<PAGE> 1
As Filed With the Securities and Exchange Commission
on April 24, 1998
Registration No. 333-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------
COVENTRY HEALTH CARE, INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 52-2073000
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
COVENTRY HEALTH CARE, INC.
6705 ROCKLEDGE DRIVE, SUITE 100 20817
BETHESDA, MARYLAND (Zip Code)
(Address of Principal Executive Offices)
Coventry Health Care, Inc. 1998 Stock Incentive Plan
(Full title of the plan)
SHIRLEY R. SMITH, ESQ.
501 CORPORATE CENTRE DRIVE, SUITE 400
FRANKLIN, TENNESSEE 37067
(Name and address of agent for service)
(615) 771-4177
(Telephone number, including area code, of agent for service)
Copies to:
BOB F. THOMPSON, ESQ. THOMAS M. FARAH, ESQ.
BASS, BERRY & SIMS PLC EPSTEIN, BECKER & GREEN, P.C.
2700 FIRST AMERICAN CENTER 1227 25TH STREET, N.W., SUITE 700
NASHVILLE, TENNESSEE 37238 WASHINGTON, D.C. 20037
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Proposed maximum Proposed maximum
Title of securities Amount to offering price aggregate offering Amount of
to be registered be registered per share (1) price (1) registration fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
par value $.01 per share 7,000,000 shares $18.0625 $126,437,500 $37,299.06
====================================================================================================================
</TABLE>
(1) The offering price is estimated solely for the purpose of determining the
amount of the registration fee. Such estimate has been calculated in accordance
with Rule 457(h) and is based upon the average of the high and low prices per
share of the Registrant's Common Stock as reported on The Nasdaq National Market
on April 17, 1998.
<PAGE> 2
PART II
INFORMATION REQUIRED IN THE REGISTRATION
STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed by the Registrant with the
Commission are incorporated herein by reference:
(a) The Registrant's Final Prospectus filed March 12, 1998 under
the Securities Act of 1933, as amended (the "Securities Act"),
in connection with the Registrant's Registration Statement on
Form S-4 (Registration No. 333-45821);
(b) The Registrant's Current Report on Form 8-K filed April 8,
1998; and
(c) The description of the Registrant's Common Stock contained in
the Registrant's Current Report on Form 8-K filed April 23,
1998.
All documents and reports subsequently filed by the Registrant or the
Plan pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), prior to the filing of a
post-effective amendment to this Registration Statement which indicates that all
shares covered hereby have been sold or which deregisters all such shares then
remaining unsold shall be deemed to be incorporated by reference in this
Registration Statement and to be a part hereof from the date of filing of such
documents. Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or replaced for
purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein) modifies or replaces such statement. Any
statement so modified or replaced shall not be deemed, except as so modified or
replaced, to constitute a part hereof.
ITEM 4. DESCRIPTION OF SECURITIES
Not applicable
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
Not applicable
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law ("DGCL") provides that a
corporation may indemnify any of its directors and officers against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any threatened, pending, or
completed action, suit or proceeding (civil, criminal, administrative or
investigative) if such person acted in good faith and in a manner that person
reasonably believed to be in or not opposed to the best interests of the
corporation. In actions brought by or in the right of the corporation the DGCL
provides that no indemnification may be made if the director or officer was
adjudged to be liable to the corporation unless and only to the extent that the
court in which such action or suit was brought determines that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
such court deems proper.
In cases where the director or officer is successful, on the merits or
otherwise, in the defense of any action, suit or proceeding (or claims or issues
therein), the DGCL mandates that the corporation indemnify the director or
officer against expenses actually and reasonably incurred in the proceeding. In
other cases, the DGCL provides that indemnification shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper as such person has met the
applicable standard of conduct described
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<PAGE> 3
above. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or even
if obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders. Expenses
incurred by an officer or director in such a matter may be paid by the
corporation in advance upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation.
The Registrant's Certificate of Incorporation and its Bylaws provide
that each director and officer of the Registrant will be indemnified against all
liability and reasonable expenses incurred by him or her in connection with any
claim, action, suit or proceeding, provided that such person is successful with
respect thereto or acted in good faith, in a manner he or she believed to be in
the best interests of the Registrant, and, in the case of a criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
An officer or director claiming indemnification who has not been wholly
successful with respect to his claim or proceeding will be entitled to
indemnification if it has been determined that such person has met the standards
of conduct described above (i) by the Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such quorum is not obtainable, or even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders. In addition, the Registrant may
advance expenses to an officer or director upon receipt of an undertaking by
such person to repay such amount unless he or she is entitled to
indemnification.
The Registrant believes that its Certificate of Incorporation and Bylaw
provisions are necessary to attract and retain qualified persons as directors
and officers.
The Registrant has in effect a directors' and officers' liability
insurance policy which provides coverage for its directors and officers. Under
this policy, the insurer agrees to pay, subject to certain exclusions, for any
claim made against a director or officer of the Registrant for a wrongful act by
such director or officer, but only if and to the extent such director or officer
becomes legally obligated to pay such claim.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
Not applicable
ITEM 8. EXHIBITS
See Exhibit Index (Page II-6)
ITEM 9. UNDERTAKINGS
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective
amendment hereof) which individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the
total dollar value of securities would not exceed
that which was registered) and any deviation from the
low or high and of the estimated maximum
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<PAGE> 4
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement;
provided, however, that paragraphs (A)(1)(i) and (A)(1)(ii) do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section
13 or Section 15(d) of the Exchange Act, that are incorporated
by reference in the Registration Statement.
(2) That, for the purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
B. The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Nashville, State of Tennessee, on the 23rd day
of April, 1998.
COVENTRY CORPORATION
By: /s/ Allen F. Wise
------------------------------
Allen F. Wise, President,
Chief Executive Officer
and Director
KNOW ALL MEN BY THESE PRESENTS, each person whose signature appears
below hereby constitutes and appoints Allen F. Wise and Dale B. Wolf his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statements, and to file the same, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Allen F. Wise
- ----------------------------------------- President, Chief Executive April 23, 1998
Allen F. Wise Officer and Director
/s/ Kenneth J. Linde
- ----------------------------------------- Executive Vice President and April 23, 1998
Kenneth J. Linde Chief Operating Officer and
Director
/s/ Dale B. Wolf
- ----------------------------------------- Chief Financial Officer April 23, 1998
Dale B. Wolf (Principal Financial and
Accounting Officer)
/s/ John H. Austin, M.D.
- ----------------------------------------- Director April 22, 1998
John H. Austin, M.D.
/s/ Thomas L. Blair
- ----------------------------------------- Director April 22, 1998
Thomas L. Blair
/s/ Philip N. Bredesen
- ----------------------------------------- Director April 22, 1998
Philip N. Bredesen
/S/ Gary M. Cain
- ----------------------------------------- Director April 23, 1998
Gary M. Cain
</TABLE>
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<TABLE>
<S> <C> <C>
/s/ Laurence DeFrance
- ----------------------------------------- Director April 22, 1998
Laurence DeFrance
- ----------------------------------------- Director April __, 1998
David J. Drury
/s/ Emerson D. Farley, Jr., M.D.
- ----------------------------------------- Director April 23, 1998
Emerson D. Farley, Jr., M.D.
