<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 33-99624
CHOICECARE CORPORATION
OHIO 31-1446609
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
655 EDEN PARK DRIVE, SUITE 400 45202
CINCINNATI, OHIO (Zip Code)
(Address of Principal Executive Offices)
(513) 784-5200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of May 3, 1996, 13,500,000 shares of ChoiceCare Corporation common shares
were outstanding.
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CHOICECARE CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income for the three
month periods ended March 31, 1996 and 1995 3
Consolidated Balance Sheets at March 31, 1996 and
December 31, 1995 4
Consolidated Statements of Cash Flows for the
three month periods ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURE 14
2
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PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
- - -----------------------------
CHOICECARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
REVENUES:
Premium revenue $ 70,508 $ 63,193
Management services revenue 3,419 3,903
Other operating revenue 123 175
------------ ------------
Total Operating Revenues 74,050 67,271
------------ ------------
EXPENSES:
Health care services
Physician services 30,144 25,648
Hospital services 24,517 23,842
Pharmacy services 8,270 6,648
------------ ------------
Total Health Care Services 62,931 56,138
Selling, general and administrative expenses 14,663 12,648
------------ ------------
Total Operating Expenses 77,594 68,786
OPERATING LOSS (3,544) (1,515)
OTHER INCOME (EXPENSES)
Investment income, net 1,150 1,687
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (2,394) 172
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET INCOME (LOSS) $ (2,394) $ 172
============ ============
PRO
FORMA
-----
EARNINGS (LOSS) PER SHARE $ (.18) $ .01
============ ============
AVERAGE NUMBER OF SHARES OUTSTANDING 13,500,000 13,500,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
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CHOICECARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,540 $ 12,622
Cash held in escrow -- 28,000
Securities available-for-sale 70,901 73,009
Premiums receivable 11,238 7,637
Health care receivables 5,872 6,251
Other current assets 6,592 5,545
--------- ---------
Total Current Assets 107,143 133,064
PROPERTY AND EQUIPMENT, net 10,216 10,258
OTHER LONG-TERM ASSETS 4,306 3,865
--------- ---------
Total Assets $ 121,665 $ 147,187
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Medical costs payable $ 48,383 $ 46,754
Accounts payable and accrued liabilities 10,548 14,829
Amounts due to vendor 6,200 --
Unearned premiums 5,184 4,104
Hospital risk pool liability 5,670 5,600
Medical risk pool liability 11,847 10,081
Settlement liability -- 28,000
--------- ---------
Total Current Liabilities 87,832 109,368
LONG-TERM LIABILITIES 2,826 3,290
--------- ---------
Total Liabilities 90,658 112,658
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY:
Preferred stock, without par value,
4,000,000 shares authorized; none issued -- --
Common stock, without par or stated value,
45,000,000 shares authorized; 13,500,000
shares issued and outstanding -- --
Net unrealized gains (losses)on securities
available-for-sale (282) 846
Retained earnings 31,289 33,683
--------- ---------
Total Shareholder's Equity 31,007 34,529
--------- ---------
Total Liabilities and Shareholder's Equity $ 121,665 $ 147,187
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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CHOICECARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
1996 1995
-------- --------
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES $ (363) $ (4,441)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipts from sale of investments 8,929 30,843
Payments for purchase of investments (8,002) (25,412)
Other (646) (407)
-------- --------
Net cash provided by investing activities 281 5,024
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (82) 583
CASH AND CASH EQUIVALENTS, beginning of period 12,622 15,614
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 12,540 $ 16,197
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
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CHOICECARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
ChoiceCare Corporation (the "Company") is an Ohio for-profit
corporation, which is a wholly-owned subsidiary of Tristate Foundation
for Health (the "Foundation"), an Ohio not-for-profit corporation. On
October 1, 1995, the Foundation transferred substantially all of the
operating assets and liabilities relating to its managed health care
operations to the Company in exchange for all of the issued and
outstanding shares of the Company. Contemporaneously, the Company
transferred the assets and liabilities of the managed health care
operations to its wholly-owned subsidiary, ChoiceCare Health Plans,
Inc., in exchange for all of its issued and outstanding common shares.
These events are collectively referred to as the "Restructuring."
The consolidated financial statements for the interim periods included
herein have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission,
with the financial statements for the 1995 interim period having been
derived from audited amounts for the nine-month period ended September
30, 1995. Although certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, management believes that the
disclosures are adequate to make the information presented not
misleading. Operating results for the interim periods are not
necessarily indicative of results for the full fiscal year. It is
suggested that these consolidated financial statements and notes be
read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Post-Effective Amendment No. 2
to Form S-1, as filed with the Securities and Exchange Commission on
April 1, 1996, and its Amended Prospectus dated April 1, 1996.
