "beneficial owner" have the same meaning as under Section 13(d) of the Securities Exchange Act of 1934 and the roles and regulations thereunder. (m) A "Severance Payment" shall include the following: (1) all outstanding stock options granted to the Executive, if any, under the Plan, shall immediately become vested and shall be exercisable in accordance with the provisions of the Plan and (2) a lump sum cash payment shall be payable within thirty (30) days of termination of employment, equal to the sum of(A) the amount determined by multiplying by three (3) the Executive's annual Base Salary then in effect on the date of termination and (B) the amount of the Executive's Annual Bonus percentage payable under Section 5(b) for the year in which the termination took place if (i) the annual operating budget was achieved and (ii) the Executive was employed for the full year. For example, if at the time of such termination the Executive's Base Salary was $160,000, and provided the conditions in clauses (i) and (ii) above were satisfied so that the Executive was entitled to receive his maximum potential Annoal Bonus percentage of 50%, the lump sum payment would be $560,000, i.e.$160,000 x 3 plus $80,000. (h) Notice of Termination. Any notice of termination of Executive shall be given by the Company in writing and delivered by hand delivery or by registered or certified mail, return receipt requested, postage prepaid, at the address first above written for Executive or at such other address as Executive shall have furnished to the Company in writing. 8. Non-Competition and Non-Solicitation. (a) Restrictions on Competition. While employed by the Company under this Agreement and for a period of one (1) year following termination of Executive's employment hereunder, Executive agrees that he will not dkectly or indirectly own an interest in, manage or control, or provide consulting services or services as an employee or partner, to a business engaged in managing, leasing, owning or operating assisted living facilities, nursing homes or sub-acute operations (the "Business Activities") within a sixty (60) mile radius of any Company facility existing or under active development at the time of such termination. (b) Restriction on Solicitation. While employed by the Company under this Agreement and for a period of one (1) year following termination of Executive's employment hereunder, Executive agrees that he will not: (A) directly or indirectly solicit or encourage Company's customers to deal with Executive or any other third party other than the Company or (B) directly or indirectly solicit for Executive's benefit or for the benefit of any third party the employment or services of any then current employee of the Company. (c) Listed Stock Ownership Exception. Nothing in this Section 8 shall prohibit Executive from owning stock in a publicly traded company as a passive investor provided that Executive shall not own more than 5% of the equity of a publicly traded competing enterprise of Company's. 9. Successors. (a) This Agreement is personal to Executive and shall not be assignable by the Executive otherwise than by his will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal heirs representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company xvill require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, the Company shall mean the Company as hereinbefore del'reed and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise. 10. Entire Agreement. This writing represents the entire agreement and understanding between the parties with respect to the subject matter contained herein and may not be altered or amended except in a writing signed by both parties. 11. Unenforceability. If any provision of this Agreement shall be adjudged by any court of competent jurisdiction to be invalid or unenforceable for any reason, such judgment shall not affect, impair or invalidate the remainder of this Agreement. 12. Waiver. The failure of the parties to insist upon strict compliance with any provision hereof or the failure to assert any right the parties may have hereunder shall not be deemed to be a waiver of such provision or right or any other provision or right thereof by the parties. 13. Counterparts. This Agreement may be executed by the parties in two or more counterparts, each of which shall be deemed to be an original, but all such counterparts shall constitute one and the same instrument. 14. Headings. The headings of the sections and subsections of this Agreement are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any oft_he provisions of this Agreement. 