/s/ Thomas J. Graf
- ----------------------------------------- Director April 23, 1998
Thomas J. Graf
/s/ Patrick T. Hackett
- ----------------------------------------- Director April 23, 1998
Patrick T. Hackett
/s/ Richard H. Jones
- ----------------------------------------- Director April 23, 1998
Richard H. Jones
- ----------------------------------------- Director April __, 1998
Lawrence N. Kugelman
/s/ Rodman W. Moorhead, III
- ----------------------------------------- Director April 22, 1998
Rodman W. Moorhead, III
/s/ Elizabeth E. Tallett
- ----------------------------------------- Director April 22, 1998
Elizabeth E. Tallett
</TABLE>
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<PAGE> 7
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description
- ------- -----------------------------------------------------------
<S> <C>
4 Coventry Health Care, Inc. 1998 Stock Incentive Plan
5 Opinion of Bass, Berry & Sims PLC
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Bass, Berry & Sims PLC (included in Exhibit 5)
24 Power of Attorney (included at pages II-4 and II-5)
</TABLE>
II-6
<PAGE> 1
EXHIBIT 4
COVENTRY HEALTH CARE, INC.
1998 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the 1998 Stock Incentive Plan (the "Plan") is to enable
Coventry Health Care, Inc., a Delaware corporation (the "Corporation"), to
attract, retain and reward key employees of and consultants to the Corporation
and its Subsidiaries and Affiliates, and directors who are not also employees of
the Corporation, and to strengthen the mutuality of interests between such key
employees, consultants, and directors by awarding such key employees,
consultants, and directors performance-based stock incentives and/or other
equity interests or equity-based incentives in the Corporation, as well as
performance-based incentives payable in cash. The creation of the Plan shall not
diminish or prejudice other compensation programs approved from time to time by
the Board.
For purposes of the Plan, the following terms shall be defined as set
forth below:
A. "Affiliate" means any entity other than the Corporation and its
Subsidiaries that is designated by the Board as a participating employer under
the Plan, provided that the Corporation directly or indirectly owns at least 20%
of the combined voting power of all classes of stock of such entity or at least
20% of the ownership interests in such entity.
B. "Assumed Plans" has the meaning provided in Section 3(a) of the
Plan.
C. "Assumption Time" means the time that the merger described in the
Combination Agreement becomes effective as provided in Section 2.2 of the
Combination Agreement.
D. "Board" means the Board of Directors of the Corporation.
E. "Cause" has the meaning provided in Section 5(j) of the Plan.
F. "Change in Control" has the meaning provided in Section 10(b) of the
Plan.
G. "Change in Control Price" has the meaning provided in Section 10(d)
of the Plan.
H. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
I. "Combination Agreement" has the meaning provided in Section 3(a) of
the Plan.
J. "Common Stock" means the Corporation's Common Stock, par value $.01
per share.
<PAGE> 2
K. "Committee" means the Committee referred to in Section 2 of the
Plan.
L. "Corporation" means a corporation organized under the laws of the
State of Delaware or any successor corporation.
M. "Disability" means disability as determined under the Corporation's
Group Long Term Disability Insurance Plan.
N. "Early Retirement" means retirement, for purposes of this Plan with
the express consent of the Corporation at or before the time of such retirement,
from active employment with the Corporation and any Subsidiary or Affiliate
prior to age 65, in accordance with any applicable early retirement policy of
the Corporation then in effect or as may be approved by the Committee.
O. "Effective Date" has the meaning provided in Section 14 of the Plan.
P. "Equity Issuance" means an issuance of Common Stock by the
Corporation following the Effective Date of this Plan in connection with a
public or private offering, including in connection with an acquisition, merger
or similar transaction, but excluding issuances of Common Stock under this Plan
or in any other compensatory transaction with an officer or employee of, or
consultant to, the Corporation or its Subsidiaries or Affiliates.
Q. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
R. "Fair Market Value" means with respect to the Common Stock, as of
any given date or dates, unless otherwise determined by the Committee in good
faith, the reported closing price of a share of Common Stock on The Nasdaq
National Market or such other market or exchange as is the principal trading
market for the Common Stock, or, if no such sale of a share of Common Stock is
reported on The Nasdaq National Market or other exchange or principal trading
market on such date, the fair market value of a share of Common Stock as
determined by the Committee in good faith.
S. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
T. "Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall
include adoptive relationships.
U. "Non-Employee Director" means a member of the Board who is a
Non-Employee Director within the meaning of Rule 16b-3(b)(3) promulgated under
the Exchange Act and an outside director within the meaning of Treasury
Regulation Sec. 162-27(e)(3) promulgated under the Code.
2
<PAGE> 3
V. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
W. "Normal Retirement" means retirement from active employment with the
Corporation and any Subsidiary or Affiliate on or after age 65.
X. "Other Stock-Based Award" means an award under Section 8 below that
is valued in whole or in part by reference to, or is otherwise based on, the
Common Stock.
Y. "Outside Director" means a member of the Board who is not an
officer or employee of the Corporation or any Subsidiary or Affiliate of the
Corporation.
Z. "Outside Director Option" means an award to an Outside Director
under Section 9 below.
AA. "Plan" means this 1998 Stock Incentive Plan, as amended from time
to time.
BB. "Restricted Stock" means an award of shares of Common Stock that is
subject to restrictions under Section 7 of the Plan.
CC. "Restriction Period" has the meaning provided in Section 7 of the
Plan.
DD. "Retirement" means Normal or Early Retirement.
EE. "Section 162(m) Maximum" has the meaning provided in Section 3(a)
hereof.
FF. "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 below to surrender to the Corporation all (or a portion)
of a Stock Option in exchange for an amount equal to the difference between (i)
the Fair Market Value, as of the date such Stock Option (or such portion
thereof) is surrendered, of the shares of Common Stock covered by such Stock
Option (or such portion thereof), subject, where applicable, to the pricing
provisions in Section 6(b)(ii), and (ii) the aggregate exercise price of such
Stock Option (or such portion thereof).
GG. "Stock Option" or "Option" means any option to purchase shares of
Common Stock (including Restricted Stock, if the Committee so determines)
granted pursuant to Section 5 below.
HH. "Subsidiary" means any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
3
<PAGE> 4
SECTION 2. ADMINISTRATION.
The Plan shall be administered by a Committee of not less than two
Non-Employee Directors, who shall be appointed by the Board and who shall serve
at the pleasure of the Board. The functions of the Committee specified in the
Plan may be exercised by an existing Committee of the Board composed exclusively
of Non-Employee Directors. The initial Committee shall be the Compensation
Committee of the Board. In the event there are not at least two Non-Employee
Directors on the Board, the Plan shall be administered by the Board and all
references herein to the Committee shall refer to the Board.
The Committee shall have authority to grant, pursuant to the terms of
the Plan, to officers, other key employees, Outside Directors and consultants
eligible under Section 4: (i) Stock Options, (ii) Stock Appreciation Rights,
(iii) Restricted Stock, and/or (iv) Other Stock-Based Awards; provided, however,
that the power to grant and establish the terms and conditions of awards to
Outside Directors under the Plan other than pursuant to Section 9 shall be
reserved to the Board.