The pro forma earnings per share information reflected in the
accompanying 1995 Consolidated Statement of Income is presented solely
to give effect to the estimated provision for income taxes that would
have been reported in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" had the Company filed
federal, state and local income tax returns as a for-profit
corporation, based on an assumed effective federal, state and local tax
rate of 35.5%. The pro forma earnings per share information is based
upon 13,500,000 issued and outstanding common shares. See Note 3.
Certain reclassifications have been made to the 1995 financial
statements to conform with the 1996 presentation.
6
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NOTE 2. ACCOUNTING POLICIES
The consolidated financial statements presented in this report have
been prepared in accordance with the accounting policies described in
Note 2 to the consolidated financial statements included in the
aforementioned Post-Effective Amendment to Form S-1 and Amended
Prospectus and reflect all adjustments consisting solely of normal
recurring adjustments which, in the opinion of management, are
necessary for a fair statement of the results of the interim periods
presented. While management believes that the procedures followed in
the preparation of the consolidated financial statements for the
interim periods are reasonable, certain estimated amounts are dependent
upon current facts and other information that may change subsequently
during the fiscal year.
NOTE 3. STOCK TRANSACTIONS
On October 1, 1995, the Company issued 100 shares to the Foundation
representing the initial shares issued as part of the Restructuring. In
subsequent transactions related to the Restructuring, on January 5,
1996 and February 6, 1996, respectively, the Company effected a
142,000-to-1 stock split and redeemed 700,000 shares for a total
consideration of $1.00, resulting in 13,500,000 shares outstanding. The
accompanying consolidated financial statements give effect to all stock
transactions related to the Restructuring as of the earliest period
presented.
NOTE 4. COMMITMENTS AND CONTINGENCIES
VENDOR AGREEMENT - The Company has agreements with various vendors for
services, including the management of medical services, certain of
which provide for the monthly prepayment of fees. The Company believes
that one such vendor has experienced a decline in the ratio of cash and
cash equivalents to claims outstanding. The Company believes that the
vendor has, to date, continued to meet its financial obligations to the
Company. By agreement on March 12, 1996, the vendor paid the Company
$6,000, which represents a portion of the amounts previously paid by
the Company to the vendor, and agreed to adjust such funds quarterly to
approximate ChoiceCare-related outstanding claims liabilities. Such
amount is reflected as Amounts due to vendor in the accompanying March
31, 1996 Consolidated Balance Sheet. The vendor has waived its right to
avoid and recover such funds (which waiver may be ineffective) in the
event of bankruptcy proceedings. However, there exists a risk that if
the vendor files for bankruptcy protection or if an involuntary
petition is filed against the vendor, any payments made by the vendor
within 90 days of the commencement of the bankruptcy case may be
avoided and recovered by the vendor as a preferential transfer. As a
result of the above, the Company may be obligated to pay for unpaid
claims of service through the date of bankruptcy. Such amounts are
currently estimated to be approximately $6,200 and would be in addition
to the amount previously paid by the Company to the vendor that were
anticipated to cover such claims. The Company's management believes it
unlikely that current circumstances will result in this vendor entering
bankruptcy proceedings.
7
<PAGE> 8
LITIGATION - The Company is routinely involved in litigation matters
arising in the normal course of business. Management believes, based
upon the advice of counsel, that these actions and proceedings and
losses, if any, resulting from the final outcome thereof, will not be
material in the aggregate to the Company's financial position.
NOTE 5. SUBSEQUENT EVENTS
LONG TERM STOCK INCENTIVE PLAN - On May 8, 1996, the Company's sole
shareholder of record (the Foundation) adopted a Long Term Stock
Incentive Plan. The plan, under which 2 million shares are available
for grant, provides for various types of awards, including stock
options, stock appreciation rights, restricted stock, performance
shares and performance share units and other awards. Under the plan,
options are to be granted at fair market value with vesting schedules
as established by the Human Resources and Compensation Committee. To
date, there have been no grants or awards under this plan.