15. Governin~ Law. This Agreement has been negotiated and executed within the Commonwealth of Pennsylvania and shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, intending to be legally bound hereby, the parties hereto have executed this Agreement as of the date first above ~vritten. ATTEST: Asst. Secretary BALANCED CARE CORPORATION Chief Executive Officer WITNESS: EXECUTIVE Clint T. Fegan FIRST AMENDMENT TO EMPLOYMENT AGREEMENT FIRST AMENDMENT, dated as of Decembera2}, 1999 (this "Amendment") to EMPLOYMENT AGREEMENT, dated as of February 11, 1999 (the "Employment Agreement") by and between BALANCED CARE CORPORATION, a Delaware corporation with a principal office at 5021 Louise Drive, Suite 200, Mechanicsburg, PA 17055 (the "Company"), and CLINT T. FEGAN, an individual business executive residing at 2 East Green Street, Shiremanstown, PA 17011 (the "Executive"). WHEREAS, the Company and IPC Advisors S.A.R.L., a Luxembourg corporation CIPC Advisors"), have entered into a subscription agreement, dated as of October 8, 1999, as amended and restated as of October 1 I, 1999 (the "Subscription Agreement"); WHEREAS, it is a condition to the closing of the transactions contemplated by the Subscription Agreement that certain employment agreements with certain key executives of the Company be amended; WHEREAS, in connection with the Subscription Agreement, the Company and the Executive wish to amend the Employment Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows: Section 1. Amendments to Employment Agreeme~lt. Section 7(g)(I) of the Employment Agreement shall be amended and restated as follows: "Cause" shall mean willful misconduct, intentional and material failure to perform duties under this Agreement by the Executive, material breach of a representation or warranty of the Company contained in the Subscription Agreement provided such material breach is a direct result of the Executive knowingly and willfully providing or failing to provide information within the Executive's specific knowledge that caused the material breach of the representation or warranty or the Executive's conviction of a felony. No termination for cause shall be effective unless and until the Executive is given written notice that the act or omission constitutes "Cause" under this Agreement and the Executive is given an opportunity to correct or cure the particular act or omission within thirty (30) days after receipt by the Executive of such written notice from the Company. Section 2. Employment Agreement in Effect. Other than the amendment set forth above in Section 1, all other terms, conditions and provisions of the Employment Agreement shall remain in full force and effect. Section 3. ~. This Amendment shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. Section 4. .C.Q.RRIf~Pa~. This Amendment may be executed by the parties in two or more counterparts, each of which shall be deemed to be an original, but all such counterparts shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. EXECUTIVE: Clint T. Fegan BALANCED CARE CORPORATION Brad E. Hollinger Chairman and CEO Doc#: NY$: 501981.1 2 SHERIFF'S RETURN - REGULAR CASE NO: 2002-00671 P COMMONWEALTH OF PENNSYLVANIA: COUNTY OF CUMBERLAND FEGAN CLINT VS BALANCED CARE CORPORATION HAROLD WEARY , Sheriff or Deputy Sheriff of Cumberland County,Pennsylvania, who being duly sworn according to law, says, the within COMPLAINT & NOTICE was served upon BALANCED CARE CORPORATION the DEFENDANT , at 1020:00 HOURS, on the 20th day of February , 2002 at 1215 MANOR DRIVE MECHANICSBURG, PA 17055 ROBIN BARBER, by handing to SENIOR VICE PRESIDENT a true and attested copy of COMPLAINT & NOTICE together with and at the same time directing Her attention to the contents thereof. Sheriff's Costs: Docketing 18.00 Service 8.28 Affidavit .00 Surcharge 10.00 .00 36.28 Swor~n and Subscribed to before me this ~7~ day of So Answers: R. Thomas Kline 02/21/2002 SERRATELLI SCHIFFMAN BROWN CAL Deputy She~ff CLINT FEGAN, Plaintiff, BALANCED CARE CORPORATION, Defendant. COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA CASE NO. 02-671 CIVIL ACTION - LAW TO: Plaintiff, Clint Fegan NOTICE TO PLEAD You are hereby notified to plead to the New Matter in the following Answer within twenty (20) days from the service hereof or a default judgment may be entered against you. Date: March 12, 2002 Respectfully ~rnitted, ~rmdre(v L. Swop~ ID No. 55817 KIRKPATRICK & LOCKHART LLP 240 North Third Street Harrisburg, PA 17101 (717) 231-4500 Attorneys for Defendant, Balanced Care Corporation HAq 17354 vi CLINT FEGAN, Plaintiff, Ye BALANCED CARE CORPORATION, Defendant. COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA CASE NO. 02-671 CIVIL ACTION - LAW ANSWER AND NEW MATTER OF DEFENDANT BALANCED CARE CORPORATION Defendant Balanced Care Corporation ("t~CC" or "Defendant"), by its attorneys, as and for its answer to the Complaint of Clint Fegan ("Fegan" or "Plaintiff'), alleges as follows: 1. After reasonable investigation, BCC is without knowledge or information sufficient to form a belief as to the truth of the allegations in Paragraph 1 and, as a result, denies said allegations. 2. Admits the allegations contained in paragraph 2 of the Complaint, except to thc extent that paragraph 2 of the Complaint purports to state a legal conclusion, no response is necessary. 3. Admits that it does business in Cumberland County, Pennsylvania, and to the extent that paragraph 3 of the Complaint purports to state a legal conclusion, no response is necessary. 4. Admits that Plaintiff and Defendant entered into an employment agreement, admits that Plaintiff purports to attach and incorporate a copy of an employment agreement, and refers to the document in question for a complete and accurate recitation of its terms. HA-117354 vl 5. Admits that for a certain period of time Fegan was employed at BCC, and to the extent that paragraph 5 of the Complaint purports to state a legal conclusion, no response is necessary. 