In particular, the Committee, or the Board, as the case may be, shall
have the authority, consistent with the terms of the Plan:
(a) to select the officers, key employees and Outside
Directors of and consultants to the Corporation and its Subsidiaries
and Affiliates to whom Stock Options, Stock Appreciation Rights,
Restricted Stock, and/or Other Stock-Based Awards may from time to time
be granted hereunder;
(b) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights,
Restricted Stock, and/or Other Stock-Based Awards, or any combination
thereof, are to be granted hereunder to one or more eligible persons;
(c) to determine the number of shares to be covered by each
such award granted hereunder;
(d) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including,
but not limited to, the share price and any restriction or limitation,
or any vesting acceleration or waiver of forfeiture restrictions
regarding any Stock Option or other award and/or the shares of
Common Stock relating thereto, based in each case on such factors as
the Committee shall determine, in its sole discretion); and to amend or
waive any such terms and conditions to the extent permitted by Section
11 hereof;
4
<PAGE> 5
(e) to determine whether and under what circumstances a Stock
Option may be settled in cash or Restricted Stock under Section 5(m) or
(n), as applicable, instead of Common Stock;
(f) to determine whether, to what extent, and under what
circumstances Option grants and/or other awards under the Plan are to
be made, and operate, on a tandem basis vis-a-vis other awards under
the Plan and/or cash awards made outside of the Plan;
(g) to determine whether, to what extent, and under what
circumstances shares of Common Stock and other amounts payable with
respect to an award under this Plan shall be deferred either
automatically or at the election of the participant (including
providing for and determining the amount (if any) of any deemed
earnings on any deferred amount during any deferral period);
(h) to determine whether to require payment of tax withholding
requirements in shares of Common Stock subject to the award; and
(i) to impose any holding period required to satisfy Section
16 under the Exchange Act.
The Committee shall have the authority to adopt, alter, and repeal such
rules, guidelines, and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
award issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be made in the Committee's sole discretion and shall be final and
binding on all persons, including the Corporation and Plan participants.
SECTION 3. SHARES OF COMMON STOCK SUBJECT TO PLAN.
(a) As of the Effective Date, an aggregate of 7,000,000 shares of
Common Stock may be issued by the Corporation under the Plan and other stock
option and incentive plans assumed by the Corporation (the "Assumed Plans")
under the Capital Contribution and Merger Agreement dated as of November 3, 1997
(the "Combination Agreement") by and among, inter alia, Coventry Corporation,
the Corporation, Principal Health Care, Inc. and Principal Mutual Life Insurance
Company. The Assumed Plans are the Principal Health Care, Inc. 1997
Non-Qualified Stock Option Plan, the Coventry Corporation Second Amended and
Restated 1987 Statutory Non-Statutory Stock Option Plan, the Conventry
Corporation Third Amended 1993 Stock Option Plan, the Southern Health Management
Corporation 1993 Stock Option Plan and the Conventry Corporation 1993 Outside
Directors Stock
5
<PAGE> 6
Option Plan, as amended. From and after the Assumption Time, no additional
shares of common stock may be subject to options or awards under the Assumed
Plans.
(b) The shares of Common Stock issuable under the Plan may consist, in
whole or in part, of authorized and unissued shares or treasury shares. No
officer of the Corporation or other person whose compensation may be subject to
the limitations on deductibility under Section 162(m) of the Code shall be
eligible to receive awards pursuant to this Plan relating to in excess of
400,000 shares of Common Stock in any fiscal year (the "Section 162(m)
Maximum").
(c) If any shares of Common Stock that have been optioned hereunder or
under any of the Assumed Plans cease to be subject to such option, or if any
shares of Common Stock that are subject to any restricted stock or stock-based
award granted hereunder or under any of the Assumed Plans are forfeited prior
to the payment of any dividends, if applicable, with respect to such shares of
Common Stock, or any such award otherwise terminates without a payment being
made to the participant in the form of Common Stock, such shares shall again be
available for distribution in connection with future awards under the Plan, so
long as the stock does not exceed the number specified in 3(a) above.
(d) In the event of any merger, reorganization, consolidation,
recapitalization, extraordinary cash dividend, stock dividend, stock split or
other change in corporate structure affecting the Common Stock, an appropriate
substitution or adjustment shall be made in the maximum number of shares that
may be awarded under the Plan, in the number and option price of shares subject
to outstanding Options granted under the Plan, in the number of shares
underlying Outside Director Options to be granted under Section 9 hereof, the
Section 162(m) Maximum and in the number of shares subject to other outstanding
awards granted under the Plan as may be determined to be appropriate by the
Committee, in its sole discretion, provided that the number of shares subject to
any award shall always be a whole number. An adjusted option price shall also be
used to determine the amount payable by the Corporation upon the exercise of any
Stock Appreciation Right associated with any Stock Option.
SECTION 4. ELIGIBILITY.
Officers, other key employees and Outside Directors of and consultants
to the Corporation and its Subsidiaries and Affiliates who are responsible for
or contribute to the management, growth and/or profitability of the business of
the Corporation and/or its Subsidiaries and Affiliates are eligible to be
granted awards under the Plan. Outside Directors are eligible to receive awards
pursuant to Section 9 and as otherwise determined by the Board.
6
<PAGE> 7
SECTION 5. STOCK OPTIONS.
Stock Options may be granted alone, in addition to, or in tandem with
other awards granted under the Plan and/or cash awards made outside of the Plan.
Any Stock Option granted under the Plan shall be in such form as the Committee
may from time to time approve.
Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options. Incentive Stock Options may
be granted only to individuals who are employees of the Corporation or any
Subsidiary of the Corporation.
The Committee shall have the authority to grant to any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock
Options (in each case with or without Stock Appreciation Rights).
Options granted to officers, key employees, Outside Directors and
consultants under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) Option Price. The option price per share of Common Stock
purchasable under a Stock Option shall be determined by the Committee
at the time of grant but shall be not less than 100% (or, in the case
of any employee who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation or of
any of its Subsidiaries, not less than 110%) of the Fair Market Value
of the Common Stock at grant, in the case of Incentive Stock Options,
and not less than 100% of the Fair Market Value of the Common Stock at
grant, in the case of Non-Qualified Stock Options.
(b) Option Term. The term of each Stock Option shall be fixed
by the Committee, but no Incentive Stock Option shall be exercisable
more than ten years (or, in the case of an employee who owns stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Corporation or any of its Subsidiaries or
parent corporations, more than five years) after the date the Option is
granted.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be
determined by the Committee at or after grant; provided, however, that
except as provided in Section 5(g) and (h) and Section 10, unless
otherwise determined by the Committee at or after grant, no Stock
Option shall be exercisable prior to the first anniversary date of the
granting of the Option. The Committee may provide that a Stock Option
shall vest over a period of future service at a rate specified at the
time of grant, or that the Stock Option is exercisable only in
installments. If the Committee provides, in its sole discretion, that
any Stock Option is exercisable only in installments, the Committee may
waive such installment exercise provisions at any time at or after
grant, in whole or in part, based on such factors as the Committee
shall determine in its sole discretion.