SPECIAL HEALTH - On April 11, 1996, the Company entered into an
agreement providing for the assignment of its Medicaid provider
agreement with the Ohio Department of Human Services to Health Power
HMO, Inc. ("Health Power"), a Columbus, Ohio-based health maintenance
organization. Subject to the satisfaction of certain conditions,
including regulatory approval, the closing will be held no later than
June 30, 1996, with assignment of the agreement occurring on June 30,
1996 and members enrolled in Special Health, ChoiceCare's Medicaid
product, transferring to Health Power on July 1, 1996. Pursuant to the
agreement, Health Power will pay ChoiceCare an aggregate consideration
of $5,000. During the three months ended March 31, 1996 and 1995, the
Company realized premium revenues of approximately $5,400 and $2,900,
respectively, related to members enrolled in its Special Health
product. The absence of the revenue from this product after June 30,
1996 will not have a material effect on the Company's future operating
income.
STOCK OFFERING - Pursuant to the Company's stock offering that
terminated on May 1, 1996, approximately 1.36 million common shares
were subscribed for by over 1,000 shareholders, resulting in gross
proceeds of $13.6 million. Had such newly issued shares been
outstanding from the beginning of the period January 1, 1996 through
March 31, 1996, loss per share would have been $.16 for the quarter.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- - --------------------------------------------------------------------------------
OF OPERATIONS
-------------
OVERVIEW --------
An increase in member months for the Company's prepaid products and, to a lesser
extent, an approximate 2.5% average increase in premium rates for fully-insured
groups renewing during the three months ended March 31, 1996 (the "1996 period")
resulted in the Company experiencing an increase in premium revenue during the
1996 period as compared to the corresponding prior year period (the "1995
period"). These positive trends, as well as a retention rate of approximately
95% for groups renewing during the first quarter of 1996, were achieved in an
increasingly competitive environment within the Company's service area,
following two years of flat or decreasing premium rates. Offsetting the effects
of this membership growth and increase in premium rates for renewing
fully-insured groups were the following factors, which combined to yield a
$2,394 net loss for the 1996 period, as compared to $172 of net income for the
1995 period:
* continuing effects of decreasing premium rates during 1995,
as it relates to employer groups having other than calendar
year renewals;
* decreased self-funded membership, resulting largely from the
downsizing activities of a large self-funded employer group;
* seasonally higher levels of health care services expenses
during the first calendar quarter, as well as increased
physician utilization levels and drug costs compared to the
1995 period;
* continuation of industry-wide health care cost inflation
trends; and
* decreased investment income due to a decrease in both the
average investment portfolio balance and the interest rate
earned thereon.
9
<PAGE> 10
RESULTS OF OPERATIONS
- - ---------------------
The following table sets forth selected operating data, expressed as a
percentage of total operating revenues, and the medical-expense ratio for the
periods indicated:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
1996 1995
----------- -----------
<S> <C> <C>
OPERATING REVENUE:
Premiums 95.2% 93.9%
Management services fees 4.6 5.8
Other .2 .3
----------- -----------
Total 100.0 100.0
----------- -----------
OPERATING EXPENSES:
Health care services 85.0 83.5
Selling, general and administrative 19.8 18.8
----------- -----------
Total 104.8 102.3
----------- -----------
Operating loss (4.8) (2.3)
Investment income, net 1.6 2.5
----------- -----------
Net income (loss) (3.2%) .2%
=========== ===========
MEDICAL-EXPENSE RATIO* 89.3% 88.8%
MEMBER MONTHS FOR THE PERIOD:
Prepaid 609,880 541,766
Self-funded 261,605 282,292
----------- -----------
Total 871,485 824,058
=========== ===========
PMPM DATA:
Premium revenue $ 115.61 $ 116.64
Management services revenue 13.07 13.83
Health care services expense 103.19 103.62
Selling, general and administrative expense 16.83 15.35
<FN>
* Health care services expense as a percentage of premiums.
</TABLE>
PREMIUM REVENUE -
The 11.6% increase in premium revenue during the 1996 period reflects a 12.6%
increase in member months for the Company's prepaid products, slightly offset by
a .9% decrease in the weighted average PMPM premium. The decrease in weighted
average PMPM premium can primarily be attributed to the continuing effects of
the Company's decision to decrease overall premium rates throughout 1995
(consistent with its previous not-for-profit mission), as it relates to employer
groups having other than calendar year renewals, and the continued migration of
the customer base to the Company's more cost effective products and benefit
structures.
10
<PAGE> 11
MANAGEMENT SERVICES REVENUE -
The decrease in management services fees from self-funded employer groups
results primarily from the combined effects of a 7.3% decrease in self-funded
membership, due largely to the aforementioned downsizing activities of a large
self-funded employer group, and renegotiation of an increased rate with a
self-funded employer group during 1995, applied retroactively to the second
quarter of 1994.