6. The employment agreement is a document and, as such, speaks for itself and any characterizations are denied. To the extent that paragraph 6 of the Complaint purports to state a legal conclusion, no response is necessary. 7. Admits in part, denies in part. Admits that IPC Advisors S.a.r.1. ("IPC") purchased an interest in BCC on certain dates. The remainder of Paragraph 7 states legal conclusions to which no response is necessary. To the extent the remainder of Paragraph 7 may be deemed to contain any allegations of fact, they are denied. 8. Denies that, subsequent to December 21, 1999, the listed changes occurred with respect to Plaintiff's job with BCC. By way of further answer, BCC states as follows: a. Admits in part, denies in part. Admits that IPC has purchased a portion of BCC at various times and that for a period of time Dick Richardson was the interim CEO. Denies that Plaintiff's reporting responsibilities were shifted to Gary Goodman and denies that Mr. Goodman is the Vice-president of IPC. Further denies that the Board of Directors for BCC is 100% controlled by IPC. Also denies that Plaintiff's reporting responsibilities were changed as Plaintiff was obligated to report to the CEO. To the extent the remainder of Paragraph 8(a) may be deemed to contain any allegations of fact, they are denied. b. Denies that Plaintiff was removed from most strategic planning for BCC, including operations, organization charts, financing, cash management, REIT negotiations and special projects. To the extent the remainder of Paragraph 8(b) may be deemed to contain any allegations of fact, they are denied. c. Denies that Plaintiff was removed from many aspects of the decision making process of the day to day operations of BCC. To the extent the remainder of Paragraph 8(c) may be deemed to contain any allegations of fact, they are denied. d. Denies that Plaintiff was removed from all REIT restructuring negotiations. To the extent the remainder of Paragraph 8(d) may be deemed to contain any allegations of fact, they are denied. e. Denies that Plaintiff's responsibility for finance projects including cash management, forecasting, REIT summary analysis and financial modeling was removed or altered. To the extent the remainder of Paragraph 8(e) may be deemed to contain any allegations of fact, they are denied. f. Denies that Plaintiff was no longer requested to be present at Board meetings or even notified of the content of the meetings. To the extent the remainder of Paragraph 8(f) may be deemed to contain any allegations of fact, they are denied. g. Admits in part, denies in part.~ Admits that, when requested to by the Board, Plaintiff interacted with BCC's Board of Directors. Denies that Plaintiff possessed any right or entitlement to attend Board meetings in the absence of such a request from the Board. The remainder of Paragraph 8(g) states legal conclusions to which no response is necessary. To the extent the remainder Paragraph 8 of the Complaint contains two paragraphs labeled section "g." Defendant has answered these sections in the same order presented in the Complaint. 3 of Paragraph 8(g) may be deemed to contain any allegations of fact, they are denied. g. Denies that press releases no longer included Plaintiff's name as the contact person for BCC for more information. To the extent the remainder of Paragraph 8(g) may be deemed to contain any allegations of fact, they are denied. h. Admits in part, denies in part. Admits that Plaintiff was notified in writing that his contract would not be renewed. With respect to the remaining allegations of fact in Paragraph 8(h), after reasonable investigation, BCC is without knowledge or information sufficient to form a belief as to the truth of said allegations and, as a result, denies said allegations. i. Paragraph 8(i) contains only conclusions of law to which no response is necessary. To the extent Paragraph 8(i) may be deemed to contain any allegations of fact, they are denied. By way of further answer, it is denied that Plaintiff's responsibility for staffing changes was materially altered. j. Denies that Plaintiff's responsibility for approval of"fix [sic] asset expenditures" was removed. To the extent the remainder of Paragraph 80) may be deemed to contain any allegations of fact, they are denied. k. Denies that Plaintiffwas removed as liaison with the American Stock Exchange. To the extent the remainder of Paragraph 8(k) may be deemed to contain any allegations of fact, they are denied. 9. The employment agreement is a document and, as such, speaks for itself and any characterizations are denied. The remainder of Paragraph 9 states legal conclusions to 4 which no response is necessary. To the extent the remainder of Paragraph 9 may be deemed to contain any allegations of fact, they are denied. 10. Admits in part, denies in part. Admits that Fegan purported to terminate his employment with BCC. The remaining allegations contained in paragraph 10 of the Complaint state legal conclusions to which no response is necessat3,. To the extent the remainder of Paragraph 10 may be deemed to contain any allegations of fact, they are denied. 