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(d) Method of Exercise. Subject to whatever installment
exercise restrictions apply under Section 5(c), Stock Options may be
exercised in whole or in part at any time during the option period, by
giving written notice of exercise to the Corporation specifying the
number of shares to be purchased. Such notice shall be accompanied by
payment in full of the purchase price, either by check, note, or such
other instrument as the Committee may accept. As determined by the
Committee, in its sole discretion, at or (except in the case of an
Incentive Stock Option) after grant, payment in full or in part may
also be made in the form of shares of Common Stock already owned by the
optionee or, in the case of a Non-Qualified Stock Option, shares of
Restricted Stock or shares subject to such Option or another award
hereunder (in each case valued at the Fair Market Value of the Common
Stock on the date the Option is exercised). If payment of the exercise
price is made in part or in full with Common Stock, the Committee may
award to the employee a new Stock Option to replace the Common Stock
which was surrendered. If payment of the option exercise price of a
Non-Qualified Stock Option is made in whole or in part in the form of
Restricted Stock, such Restricted Stock (and any replacement shares
relating thereto) shall remain (or be) restricted in accordance with
the original terms of the Restricted Stock award in question, and any
additional Common Stock received upon the exercise shall be subject to
the same forfeiture restrictions, unless otherwise determined by the
Committee, in its sole discretion, at or after grant. No shares of
Common Stock shall be issued until full payment therefor has been made.
An optionee shall generally have the rights to dividends or other
rights of a shareholder with respect to shares subject to the Option
when the optionee has given written notice of exercise, has paid in
full for such shares, and, if requested, has given the representation
described in Section 13(a).
(e) Transferability of Options. No Non-Qualified Stock Option
shall be transferable by the optionee without the prior written consent
of the Committee other than (i) transfers by the Optionee to a member
of his or her Immediate Family or a trust for the benefit of the
optionee or a member of his or her Immediate Family, or (ii) transfers
by will or by the laws of descent and distribution. No Incentive Stock
Option shall be transferable by the optionee otherwise than by will or
by the laws of descent and distribution and all Incentive Stock Options
shall be exercisable, during the optionee's lifetime, only by the
optionee.
(f) Bonus for Taxes. In the case of a Non-Qualified Stock
Option or an optionee who elects to make a disqualifying disposition
(as defined in Section 422(a)(1) of the Code) of Common Stock acquired
pursuant to the exercise of an Incentive Stock Option, the Committee in
its discretion may award at the time of grant or thereafter the right
to receive upon exercise of such Stock Option a cash bonus calculated
to pay part or all of the federal and state, if any, income tax
incurred by the optionee upon such exercise.
(g) Termination by Death. Subject to Section 5(k), if an
optionee's employment by the Corporation and any Subsidiary or (except
in the case of an Incentive
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Stock Option) Affiliate terminates by reason of death, any Stock Option
held by such optionee may thereafter be exercised, to the extent such
option was exercisable at the time of death or (except in the case of
an Incentive Stock Option) on such accelerated basis as the Committee
may determine at or after grant (or except in the case of an Incentive
Stock Option, as may be determined in accordance with procedures
established by the Committee) by the legal representative of the estate
or by the legatee of the optionee under the will of the optionee, for a
period of one year (or such other period as the Committee may specify
at or after grant) from the date of such death or until the expiration
of the stated term of such Stock Option, whichever period is the
shorter.
(h) Termination by Reason of Disability. Subject to Section
5(k), if an optionee's employment by the Corporation and any Subsidiary
or (except in the case of an Incentive Stock Option) Affiliate
terminates by reason of Disability, any Stock Option held by such
optionee may thereafter be exercised by the optionee, to the extent it
was exercisable at the time of termination or (except in the case of an
Incentive Stock Option) on such accelerated basis as the Committee may
determine at or after grant (or, except in the case of an Incentive
Stock Option, as may be determined in accordance with procedures
established by the Committee), for a period of (i) three years (or such
other period as the Committee may specify at or after grant) from the
date of such termination of employment or until the expiration of the
stated term of such Stock Option, whichever period is the shorter, in
the case of a Non-Qualified Stock Option and (ii) one year from the
date of termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is shorter, in the case of
an Incentive Stock Option; provided however, that, if the optionee dies
within the period specified in (i) above (or other such period as the
committee shall specify at or after grant), any unexercised Non-
Qualified Stock Option held by such optionee shall thereafter be
exercisable to the extent to which it was exercisable at the time of
death for a period of twelve months from the date of such death or
until the expiration of the stated term of such Stock Option, whichever
period is shorter. In the event of termination of employment by reason
of Disability, if an Incentive Stock Option is exercised after the
expiration of the exercise period applicable to Incentive Stock
Options, but before the expiration of any period that would apply if
such Stock Option were a Non-Qualified Stock Option, such Stock Option
will thereafter be treated as a Non-Qualified Stock Option.
(i) Termination by Reason of Retirement. Subject to Section
5(k), if an optionee's employment by the Corporation and any Subsidiary
or (except in the case of an Incentive Stock Option) Affiliate
terminates by reason of Normal or Early Retirement, any Stock Option
held by such optionee may thereafter be exercised by the optionee, to
the extent it was exercisable at the time of such Retirement or (except
in the case of an Incentive Stock Option) on such accelerated basis as
the Committee may determine at or after grant (or, except in the case
of an Incentive Stock Option, as may be determined in accordance with
procedures established by the Committee), for a period of (i) three
years (or such other period as the Committee may specify at or after
grant) from the date of such
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termination of employment or the expiration of the stated term of such
Stock Option, whichever period is the shorter, in the case of a
Non-Qualified Stock Option and (ii) three months from the date of such
termination of employment or the expiration of the stated term of such
Stock Option, whichever period is the shorter, in the event of an
Incentive Stock Option; provided however, that, if the optionee dies
within the period specified in (i) above (or other such period as the
Committee shall specify at or after grant), any unexercised
Non-Qualified Stock Option held by such optionee shall thereafter be
exercisable to the extent to which it was exercisable at the time of
death for a period of twelve months from the date of such death or
until the expiration of the stated term of such Stock Option, whichever
period is shorter. In the event of termination of employment by reason
of Retirement, if an Incentive Stock Option is exercised after the
expiration of the exercise period applicable to Incentive Stock
Options, but before the expiration of the period that would apply if
such Stock Option were a Non-Qualified Stock Option, the option will
thereafter be treated as a Non-Qualified Stock Option.
(j) Other Termination. Subject to Section 5(k), unless
otherwise determined by the Committee (or pursuant to procedures
established by the Committee) at or (except in the case of an Incentive
Stock Option) after grant, if an optionee's employment by the
Corporation and any Subsidiary or (except in the case of an Incentive
Stock Option) Affiliate is involuntarily terminated for any reason
other than death, Disability or Normal or Early Retirement, the Stock
Option shall thereupon terminate, except that such Stock Option may be
exercised, to the extent otherwise then exercisable, for the lesser of
three months or the balance of such Stock Option's term if the
involuntary termination is without Cause. For purposes of this Plan,
"Cause" means (i) a felony conviction of a participant or the failure
of a participant to contest prosecution for a felony, or (ii) a
participant's willful misconduct or dishonesty, which is directly and
materially harmful to the business or reputation of the Corporation or
any Subsidiary or Affiliate. If an optionee voluntarily terminates
employment with the Corporation and any Subsidiary or (except in the
case of an Incentive Stock Option) Affiliate (except for Disability,
Normal or Early Retirement), the Stock Option shall thereupon
terminate; provided, however, that the Committee at grant or (except in
the case of an Incentive Stock Option) thereafter may extend the
exercise period in this situation for the lesser of three months or the
balance of such Stock Option's term.