HEALTH CARE SERVICES EXPENSE -
The 12.1% increase in total health care services expense during the 1996 period
reflects 1) the 12.6% increase in prepaid member months during the period; 2) a
4.4% increase in physician expenses on a PMPM basis, due primarily to the mix of
frequency and cost per service and refining downward the Company's estimate of
physician claims expense in the 1995 period; and 3) a 10.5% increase in pharmacy
expenses on a PMPM basis, resulting from continued industry-wide drug cost
inflation and lower amounts of rebate rates. These factors were partially offset
by an 8.7% decrease in hospital expenses on a PMPM basis, which can be largely
attributed to the net effects of 1) a decrease in utilization; 2) an increase in
amounts earned in connection with the Company's hospital risk/reward sharing
arrangements, due to the hospitals' performance against established targets; and
3) refinement downward of the Company's estimate of hospital claims expense
during the 1995 period. As a result of the .9% decrease in the weighted average
PMPM premium slightly outpacing the .4% decrease in health care services expense
on a PMPM basis, the Company's medical-expense ratio increased to 89.3% in the
1996 period from 88.8% in the 1995 period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES -
The 15.9% increase in expenses for selling, general and administrative ("SG&A")
costs in the 1996 period largely resulted from the 5.8% growth in overall member
months and continued infrastructure and new product investments made in order to
raise the standard of service provided to current members, to service
anticipated membership growth and to manage medical cost inflation effectively.
The 1995 period included approximately $350 of expenses incurred in connection
with the Company's restructuring.
INVESTMENT INCOME -
During the 1996 period, the Company experienced a $537 decrease in net gains
realized on the investment portfolio as compared to the 1995 period. This
period-over-period decline can primarily be attributed to 1) a decrease in the
average outstanding portfolio balance, which resulted largely from funding the
Thompson litigation settlement in October 1995; 2) a decrease in the average
rate earned on fixed income securities of approximately 100 basis points; and 3)
the effect of equity investments comprising an increased percentage of the
Company's investment portfolio during the 1996 period, the earnings on which are
not anticipated to be declared and recorded until later in the year.
11
<PAGE> 12
FINANCIAL CONDITION
- - -------------------
Reflecting the effects of the receipt of $6,200 under a vendor agreement during
March 1996, net cash totaling $363 was used in operations during the first three
months of 1996. This use of cash was substantially offset by $281 of net cash
provided by investing activities, reflecting the net cash impact of investment
portfolio transactions and capital expenditures totaling $646. See Note 4 of
Notes to Consolidated Financial Statements for discussion of the cash received
under the aforementioned vendor agreement, and the Company's related obligation.
As of March 31, 1996, the Company's investment portfolio was comprised of debt
securities (84.4%), equity-based mutual funds (14.1%) and fixed income mutual
funds (1.5%), all of which are available to meet current obligations and
classified as securities available-for-sale in the accompanying Consolidated
Balance Sheet. Unfavorable fixed income security market conditions resulted in
unrealized losses on the investment portfolio totaling $282 as of March 31, 1996
compared to unrealized gains totaling $846 as of December 31, 1995. Such net
unrealized gains and losses are reflected as a separate component of equity in
the accompanying Consolidated Balance Sheets. The Company believes that its
investment portfolio will be sufficient to fund its liquidity needs for at least
the next 12 months.
12
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PART II - OTHER INFORMATION
---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------------------------------------------------------------
The matters indicated below were voted upon at the Company's Annual Meeting of
Shareholder held on May 8, 1996, with the 13,500,000 shares outstanding being
cast "For" the matters.
(a) Election of 3 directors:
Term
Name Expiration
---- ----------
Daniel A. Gregorie, M.D. 1999
James P. Long, Ph.D. 1999
Richard G. Santangelo, M.D. 1999
(b) Adoption of the 1996 Long Term Stock Incentive Plan (see Note 5 of
Notes to Consolidated Financial Statements).
(c) Adoption of the following amendment to the Company's regulations:
"An annual meeting of Shareholders shall be held on the second
Wednesday of May in each year (or on such other date as the Board may
fix) for the purpose of electing a Board and for the transaction of
such other business as may properly be brought before such meeting. At
the annual meeting of Shareholders, or at any meeting held in lieu
thereof, the Corporation shall present to the Shareholders such
financial statements as are required by Section 1701.38 of Chapter
1701 of the Revised Code of Ohio, as amended and implemented
(the "General Corporation Law of Ohio")."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- - -----------------------------------------
(a) Exhibits
10.(iii)(A)(4) 1996 Long Term Stock Incentive Plan
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file a current report on Form 8-K covering an event
that occurred during the quarter for which this report is filed.