11. Paragraph 11 of the Complaint contains only conclusions of law to which no response is necessary. To the extent Paragraph 11 may be deemed to contain any allegations of fact, they are denied. By way of further answer, the employment agreement is a document and, as such, speaks for itself and any characterizations are denied. 12. Admits in part, denies in part. Admits that Plaintiff has requested payment of certain sums from BCC and that BCC has refused to make any payments to Plaintiff. Denies that Plaintiff is entitled to the payment of any mount pursuant to the employment agreement or otherwise. 13. Paragraph 13 of the Complaint contains only conclusions of law to which no response is necessary. To the extent Paragraph 13 may be deemed to contain any allegations of fact, they are denied. NEW MATTER 14. The Complaint, or some part of it, fails to state a claim or cause of action upon which relief can be granted. 15. The claims for relief asserted in the Complaint are barred, in whole or in part, by the equitable doctrine of estoppel. 16. The claims for relief asserted in the Complaint are barred, in whole or in part, by the equitable doctrine of waiver. 17. The claims for relief asserted in the Complaint are barred by the unambiguous language of the agreement on which it purports to rely. 18. Plaintiff, Fegan materially breached or othenvise failed to perform bis obligations under the agreement on which he purports to rely. 19. Plaintiff, Fegan failed to satisfy all conditions precedent to the institution of an action against Defendant, BCC. 6 follows: WHEREFORE, Defendant, Balanced Care Corporation demands judgment as (i) dismissing the Complaint with prejudice; (ii) awarding the fees, costs and expenses of this action; and (iii) granting such further relief as the Court deems just and proper. Respectfully submitted, KIRKPATRICK & LOCKHART LLP Pa. Supreme Court No. 55817 240 North Third Street Harrisburg, PA 17101-1507 (717) 231-4500 OF COUNSEL: Kenneth Conboy John C. Browne LATHAM & WATKINS 885 Third Avenue, Suite 1000 New York, New York 10022 tel: (212) 906-1200 fax: (212) 751-4864 Attorneys for Defendant Balanced Care Corporation 7 CLINT I~GAN, Plaintiff, BALANCED CARE CORPORATION, Defendant. COURT OF COMMON PLEAS CUMLBERLAND COUNTY, PENNSYLVANIA CASE NO. 02-671 CIVIL ACTION - LAW VERIFICATION Thc undersigned. Robin L. Barber, hereby deposes and states that: 1. I am the Senior Vice President and Legal Counsel for Balanced Care Corporation and I al~ authorized to make this verification on its behalf. 2. The facts set forth in the foregoing Answer and New Matter of Balanced Care Corporation are true and ¢orccct to the best of my knowledge, information al~d bclicf; 3, This Verification is made subject to the penalties of 18 Pa.C.S. § 490~t relating to unswom falsifications to authorities. Robin L. Barber 8~'6=:1 ZO/ZO'~ l'D=l CERTIFICATE OF SERVICE I hereby certify that on March 12, 2002, I served a true and correct copy of the foregoing Answer by first class mail upon the party listed below: Steven J. Schiffman, Esq. Serratelli, Schiffman, Brown & Calhoon, P.C. Suite 201, 2080 Linglestown Road Harrisburg, PA 17110 Andrew~L. Swope CLINT FEGAN Plaintiff, PENNSYLVANIA BALANCED CARE CORPORATION, a Delaware Corporation Defendant : COURT OF COMMON PLEAS : CUMBERLAND COUNTY, : CASE NO. 02-671 : CIVIL ACTION - LAW NEW MATTER 14. Paragraph fourteen (14) is denied as a Conclusion of Law to which no answer need be made. 15. Paragraph fifteen (15) is denied as a Conclusion of Law to which no answer need be made. 16. Paragraph sixteen (16) is denied as a Conclusion of Law to which no answer need be made. 17. Paragraph seventeen (17) is denied as a Conclusion of Law to which no answer need be made. 18. Paragraph eighteen (18) is denied as a Conclusion of Law to which no answer need be made. 19. Paragraph nineteen (19) is denied as a Conclusion of Law to which no answer need be made to the extent that an answer is required. Plaintiff did not fail to satisfy any condition precedent to the institution of the suit against the Defendant. WHEREFORE, Plaintiff demands judgment as set forth in the original Complaint. Respectfully submitted, 2080 Linglestown Road Suite 201 Harrisburg, PA 17110 (717) 540-9170 I.D. #25488 CERTIFICATE OF SERVICE I, Steven J. Schiffman, Esquire, hereby certify that I have served a true and correct copy of the foregoing document by depositing such in the regular U.S. Mail, addressed as follows: Andrew L. Swope, Esquire Kirkpatrick & Lockhart, LLP Payne Shoemaker Building 240 North Third Street Harrisburg, PA 17101-1507 John Browne, Esquire LATHAM & WATKINS 885 Third Aveune Suite 1000 New York New York 10022 Kenneth Conboy, Esquire LATHAM & WATKINS 885 Third Aveune Suite 1000 New York New York 10022 Date: Harrisburg, PA 17110 (717) 540-9170 VERIFICATION I, Clint Fegan, have reviewed the foregoing Petition, and that the facts stated therein are tree and correct to the best of my knowledge, information and belief; and, that this statement is made subject to the penalties