(k) Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term of this Plan relating to Incentive
Stock Options shall be interpreted, amended, or altered, nor shall any
discretion or authority granted under the Plan be so exercised, so as
to disqualify the Plan under Section 422 of the Code, or, without the
consent of the optionee(s) affected, to disqualify any Incentive Stock
Option under such Section 422. No Incentive Stock Option shall be
granted to any participant under the Plan if such grant would cause the
aggregate Fair Market Value (as of the date the Incentive Stock Option
is granted) of the Common Stock with respect to which all Incentive
Stock Options are exercisable for the first time by such participant
during any
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calendar year (under all such plans of the Company and any Subsidiary)
to exceed $100,000. To the extent permitted under Section 422 of the
Code or the applicable regulations thereunder or any applicable
Internal Revenue Service pronouncement:
(i) if (x) a participant's employment is
terminated by reason of death, Disability, or Retirement and
(y) the portion of any Incentive Stock Option that is
otherwise exercisable during the post-termination period
specified under Section 5(g), (h) or (i), applied without
regard to the $100,000 limitation contained in Section 422(d)
of the Code, is greater than the portion of such Option that
is immediately exercisable as an "Incentive Stock Option"
during such post-termination period under Section 422, such
excess shall be treated as a Non-Qualified Stock Option; and
(ii) if the exercise of an Incentive Stock Option
is accelerated by reason of a Change in Control, any portion
of such Option that is not exercisable as an Incentive Stock
Option by reason of the $100,000 limitation contained in
Section 422(d) of the Code shall be treated as a Non-Qualified
Stock Option.
(l) Buyout Provisions. The Committee may at any time offer to
buy out for a payment in cash, Common Stock, or Restricted Stock an
Option previously granted, based on such terms and conditions as the
Committee shall establish and communicate to the optionee at the time
that such offer is made.
(m) Settlement Provisions. If the option agreement so provides
at grant or (except in the case of an Incentive Stock Option) is
amended after grant and prior to exercise to so provide (with the
optionee's consent), the Committee may require that all or part of the
shares to be issued with respect to the spread value of an exercised
Option take the form of Restricted Stock, which shall be valued on the
date of exercise on the basis of the Fair Market Value (as determined
by the Committee) of such Restricted Stock determined without regards
to the forfeiture restrictions involved.
(n) Performance and Other Conditions. The Committee may
condition the exercise of any Option upon the attainment of specified
performance goals or other factors as the Committee may determine, in
its sole discretion. Unless specifically provided in the option
agreement, any such conditional Option shall vest immediately prior to
its expiration if the conditions to exercise have not theretofore been
satisfied.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) Grant and Exercise. Stock Appreciation Rights may be
granted in conjunction with all or part of any Stock Option granted
under the Plan. In the case of a Non-Qualified Stock Option, such
rights may be granted either at or after the time of the
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grant of such Stock Option. In the case of an Incentive Stock Option,
such rights may be granted only at the time of the grant of such Stock
Option. A Stock Appreciation Right or applicable portion thereof
granted with respect to a given Stock Option shall terminate and no
longer be exercisable upon the termination or exercise of the related
Stock Option, subject to such provisions as the Committee may specify
at grant where a Stock Appreciation Right is granted with respect to
less than the full number of shares covered by a related Stock Option.
A Stock Appreciation Right may be exercised by an optionee, subject to
Section 6(b), in accordance with the procedures established by the
Committee for such purpose. Upon such exercise, the optionee shall be
entitled to receive an amount determined in the manner prescribed in
Section 6(b). Stock Options relating to exercised Stock Appreciation
Rights shall no longer be exercisable to the extent that the related
Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be
subject to such terms and conditions, not inconsistent with the
provisions of the Plan, as shall be determined from time to time by the
Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable
only at such time or times and to the extent that the Stock
Options to which they relate shall be exercisable in
accordance with the provisions of Section 5 and this Section 6
of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right,
an optionee shall be entitled to receive an amount in cash
and/or shares of Common Stock equal in value to the excess of
the Fair Market Value of one share of Common Stock over the
option price per share specified in the related Stock Option
multiplied by the number of shares in respect of which the
Stock Appreciation Right shall have been exercised, with the
Committee having the right to determine the form of payment.
When payment is to be made in shares, the number of shares to
be paid shall be calculated on the basis of the Fair Market
Value of the shares on the date of exercise. When payment is
to be made in cash, such amount shall be calculated on the
basis of the Fair Market Value of the Common Stock on the date
of exercise.
(iii) Stock Appreciation Rights shall be transferable
only when and to the extent that the underlying Stock Option
would be transferable under Section 5(e) of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right,
the Stock Option or part thereof to which such Stock
Appreciation Right is related shall be deemed to have been
exercised for the purpose of the limitation set forth in
Section 3 of the Plan on the number of shares of Common Stock
to be issued under the Plan.
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(v) The Committee, in its sole discretion, may also
provide that, in the event of a Change in Control and/or a
Potential Change in Control, the amount to be paid upon the
exercise of a Stock Appreciation Right shall be based on the
Change in Control Price, subject to such terms and conditions
as the Committee may specify at grant.
(vi) The Committee may condition the exercise of any
Stock Appreciation Right upon the attainment of specified
performance goals or other factors as the Committee may
determine, in its sole discretion.
SECTION 7. RESTRICTED STOCK.
(a) Administration. Shares of Restricted Stock may be issued
either alone, in addition to, or in tandem with other awards granted
under the Plan and/or cash awards made outside the Plan. The Committee
shall determine the eligible persons to whom, and the time or times at
which, grants of Restricted Stock will be made, the number of shares of
Restricted Stock to be awarded to any person, the price (if any) to be
paid by the recipient of Restricted Stock (subject to Section 7(b)),
the time or times within which such awards may be subject to
forfeiture, and the other terms, restrictions and conditions of the
awards in addition to those set forth in Section 7(c). The Committee
may condition the grant of Restricted Stock upon the attainment of
specified performance goals or such other factors as the Committee may
determine, in its sole discretion. The provisions of Restricted Stock
awards need not be the same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of a
Restricted Stock award shall not have any rights with respect to such
award, unless and until such recipient has executed an agreement
evidencing the award and has delivered a fully executed copy thereof to
the Corporation, and has otherwise complied with the applicable terms
and conditions of such award.
(i) The purchase price for shares of Restricted Stock
shall be established by the Committee and may be zero.
(ii) Awards of Restricted Stock must be accepted
within a period of 60 days (or such shorter period as the
Committee may specify at grant) after the award date, by
executing a Restricted Stock Award Agreement and paying
whatever price (if any) is required under Section 7(b)(i).
(iii) Each participant receiving a Restricted Stock
award shall be issued a stock certificate in respect of such
shares of Restricted Stock. Such certificate shall be
registered in the name of such participant, and shall bear an
appropriate legend referring to the terms, conditions, and
restrictions applicable to such award.