13
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHOICECARE CORPORATION
Date: May 14, 1996 By: /s/ Juan M. Fraiz
-----------------------------------------
Juan M. Fraiz
Vice President and Chief Financial
Officer (Principal Financial Officer)
14
<PAGE> 1
EXHIBIT 10. (iii)(A)(4)
CHOICECARE CORPORATION
1996 LONG TERM STOCK INCENTIVE PLAN
1. PURPOSE.
The purpose of the ChoiceCare Corporation 1996 Long Term Stock
Incentive Plan (the "Plan") is to further the long term growth of ChoiceCare
Corporation (the "Company") by offering competitive incentive compensation to
employees of the Company and its subsidiaries. The Plan is also intended as a
means of reinforcing the commonality of interest between the Company's
shareowners and the employees who are participating in the Plan and as an aid in
attracting and retaining employees of outstanding abilities and specialized
skills. The Plan shall become effective on the date on which it is approved by
the shareholder of the Company.
2. ADMINISTRATION.
2.1 The Plan shall be administered by the Human Resources and
Compensation Committee of the Company's Board of Directors (the "Committee"),
none of the members of which may be an employee of the Company or any subsidiary
of the Company.
2.2 Subject to the limitations of the Plan, the Committee shall have
the sole and complete authority (a) to select from the class of employees
eligible to have awards made to them under the Plan (as is identified in
Section 4 of this Plan) those employees who shall be eligible to have awards
made to them under the Plan ("Participants"), (b) to make awards in such forms
and amounts as it shall determine and to cancel or suspend awards, (c) to
impose such limitations, restrictions and conditions upon awards as it shall
deem appropriate, (d) to interpret the Plan and to adopt, amend and rescind
administrative guidelines and other rules and regulations relating to the Plan
and (e) to make all other determinations and to take all other actions
necessary or advisable for the proper administration of the Plan; except that
the selection of the officers who shall be Participants and the forms and
amounts of awards granted to the officers shall be subject to the approval of
the Board of Directors of the Company. Determinations of fair market value
under the Plan shall be made in accordance with the methods and procedures
established by the Committee. For purposes of the Plan, the fair market value
of any award which is issued as an incentive stock option shall be determined
without regard to any restriction other than a restriction which, by its terms,
will never lapse. The Committee's determinations on matters within its
authority shall be conclusive and binding on the Company and all other parties.
3. TYPES OF AWARDS.
Awards under the Plan shall constitute or be otherwise based on common
shares of the Company ("Common Shares") and may be issued in any one or more of
the following: (a) stock options, including incentive stock options ("ISOs"),
(b) stock appreciation rights ("SARs"), in tandem with stock options or
free-standing, (c) restricted stock, (d) performance shares and performance
units conditioned upon meeting performance criteria and (e) other awards valued
in whole or in part by reference to or otherwise based on Common Shares ("other
stock unit
<PAGE> 2
awards"). In connection with any award or any deferred award, payments may also
be made representing dividends or interest or their equivalent. No awards shall
be granted under the Plan after 10 years from the date the Plan is approved by
the shareholder of the Company or the date the Plan is adopted, whichever occurs
earlier.
4. SHARES SUBJECT TO PLAN AND ELIGIBLE EMPLOYEES.
4.1 Subject to adjustment as provided in Section 12 below, awards,
including but not limited to ISOs, may be made under the Plan of or otherwise
based on up to 2,000,000 Common Shares, and no further awards may be made under
the Plan once awards of or otherwise based on such number of Common Shares have
been granted. In the future, if another company is acquired by the Company or
any of its subsidiaries, any Common Shares covered by or issued as a result of
the assumption or substitution of outstanding grants of the acquired company
shall not be deemed issued under the Plan and shall not be subtracted from the
Common Shares available for grant under the Plan. The Common Shares deliverable
under the Plan may consist in whole or in part of authorized and unissued shares
or treasury shares. Notwithstanding the foregoing, if any award is forfeited, or
an award is terminated without issuance of Common Shares or other consideration,
the Common Shares subject to such award shall again be available for grant
pursuant to the Plan.
4.2 The class of employees eligible to have awards made to them under
the Plan, if selected by the Committee to be Participants, shall be all
employees of the Company and its subsidiaries.