of 18 Pa. C.S. Section 4904 relating to unswom falsification to authorities. Dated: Clint Fegan CLINT FEGAN, Plaintiff, BALANCED CARE CORPORATION, Defendant. COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA CASE NO. 02-671 CIVIL ACTION - LAW CONFIDENTIALITY STIPULATION In accordance with and pursuant to the Pennsylvania Rules of Civil Procedure, including Rule 201, Balanced Care Corporation ("BCC") and Clint Fegan ("Fegan") hereby stipulate and agree as follows: Background A. BCC and Fegan anticipate that discovery in the above-captioned matter (the "Litigation") could involve documents and information, some of which could include material which is privileged or protected from disclosure because they: are proprietary, contain confidential business information, trade secrets and/or implicate other applicable privileges, immunities, or ethical obligations (collectively, "Confidential Information"). B. To expedite discovery, facilitate the prompt resolution of disputes over confidentiality, protect material entitled to be kept confidential, and ensure that protection is afforded to Confidential Information, BCC and Fegan have entered into this Stipulation. HA-119254 vl Non-Disclosure of Confidential Information 1. This Stipulation shall apply to all documents, discovery responses, deposition transcripts, and any other information, objects or things which have been or will be produced or' received by BCC and/or Fegan in connection with the Litigation (collectively, the "Documents"), as well as any and all copies, abstracts, digests, summaries and by-products of Documents. 2. BCC and/or Fegan may designate any Document or part thereof, as "CONFIDENTIAL," if the designating party reasonably believes in good faith that the designated matter constitutes or contains Confidential Information. Such designation shall be made concurrent with the production of the Document, or as otherwise provided hereafter. 3. To be deemed confidential, Documents shall be clearly marked on the first page with the notation "CONFIDENTIAL." In lieu of marking this notation on the originals of Documents, the party may mark the copies that are produced. 4. During a deposition, a deponent may be shown, and examined about, Confidential Information. BCC and/or Fegan may designate the deposition testimony of any witness as "CONFIDENTIAL" if the designating party reasonably believes in good faith that the deposition testimony includes or relates to Confidential Information. Such designation may be made at any time during or after the conclusion of the deposition. 5. Any Document designated as "CONFIDENTIAL" under the terms of this Stipulation shall not be used or disclosed by any person receiving such Document for any purpose other than solely in connection with the Litigation. 6. Any Document designated as "CONFIDENTIAL" under the terms of this Stipulation shall be disclosed only to: a. the Court, persons employed by the Court and stenographers transcribing testimony or argument at a heating, arbitration, mediation, trial, deposition or other proceeding in the Litigation; b. counsel of record in this matter and counsel for any of the parties, together with regular employees of such counsel to whom it is necessary that the material be shown for purposes of this matter; c. any person not employed by a party who is expressly retained by an attorney described in paragraph (b) above to assist in this matter, but only to the extent necessary for such person to perform his or her assigned tasks in connection with this matter, provided that each such person has signed, served upon counsel for all parties a commitment to preserve the confidentiality of all Confidential Information, which commitment shall be in the form annexed hereto as Exhibit "A," and provided that, prior to any disclosure of any Confidential Information to such designated person, any other party hereto shall be afforded ten (10) days from receipt of such person's commitment within which to object to the disclosure to such person. In the event that there is an objection, no disclosure shall be made to such person unless and nntil the objection is withdrawn or is resolved by Order of this Court; d. Fegan and any officer, director, employee, representative or trustee of BCC who is requested by BCC or by its attorneys to work on or review this matter; e. a person or entity which wrote or received the Document, or gave testimony; and f. a person or entity to whom disclosure may be required by law. 7. Counsel, subject to this Stipulation, shall take all steps reasonably necessary to advise any person to whom Confidential Information may be disclosed, or by whom it may be used, of the terms of this Stipulation. 8. If deposition testimony (including exhibits) is designated as "CONFIDENTIAL" pursuant to paragraph 4 hereof, (a) attendance at the deposition for such testimony shall be limited to those persons to whom Confidential Information may be disclosed hereunder; and (b) the transcript of the deposition shall include a copy of this Stipulation and the legend "CONTAINS CONFIDENTIAL INFORMATION" appearing prominently on the cover. "CONFIDENTIAL" at the time of disclosure) shall not be deemed a waiver in whole or in part of a party's claim that such materials are privileged or protected from disclosure because they are proprietary, constitute confidential information and/or are subject to the attorney-client privilege, the attorney work product doctrine, or other applicable privileges, immunities, ethical obligations or exceptions from disclosure. 