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(iv) The Committee shall require that the stock
certificates evidencing such shares be held in custody by the
Corporation until the restrictions thereon shall have lapsed,
and that, as a condition of any Restricted Stock award, the
participant shall have delivered a stock power, endorsed in
blank, relating to the shares of Common Stock covered by such
award.
(c) Restrictions and Conditions. The shares of Restricted
Stock awarded pursuant to this Section 7 shall be subject to the
following restrictions and conditions:
(i) In accordance with the provisions of this Plan
and the award agreement, during a period set by the Committee
commencing with the date of such award (the "Restriction
Period"), the participant shall not be permitted to sell,
transfer, pledge, assign, or otherwise encumber shares of
Restricted Stock awarded under the Plan. Within these limits,
the Committee, in its sole discretion, may provide for the
lapse of such restrictions in installments and may accelerate
or waive such restrictions, in whole or in part, based on
service, performance, such other factors or criteria as the
Committee may determine in its sole discretion.
(ii) Except as provided in this paragraph (ii) and
Section 7(c)(i), the participant shall have, with respect to
the shares of Restricted Stock, all of the rights of a
shareholder of the Corporation, including the right to vote
the shares, and the right to receive any cash dividends. The
Committee, in its sole discretion, as determined at the time
of award, may permit or require the payment of cash dividends
to be deferred and, if the Committee so determines,
reinvested, subject to Section 14(e), in additional Restricted
Stock to the extent shares are available under Section 3, or
otherwise reinvested. Pursuant to Section 3 above, stock
dividends issued with respect to Restricted Stock shall be
treated as additional shares of Restricted Stock that are
subject to the same restrictions and other terms and
conditions that apply to the shares with respect to which such
dividends are issued. If the Committee so determines, the
award agreement may also impose restrictions on the right to
vote and the right to receive dividends.
(iii) Subject to the applicable provisions of the
award agreement and this Section 7, upon termination of a
participant's employment with the Corporation and any
Subsidiary or Affiliate for any reason during the Restriction
Period, all shares still subject to restriction will vest, or
be forfeited, in accordance with the terms and conditions
established by the Committee at or after grant.
(iv) If and when the Restriction Period expires
without a prior forfeiture of the Restricted Stock subject to
such Restriction Period, certificates for an appropriate
number of unrestricted shares shall be delivered to the
participant promptly.
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(d) Minimum Value Provisions. In order to better ensure that
award payments actually reflect the performance of the Corporation and
service of the participant, the Committee may provide, in its sole
discretion, for a tandem performance-based or other award designed to
guarantee a minimum value, payable in cash or Common Stock to the
recipient of a restricted stock award, subject to such performance,
future service, deferral, and other terms and conditions as may be
specified by the Committee.
SECTION 8. OTHER STOCK-BASED AWARDS.
(a) Administration. Other Stock-Based Awards, including,
without limitation, performance shares, convertible preferred stock,
convertible debentures, exchangeable securities and Common Stock awards
or options valued by reference to earnings per share or Subsidiary
performance, may be granted either alone, in addition to, or in tandem
with Stock Options, Stock Appreciation Rights, or Restricted Stock
granted under the Plan and cash awards made outside of the Plan;
provided that no such Other Stock-Based Awards may be granted in tandem
with Incentive Stock Options if that would cause such Stock Options not
to qualify as Incentive Stock Options pursuant to Section 422 of the
Code. Subject to the provisions of the Plan, the Committee shall have
authority to determine the persons to whom and the time or times at
which such awards shall be made, the number of shares of Common Stock
to be awarded pursuant to such awards, and all other conditions of the
awards. The Committee may also provide for the grant of Common Stock
upon the completion of a specified performance period. The provisions
of Other Stock-Based Awards need not be the same with respect to each
recipient.
(b) Terms and Conditions. Other Stock-Based Awards made
pursuant to this Section 8 shall be subject to the following terms and
conditions:
(i) Shares subject to awards under this Section 8
and the award agreement referred to in Section 8(b)(v) below,
may not be sold, assigned, transferred, pledged, or otherwise
encumbered prior to the date on which the shares are issued,
or, if later, the date on which any applicable restriction,
performance, or deferral period lapses.
(ii) Subject to the provisions of this Plan and the
award agreement and unless otherwise determined by the
Committee at grant, the recipient of an award under this
Section 8 shall be entitled to receive, currently or on a
deferred basis, interest or dividends or interest or dividend
equivalents with respect to the number of shares covered by
the award, as determined at the time of the award by the
Committee, in its sole discretion, and the Committee may
provide that such amounts (if any) shall be deemed to have
been reinvested in additional shares of Common Stock or
otherwise reinvested.
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(iii) Any award under Section 8 and any shares of
Common Stock covered by any such award shall vest or be
forfeited to the extent so provided in the award agreement, as
determined by the Committee in its sole discretion.
(iv) In the event of the participant's Retirement,
Disability, or death, or in cases of special circumstances,
the Committee may, in its sole discretion, waive in whole or
in part any or all of the remaining limitations imposed
hereunder (if any) with respect to any or all of an award
under this Section 8.
(v) Each award under this Section 8 shall be
confirmed by, and subject to the terms of, an agreement or
other instrument by the Corporation and the participant.
(vi) Common Stock (including securities convertible
into Common Stock) issued on a bonus basis under this Section
8 may be issued for no cash consideration. Common Stock
(including securities convertible into Common Stock) purchased
pursuant to a purchase right awarded under this Section 8
shall be priced at least 85% of the Fair Market Value of the
Common Stock on the date of grant.
SECTION 9. AWARDS TO OUTSIDE DIRECTORS.
(a) The provisions of this Section 9 shall apply only to
awards to Outside Directors in accordance with this Section 9. The
Committee shall have no authority to determine the timing of or the
terms or conditions of any award under this Section 9.
(b) At the date of the Corporation's initial public offering,
each person serving as an Outside Director on such date will receive a
non-qualified stock option to purchase 9,000 shares of Common Stock at
a per share exercise price equal to the initial public offering price.
(c) On the date of the Annual Meeting of Shareholders of the
Corporation in the years 2000, 2003 and 2006, unless this Plan has been
previously terminated, each Outside Director will receive an automatic
grant of a non-qualified stock option to purchase 9,000 shares of
Common Stock. The exercise price of each option granted pursuant to
this Section 9(c) shall equal the Fair Market Value of such Common
Stock on the date of grant.
(d) If any person who was not previously a member of the Board
is elected or appointed an Outside Director following the initial
public offering but on a date other than a date on which automatic
grants would be made under Section 9(c) above, such Outside Director
will receive an automatic grant of a non-qualified stock option to
purchase a
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number of shares equal to the product of 3,000 times the number of
years prior to the next date on which an automatic grant will be made
under Section 9(c) above. The exercise price per share of each option
granted pursuant to this Section 9(d) shall equal the Fair Market Value
per share of the Common Stock on the date of grant.
(e) Each Outside Director Option shall vest and become
exercisable in increments of 3,000 shares of Common Stock on each
anniversary of the date of grant if the grantee is still a member of
the Board on such date, but shall not be exercisable prior to such
vesting. Each Outside Director Option shall expire, if unexercised, on
the tenth anniversary of the date of grant. The exercise price may be
paid in cash or in shares of Common Stock, including shares of Common
Stock subject to the Outside Director Option.