5. STOCK OPTIONS.
All stock options granted under the Plan shall be subject to the
following terms and conditions:
5.1 The Committee may, from time to time, subject to the provisions of
the Plan and such other terms and conditions as the Committee may prescribe,
grant to any Participant options to purchase Common Shares, which options may be
ISOs, options that are not ISOs, or both. The grant of an option shall be
evidenced by a signed written agreement ("Stock Option Agreement") containing
such terms and conditions as the Committee may from time to time prescribe.
5.2 The purchase price per Common Share of any stock option granted
under the Plan shall be determined by the Committee but shall not be less than
100% of the fair market value of a Common Share on the date the stock option is
granted.
5.3 Unless otherwise prescribed by the Committee in the Stock Option
Agreement, each option granted under the Plan shall be for a period of ten
years, shall be exercisable in whole or in part only after one year has expired
from the date the option is granted, shall thereafter be exercisable in whole or
in part before it terminates under the provisions of the
- 2 -
<PAGE> 3
Stock Option Agreement, shall require that written notice of exercise be given
and shall provide the option price be paid in full in cash at the time of
exercise. The Committee may, however, permit a Participant, in lieu of part or
all of the cash payment, to make payment in Common Shares or other property,
valued at fair market value on the date of exercise, as partial or full payment
of the option price. As soon as practicable after receipt of each notice and
full payment, the Company shall deliver to the Participant a certificate or
certificates representing the acquired Common Shares.
5.4 Any ISO granted under the Plan shall be exercisable upon the date
or dates specified in the Stock Option Agreement, but not earlier than one year
after the date of grant of the ISO and not later than 10 years after the date of
grant of the ISO. To the extent that, with respect to any options which are
intended to be ISOs, the aggregate fair market value, determined as of the date
of grant, of Common Shares for which such options are exercisable for the first
time during any calendar year as to any Participant under this Plan (and all
other plans of the Company and its parent and subsidiary corporations) exceeds
the maximum limitation in section 422(d) of the Internal Revenue Code (as such
section currently exists or is hereafter amended or renumbered), such options
shall be treated as options that are not ISOs. The limitation set forth in the
immediately preceding sentence shall be applied by taking ISOs into account in
the order in which they were granted. Notwithstanding any other provision of the
Plan to the contrary, no individual will be eligible for or granted an ISO if
that individual owns stock of the Company possessing more than 10% of the total
combined voting power of all classes of stock of the Company or its
subsidiaries.
5.5 The maximum number of Common Shares with respect to which options
may be granted to any Participant is 400,000 during the first 12 months
commencing on the date the Plan is adopted and 200,000 during each succeeding
12-month period.
6. STOCK APPRECIATION RIGHTS.
6.1 A SAR may be granted free-standing or in tandem with new options
or after the grant of a related option which is not an ISO. The SAR shall
represent the right to receive payment of a sum not to exceed the amount, if
any, by which the fair market value of the Common Shares subject to the SAR on
the date of exercise of the SAR (or, if the Committee shall so determine in the
case of any SAR not related to an ISO, any time during a specified period before
the exercise date) exceeds the grant price of the SAR. Each SAR shall be
evidenced by a signed written agreement containing such terms and conditions as
the Committee may determine.
6.2 The grant price (which shall not be less than the fair market
value of the Common Shares subject to the SAR on the date of grant) and other
terms of the SAR shall be determined by the Committee.
6.3 Payment of the amount to which a Participant is entitled upon the
exercise of a SAR shall be made in cash, Common Shares or other property or in a
combination thereof, as
- 3 -
<PAGE> 4
the Committee shall determine. To the extent that payment is made in Common
Shares or other property, the Common Shares or other property shall be valued at
fair market value on the date of exercise of the SAR.
6.4 Unless otherwise determined by the Committee, any related option
shall no longer be exercisable to the extent the SAR has been exercised and the
exercise of an option shall cancel the related SAR to the extent of such
exercise.
6.5 The maximum number of Common Shares with respect to which SARs may
be granted to any Participant is 400,000 during the first 12 months commencing
on the date the Plan is adopted and 200,000 during each succeeding 12-month
period.
7. RESTRICTED STOCK.
Common Shares awarded as restricted stock may not be disposed of by the
recipient until certain restrictions established by the Committee lapse.