15. Nothing herein shall restrict the use or disclosure of Confidential Information by the person who designated the Document as "CONFIDENTIAL." 16. BCC and/or Fegan acknowledge that breach of this Stipulation may result in immediate and irreparable injury for which there is no adequate remedy at law and agree that specific performance and injunctive relief are appropriate remedies to compel performance of this Stipulation. 17. This Stipulation may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. 18. This Stipulation shall be effective immediately. 19. Nothing in this Agreement shall be deemed to obligate BCC and/or Fegan to disclose any Confidential Information. The purpose of this Agreement is to set forth the understanding of the parties with respect to the treatment of Documents containing Confidential Information following their disclosure to the other party. This Agreement does not and shall not be interpreted as setting forth any agreement or understanding regarding the permissible scope of discovery. [Signature Page Follows] STIPULATED TO THIS/{7/~day of May, 2002. Respectfully submitted: ddw L. S¥op Attorney I.D. No. 55817 KIRKPATRICK & LOCKHART LLP 240 North Third Street Harrisburg, PA 17101-1507 (717) 231-4500 OF COUNSEL: Kenneth Conboy John C. Browne LATHAM & WATKINS 885 Third Avenue, Suite 1000 New York, NY 10022 tel: (212) 906-1200 fax: (212) 751-4864 Attorneys for Defendant, Balanced Care Corporation Suite 201 2080 Linlestown Road Harrisburg, PA 17110-9670 (717) 540-9170 Attorneys for Plaintiff, Clint Fegan CLINT FEGAN, Plaintiff, Ve BALANCED CARE CORPORATION, Defendant. COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA CASE NO. 02-671 CIVIL ACTION - LAW COMMITMENT OF QUALIFIED PERSON PURSUANT TO CONFIDENTIALITY STIPULATION I hereby agree and affirm that: (1) I have received and read a copy of the Confidentiality Stipulation dated as of ; (2) I understand the terms of the Confidentiality Stipulation agree to be bound thereof; and (3) I am aware that a violation of the Confidentiality Stipulation may result in proceedings before the Court to enforce the Confidentiality Stipulation against me. Date Nanle HA-119254 vl CLINT FEGAN, Plaintiff V. BALANCED CARE CORPORATION, Defendant IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA CASE NO. 02-671 CIVIL ACTION - LAW PRAECIPE TO SETTLE~ DISCONTINUE AND END TO THE PROTHONOTARY: Kindly mark the above action settled, discontinued and ended with prejudice upon payment of your costs, only. Dated: December 6, 2002 Respectfully submitted, ~han/Esquire Serratelli, Sch~ 'fmafl, Brown & Calhoon, PC Suite 201, 2081 ~ iLinglestown Road Hamsburg, PA 1.7110 Counsel for Plaintiff, Clint Fegan CERTIFICATE OF SERVICE I, Steven J. Schiffman, Esquire, hereby certify that I have served a tree and correct copy of the foregoing document by depositing such in the regular U.S. Mail, addressed as follows: Andrew L. Swope, Esquire Kirkpatrick & Lockhart, LLP Payne Shoemaker Building 240 North Third Street Harrisburg, PA 17101-1507 John Browne, Esquire LATHAM & WATKINS 885 Third Aveune Suite 1000 New York New York 10022 Kenneth Conboy, Esquire LATHAM & WATK1NS 885 Third Aveune Suite 1000 New York New York 10022 Harrisburg, PA 17110 (717) 540-9170 Date: December 6, 2002 SETTLEMENT AGREEMENT AND RELEASE This SETTLEMENT AGREEMENT AND RELEASE ("Settlement and Release") is made effective this._~__ day of December, 2002 by and between Clint Fegan ("Fegan"), an individual, and Balanced Care Corporation ("BCC"), a corporal:ion with a place of business in Mechanicsburg, Pennsylvania. WITNESSETH: WHEREAS, Fegan commenced a civil action in the Cumberland County Court of Common Pleas at 02-671 against BCC seeking damages arising out of an alleged breach of an employment contract by BCC ("Pending Litigation"); and WHEREAS, BCC disputes the claims and has denied all liability in the Pending Litigation; and WHEREAS, Fegan and BCC desire to resolve amicably and settle all disputes and matters in controversy between them without further litigation or expense; and WHEREAS, Fegan and BCC agree that the execution and acceptance of this Settlement and Release shall not constitute an admission of breach of contract, liability, wrongdoing, misconduct, negligence or breach of duty of any kind, or fault by BCC and may not be used in evidence for any purpose in any litigation, except as necessary to enforce this Settlement and Release. NOW THEREFORE, after full and complete negotiation of all matters set forth in this Settlement and Release and upon mutual exchange of covenants contained herein, and in consideration of the foregoing and for other good and valuable consideration, and intending to be legally bound hereby, BCC and Fegan do hereby agree to be bound as follows: 1. Entire Agreement. This Settlement and Release: embodies all of the terms and conditions of the releases described herein and is the complete agreement between BCC and Fegan with respect to the compromise and settlement of the Pending Litigation. 