(f) Outside Director Options shall not be transferable without
the prior written consent of the Board other than (i) transfers by the
optionee to a member of his or her Immediate Family or a trust for the
benefit of optionee or a member of his or her Immediate Family, or (ii)
transfers by will or by the laws of descent and distribution.
(g) Grantees of Outside Director Options shall enter into a
stock option agreement with the Corporation setting forth the exercise
price and other terms as provided herein.
(h) The termination of Outside Director Options shall be
governed by the provisions of Sections 5(g), 5(i) and 5(j) hereof as if
Outside Directors were employees of the Corporation, except that any
determination to accelerate the vesting of an Outside Director Option
will be made by the Board and not by the Committee.
(i) Outside Director Options shall be subject to Section 10.
The number of shares and the exercise price per share of each Outside
Director Option shall be adjusted automatically in the same manner as
the number of shares and the exercise price for Stock Options under
Section 3 hereof at any time that Stock Options are adjusted as
provided in Section 3.
(j) Any applicable withholding taxes shall be paid in shares
of Common Stock subject to the Outside Director Option valued as the
Fair Market Value of such shares unless the Corporation agrees to
accept a payment in cash in the amount of such withholding taxes.
SECTION 10. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. In the event of:
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(1) a "Change in Control" as defined in Section
10(b); or
(2) a "Potential Change in Control" as defined in
Section 10(c), but only if and to the extent so determined by
the Committee or the Board at or after grant (subject to any
right of approval expressly reserved by the Committee or the
Board at the time of such determination),
(i) Subject to the limitations set forth below in
this Section 10(a), the following acceleration provisions
shall apply:
(a) Any Stock Appreciation Rights, any Stock
Option or Outside Director Option awarded under the
Plan not previously exercisable and vested shall
become fully exercisable and vested.
(b) The restrictions applicable to any Restricted
Stock and Other Stock- Based Awards, in each case to
the extent not already vested under the Plan, shall
lapse and such shares and awards shall be deemed
fully vested.
(ii) Subject to the limitations set forth below in
this Section 10(a), the value of all outstanding Stock
Options, Stock Appreciation Rights, Restricted Stock, Outside
Director Options and Other Stock-Based Awards, in each case to
the extent vested, shall, unless otherwise determined by the
Board or by the Committee in its sole discretion prior to any
Change in Control, be cashed out on the basis of the "Change
in Control Price" as defined in Section 10(d) as of the date
such Change in Control or such Potential Change in Control is
determined to have occurred or such other date as the Board or
Committee may determine prior to the Change in Control.
(iii) The Board or the Committee may impose
additional conditions on the acceleration or valuation of any
award in the award agreement.
(b) Definition of Change in Control. For purposes of Section
10(a), a "Change in Control" means the happening of any of the
following:
(i) any person or entity, including a "group" as
defined in Section 13(d)(3) of the Exchange Act, other than
the Corporation or a wholly-owned subsidiary thereof or any
employee benefit plan of the Corporation or any of its
Subsidiaries, becomes the beneficial owner of the
Corporation's securities having 35% or more of the combined
voting power of the then outstanding securities of the
Corporation that may be cast for the election of directors of
the Corporation (other than as a result of an issuance of
securities initiated by the Corporation in the ordinary course
of business and other than transactions which are approved by
a majority of the Board and in which the Corporation's
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shareholders (other than Principal Mutual Life Insurance
Company, an Iowa mutual insurance company, and/or its
subsidiaries and affiliates) immediately prior to the
consummation of the transactions own more than 50% of the
voting securities of the surviving corporation immediately
after the transaction); or
(ii) as the result of, or in connection with, any
cash tender or exchange offer, merger or other business
combination, sales of assets or contested election, or any
combination of the foregoing transactions, less than a
majority of the combined voting power of the then outstanding
securities of the Corporation or any successor corporation or
entity entitled to vote generally in the election of the
directors of the Corporation or such other corporation or
entity after such transaction are held in the aggregate by the
holders of the Corporation's securities entitled to vote
generally in the election of directors of the Corporation
immediately prior to such transaction; or
(iii) during any period of two consecutive years,
individuals who at the beginning of any such period constitute
the Board cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for
election by the Corporation's shareholders, of each director
of the Corporation first elected during such period was
approved by a vote of at least two-thirds of the directors of
the Corporation then still in office who were directors of the
Corporation at the beginning of any such period.
(c) Definition of Potential Change in Control. For purposes of
Section 10(a), a "Potential Change in Control" means the happening of
any one of the following:
(i) The approval by shareholders of an agreement by
the Corporation, the consummation of which would result in a
Change in Control of the Corporation as defined in Section
10(b); or
(ii) The acquisition of beneficial ownership,
directly or indirectly, by any entity, person or group (other
than the Corporation or a Subsidiary or any Corporation
employee benefit plan (including any trustee of such plan
acting as such trustee)) of securities of the Corporation
representing 5% or more of the combined voting power of the
Corporation's outstanding securities and the adoption by the
Committee of a resolution to the effect that a Potential
Change in Control of the Corporation has occurred for purposes
of this Plan.
(d) Change in Control Price. For purposes of this Section 10,
"Change in Control Price" means the highest price per share paid in any
transaction reported on The Nasdaq National Market or such other
exchange or market as is the principal trading market for the Common
Stock, or paid or offered in any bona fide transaction related to a
Potential or actual Change in Control of the Corporation at any time
during the 60 day
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period immediately preceding the occurrence of the Change in Control
(or, where applicable, the occurrence of the Potential Change in
Control event), in each case as determined by the Committee except
that, in the case of Incentive Stock Options and Stock Appreciation
Rights relating to Incentive Stock Options, such price shall be based
only on transactions reported for the date on which the optionee
exercises such Stock Appreciation Rights or, where applicable, the date
on which a cash out occurs under Section 10(a)(ii).
SECTION 11. AMENDMENTS AND TERMINATION.
The Board may at any time amend, alter or discontinue the Plan;
provided, however, that, without the approval of the Corporation's shareholders,
no amendment or alteration may be made which would (a) except as a result of the
provisions of Section 3(d) of the Plan, increase the maximum number of shares
that may be issued under the Plan or increase the Section 162(m) Maximum, (b)
change the provisions governing Incentive Stock Options except as required or
permitted under the provisions governing incentive stock options under the Code,
or (c) make any change for which applicable law or regulatory authority
(including the regulatory authority of The Nasdaq National Market or any other
market or exchange on which the Common Stock is traded) would require
shareholder approval or for which shareholder approval would be required to
secure full deductibility of compensation received under the Plan under Section
162(m) of the Code. No amendment, alteration, or discontinuation shall be made
which would impair the rights of an optionee or participant under a Stock
Option, Stock Appreciation Right, Restricted Stock, Other Stock-Based Award or
Outside Director Option theretofore granted, without the participant's consent.
The Committee may amend the terms of any Stock Option or other award
theretofore granted, prospectively or retroactively, but, subject to Section 3
above, no such amendment shall impair the rights of any holder without the
holder's consent. The Committee may also substitute new Stock Options for
previously granted Stock Options (on a one for one or other basis), including
previously granted Stock Options having higher option exercise prices. Solely
for purposes of computing the Section 162(m) Maximum, if any Stock Options or
other awards previously granted to a participant are canceled and new Stock
Options or other awards having a lower exercise price or other more favorable
terms for the participant are substituted in their place, both the initial Stock
Options or other awards and the replacement Stock Options or other
awards will be deemed to be outstanding (although the canceled Stock Options or
other awards will not be exercisable or deemed outstanding for any other
purposes).