Recipients of restricted stock are not required to provide consideration other
than the rendering of services or the payment of any minimum amount required by
law, unless the Committee otherwise establishes certain conditions or
restrictions. The Participant shall have, with respect to Common Shares awarded
as restricted stock, all of the rights of a shareholder of the Company,
including the right to vote the shares, and the right to receive any cash
dividends, unless the Committee shall otherwise determine. Upon termination of
employment during the restriction period, all restricted stock shall be
forfeited, subject to such exceptions, if any, as are authorized by the
Committee, as to termination of employment, retirement, disability, death or
special circumstances. Each award of restricted stock shall be evidenced by a
signed written agreement containing such terms and conditions as the Committee
may determine.
- 4 -
<PAGE> 5
8. PERFORMANCE SHARES AND UNITS.
8.1 The Committee may award to any Participant performance shares and
performance units (collectively, "Performance Awards"). Each Performance Award
which is a performance share shall represent, as the Committee shall determine,
one Common Share which becomes payable after certain performance criteria are
met with respect to a certain performance period. Each Performance Award which
is a performance unit shall represent the right of a Participant to receive an
amount equal to a value, determined in relation to a Common Share and in the
manner established by the Committee at the time of award, which becomes payable
after the certain performance criteria are met with respect to a certain
performance period. Recipients of Performance Awards are not required to provide
consideration other than the rendering of service, unless the Committee
otherwise establishes certain conditions or restrictions.
8.2 Each Performance Award under the Plan shall be evidenced by a
signed written agreement containing such terms and conditions as the Committee
may determine.
8.3 The performance period for each Performance Award shall be of such
duration as the Committee shall establish at the time of award ("Performance
Period"). There may be more than one award in existence at any one time, and
Performance Periods may differ. The performance criteria for each Performance
Period shall be determined by the Committee.
8.4 The Committee may provide that amounts equivalent to dividends
paid shall be credited with respect to each Performance Award which is a
performance share, and that amounts equivalent to interest at such rates as the
Committee may determine shall be credited with respect to amounts equivalent to
dividends previously credited to the Participant. The Committee may provide that
amounts equivalent to interest at such rates as the Committee may determine
shall be credited with respect to each Performance Award which is a performance
unit.
8.5 Payment of a Performance Award which is a performance share and
any related dividends, amounts equivalent to dividends and amounts equivalent to
interest may be made, in a lump sum or in installments, in cash, Common Shares
or other property or in a combination thereof, as the Committee may determine.
Payment of a Performance Award which is a performance unit and any related
amounts equivalent to interest may be made, in a lump sum or in installments, in
cash, Common Shares or other property or in a combination thereof, as the
Committee may determine.
- 5 -
<PAGE> 6
9. OTHER STOCK UNIT AWARDS
-----------------------
9.1 The Committee is authorized to grant to Participants, either
alone or in addition to other awards granted under the Plan, any other types of
other stock unit awards. Other stock unit awards may be paid in cash, Common
Shares, other property or in a combination thereof, as the Committee shall
determine. Each award of an other stock unit award shall be evidenced by a
signed written agreement containing such terms and conditions as the Committee
may determine.
9.2 The Committee shall determine the Participants to whom other
stock unit awards are to be made, the times at which such awards are to be
made, the number of shares to be granted pursuant to such awards and all other
conditions of such awards. The provisions of other stock unit awards need
not be the same with respect to each recipient. The Participant shall not be
permitted to sell, assign, transfer, pledge or otherwise encumber the Common
Shares or other securities prior to the later of the date on which the Common
Shares are issued, or the date on which any applicable restriction, performance
or deferral period lapses. Common Shares granted pursuant to other stock unit
awards may be issued for no cash consideration or for such minimum
consideration as may be required by applicable law. Common Shares purchased
pursuant to purchase rights granted pursuant to other stock unit awards may be
purchased for such consideration as the Committee shall determine, which price
shall not be less than the fair market value of such Common Shares on the date
of grant, unless the Committee otherwise elects.
10. NONASSIGNABILITY OF AWARDS.
---------------------------
No award granted under the Plan shall be assigned, transferred, pledged
or otherwise encumbered by a Participant, otherwise than by will or by the laws
of descent and distribution. Each award shall be exercisable during the
Participant's lifetime only by the Participant.
11. DEFERRALS OF AWARDS.
--------------------
The Committee may permit Participants to defer the distribution of all
or part of any award in accordance with such terms and conditions as the
Committee shall establish.
12. ADJUSTMENTS.
------------
12.1 In the event of any change affecting the Common Shares by reason
of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, combination or exchange of shares or other corporation change, or any
distributions to common shareholders other than cash dividends, the Committee
shall make such substitution or adjustment in the aggregate number or class of
shares which may be distributed under the Plan and in the number, class and
option price or other price of shares subject to the outstanding awards granted
under the Plan as it deems to be appropriate in order to maintain the purpose of
the original grant.