2. Settlement Payment. BCC will pay to Fegan a ~Iotal of two hundred thousand dollars ($200,000) by way of two (2) separate payments in the form of two (2) separate checks made payable to "Clint Fegan" and mailed by overnight mail to Clint Fegan, c/o Steven J. Schiffman, Serratelli, Schiffman Brown & Calhoon, P.C., Suite 201, 2080 Linglestown Road, Harrisburg, PA 17110-9670. The payments will be made on the following schedule: (a) the first payment in the amount of one hundred thousand dollars ($100,000) .will be mailed by BCC on or before December 16, 2002; and (b) the second payment in the amount of one hundred thousand dollars ($100,000) will be mailed by BCC on or before December 16, 2003. Page 1 of 6 3. Release of Claims Against BCC. Fegan, for and in consideration of the agreement of BCC to pay the amounts set forth in paragraph 2 of this Settlement and Release, releases, remises and forever discharges BCC, its Attorneys-In-Fact, subsidiaries, affiliates, agents, assigns, insurers, officers, shareholders, directors, employees, predecessors, successors, estates, heirs, devisees, legatees, personal and legal representatives, executors and administrators of and from any and all manner of liabilities, accounts, debts, sums of money, contracts, agreements, controversies, promises, damages, claims, demands, causes of action or suits at law or in equity which Fegan now has or may have had or may hereafter have, known, arising out of, or in any way connected with, the claims asserted by Fegan in the Pending Litigation or arising in any way from his employment with BCC. 4. Release of Claims Against Fegan. BCC, for and in consideration of Fegan's execution of this Settlement and Release, forever discharges Fegan, his Attorneys-In-Fact, assigns, estate, heirs, devisees, legatees, personal and legal representatives, executors and administrators of and from any and all manner of liabilities, accounts, debts, sums of money, contracts, agreements, controversies, promises, damages, claims, demands, causes of action or suits at law or in equity which BCC now has or may have had or may hereafter have, known, arising out of, or in any way connected with, the claims asserted by Fegan in the Pending Litigation. 5. Dismissal. As soon as practicable after this Settlement and Release is executed by Fegan and BCC, Fegan shall take all reasonable steps to dis:miss the Pending Litigation, with prejudice, by executing and filing the appropriate praecipe in the form attached hereto as Exhibit A (the "Praecipe"). If Fegan does not properly file the Praecipe on or before January I0, 2003, it shall be deemed to be a default by Fegan under this Settlement and Release and (i) BCC will be expressly relieved of its obligation to make the second payment referenced in paragraph 2(b) of this Settlement and Release; and (ii) BCC will be expressly authorized to pursue all of its rights and remedies, including but not limited to, an action on this Settlement and Release. 6. Bankruptcy Matters. Notwithstanding any other provision of this Settlement and Release, this Settlement and Release will be deemed to be modified in the event that BCC files for bankruptcy under the laws of the United States and (i) both of the payments due to Fegan under paragraph 2 of this Settlement and Release have not been made; or (ii) each of the following occur: (a) one of the payments made to Fegan pursuant to paragraph 2 of this Settlement and Release is challenged by any individual or entity as a preference payment under 11 U.S.C. § 547 or a similar provision; and (b) Fegan or his representatives take all reasonable steps necessary in good faith to contest that challenge; and (c) a Court of competent jurisdiction finds that the challenged payment must be Page 2 of 6 returned to BCC or BCC's estate; and (d) Fegan retums the full amount of that payment to BCC or BCC's estate. In the event that this Settlement and Release is deemed to be modified under this paragraph 6, then Fegan is expressly authorized to assert an adversary proceeding or similar litigation against BCC or BCC's estate in a Court of competent jurisdiction and based on the facts and circumstances of the Pending Litigation. Provided, however, that the damages claimed by Fegan in any adversary proceeding or similar litigation must: be reduced by the amount of any payments that have been received by Fegan under the terms of,this Settlement and Release and have not been returned to BCC or BCC's estate. If Fegan does properly assert an adversary proceeding or similar litigation against BCC or BCC's estate, then Fegan expressly acknowledges and agrees that BCC or BCC's estate may assert any available defense or counterclaim including, but not limited to, the defenses or counterclaims that have been asserted in the Pending Litigation. In the event that this Settlement and Release is deemed to be modified under this paragraph 6, then notwithstanding any other provision of this Settlement and Release, Fegan hereby expressly acknowledges and agrees that he is authorized to bring an adversary proceeding or similar litigation only against BCC or BCC's estate. Under no circumstances is Fegan authorized to assert any adversary proceeding or similar litigation whether relating to the Pending Litigation or to any other matter whatsoever against BCC's Attorneys-In-Fact, subsidiaries, affiliates, agents, assigns, insurers, officers, shareholders, directors, employees, predecessors, successors, estates, heirs, devisees, legatees, personal and legal representatives, executors or administrators. 