SECTION 12. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Corporation, nothing contained herein shall give
any such participant or optionee any rights that
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are greater than those of a general creditor of the Corporation. In its sole
discretion, the Committee may authorize the creation of trusts or other
arrangements to meet the obligations created under the Plan to deliver Common
Stock or payments in lieu of or with respect to awards hereunder; provided,
however, that, unless the Committee otherwise determines with the consent of the
affected participant, the existence of such trusts or other arrangements is
consistent with the "unfunded" status of the Plan.
SECTION 13. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares
pursuant to a Stock Option or other award under the Plan to represent
to and agree with the Corporation in writing that the optionee or
participant is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which
the Committee deems appropriate to reflect any restrictions on
transfer. All certificates for shares of Common Stock or other
securities delivered under the Plan shall be subject to such
stock-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of the
Commission, any stock exchange upon which the Common Stock is then
listed, and any applicable Federal or state securities law, and the
Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases.
(c) The adoption of the Plan shall not confer upon any
employee of the Corporation or any Subsidiary or Affiliate any right to
continued employment with the Corporation or a Subsidiary or Affiliate,
as the case may be, nor shall it interfere in any way with the right of
the Corporation or a Subsidiary or Affiliate to terminate the
employment of any of its employees at any time.
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(d) No later than the date as of which an amount first becomes
includible in the gross income of the participant for Federal income
tax purposes with respect to any award under the Plan, the participant
shall pay to the Corporation, or make arrangements satisfactory to the
Committee regarding the payment of, any Federal, state, or local taxes
of any kind required by law to be withheld with respect to such amount.
The Committee may require withholding obligations to be settled with
Common Stock, including Common Stock that is part of the award that
gives rise to the withholding requirement. The obligations of the
Corporation under the Plan shall be conditional on such payment or
arrangements and the Corporation and its Subsidiaries or Affiliates
shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment of any kind otherwise due to the
participant.
(e) The actual or deemed reinvestment of dividends or dividend
equivalents in additional Restricted Stock (or other types of Plan
awards) at the time of any dividend payment shall only be permissible
if sufficient shares of Common Stock are available under Section 3 for
such reinvestment (taking into account then outstanding Stock Options
and other Plan awards).
(f) The Plan and all awards made and actions taken thereunder
shall be governed by and construed in accordance with the laws of the
State of Tennessee.
(g) The members of the Committee and the Board shall not be
liable to any employee or other person with respect to any
determination made hereunder in a manner that is not inconsistent with
their legal obligations as members of the Board. In addition to such
other rights of indemnification as they may have as directors or as
members of the Committee, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses,
including attorneys' fees actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be
a party by reason of any action taken or failure to act under or in
connection with the Plan or any option granted thereunder, and against
all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the
Corporation) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except in relation to matters as to which
it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for negligence or misconduct in the
performance of his duties; provided that within 60 days after
institution of any such action, suit or proceeding, the Committee
member shall in writing offer the Corporation the opportunity, at its
own expense, to handle and defend the same.
(h) In addition to any other restrictions on transfer that may
be applicable under the terms of this Plan or the applicable award
agreement, no Stock Option, Stock Appreciation Right, Restricted Stock
award, or Other Stock-Based Award or other right issued under this Plan
is transferable by the participant without the prior written consent
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of the Committee, or, in the case of an Outside Director, the Board,
other than (i) transfers by an optionee to a member of his or her
Immediate Family or a trust for the benefit of the optionee or a member
of his or her Immediate Family or (ii) transfers by will or by the laws
of descent and distribution. The designation of a beneficiary will not
constitute a transfer.
(i) The Committee may, at or after grant, condition the
receipt of any payment in respect of any award or the transfer of any
shares subject to an award on the satisfaction of a six-month holding
period, if such holding period is required for compliance with Section
16 under the Exchange Act.
SECTION 14. EFFECTIVE DATE OF PLAN.
The Plan shall be effective upon approval by the Board of the
Corporation and by a majority of the votes cast by the holders of the
Corporation's Common Stock.
SECTION 15. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Restricted Stock award,
Other Stock-Based Award or Outside Director Option award shall be granted
pursuant to the Plan on or after the tenth anniversary of the Effective Date of
the Plan, but awards granted prior to such tenth anniversary may be extended
beyond that date.
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EXHIBIT 5
B A S S, B E R R Y & S I M S P L C
A PROFESSIONAL LIMITED LIABILITY COMPANY
ATTORNEYS AT LAW
2700 FIRST AMERICAN CENTER 1700 RIVERVIEW TOWER
NASHVILLE, TENNESSEE 37238-2700 POST OFFICE BOX 1509
TELEPHONE (615) 742-6200 KNOXVILLE, TENNESSEE 37901-1509
TELECOPIER (615) 742-6293 TELEPHONE (423) 521-6200
TELECOPIER (423) 521-6234
April 23, 1998
Coventry Corporation
501 Corporate Centre Drive
Suite 400
Franklin, TN 37067
Re: Registration on Form S-8
Ladies and Gentlemen:
We have acted as your counsel in the preparation of a registration
statement on Form S-8 (the "Registration Statement") relating to the Coventry
Health Care, Inc. 1998 Stock Incentive Plan (the "Plan"), filed by you with the
Securities and Exchange Commission covering 7,000,000 shares of the Company's
Common Stock, par value $0.01 per share (the "Shares"), issuable pursuant to the
Plan. In so acting, we have examined and relied upon such records, documents and
other instruments as in our judgment are necessary or appropriate in order to
express the opinion hereinafter set forth and have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals
and the conformity to the original documents of all documents submitted to us as
certified or photostatic copies.
Based upon the foregoing, we are of the opinion that the Shares, when
issued pursuant to and in accordance with the Plan, will be duly and validly
issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
Bass, Berry & Sims PLC
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form S-8 of Coventry Health Care, Inc. of our reports dated
February 21, 1997 (except for Notes G and S, as to which the date is March 31,
1997) in the Coventry Health Care, Inc. Form S-4 (Registration No. 333-45821)
and to all references made of us as "Experts" in such Form S-4.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Nashville, Tennessee
April 20, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8) pertaining to the Coventry Health Care, Inc. 1998 Stock Incentive
Plan of our reports dated February 26, 1997, with respect to the consolidated
financial statements of Principal Health Care, Inc. and the related financial
schedule included in the Coventry Health Care, Inc. Registration Statement on
Form S-4 (No. 333-45821), to the reference to our firm in the under the caption
"Experts" in the Coventry Health Care, Inc. Registration Statement on
Form S-4 (No. 333-45821) and our report dated March 2, 1998 with respect to the
supplemental consolidated financial statements of Principal Health Care, Inc.
included in the Coventry Health Care, Inc. Current Report on Form 8-K dated
April 8, 1998, filed with the Securities and Exchange Commission.
/s/ Ernst & Young, LLP
Washington, D.C.
April 20, 1998