12.2 The Committee shall be authorized to make adjustments in
performance award criteria or in the terms and conditions of other awards in
recognition of unusual or non-recurring events affecting the Company or its
financial statements or changes in applicable laws, regulations or accounting
principles. The Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any award in the manner and to the
extent it shall deem desirable to carry it into effect.
13. BOARD OF DIRECTORS.
-------------------
Notwithstanding any other provisions hereof to the contrary, the Board
of Directors of the Company may, in its discretion, assume any responsibilities
otherwise assigned to the Committee and may amend, alter or discontinue the Plan
or any portion thereof at any time, provided that no such action shall impair
the rights of a Participant without the Participant's consent and provided that
no amendment shall (a) increase the total number of shares reserved for issuance
pursuant to the Plan; (b) change the class of eligible Participants; or (c)
materially increase the benefits under the Plan without the approval of a
majority of its outstanding shares of the Company present, or represented, and
entitled to a vote at a meeting duly held in accordance with the applicable laws
of the state in which the Company is incorporated.
- 6 -
<PAGE> 7
14. CHANGE OF CONTROL.
------------------
14.1 Notwithstanding any other provision of the Plan to the contrary,
if a "change in control", as defined below, occurs, any stock option, SAR or
restricted stock granted under the Plan prior to such change in control shall be
immediately and fully exercisable and free of all restrictions regardless of any
limits on exercise or other restrictions that may have been imposed under the
stock option, SAR or restricted stock.
14.2 "Change in control" means: (a) the election of persons
constituting a majority of the whole number of directors of the Company, which
persons were not nominated by the nominating committee of the Company or, if so
nominated, were not recommended by a majority of the directors in office prior
to being nominated by such nominating committee unless the person nominated is
nominated to take the place of an individual previously so recommended by the
directors who has died, become disabled or chose not to serve, in which event
that nominee shall be deemed to be recommended by the majority of the directors
in office if such majority recommends that nominee at the meeting of directors
next following the nomination of such person; (b) any consolidation or merger of
the Company if, within two years after such consolidation or merger, individuals
who were directors of the Company immediately prior to such consolidation or
merger cease to constitute a majority of the Board of Directors of the Company
or its successor by consolidation or merger; (c) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company other than to a directly or
indirectly majority-owned subsidiary of the Company; (d) the sale of a majority
of the voting interest in any subsidiary or subsidiaries of the Company, which
subsidiary or subsidiaries before such sale held assets that constituted all or
substantially all of the assets of the Company and its subsidiaries on a
consolidated basis; (e) the sale of a minority voting interest in the Company or
any direct or indirect subsidiary or subsidiaries of the Company, which
subsidiary or subsidiaries before the sale held assets that constituted all or
substantially all of the assets of the Company and its subsidiaries on a
consolidated basis, which gives the minority owner the ability to elect more
than one-third of the board of directors of the Company; or (f) the approval by
the shareholders of the Company of any plan or proposal for the liquidation or
dissolution of the Company. For purposes of this Agreement, all directors of the
Company serving as of January 1, 1996 are deemed to have been nominated by the
nominating committee of the Company and recommended by a majority of the
directors in office.
15. WITHHOLDING.
------------
At the Committee's discretion, the recipient of any award under the
Plan may be required to pay to the Company, in cash, Common Shares or other
property, or a combination thereof, the amount of any taxes required to be
withheld with respect to such award or, in the case of an award in the form of
Common Shares, the Company shall have the right to retain from such award a
sufficient number of Common Shares to satisfy the applicable withholding tax
obligation.
- 7 -
<PAGE> 8
16. SUBSIDIARIES.
-------------
For purposes of the Plan, a "subsidiary" of the Company means any
corporation of which at least 51% of the total combined voting power of all
classes of its stock is owned by the Company.
- 8 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 12,540
<SECURITIES> 70,901
<RECEIVABLES> 11,306
<ALLOWANCES> 68
<INVENTORY> 0
<CURRENT-ASSETS> 107,143
<PP&E> 17,134
<DEPRECIATION> 6,918
<TOTAL-ASSETS> 121,665
<CURRENT-LIABILITIES> 87,832
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 31,007
<TOTAL-LIABILITY-AND-EQUITY> 121,665
<SALES> 0
<TOTAL-REVENUES> 74,050
<CGS> 0
<TOTAL-COSTS> 62,931
<OTHER-EXPENSES> 14,663
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,394)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,394)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,394)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