7. Survival of Settlement and Release. This Settlement and Release and all provisions hereof, including all representations and warranties contained herein, are contractual and not a mere recital and shall survive the releases described in paragraphs 3 and 4 above and shall continue in full force and effect thereafter. 8. No Admission ofLiabili _ty. This Settlement and Release shall not in any way be construed as an admission by BCC or Fegan that either BCC or Fegan have acted wrongfully with respect to the other or that any action taken by them with respect to the other at any time prior to the execution of this Settlement and Release has been unwarranted, unjustified, discriminatory, or otherwise unlawful. Rather, it is understood[ and agreed that this Settlement and Release constitutes a good faith settlement of claims between BCC and Fegan, and BCC and Fegan hereby specifically disclaim any liability for wrongful acts arising out of the Pending Litigation. 9. No Assignment. BCC and Fegan represent and warrant that neither have heretofore or otherwise transferred to any person any claim or potential claim which either of them may have against any other party. Page 3 of 6 10. Authori _ty. BCC and Fegan represent and warrant that they have read and understand this Settlement and Release; that they intend to be bound legally hereby; and that the person executing this Settlement and Release has the full power, right and authority to execute the same and to take all steps necessary to implement its terms and conditions. 11. Binding on Related Parties. This Settlement ant[ Release shall be binding upon BCC and Fegan and their respective Attorneys-In-Fact, affiliates, subsidiaries, agents, successors, assigns, insurers, officers, shareholders, directors, employees, predecessors, successors, estates, heirs, devisees, legatees, personal and legal representatives, executors, administrators and successors. 12. Applicable Law. This Settlement and Release s!hall be construed and enforced under the internal laws of the Commonwealth of Pennsylvania. 13. Severability. If any provision of this Settlement and Release is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Settlement and Release will remain in full force and effect, and, if legally permitted, such offending provision shall be replaced with an enforceable provision that as nearly as possible effects the parties' intent. 14. Headings. The section headings, titles and subtitles herein are used solely for convenience and shall not be used in interpreting this Settlement and Release, nor shall they be construed in any way to limit, modify or affect the terms of thi:s Settlement and Release. 15. No Waiver. All waivers of any provision or breach of this Settlement and Release must be in writing, executed by the waiving party. Ne. waiver of any provision or breach of this Settlement and Release shall be a waiver of any other provision or breach of this Settlement and Release or any subsequent breach. 16. Construction. This Settlement and Release shall be interpreted based on its plain meaning, irrespective of which party drafted it. 17. Counterparts. This Settlement and Release may be executed in counterparts, each of which shall be deemed an original. However, this Settlement and Release does not become effective unless it has been fully executed as set forth below. Facsimile signatures shall be deemed effective if subsequently followed by handwritten signatures. Page 4 of 6 IN WITNESS WHEREOF, BCC and Fegan either individually or through the undersigned representative, acknowledge that they have had a sufficient opportunity to read and review the terms of this Settlement and Release, and that they have voluntarily caused the execution of this Settlement and Release as of the date first written above. By: Clint Fegan Dated: December_~, 2002 Witness: Clint Fegan Dated: December .~, 2002 By: Balanced Care Corporation Robin L. Barber Senior Vice President, Legal Counsel and Secretary Witness: Signature for Witnes-g-~br Balanced Care Corporation Dated: December3_, 2002 Dated: December_3, 2002 Page 5 of 6 EXHI_______BIT A CLINT FEGAN, Plaintiff, BALANCED CARE CORPORATION, Defendant. COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA CASE NO. 02-671 CIVIL ACTION - LAW pRAECIPE TO SETTLE, DISCONTINU. E AND END TO THE PROTHONOTARY: Kindly mark the above action settled, discontinued and ended with prejudice upon payment of your costs, only. Respectfully submitted, Dated: December 3, 2002 Steven J. Schiffman, Esq. Serratelli, Schiffman, Brown & Calhoon, P.C. Suite 201,. 2080 Linglestown Road Harrisburg, PA 17110 Counsel fbr Plaintiff, Clint Fegan Page 6 of 6